Governor eyes IMF-beating 4-6% GDP growth for 2023



• Bahamian economy grows 7-9% in 2022

• Country must seek new expansion drivers

• Private sector US$ demands jump by 30%


Tribune Business Editor


The Central Bank’s governor yesterday forecast that The Bahamas could beat International Monetary Fund (IMF) projections by growing its economy “anywhere in the 4-6 percent range” for 2023.

John Rolle, addressing the regulator’s 2022 fourth quarter economic briefing, suggested The Bahamas could this year exceed international expectations that have its gross domestic product (GDP) expansion pegged at around 4.1 percent for the full 12 months.

His more upbeat forecast came as he said it was “likely that the economy grew by between 7 and 9 percent in 2022”, driven by the continued post-COVID tourism rebound combined with resort and real estate-based foreign direct investment (FDI) projects.

However, Mr Rolle reiterated that, once the tourism industry completed its full post-pandemic rebound this year, The Bahamas must explore all available options “to increase potential growth” given that annual economic expansion is once again expected to “settle” back below 2 percent in line with historical performance.

Responding to questions from Tribune Business, the Governor said: “In terms of the expected growth rate for The Bahamas this year, I would say we expect anywhere in the 4-6 percent range [as] reasonable. The forecast that are out there by the IMF and others line up reasonably close with what we expect.”

The IMF, which is due to release its updated World Economic Outlook today, is this far forecasting a 4.1 percent increase in economic output (GDP) for The Bahamas in 2023. The World Bank, too, is predicting the same level of growth, which places Mr Rolle’s estimates at the upper end of their range and, indeed, slightly above.

“If reflects the fact we are still recovering to baseline for the tourism sector,” the Governor added of the growth forecasts, asserting that “the economy is back to almost 100 percent”. However, he warned that The Bahamas must seek out new economic growth drivers beyond 2023 to continue beating historical trends.

“Once we move beyond 2023, we expect that at least on a calendar year basis, tourism would have regained the output lost during the pandemic, and therefore the economy will settle into lower average growth rates,” he added. “That, in itself, is not an area of concern because it reflects the level of growth we’ve historically experienced in The Bahamas year-over-year.”

This nation has traditionally relied on external drivers, namely tourism and “the impetus” from foreign direct investment (FDI), to drive GDP expansion. However, previous IMF studies have suggested that consistent annual economic growth of between 4-5 percent - at least double The Bahamas’ long-run average - is required to both slash existing unemployment by 50 percent and fully absorb the 5,000 high school leavers into the workforce every year.

In a nod to the implications of returning to traditional growth rates post-2023, Mr Rolle said: “The issue for us is that it means The Bahamas will be back closer in line with its longer-term growth potential, which stands closer to 2 percent on average.... I think it’s slightly less than 2 percent.

“If there is an issue, the issue is not so much the economy settling into its potential [long-term] rate next year but, really, what it is we can all work on to increase potential growth, and that will not be independent of how things look in 2024.”

The Governor also suggested that the Bahamian economy’s growth could beaten the IMF’s 8 percent projection for 2022 or, at worst, come in one percentage point lower. “It is likely that the economy grew by between 7 and 9 percent in 2022, mostly driven by rebounded tourism inflows. Foreign investment activities also provided steady stimulus, concentrated in tourism development projects and residential real estate,” he added.

“Although official data were not available, it is expected that the unemployment rate eased considerably in 2022 from the deteriorated state of the previous two years. Nevertheless, the pace of the labour market’s recovery still trails the GDP performance, because the recovery has, above all, had to restore jobs lost or placed on hold during the pandemic even as new persons continued to enter the labour force.”

Describing foreign exchange flows, and demand, as “real-time indicators of the recovery”, Mr Rolle said: “On the inflow side, commercial banks’ total foreign currency purchases from the private sector rose by approximately one-third to $7.2bn in 2022, propelled by both tourism and foreign investment receipts.

“In the meantime, as private sector demand strengthened, commercial banks’ sales of foreign exchange to accommodate international payments increased by almost 30 percent to approximately $7bn.” With the private sector’s foreign exchange earnings stronger than its outgoings, Mr Rolle said the positive difference created a “net inflow” in 2022 to boost the external reserves that support the one:one foreign exchange peg with the US dollar.

The external reserves were further aided by the Government shifting the timing of its external foreign currency bond issue, which raised around $385m gross, to the 2022 first half as they also benefited from these inflows. As a result, the country’s external reserves increased by $137.37m during 2022 to close the year at $2.596bn.

Mr Rolle made little mention of the Government’s borrowing of up to $233m in IMF special drawing rights (SDRs) from the external reserves, a transaction that has aroused significant controversy amid accusations that this is not supported by law, other than to acknowledge it is happening.

“At the close of January 2023, the external balances were still very close to this level [$2.6bn], just before the anticipated seasonal build-up that is expected through the first half of the year,” Mr Rolle said. “It is likely that as domestic demand further picks up, and commercial bank lending increases marginally in relation to 2022, the external reserves will close out 2023 at a stable to slightly decreased position from their present levels.

“This continues to be a healthy assessment for the reserves, which is also in keeping with anticipated further rebuilding from Hurricane Dorian and use of reinsurance proceeds that are still inside the reserves.” As for the banking sector, Mr Rolle said deposit growth driven by converted foreign exchange inflows, as well as a further reduction in outstanding private sector credit, drove excess system liquidity to $2.773bn at year-end 2022.

“While the economy has improved the debt servicing capacity of many existing borrowers, it has not yet resulted in any meaningful increase in the qualified pool of new borrowers, either for consumer loans, mortgages or enterprise lending,” Mr Rolle said.

“As to credit risks, at the end of 2022, the average delinquency rate on private credit had fallen back below 8 percent, which was also slightly below the non-performing loans rate that was also trending lower just before the pandemic’s interruption.

“The Central Bank expects this improvement to continue over the medium-term. In the meantime, commercial banks’ lending is expected to increase incrementally in 2023, although this is still dependent on the characteristic of new potential borrowers who are entering the job market, as those gaining posts in tourism are considered riskier prospects.”


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