The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has no choice but “to ride out” escalating inflationary pressures, a governance reformer warned yesterday, although continued strong economic growth forecasts could produce “a compensating effect”.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business the International Monetary Fund’s (IMF) decision to maintain its 6 percent GDP growth forecast for The Bahamas could help offset the greatest sustained increase in prices this nation has seen in around 30 years.

With the Fund slashing its global growth predictions due to the fall-out from Russia’s invasion of Ukraine, he added that The Bahamas’ projected economic expansion was “positive because there are some additional headwinds coming down the line.

“The IMF itself has projected reduced global growth and indicated we’re going to see an increase in inflation in developing and emerging markets like The Bahamas,” Mr Edwards told this newspaper. “If we have a scenario where there is robust growth but we also have these headwinds, you might have a compensating effect.”

The IMF’s growth and inflation projections for The Bahamas, released in its World Economic Outlook this week, are no different from those issued on March 21, 2022, when it issued an update on the Article IV consultation with The Bahamas. It predicted then that GDP growth of 6 percent for 2022, and 4.1 percent for 2023, both of which have been maintained. 

The World Economic Outlook added 1.5 percent GDP growth for 2027, which indicates the IMF believes this nation will return to traditional anemic economic expansion once the recovery from COVID-19 is complete. And the inflation data released in the World Economic Outlook is also no different from that in the Article IV consultation statement.

The “period average” 7.3 percent inflation rate for 2022 is shown as dropping to 4.5 percent in 2023, then returning to a more normal 2.4 percent come 2027. This is consistent with March’s Article IV consultation, with the “end of period” inflation rates for 2022 and 2023 pegged at 6.7 percent and 3.5 percent, respectively, data which was reported on by Tribune Business almost one month ago.

Mr Edwards, meanwhile, said there was little The Bahamas - as a price-taking country that imports virtually all it consumes, and produces little for itself - can do in the near-term to combat a projected 7.3 percent inflation rate that is close to mirroring that of the US.

“We’re going to have to ride this thing out in the best possible way,” he told Tribune Business. “But we should not waste this window. We know the things happening today, there’s not much we can change about them. What’s important is, when we get out of this upheaval, will we be in a better position to ride out the next one?

‘Will we learn the lessons from COVID-19? Will we learn the lessons from a high inflation environment? Will we get more creative in searching for goods? Will we get more creative in diversifying the economy? Will we do these things so that when the next shock hits we will be in a better position to ride it out? I hope we’re not going through this crisis and wasting it, but using this to make the country better and stronger.

“This is the reason why we must prepare for a rainy day. We have to run the economy in such a way that we have savings and a buffer for counter-cyclical spending. We’re currently going through a big period of upheaval because of the pandemic and war, but at the end of the day the country must be put in a position to secure more robust growth and grow savings through the likes of a sovereign wealth fund. We have to have something to call on.”

Inflation erodes living standards and raises the cost of living, especially in an environment where wages and salaries are relatively stagnant. It also causes particular problems for those on fixed incomes, such as pensioners, and erodes the value of savings and dollar purchasing power, hitting the lower and middle classes hardest.

The current price surge has been driven by the fall-out from the COVID-19 pandemic, where the supply chain backlog and crisis has meant producers are unable to catch up with soaring demand as the world economy reflates. Shortages have resulted, and oil price increases and volatility - made worse by Russia’s invasion of Ukraine - have further fuelled global inflation.

“I think it’s a significant threat for a number of reasons,” Mr Edwards said of rising inflation. “One, we’re facing these additional headwinds at a time when we’re least capable of grappling with it. We’re coming off a significant pandemic, and the impact that had, and the country’s fiscal circumstances are significantly weakened. A high inflationary environment could make that even more so.

“From a global perspective, high levels of inflation could lead to a recession and that will be the most dangerous factor for us at this particular time. A recessionary environment will have a more significant impact on the tourism market.”