Bahamas Central Bank warns economy could be flat this year


Bahamas Central Bank warns economy could be flat this year

Thursday, March 05, 2020

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NASSAU, Bahamas (CMC) — The Central Bank of The Bahamas (CBB) says expectations are that the domestic economy could post a flat out-turn in 2020, with a recovery in 2021, as pre-Hurricane Dorian capacity is restored.

But in its Monthly Economic and Financial Developments January 2020, the CBB warned that new risks are present given the evolving conditions around the impact of the coronavirus global economic activity and travel.

“With this caution, in the short to medium term, gains within the tourism sector are expected to be supported by activity within New Providence and the other unaffected Family Islands. Further, the boost to construction output is anticipated to persist, in line with hotel sector investments and hurricane rebuilding efforts,” the bank said.

It said that in this environment, the jobless rate is projected to rise in the near-term, until losses in Abaco and Grand Bahama, the two islands severely affected by the passage of Hurricane Dorian last year that left damage estimated at US$3.4 billion, are neutralised from any gains in the construction sector or foreign investment activity.

Meanwhile, domestic inflationary pressures are expected to remain contained, notwithstanding ongoing geopolitical tensions and domestic electricity cost surcharge.

With regard to the fiscal sector, the CBB said necessary external borrowing for hurricane reconstruction work and social welfare outflows are expected to weigh heavily on the Government's fiscal position. “However, reinsurance receipts, along with donations from international and domestic sources are expected to mitigate some of the shortfall in revenue. Monetary sector developments will continue to feature elevated liquidity conditions, owing to banks cautious lending posture, in addition to growth in the deposit base. The trend of healthy external reserve balances is anticipated to be sustained in the short-term, benefiting from Government's external financing proceeds and reinsurance inflows.”

The CBB said nevertheless, a net drawdown is forecasted during the year, as import spending on reconstruction work intensifies.

The CBB said that preliminary indications are that the domestic economy exhibited mildly expansionary trends during January.

It said gains in the high value-added stopover visitor segment, mainly in New Providence and the Family Islands not damaged by Hurricane Dorian, supported the rise in tourism sector output.

Further, activity in the construction sector was fuelled by foreign investment-led projects, and to a lesser extent post-hurricane rebuilding works.

“On the fiscal front, the Government's hurricane-related expenditure hike, overshadowed the increase in revenue collections, and contributed to a widening in the deficit during the first half of financial year 2019/2020.

“In monetary developments, bank liquidity grew, reflecting an expansion in the deposit base and a decline in domestic credit. Similarly, buttressed by net foreign currency inflows from re-insurance and real sector activities, external reserves recorded healthy growth over the review month,” the CBB added.

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