The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund’s (IMF) latest projections for The Bahamas reiterate that medium-term economic growth may not generate sufficient revenues to escape new and/or increased taxes, it was argued yesterday.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, told Tribune Business that the Fund’s forecasts of 1.8 percent GDP growth for 2024, dropping to 1.5 percent by 2028, were consistent with previous predictions that this nation will “regress” back to traditional pre-COVID expansion rates.

These numbers, he added, “are not necessarily consistent” with the Government’s own forecasts as set out in last Fiscal Strategy Report, which affirmed the Davis administration’s focus on trying to grow The Bahamas out of its post-COVID debt crisis with the imposition of extra taxes being a last resort.

The IMF provided an immediate boost in yesterday’s World Economic Outlook, maintaining a 4.3 percent real GDP growth forecast for 2023, which is higher than the 3 percent estimates by both the Central Bank of The Bahamas and Moody’s, as well as the 1.8 percent predicted by Standard & Poor’s (S&P) in its recent country report.

While Mr Edwards said there was nothing surprising in the IMF’s figures, and that they should have been long “baked into all expectations or projections”, he told this newspaper: “It underlines really the concerns we would have discussed and expressed quite a bit, and that’s that the country’s economic growth is likely to regress to levels which are not necessarily consistent with the outlook by the Government; where the Government expects it to be.

“Those are levels that will not necessarily help the country to generate extra funds to recover without resorting to higher forms or newer forms of taxation. That is the downside. That information is well-known and should be baked into all expectations and projections by policymakers.”

Mr Edwards, though, said the IMF was not always correct. He noted it had forecast that The Bahamas’ “consolidation is going to level off relatively quickly in 2023” following the COVID-19 pandemic, but this has yet to happen with tourism continuing to produce “robust growth”.

“I would hope this growth continues and defeats the projections,” the ORG chief said. “I’m hoping that Moody’s got it right with 2.5 percent growth for 2024, and the IMF got it wrong. That will be better news than the projections in the outlook by the IMF.”

The Fund, meanwhile, also reaffirmed projections that inflation in The Bahamas will drop from 5.5 percent in 2022 to 3.6 percent this year, followed by a further fall-off to 2.6 percent in 2024. Mr Edwards said these figures were not inconsistent with those provided by the Central Bank, noting that the two main drivers of consumer prices in The Bahamas are food and energy costs.

“Those two aspects affect The Bahamas disproportionately, if you will, because we import all our food and all our inputs for energy, so that could have a large impact on us,” he added. Mr Edwards warned that the present conflict between Israel and Hamas could have a further negative impact on oil prices, depending on how the conflict plays out, given the wider Middle East’s status as a major oil producer and influence on global prices.

He added that, while Iran was not directly involved, there remained the possibility that sanctions - recently lifted, and which have allowed that nation to export more oil - could be reimposed if it was found to have played a role in Hamas’ rampage. This, too, could help drive up oil prices, which last night stood at $86.17 per barrel on the West Texas Intermediate index and $87.92 for Brent crude.

“It could result in some pressure and have adverse implications for inflation on this side of the world,” Mr Edwards said of the Gaza conflict. “We have a really dynamic situation going here. While we’re hoping for the best, we have to build in the worst-case scenario, which means we have to put policymakers on notice that there may need to be adjustments in expenditure should costs rise and we are not able to afford to buy as easily as projected.

“We have to have a wait and see approach to this crisis and the impact it may have on inflation going forward. The impact of food and energy costs is going to remain with The Bahamas for a while.” The Central Bank recently warned Bahamian consumers that inflation will remain “high” in the near-term, and decline more slowly than in other countries, with food and drink prices rising 11 percent over the year to end-June 2023.

The banking regulator, unveiling its monthly economic update report for August, said any inflation reduction for The Bahamas will “lag” and take place over the “medium to long-term” due in part to summer’s soaring Bahamas Power & Light (BPL) bills as the utility sought to recoup previously under-recovered fuel costs.

“As it relates to prices, inflation is projected to remain high in the near-term, although trending downward over the medium to long-term, with a lag, owing to moderating price trajectories in the major trading markets and delayed fuel cost pass-through in domestic energy prices,” the Central Bank said.

“Upside risk to inflation revolves around uncertainty in international energy costs and supply chain shortages, associated with the geopolitical tensions in Eastern Europe.” This means that Bahamian families already struggling with the post-COVID cost of living crisis are unlikely to see much, if any, short-term relief from sustained price increases across multiple basic commodities.

“Average domestic consumer price inflation, as measured by the All-Bahamas Retail Price Index, rose to 5.2 percent during the 12 months to June from 4.4 percent in the comparative 2022 period, explained by the pass-through effects of higher global oil prices and other costlier imports,” the Central Bank added.

“Leading this outturn, average inflation for recreation and culture accelerated to 17.3 percent vis-à-vis 1.3 percent in the previous year. Further, average costs increases quickened for food and non-alcoholic beverages (11 percent), restaurant & hotels (10 percent), alcohol beverages, tobacco and narcotics (5.4% percent), health (5.3 percent), housing, water, gas, electricity and other fuels (4.7 percent) and furnishing, household equipment and routine household maintenance (2.9 percent).

“Average prices for miscellaneous goods and services firmed by 1 percent following a decline of 1.8 percent in 2022. Providing some offset, average inflation moderated for transport (6.6 percent), clothing & footwear (3 percent), communication (1.7 percent) and education (1.3 percent).”