The Tribune

• Governor: ‘Very important’ to break historical trend

• Sea arrivals ‘level off’ 42% above pre-COVID highs

• External reserves down 5% on end-2022 at $2.5bn

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Economic growth in the “upper 2 percent” range and above will make “an incredible difference” to The Bahamas’ economic prospects if achieved consistently, the Central Bank governor asserted yesterday.

John Rolle, addressing the regulator’s 2023 third quarter economic briefing, said it was “very important” for this nation to break-out of its historical 1-2 percent low annual GDP growth pattern with a level above 3 percent something Bahamians should “feel comfortable” with.

Responding to Tribune Business questions on just how critical it is for the Bahamian economy to grow faster than its historical average, after earlier warning that there was now “a more discernible abatement” following the post-COVID recovery, he added: “That is very important because it underpins a lot of the aspirations in terms of how rapidly for us we can see the kind of reduction in the debt burden relative to the size of the economy.

“As well, it affects the pace at which there is employment creation. The estimates prior to the pandemic, which haven’t changed drastically, were that in ordinary times the Bahamian economy has the capacity to grow between 1-2 percent; somewhere in that range.

“So if interventions can be made to add to the economy’s competitiveness and ability to attract investment, that would be what helps to allow the economy to grow at a faster rate on a sustained basis.” An annual GDP (gross domestic product) growth rate of between 1-2 percent is just where the International Monetary Fund (IMF) is presently predicting The Bahamas will end up in the medium term between 2027-2028.

Asked what GDP growth rates The Bahamas should aim for, Mr Rolle replied: “The expectation is that we should feel comfortable if the potential growth rate for The Bahamas can rise above 3 percent. In the upper 2 percent, above 3 percent, that will still make an incredible difference on an annual basis as well as the trends and projections for the economy.”

Mr Rolle, outlining economic and financial developments during the 2023 third quarter, said sea visitor arrivals have “levelled off” at around 42 percent above pre-COVID highs while the higher-yielding stopover visitors are some 2 percent below those record levels.

“Based on trends in tourism, and the observed level of foreign currency inflows through the private sector, the economy is still expected to grow at an above average pace in 2023 in the 3-4 percent range. This compares to the majority of the COVID-19 rebound that grew the economy by about 14 percent in 2022,” the Governor said.

“In the first half of 2023, there continued to be some residual recovery in stopover tourism compared to the pre-pandemic highs. Alongside increased average prices for hotel rooms and vacation rentals, this helped to expand the sector’s total economic contribution.

“However, over the first eight months of the year, neither air nor sea arrivals numbers experienced significant, additional seasonal headcount growth compared to the pre-pandemic estimates,” he added.

“Compared to seasonal performance in the same months of the pre-COVID-19 period, sea arrivals levelled off favourably about 42 percent above the pre-pandemic highs. However, air visitors fluctuated on average about 2 percent below the high. The varied, anticipated boost in hotel and cruise capacity in 2024, however, could create the headroom for further improvement in these indicators.”

Elsewhere, Mr Rolle said The Bahamas’ external reserves that support the one:one currency peg with the US dollar stood at $2.5bn at end-October, which was 5 percent below the 2022 year-end close. “These balances continue to be healthy and more than adequate to support the value of the Bahamian dollar fixed exchange rate,” he added.

“The outlook for the reserves also continue to be supportive of increased expansion in private sector credit and an increased share of financing of the fiscal deficit in local currency.” He also indicated that some of the external reserves decline could be reversed by foreign currency borrowing from the Government before year-end.

“During the first nine months of 2023, total foreign currency inflows through the banking sector rose just 2.5 percent compared to 2022,” Mr Rolle said. “The recovery-driven improvement in receipts in the same period in 2022 was 40 percent.

“In the meantime, the demand for foreign exchange increased by about 7.1 percent in 2023 compared to approximately a 30.1 percent boost in 2022. While these trends still underscore healthy overall conditions in the foreign exchange markets, the relatively stronger growth in foreign exchange sales has led to a smaller net retention, and therefore decreased net sale of foreign exchange, from commercial banks to the Central Bank.

“Given net foreign exchange trends, the external reserves of the Central Bank remained on course to contract this year. In particular, the Central Bank’s net foreign exchange purchase from the commercial banks decreased by almost one-third during January through September 2023,” the Governor continued.

“Moreover, there was an approximate $700m reversal in transactions with the Government sector from a net purchase or boost to reserves over the same months in 2022 to a net sale of foreign exchange in the first three quarters of the current year. As a result, the external reserves have fallen incrementally over the first nine months compared to a net accumulation of nearly $750m in the same period last year.

“As regards the leading influence of the Government’s debt management operations, some of the drawdown in reserves already experienced could be reversed over the remainder of the year given that there is some planned foreign currency borrowing, but the cumulative impact of the Government’s debt operations in 2023 is still expected be a reduction.”