Aerial view of Atlantis Paradise Island, off the coast of Nassau, The Bahamas. (Photo: Sports Illustrated)

Bahamas economy to falter as COVID-19 impacts tourism

Aerial view of Atlantis Paradise Island, off the coast of Nassau, The Bahamas. (Photo: Sports Illustrated)

Coming off a quarter of modest growth, the Bahamas’ economic outlook is now unclear as the tourism reliant nation faces the novel coronavirus (COVID-19).

The economic outlook in the Bahamas is uncertain as the impact of the coronavirus continues to unfold. (Photo: 7th Heaven Properties)

That assessment was given in the latest Quarterly Economic Review by the Central Bank of The Bahamas (CBB) released yesterday, March 19.

Already, tourism earnings are expected to drop sharp for the current quarter and worsen in the next, the result of which will be a large reduction in net foreign currency receipts, and falloff in its reserves.

However, the CBB said foreign reserves are sufficient to absorb essential domestic foreign currency needs, even as it said the near-term view is “uncertain and contractionary”.

It continued that the government’s budgetary financing, which includes anticipated foreign currency borrowing, should take care of foreign exchange needs.

That said, there is still uncertainty as the slowdown in tourism and the speed of recovery remain unclear “and dependent on progress on the international public health front.”

Hurricane Dorian caused more than US$3 billion in damages in the Bahamas.

The central bank reports that the economy saw modest growth in the fourth quarter of 2019, as tourism output increased, despite the passage of Hurricane Dorian in early September. It said that improvement was mainly due to gains in the Family Islands, which were unaffected by Dorian.

“In addition, several varied-scale foreign investment projects, and to a lesser extent post-hurricane reconstruction work, provided stimulus to the construction sector. In price developments, domestic inflationary pressures remained contained, although the recent uptick in international oil prices contributed to a firming in the rate,” said the Bank.

Tourism earnings are projected to falloff in the current quarter and worsen in the next.

Despite that increase, the country’s deficit widened during the second quarter of the 2019/2020 financial year relative to the same period of the prior year from unplanned hurricane recovery spending. This expenditure outstripped the value added tax-led increase in aggregate revenue, the CBB said.

Bank liquidity and external reserves expanded, strengthened by re-insurance proceeds and a rise in the deposit base which surpassed credit growth.

Estimated current account position reversed to a surplus during the final quarter of 2019, from a deficit in the same period in 2018. This was attributed to an increase in net current transfers connected to hurricane-related reinsurance inflows. “In contrast, the surplus on the capital and financial account reduced considerably, largely attributed to a reversal in domestic banks’ transactions to a net outflow, vis-a-vis a net receipt in 2018.”

The Bahamas has reported three confirmed cases of the coronavirus which prompted Prime Minister Dr Hubert Munnis to announce a curfew the suspension of business operations for an 11-day period starting today, March 20.