The Tribune

• Bahamas must ‘energise’ to beat inflation, low growth

• But could regain pre-COVID GDP earlier than forecast

• Tourism back to ‘two-thirds’ of 2019 business volumes

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday warned that surging global inflation and other external risks “could overpower” the Bahamian economy once the return to pre-COVID output levels is completed in 2023.

John Rolle, speaking at its 2022 first quarter briefing, said “a distinction” must be drawn between a healthier near-term outlook driven by “pent-up demand for travel” and the potentially rockier path that lies beyond next year once the economy’s post-pandemic reflation finishers.

Acknowledging that the timeline for returning to pre-COVID gross domestic product (GDP) levels was more optimistic than end-2021 forecasts, which projected that recovery might take until 2024, he nevertheless warned that The Bahamas must quickly focus on “how we energise the economy to move ahead beyond 2023”.

Otherwise The Bahamas could swiftly fall back into anemic annual GDP growth rates of less than 2 percent, which it suffered for the entire decade leading up to COVID. The International Monetary Fund (IMF) is already forecasting that this nation’s economic output will expand by just 1.5 percent in 2027.

“We’re continually emphasising that there has to be a distinction made between getting back to pre-pandemic, for which the headwinds are less for The Bahamas because there is still pent-up demand for travel and, in many cases, we’re still growing back into the capacity that existed,” Mr Rolle explained.

“We have a tourism sector where, even now, room inventory in various parts of New Providence and the Family Islands is still not back in use. From that point of view, we’re just getting back to where we were in 2019, which seems as if we’re growing but we’re just bouncing back.”

With construction linked to foreign direct investment (FDI) projects leading the Bahamian economy’s post-COVID reflation, Mr Rolle added: “There continues to be a strong momentum of recovery in the Bahamian economy from the restrictive conditions of the COVID19 pandemic....

“It is expected that the economy could be fully recovered over the course of next year - that is, 2023 - possibly slightly ahead of the projections made at the end of 2021. That said, there continues to be a distinction between recovery from the low point of the pandemic - for which the fall-off in the economy was quite drastic - and the still very mild annual growth projections that lie beyond the recovery phase.

“Improving the post-recovery prospects would help to push unemployment below the pre-pandemic baseline, and produce generally improved indicators of credit quality and fiscal balance sheet health.” Thus Mr Rolle is warning that the immediate economic outlook, over the next 12-18 months, is rosier than the Bahamian economy’s medium to long-term prospects which remain shrouded in uncertainty amid elevated global risks beyond this country’s control.

The conflict in Ukraine, which is likely to drag on for some time yet, has only worsened food and fuel-price driven inflation. Central banks in the US and other developed countries will likely counter this by raising interest rates, thus increasing the cost of capital, which could reduce demand for travel and thus hit The Bahamas’ largest industry.

“The challenge, and a lot of the downside risk that we’re seeing, will be dragging against us as the [post-COVID] recovery takes place,” Mr Rolle warned. “Beyond the recovery taking place, this could overpower forward momentum. From that point of view, we have to be thinking about how we energise the economy to move ahead beyond 2023.”

The Bahamas has to recover between $1.4bn to $2bn in economic output or annual GDP that was lost at the pandemic’s height to border closures, lockdowns and associated COVID restrictions. Mr Rolle said it continues to progress in that fight, with 2022 first quarter air departures having recovered to 75 percent and two-thirds, respectively, of where they were during the same periods in 2020 and 2019.

The 2020 first quarter largely escaped COVID-related restrictions, but Mr Rolle said the Central Bank was looking for sustained, consistent economic improvement on an annual basis as opposed to seasonal spikes driven by tourism performance.

“Even though the economy, as of March and April this year, was doing much better than January and February, when we look at the full returns for 2022 and parts of 2023, what will be important is” ensuring each quarter performs better than the previous three-month period. Mr Rolle said any “eclipse” of 2020 and 2019 had to hold for the full year, and especially tourism’s output from January right through into the summer months.

“Air departures for January to March, we are about 75 percent of the way to where we were in 2020,” he explained. “2020 was not as good a year as the first quarter in 2019. For the first quarter of 2019, I think we’re close to two-thirds of the way back. It’s that extent of recovery that is important in terms of understanding whether we’ve regained all the setbacks the economy has experienced.”

The Central Bank’s governor said reports that the US economy shrank by 0.3 percent during the 2022 first quarter, its weakest performance since the COVID-19 pandemic began, “help to underscore why we have to be very cautious in terms of how we react to upturns or rebounds in our economy”.

The uncertainty, Mr Rolle added, meant caution “has to be part of the mix” in terms of Bahamian monetary policy moving forward “even though we’re open to credit expansion picking up. We’d like to see it pick up”.

While the 2022 first quarter represents the first time since 2019 that the calendar year’s first three months have not been disrupted by COVID, he added that there are still “important gains to be recouped before the 2019 pre-pandemic baseline for the winter [tourism] season would be eclipsed”.

Mr Rolle said: “Vacation rental market indicators were also broadly improved in terms of increased occupancy levels and higher average nightly room rates. Recent trends have also been characterised by an expanded share of the business going to the Family Islands, where more than half of all listings were noted, and the average occupancy rates trended higher than in New Providence and Grand Bahama.”

Drawing on AirDNA data, the Central Bank said vacation rental room nights sold jumped 69.6 percent year-over-year. It added: “In particular, during March 2022, total room nights sold advanced to 142,289 from 83,875 in the corresponding period of 2021. Reflective of this outcome, occupancy rates for both entire place and hotel comparable listings increased to 61 percent and 55.2 percent, respectively, relative to 48.4 percent and 42.6 percent in the prior year.

“Price indicators trended upward year-over-year, as the average daily rate (ADR) for entire place listings rose by 6.1 percent to $528.55, and hotel comparable listings by 15 percent to $194.81.” Meanwhile, February’s 101,804 stopover arrivals represented two-thirds of 67.4 percent of the volumes enjoyed during the same month in 2019 - the last pre-COVID year.

“As at March, data provided by the Nassau Airport Development Company (NAD) revealed that total departures - net of domestic passengers - rose to 117,639 from 32,489 in the same month last year,” the Central Bank said. “In particular, US departures advanced to 100,579 from 31,223 in the prior year, while non-US departures grew to 17,060 from 1,266 in the previous year.

“For the first quarter of 2022, total outbound traffic increased more than three-fold to 275,086 from 71,686 passengers a year earlier; a rebound from the 80.7 percent contraction in the same period last year, which was due to border closures to combat the spread of the virus.

“Underpinning this outturn, US departures recovered to 235,432 visitors, a recovery from the 78.6 percent decline a year earlier. Likewise, non-US departures were restored to 39,654, following the 91.4 percent fall-off in 2021.”