The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ economic output will still be 2 percent below pre-COVID levels even if growth forecasts through to end-2023 become reality, a local investment analyst warned yesterday.

David Slatter, RF Bank & Trust’s vice-president of investments, told a webinar organised by the company that this country will only “get back to where we were before the pandemic” by 2024 even though the gap between present and 2019 tourism numbers continues to narrow with every quarter.

While stopover or air arrivals were down by almost 80 percent for the 2021 first quarter compared to 2019’s pre-COVID levels, he disclosed that this had narrowed to just a 21 percent difference for the 2021 fourth quarter comparisons.

With the International Monetary Fund (IMF) projecting 8 percent and 4 percent gross domestic product (GDP) growth for The Bahamas in 2022 and 2023, respectively, Mr Slatter said: “What that means is if the expected growth comes to fruition, at the end of 2023 we will be about 2 percent below 2019 GDP levels.

“So in 2024 we will get back to where we were before the pandemic.” With tourism “the main driver” of The Bahamas’ economic rebound, he noted that “the shortfall” between 2021’s quarterly stopover arrivals and those for the same period in 2019 was “getting smaller as we’re going forward”.

“In the 2021 first quarter we were 80 percent below where we were in the 2019 first quarter, but in the 2021 fourth quarter we were only 21 percent below 20-19 levels. Hopefully, in 2023, we will get back to where we were in 2019,” Mr Slatter added.

His projection that The Bahamas will be only 2 percent below 2019 GDP, or economic output, levels by the end of 2023 is more optimistic than the similar forecast offered recently by Marla Dukharan, Royal Bank of Canada’s (RBC) former chief Caribbean economist, who predicted that the gap will be 7 percent.

“We expect the economy to grow 5 percent in 2022 and 4 percent in 2023, backed by reconstruction and the continued recovery of tourism. This will still leave the level of economic activity around 7 percent below its 2019 level,” she wrote in her recent update on The Bahamas.

Ms Dukharan’s near-term GDP growth forecasts for The Bahamas are more pessimistic than both the IMF’s and that given by John Rolle, the Central Bank’s governor, at last week’s Bahamas Business Outlook conference where he predicted that the economy is poised for 8 percent growth “or just over” in 2022 as tourism continues to reflate after the pandemic.

The IMF forecast that Bahamian GDP will expand by 8.5 percent in 2022, recapturing a significant chunk of the $2bn it lost in 2020 due to COVID-19. However, its 2023 forecast matches the 4 percent cited by Ms Dukharan.

The Government’s 2021-2022 supplementary Budget forecasts that GDP in current prices, which includes inflation’s impact, will only return to pre-COVID levels or just above in the 2023-2024 fiscal year. This suggests that Ms Dukharan’s prediction that Bahamian GDP will be 7 percent, or $810m, below 2019 levels at end-2023 may not be too far off the mark.

“Another challenge for The Bahamas is the level of government debt-to-GDP,” Mr Slatter said, suggesting that the Government will have to cut its spending with the ratio hovering at around 100 percent.

“It’s not unreasonable to have expected the debt to have increased as the need to support the economy and individuals was essential,” he added. “We need to be a bit more prudent now, and handle our debt payments. That means we must be a bit more frugal with money, and the fiscal spending of the Government is going to have to come down to address these challenges.

“One positive for The Bahamas is that Bahamas Power & Light (BPL) has hedged oil prices going through 2023, so at least the cost of electricity remains fairly stable.”

As for the Bahamian capital markets, Mr Slatter predicted debt and equity issuers could seek to collectively raise between $200m-$300m this year. “Currently in the banking sector there’s a huge amount of excess liquidity, so there’s billions of dollars that could be allocated to higher yielding opportunities,” he added.

“As far as demand for capital, I think there’s been a lull for a couple of years now. The cruise port has done bond and equity offerings but, other than that.... There’s numerous deals coming to market as people feel we’re returning to more a state of normalcy. With the supply of capital and demand for $200m-$300m, stay tuned.”

The RF investments chief, though, urged investors to stay clear of BISX-listed stocks with high price/earnings (P/E) multiples, a ratio that is commonly used to determine whether share prices are attractive or overly-valued.

“There’s a blend of that in the local market,” Mr Slatter said. “Try and avoid rich P/E multiples, multiples that are fairly high and look for attractive dividends..... Look for reasonable P/Es, decent dividend yields, positive cash flow and some upside going forward.”

Asked whether crypto currency and commodities investments will provide a good hedge against anticipated inflation, both in The Bahamas and abroad, Mr Slatter said research had shown Bitcoin’s value was “88 percent connected to the market” so it represented “risk on risk”.

He also advised investors to be “steady and consistent” with their investment strategy and to avoid “timing the market”.