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CBOB says borrowing inevitable

Even with fiscal flexibility from reinsurance inflows and recent donations from Hurricane Dorian, the government will have to borrow more to close the budgetary gaps that result from the negative outturn of the COVID-19 outbreak, the Central Bank of The Bahamas said yesterday.

“In terms of the fiscal sector, expenditures related to the restoration of key infrastructure and social welfare spending, combined with revenue intake disruptions related to COVID-19, are anticipated to weigh profoundly on the government’s fiscal outturn,” the CBOB said in its Monthly Economic and Financial Developments Report for February.

“Reinsurance receipts and donations from domestic and international sources should mitigate some of the shortfall in revenue. However, the remaining budgetary gap will require a rise in domestic and external borrowings.”

While domestic bank liquidity shored with growth in registered external reserves as a result of foreign currency inflows from reinsurance and real sector activities, the Central Bank predicted a falloff over the coming months.

“Developments in the monetary sector will continue to be underpinned by elevated banking sector liquidity, as commercial banks sustain their cautious lending posture. External reserve balances are projected to decline during the year, owing to a falloff in foreign currency receipts related to tourism activity and increased spending on imports for reconstruction work,” CBOB said.

“However, external balances are poised to remain well above international benchmarks amid reinsurance inflows and proceeds from external financing.”

The report added, “Given the current outlook, the Central Bank will maintain an accommodative policy stance and continue to pursue policies that support economic growth and the overall recovery. In addition, the bank will continue to monitor international and domestic developments, with a view to sustaining financial stability.”

The Central Bank has said previously that the economy will experience a negative outturn in 2020 from the fallout from Hurricane Dorian, combined with the COVID-19 pandemic.

While unemployment is projected to increase significantly over the near turn, there is expected to be some retention of jobs in the construction sector.

 

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