The unprecedented devastation caused by Hurricane Dorian will impact this nation’s external reserves well into 2020, according The Central Bank of The Bahamas (CBOB), but despite this, reserve indicators are expected to remain above international benchmarks.
“In the private sector, external reinsurance inflows are anticipated to cushion business and household financing needs, however recovery gaps are likely for impacted persons and entities without adequate insurance protection. The hurricane’s near-term impact on external reserves will materialize over the remainder of 2019 and most of 2020,” the central bank said in its Monthly Economic and Financial Developments report for July.
“Balances could still experience a net accumulation in 2019, as reinsurance and other external proceeds are placed on deposit for drawdown during rebuilding efforts. More of the net outflows against reserves are anticipated over the course of 2020, cushioned by the seasonal upturn in performance on other tourism assets.”
Hurricane Dorian ravaged two of the three largest economies in The Bahamas, when its 185-mile-per-hour winds leveled the majority of Abaco and flooded Grand Bahama nearly a week ago.
The tragedy struck just days after the government touted its lowest fiscal deficit in a decade. Despite this setback, CBOB said medium-term growth prospects are still positive for The Bahamas.
“However, the unprecedented devastation caused by Hurricane Dorian to the northern islands of The Bahamas and the disruption in travel itineraries to many airports during this period, will negatively impact the economy in the short term. Rebuilding efforts in the aftermath of the storm and the return to normal conditions in several tourism markets which were not severely impacted, will temper these overall adverse effects. The pace of recovery of hotel room inventory will impact the speed at which the economy returns to normal,” the central bank said.
“In the coming months, the measures implemented to rebuild and replace vital infrastructure, combined with efforts to assist those residents and businesses adversely affected by the storm, could hamper the government’s fiscal position. However, financing needs are likely to be met in part by inflows from several multilateral lending facilities, thereby mitigating the pressure on domestic funding sources.”