The Tribune

The Bahamas “faces an unenviable balancing act between food security and fiscal discipline”, the Inter-American Development Bank (IDB) warned yesterday, with global financial developments proving “particularly concerning”.

The multilateral lender, in its latest Caribbean quarterly economic bulletin, said the combination of US interest rate hikes as well as forecasts of a global recession were especially unfavourable for The Bahamas’ ability to access the international capital markets for foreign currency bonds and other debt.

Pointing out that such financing has become more costly, with investors likely to shy away from emerging markets due to the higher returns available on US investments as well as recession fears, the IDB said: “With the likelihood of a global recession increasing, appetite for emerging market assets will decrease and the cost of financing debt will also increase as investors favor safe assets such as US Treasury bonds.

“This development is particularly concerning, as reconstruction costs following any severe tropical storm will likely be funded using progressively scarce and expensive debt. Moreover, the Bahamian government’s financing needs remain elevated, and in the medium-term external debt service will rise given already acquired commitments. Fiscal space for The Bahamas’ will continue to be constrained in the short to medium-term.”

The Davis administration, though, has repeatedly said it plans to avoid the international capital markets for its debt and deficit financing needs in the 2022-2023 fiscal year. It instead plans to rely on domestic investors, as well as multilateral lenders such as the IDB, for its funding. And, in the meantime, the value and yields on its listed international bonds have improved markedly since August, recovering to close to face value or par while the yields have near halved/

Nevertheless, the IDB added: “The Bahamas is expected to have a robust economic recovery as tourism activity progressively returns to pre-pandemic levels. However, broad macroeconomic challenges, driven primarily by external shocks, will continue to present risks in the short to medium-term.

“The Government faces an unenviable balancing act to ensure that its pursuit of food security does not jeopardise its need for fiscal discipline. The Government’s tight fiscal space – both high debt and persistent fiscal deficits – will constrain its policy options and thus underscore the need for targeted and consensus-driven responses to mitigate the inflationary impact, particularly for the most vulnerable.”

Noting that tourism arrivals for the 2022 half-year were equivalent to 81 percent of numbers achieved during the same pre-COVID period of 2019, the IDB added: “For Bahamians, particularly the most vulnerable, the most pressing issue is likely the increasing cost of living, as reflected by food inflation......

“As of August 2022, headline inflation was 6.4 percent year-over-year, while food and transport prices grew by 14.3 percent and 23.8 percent, respectively, over the same period.” And the multilateral lender warned this impact was likely to be worsened by Bahamas Power & Light’s (BPL) fuel charge hikes, which will peak at a 76 percent increased compared to September 2022 for low energy consumers next summer.

“Taken together, these increases in food, transportation and electricity prices will disproportionately impact the most vulnerable given the weight of such items in their consumption basket,” the IDB warned. Turning to the imposition of price controls on food retailers, it added that those in New Providence and Grand Bahama will see their margins capped at 25 percent and 30 percent, respectively, for dry goods and perishables.

Their Family Island counterparts are to receive an additional 5 percentage point mark-up for both categories, although the industry has not yet implemented the changes. “Perishables, as their name suggests, have a limited shelf life and thus cannot be stored for long periods. Therefore, sold perishables also must cover the cost of unsold produce in addition to other operating costs such as refrigeration and labour,” the IDB said.

“At least 17 goods (44 percent of the 38 proposed product categories) can be categorised as perishable and, for a few items, their estimated spoilage rates are high enough that the required mark-up is approximately the same as the maximum mark-up allowed in the original proposal (25 percent).

These figures are based on US supermarket chains, which likely have more reliable cold storage supply chains, and thus may under-estimate figures for their Bahamian counterparts, especially in the Family Islands. Occasional load shedding, especially during tropical storms, is an added risk that increases spoilage rates for Bahamian grocers and supermarkets,” the IDB continued.

“Under the original proposal, when other operating costs are included, it is possible that several items may become unprofitable, especially for small and medium- enterprises operating in the Family Islands, where transportation and refrigeration costs are higher. Nevertheless, the current updated proposal makes important distinctions between perishables and dry goods, as well as between the different market dynamics that exist across the islands of The Bahamas.”