The International Monetary Fund (IMF) states in its most recent mission report on its visit to The Bahamas that it expects a mild economic contraction in 2020 as a result of the loss of tourism capacity on the islands most affected by Hurricane Dorian, though the report explains that gradual recovery has already been noticed.
The report, which was drafted by mission team leader Fabian Bornhorst and released yesterday, explained that the favorable economic outlook of The Bahamas’ chief tourism source markets and the resilience of tourism on the islands outside of those affected by the hurricane in September, bode well for the medium-term economic health of the country.
“Hurricane Dorian devastated parts of Abaco and Grand Bahama, resulting in a sharp fall in tourists visiting these areas,” Bornhorst said.
“Nevertheless, a gradual recovery is already underway and tourism to other islands of the archipelago is holding up.
“The still-favorable economic outlook for tourism source countries will support the process.
“A mild economic contraction is projected in 2020. Growth is expected to pick up once the infrastructure and tourism capacity is rebuilt. The pace of recovery will depend on the implementation of the reconstruction plan; critical elements include the rebuilding of infrastructure, the expeditious processing of construction permits, the availability of labor and the availability of private and public financing.”
He noted in the report that the government appropriately deviated from its fiscal responsibility law obligations in order to make changes to its fiscal plans in the wake of the hurricane.
He added, though, that it will be prudent for the government to return to the fiscal targets set out in the law quickly in order to “realize the economy’s growth potential”.
According to Bornhorst, the government’s fiscal buffers for natural disasters, including a contingent credit line with the Inter-American Development Bank (IDB), sovereign insurance and a natural disaster relief fund, as well as “substantial private insurance payouts”, helped the country to bolster its “foreign exchange reserves ahead of an import-heavy reconstruction process”.
“Gradually restoring the financial buffers and rebuilding the infrastructure in a more resilient way will be key to mitigating the impact of future disasters,” Bornhorst said.
“The financial sector appears to have weathered the hurricane well, with limited exposures to uninsured assets. Adequate reinsurance of domestic insurance companies abroad cushioned the impact of the hurricane on the domestic insurance sector. However, insurance penetration, in particular in the residential segment, remains low, leaving many homeowners in dire straits.
“New approaches to extend insurance coverage as part of a broader disaster risk management strategy would increase resilience,” Bornhorst noted.
“Restoring financial resilience to natural disasters and strengthening physical and social resilience will be important to mitigate the impact of future events.”