The local economy could take a billion-dollar hit via the coronavirus (COVID-19) pandemic’s impact, Deputy Prime Minister and Minister of Finance Peter Turnquest said yesterday, adding that the government is not considering more borrowing to deal with the economic fallout.
Turnquest, who made the remarks on the floor of the House of Assembly, said this $1 billion loss is the extreme downside economic model done by the Ministry of Finance, while the low impact scenario could be about $258 million.
He said the extreme side posits 100 percent loss of cruise passengers and 80 percent of stopover visitors over a four-month span, into June.
“While the total economic impact could be as low as $258 million over the next four months to June 2020, we are inclined to focus on the high impact scenario, which assumes 100 percent loss of cruise visitors and 80 percent of stopover visitors,” Turnquest said.
“In fact, recent developments in the industry would suggest a tilting of the possible actual outcome to this extreme scenario, which could result in a total economic loss, including additional public sector spending requirements, of as much as $1 billion. Of this total, a dominant $832 million decline is projected for lost tourism-related expenditure as a result of the reduced visitor count.
“The direct hit on government revenue is placed at an aggregated $108 million — $48 million for direct border taxes paid by visitors and a total of $60 million for potential VAT and import duty losses. The expenditure requirements could reach $49 million, of which we are funding $10 million from the dormant account fund. These resources would be used to address the health and social requirements arising from potential cases of the virus and dislocations associated with job losses and the need to support small businesses.”
Turnquest warned that the predictions from the modeling are not precise and all-encompassing, given that the economic fallout from the declines in the tourism sector will “have a cascading impact on a number of other sectors within the domestic economy”.
Despite the billion-dollar hit the government could take in the wake of the coronavirus pandemic, Turnquest said there will be no new borrowing to satisfy the shortfall, but a continuing reliance on existing fiscal contingencies and retooled expenditure.
“While the extent of the impact of COVID-19 on the Bahamian economy is still unfolding, the plan is to first utilize our existing contingency reserves and to reprioritize expenditure to remain within the limits of the recently revised borrowing envelope for the current fiscal year,” said Turnquest.
“Should it become necessary, the government could consider among its funding support options, accessing the International Monetary Fund’s non-conditional Rapid Credit Facility — with current eligibility placed at a maximum of $200 million. Simply put, we have no plans to request additional borrowings at this time, as we are diligently managing the country’s debt levels. We will update these projections based on our ongoing monitoring and reassessment of needs.”
He also revealed that the country’s external reserves are likely to decline to the tune of $900 million, just short of 50 percent of the country’s more than $2 billion stockpile.
Turnquest lamented that the “fiscal and economic fallout is real and tangible” and added that tourism industry workers are already feeling the impact from slowed visitor arrivals and the 30-day travel hiatus by the cruise industry.
“No sector is more at risk than travel and that industry has already taken a major hit,” he said.
“The travel industry is being hardest hit as companies restrict employee trips, airlines reduce flights, major events are postponed/cancelled and would-be vacationers choose to avoid foreign and domestic travel.”
He added that while the country would be hard-pressed to take such an economic hit in good times, it is now much more challenging as the country continues to try to bounce back from the multi-billion-dollar economic blow from Hurricane Dorian last year.
“Economic growth in the short term will be negatively affected by global and domestic developments and an overall contraction in domestic, short-term economic growth is inevitable,” said Turnquest.
“Many people are understandably afraid, but I want to reassure Bahamian families that we will get through this challenge together, healthy, stable and strong.”