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News : Bahamas Information Services Updates Last Updated: May 27, 2020 - 5:39:24 PM


Domestic Economy Upheld its Growth Momentum Despite Passage of Hurricane Dorian
By Llonella Gilbert
May 27, 2020 - 5:31:27 PM

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Nassau, The Bahamas - Deputy Prime Minister and Minister of Finance, the Hon. K. Peter Turnquest stated that despite the passage of Hurricane Dorian in September 2019, the domestic economy upheld its growth momentum, against the backdrop of robust activity in the nine months leading up to the storm in a number of key sectors.

Construction sector activity continued to be supported by several Foreign Direct Investment (FDI) projects, of varying sizes, which accompanied a robust tourism season, DPM Turnquest noted as he presented the 2020/21 Budget Communication in the House of Assembly, Wednesday, May 27, 2020.

He stated that in particular, performance in the tourism sector saw notable gains in the Family Islands that were not impacted by the September storm. Tourist arrivals exceeded seven million in 2019, marking the highest levels of arrivals recorded in the history of The Bahamas.  However, this momentum was interrupted by the initial impact from COVID-19, as the virus began to spread from China into the western hemisphere.

The DPM said in the first quarter of 2020, total visitor arrivals declined by 14.7 percent to some 1.7 million visitors, as compared to the same period of 2019.  A categorical breakdown shows that the high value-added air segment fell by 28.0 percent, reflecting a slowdown in international travel amid virus fears and national border closures during the last week of March 2020. Sea arrivals decreased by 10.5 percent to 1.3 million, as cruise lines suspended all of their routes until June for some, and for others until November 2020.

“Nevertheless, the modest yet positive pace of economic activity that prevailed prior to COVID-19 set the foundation for steadying the outturn for a number of other economic indicators.  In particular, the unemployment rate stabilized at 10.7 percent in December 2019, relative to November 2018. 

“However, when compared to May 2019, the jobless rate increased from 9.5 percent to 10.7 percent, owing mostly to job losses associated with Hurricane Dorian.  Specifically, the number of employed persons decreased to 152,640 in December from 215,000 in May 2019.”

He stated that although international oil prices registered a slight rise coming toward the end of 2019, the recent low in global prices has spurred an associated decrease in domestic energy prices.  In March, Brent Crude Oil prices decreased by 13.3 percent to $50.48 per barrel, relative to April 2020. When compared to March 2019, oil prices registered a decline of 23.5 percent over the year.

“There were two main drivers of this: the coronavirus pandemic on the one hand, and a price war and oversupply on the other hand, due to the failure of the two largest producing members of the Organization of Petroleum Exporting Countries (OPEC) to reach an agreement.”

DPM Turnquest said this has transferred into price reductions in electricity bills for Bahamian consumers and businesses.  The fuel charge charged by Bahamas Power and Light (BPL) decreased by 36.3 percent to $11.32 per kilowatt-hour (kWh) in May 2020, as compared to May 2019.  On a monthly basis, the fuel charge fell by 26.1 percent.

He explained that on the monetary front, both liquidity and external reserves were boosted by reinsurance inflows following Hurricane Dorian last September.  By extension, overall money supply (M3) grew by 11.0 percent in 2019, exceeding the year earlier 1.0 percent expansion, and being underpinned by a buildup in private sector demand deposits in 2019. 

In addition, domestic credit showed a slight uptick, supported largely by a 3.1 percent rise in foreign currency credit, while Bahamian dollar credit grew marginally by 0.4 percent. Growth in Bahamian dollar credit was primarily explained by an increase in net claims on the Government, and credit to the private sector — the latter of which was cushioned by damage repairs in the aftermath of Hurricane Dorian.

DPM stated that as of this past Friday, May 22, external reserves stood at $1.986 billion, which is equivalent to some 28 weeks of imports. This robust level of foreign reserves has been consistent from late February into March, and has been sustained against the backdrop of the Emergency Powers Orders, which closed all non-essential businesses, thereby dampening import demand. It is anticipated however, that once the economy reopens, there is likely to be a subsequent drawdown on reserves to respond to the rebound in consumer demand. 

“The Central Bank, in conjunction with the Ministry of Finance is working to ensure that the level of external reserves remains at an adequate level to support the viability of the US currency peg by facilitating the bulk of the deficit financing requirements in foreign currency.      

“In light of the projected impact of COVID-19 on the international market, and its trickle down effects on our domestic economy, which is highly vulnerable to external shocks, the Central Bank has forecasted that real GDP in The Bahamas will contract by some 12 percent.”

He said with this snapshot of the domestic economy, it is clear that the outlook for the near-term is very subdued, and our rebound will be heavily dependent on how quickly travel resumes. As sobering as this should be, we must also remember the nature of economic downturns related to pandemics; a sharp and sudden downturn followed by strong recovery.

“Despite the stark declines we are seeing today in our various fiscal and economic indicators, we will move onward from this crisis. There are a number of independent economic indicators to give the Bahamian people hope and reassurance.  Most recently, we have seen prospects for the near-term that indicate an appetite for private sector investment. The Cruise Port’s $130 million bond offering was oversubscribed when it closed on May 18.”

This signals that, despite the uncertainty surrounding COVID-19, investors are confident in the tourism industry generally, and the recovery of the cruise industry and revitalization of Downtown Nassau, in particular.

 

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