There remains hope for positive growth in 2019, though considerably less than was forecast before the passage of Hurricane Dorian, The Central Bank of The Bahamas (CBOB) stated in its Monthly Economic and Financial Developments (MEFD) report for August.
The government’s fiscal position is expected to deteriorate over the near to medium term as it increases spending on key infrastructure and social assistance. Revenue is expected to decline due to the disruption in collections from Grand Bahama and Abaco, coupled with the tax exemptions afforded to those islands.
The central bank contends, though, that “Special credit facilities from international agencies are likely to alleviate some of the financing pressures on the government.”
According to the MEFD report, the economy will experience short-term economic fallout from Dorian, especially given that the storm struck Abaco and Grand Bahama during the traditionally slow months of the tourism season.
According to the CBOB, Abaco accounted for 7.9 percent of air arrivals to The Bahamas in the first half of 2019 and 17.5 of booked vacation rental listings.
Grand Bahama, the MEFD noted, accounted for 3.8 percent of air arrivals in the first half of the year and 8.1 percent of vacation rental bookings.
“As to the fiscal exposure, an estimated 7.8 percent of recent VAT (value-added tax) revenue payments originate from Grand Bahama and five percent from Abaco,” the MEFD report stated.
“The islands of Grand Bahama and Abaco account respectively for 7.1 percent and 3.6 percent of recent customs duty collections.”
The MEFD stated that “robust gains” were realized in the first half of 2019.
“The performance could be flat to slightly contracted for 2020, before a healthy growth trajectory resumes in 2021,” the report points out.
“Underlying this would be an expected steady, earlier return of operation in the core of Grand Bahama’s economy, in contrast to a lengthier absence of commerce, other than rebuilding activities, in Abaco.
“The recovery phase in both Abaco and Grand Bahama will feature significant rebuilding activities, with a private sector component partly financed by external reinsurance proceeds. This should result in elevated demand for and employment of construction-related skills, which should partly offset reduced payrolls in the remaining sectors.
“Two factors that could mitigate the depth and duration of the economic slowdown are the size of the available pool of construction labor to expedite the rebuilding process and the degree of substitutability of tourism capacity elsewhere in The Bahamas for the facilities taken offline in Abaco and Grand Bahama.”
The bank stated that the availability of skilled construction workers will determine how quickly housing and businesses return to the affected islands.
“In the meantime, underused tourism capacity in New Providence and other Family Islands could provide some offsetting relief to displaced visitor demand,” the report noted.
“For vacation rentals in particular, the current average occupancy rate approaching 50 percent provides space for near-term business expansion without required growth in the physical plant, providing the marketing and other support infrastructure are aligned.”