Tuesday, Jul 14, 2020
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Komolafe: Fiscal challenges leave little buffer from external shocks

Chief Risk & Compliance Officer at Colina Emmanuel Komolafe said fiscal challenges in The Bahamas have placed the country in a position to have “little to no space or buffer” to be insulated from external shocks and natural disasters like Hurricane Matthew.

Komolafe said that Moody’s recent projection increase in the fiscal deficit over the next two years “highlights some structural and fundamental issues that we have been aware of for quite some time”.

He asserted that improvements to the fiscal position should be accompanied by the “implementation of a robust national contingency and disaster risk management framework”.

However in the absence of such a framework, more borrowing is expected to take place in order to fund recovery efforts in the aftermath of unexpected events, storms or other natural disasters, according to Komolafe.

“The impact of external shocks and hurricanes on the Bahamian economy can be significant and can derail plans or progress made within the economic landscape,” he said.

Komolafe acknowledged that the impact of Hurricane Matthew would be felt on both the government revenue and expenditure sides.

“The disruption in commerce caused by the storm, reduction in business activity and productivity, when combined with the exigency order, will affect government revenue.

“In terms of expenditure, spending on repairs of public infrastructure and financial aid or assistance to affected individuals (as well as allocations to Social Services) will also put upward pressure on government expenditure,” he noted.

Meanwhile on a more positive side, he said that insurance payments (and

foreign currency inflows from reinsurance recoveries) and government assistance programs would generate some activity especially in the construction and retail sectors, though this might not be sufficient to totally eliminate the negative economic impact of Matthew.

 

Debt-to-GDP

In its November update, Moody’s raised its debt-to-GDP projections for the current fiscal year to 69.2 percent, compared to the 67.5 percent it forecast in August.

Komolafe said the reality is “in order to reduce this ratio, we either reduce the national debt, increase the GDP, or ideally do both simultaneously”.

“There is no substitute for growing the economy if we want macroeconomic indicators to improve,” he asserted.

He warned, “The economic growth prospects will only improve if we continue to exercise fiscal prudence and successfully implement much needed reforms within the economy.

“The private sector needs to be incentivized to generate economic activity and create employment,” Komolafe added.

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