By NEIL HARTNELL
Tribune Business Editor
The Bahamas must brace for multiple economic “uncertainties” over the next 12-18 months, a governance reformer warned yesterday, after it was named among the eight Western Hemisphere states most vulnerable to the Ukraine war.
Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that the country must “not throw our hands up in the air” over ongoing and yet-to-emerge pressures stemming from Russia’s invasion and the persistent post-COVID supply chain shocks.
He spoke out after the Inter-American Development Bank (IDB), in an assessment of the Ukraine conflict’s economic impact on Latin America and the Caribbean, listed The Bahamas among those most exposed to the conflict because of their dependence on imported oil (energy) and food.
Pegging The Bahamas’ dependence on net imports of oil, gas and food (OGA) as equivalent to 3.7 percent of its gross domestic product (GDP), the IDB said: “Net imports of OGA represent large shares of GDP in countries such as Jamaica (13.7 percent), Barbados (12.5 percent), El Salvador (9 percent), Belize (8.5 percent), Dominican Republic (5.5 percent), Suriname (4.7 percent), The Bahamas (3.7 percent) and Honduras (2.3 percent).
“These countries are the most prone to short-term balance of payments problems and food insecurity. Poorer households will be disproportionately affected by the rise in OGA prices as they devote a large share of income to the purchase of food and transport services.”
The 3.7 percent of GDP figure given for The Bahamas is roughly equivalent to $400m, a sum that some observers may feel is low, given that this nation imports 100 percent of its fossil fuel needs. Central Bank data shows The Bahamas spent $218.616m on oil-related imports in the 2022 first quarter alone, a 30 percent year-over-year increase compared to 2021, while the country’s annual food import bill has consistently been pegged at $1bn.
Mr Edwards, meanwhile, said The Bahamas was at no risk of suffering a balance of payment crisis in the short-term given its $3bn external reserves and the outlook in recent Central Bank reports. However, he asserted that policymakers need to “wrap their minds around” the issue from a long-term perspective and “come to grips with” how to make the economy more resilient so future difficulties are avoided.
Pointing out that the IDB’s focus on energy and food dependency merely “underlines” vulnerabilities that are well-known with regard to The Bahamas, the ORG economic chief said balance of payments difficulties have to be avoided at all costs because it will result in the country struggling to pay for critical imports.
“Based on the reports from the Central Bank that the level of reserves we have is over $3bn right now, we are OK,” Mr Edwards told this newspaper. “If we are looking at this long-term, and the potential impact and how we approach this, we have to look that because a portion of the reserves is borrowed money and is possibly not usable.”
The Government boosted the Central Bank’s external reserves with its foreign currency borrowings at the height of the COVID-19 pandemic, and these monies will eventually have to be repaid. Reiterating his belief that The Bahamas faces no short-term balance of payments pressures, Mr Edwards nevertheless said much depends on how long the Ukraine conflict - and its impact on global oil and food prices - lasts.
The IDB report noted that wheat prices, a worldwide food staple that is used in many products, have increased by more than 80 percent since January 2022. Similarly, fertilizer costs have jumped by near-80 percent, while maize prices have risen by 40 percent. Combined, Russia and Ukraine account for 30 percent of the world’s wheat supply and 15 percent of maize, with their share of the fertilizer market at around 23 percent.
Mr Edwards described the war’s fall-out for The Bahamas and other oil/food dependent states as “a bad dream, a nightmare” as it had further worsened the inflationary pressures and supply chain bottlenecks stemming from the COVID-19 pandemic.
“When you look at the types of food concerned, around the world wheat, flour and cooking oil are ubiquitous to many other items, and fertilizer is critical to this whole discussion of food security,” he said. “The extent to which we can access fertilizer has implications for agriculture. Food security could be a challenge going down the road.
“They’re [Russia and Ukraine] big suppliers of fertilizer exports, big suppliers of wheat. Russia is a major supplier of oil and gas. It’s almost a bad dream, a nightmare that these two major players have such a big impact on commodity exports and have evolved into hostilities. This has created a supply chain shock following a supply shock with the experience of COVID.
“It’s a sad state of affairs that we are facing locally. The policymakers have to wrap their minds around it and come to grips with how this is going to affect the country moving forward. Short-term we are good, and long-term, by the time we get there, government will hopefully have developed a strategy to deal with that and the economic situation will improve,” Mr Edwards continued.
“If we do not experience any recessionary developments coming out of the US or our other close trading partners, The Bahamas will be in a better position to see the consolidation of its economy. But if certain things play out in a negative way, the impact will be significant for the country.”
Warning that The Bahamas will face “a significant amount of uncertainties” over the next 12-18 months, Mr Edwards said the country must ready itself to confront such challenges on an annual basis rather than the previous frequency of one major shock every decade.