Central Bank Governor John Rolle said yesterday that initial analyses projecting the economy would contract by eight percent in 2020 are now outdated, with new projections for economic contraction in the mid to upper teens.
Rolle said the earlier projection was based on an economic analysis centered on tourism, the driving force of the economy, being in stasis for about three months.
With global border closures and travel restrictions still in effect and anticipated to continue into the second quarter of 2020, that outlook has now changed.
“So, if one relaxes that assumption, then you get contraction that can be in the mid to upper teens. It is not very useful for us to put an actual number, but for us to focus then in terms of what magnitude of shutdown affects the net input of foreign exchange and how we have to manage foreign exchange. But we do know that eight percent is an outdated estimate,” Rolle said at a Central Bank quarterly economic briefing via video conference.
The Bahamas is not expected to fully recover from the economic crisis caused by the COVID-19 pandemic until 2022, Rolle added.
“The year 2022 is a point in which we think that if a recovery begins at a very gingerly pace in the near term, given all of the public health safety concerns, it will take us until about 2022 and presuming that a vaccine is available for COVID-19, it will take us until 2022 to be fully recovered. It is not to suggest that the recovery will not begin until that point,” he said.
“So, by the mere fact that the economy would have had such large losses in 2020, we expect that in 2021, the level of economic activity can be corrected even higher than in the present year, but not at the level that would completely erase all of the losses that we are likely to incur this year.”
Despite the hardship that is anticipated from the downturn in the economy, Rolle said the Central Bank advised the government against stimulus packages for citizens that have been implemented in other jurisdictions.
“While there have been some suggestions that monetary policy could be used to stimulate the economy, this is not an option for The Bahamas. Stimulus through lower interest rates or relaxed credit policies would result in increased consumption on imports, which would undermine the efforts to protect the foreign reserves,” Rolle said yesterday.
“The stimulus for the economy needs to be tied to expanded access to foreign exchange. The government is in a position to do this through its borrowing strategy. As well, in line with the 2016 liberalization measures, the exchange control regime allows for a generous subset of private firms to raise financing in foreign currency. The Central Bank is ready to process such proposals and extend approvals as swiftly as they are put forward.”
As for how the economy was performing at the start of the year, data from the Central Bank’s most recent Monthly Economic and Financial Developments (MEFD) report for March showed that prior to the economic collapse from lockdown measures to stem the spread of COVID-19, total foreign arrivals grew by 17 percent during the month of February, primarily due to a boost in the cruise sector.
“Official data provided by the Ministry of Tourism (MOT) revealed that total foreign arrivals grew by 17 percent in the month of February, extending the 13.9 percent growth during the same period in the previous year. In the underlying developments, sea traffic gains (largely cruise visitors) accelerated to 23.6 percent, after a 12.1 percent rise the prior year. However, air arrivals decreased by 3.1 percent, in a reversal from the 19.7 percent expansion in 2019 that had captured the hotel capacity boost from Baha Mar,” the report notes.
Broken down by island, arrivals to the Family Islands increased by 50.9 percent, as sea passenger arrivals grew 64.1 percent because of increased first ports of call to the private island developments of cruise lines.
“Visitor arrivals growth for New Providence tapered to 0.5 percent, from a healthy 32.2 percent expansion last year, with the air component increasing further by 5.9 percent, while sea arrivals declined by two percent. Conversely, the contraction in arrivals to Grand Bahama continued, but at a sharply moderated 2.2 percent, compared to 22.3 percent during the same period last year. This reflected a 48.6 percent reduction in air arrivals, which outweighed the 5.5 percent gain in the sea segment,” the report stated.
“For the first two months of the year, total arrivals rose by 12.3 percent, but was below the 16.6 percent growth recorded in the previous year. Notably, a 16.9 percent increase in sea passengers negated the 3.3 percent falloff in air visitors. The Family Islands experienced a 57.1 percent boost, extending the 10 percent rise in the prior year, with robust cruise segment gains eclipsing the sharp falloff in air arrivals that was mainly due to Abaco’s capacity absence.”
On the other hand, visitors to New Providence declined by 7.3 percent compared to the 31 percent expansion in 2019, due to a reduction in the sea segment.
On Grand Bahama, total traffic fell 12 percent, underpinned by contractions in both air (49.9 percent) and sea (6.5 percent) arrivals.