External reserve balances expected to decrease considerably

A falloff in household consumption along with a drawdown in deposits and an anticipated contraction in private sector credit due to the ongoing crisis from the COVID-19 pandemic is expected to have some impact on the monetary sector, The Central Bank of The Bahamas has indicated.

Still, the CBOB said banking sector liquidity is expected to remain high.

“Monetary developments should remain characterized by high levels of liquidity, as commercial banks sustain their cautious lending stance. However, external reserve balances are expected to decrease considerably, reflective of the reduction in foreign currency inflows from tourism,” the Monthly Economic and Financial Developments report for June stated.

“That said, any rise in imports to fund reconstruction works could be dampened by lessened household consumption, given the reduction in employment income. External balances are still anticipated to remain at satisfactory levels to maintain the Bahamian dollar currency peg.”

The Central Bank maintained its position that the domestic economy will contract significantly this year, in particular as global economic activity and travel restrictions remain disrupted heading into the third quarter of 2020.

“Both the timing of the onset and pace of a recovery is conditional on improvements on the international health front and the elimination of all imposed travel restrictions. Nevertheless, new and ongoing foreign investment-led projects, along with continued rebuilding works, post-Hurricane Dorian, are projected to provide stimulus to the construction sector,” the CBOB stated in its economic outlook.

Those new foreign investment projects, as pointed out by CBOB, include the $200 million, 150-room Venetian Village Hotel and Residential Resort on New Providence; the $250 million mixed use real estate project TRLU Hills Ltd. On Crooked Island; and the $4 million restart of the stalled Balearia Caribbean Limited Ferry between Bimini and South Florida.

“In the labor market, a sharp elevation in the jobless rate should persist into 2021, highly correlated with weakness in tourism; although some employment gains are anticipated in the construction sector and from some re-engagement of tourism sector employees. Regarding prices, domestic inflation is projected to stay subdued, excluding any shocks in international oil prices,” the bank stated.

“On the fiscal front, spending related to the rebuilding of key infrastructure and replacement of fixed assets following Hurricane Dorian, along with a rise in outlays for health and social welfare associated with COVID-19, combined with revenue losses, are projected to expand the deficit significantly. The gap, estimated near 11.6 percent of gross domestic product, is expected to be financed largely by external borrowing.”

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Paige McCartney

Paige joined The Nassau Guardian in 2010 as a television news reporter and anchor. She has covered countless political and social events that have impacted the lives of Bahamians and changed the trajectory of The Bahamas. Paige started working as a business reporter in August 2016. Education: Palm Beach Atlantic University in 2006 with a BA in Radio and Television News

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