Losses of assets destroyed by Hurricane Dorian – mostly in the private sector – could surpass $2.5 billion, or 20 percent of the country’s gross domestic product (GDP), Governor of the Central Bank of The Bahamas (CBOB) John Rolle said yesterday.
“While the rebuilding is forecasted to stimulate strong construction activity, an adequate supply of skilled labor will be essential to maximize the speed of restoration,” said Rolle, providing an economic update on the third quarter of 2019.
“There is nevertheless a financial resources gap, given significant uninsured or underinsured families who could face a lengthy recovery process as they rely either on public assistance or have to rebuild out of incomes.
“Even as revised projections
indicate that insurance payouts to the private sector could exceed $1 billion, the losses, most to private sector assets, could surpass 20 percent of GDP— or more than $2.5 billion. Nevertheless, it is expected that key commercial assets will recover faster than the housing stock.”
Hurricane Dorian devastated parts of Abaco and Grand Bahama in early September.
Rolle said economic activity on both islands came to a halt and neither island has recorded any tourism activity given the complete shutdown of infrastructure on the islands.
“The rest of The Bahamas was not entirely spared, as these regions experienced either visitor declines or much reduced arrivals gains for both hotels and vacation rental properties.
“However, the timing of the storm during the slower part of the tourist season allowed The Bahamas to preserve strong tourism performance over the first nine months of the year. This momentum is sufficiently strong, that the Central Bank expects The Bahamas will still record positive growth in 2019, underpinned by tourism, but much lower than had the storm not occurred.
“In addition, foreign investment stimulus is expected to be sustained, with inflows targeting expansion in resort and cruise infrastructure in New Providence, Grand Bahama, and several Family Islands.”
The setback from the hurricane is projected to be more noticeable in 2020, with resort facilities in Abaco absent during the peak winter season, and Grand Bahama’s economy only expected to be partially recovered, the governor said.
“An overall contraction in the economy or a flat outcome is possible,” Rolle said.
The governor added that the economic infrastructure in the northern Bahamas should be sufficiently restored, to support resumed growth in 2021.
“Beyond the storm, the other fundamentals either posing risk or opportunities for the Bahamian economy remain,” he said.
“The global economic outlook has softened, given heightened trade policy tensions and the uncertainties from the process of the UK’s withdrawal from the EU. One bright spot is that U.S. consumer confidence has stayed strong, as have employment conditions. This would help to sustain the rising demand for Bahamian tourism.”
Rolle added that hurricane rebuilding will place an increased demand on foreign exchange usage.
“In this context,” he said, “the Central Bank expects that external reserves could decrease slightly during 2020. However, the reserves are projected to end 2019 at exceptionally strong levels, potentially above $1.5 billion, as reinsurance inflows and proceeds from the government’s foreign currency financing accumulate. These resources will be spent on construction materials, foreign services, and other recovery related imports during 2020.”
Speaking to the outlook, the governor said the Central Bank will maintain an accommodative posture for private credit growth, including more generous concessions for families in the hurricane damaged areas.
“The bank will also continue to focus on containing medium-term risks to foreign reserves, through the gradual reduction in its holdings of government debt. Heightened attention is also being placed on financial sector disaster recovery strategies, which will include how the digital currency can support more rapid return of commerce and dissemination of social and humanitarian assistance after natural disasters,” Rolle said.
“The Central Bank will also explore how homeowner insurance practices could be strengthened, to make families more financially resilient.”