Rolle: Full tourism recovery not expected until 2023

Rolle: Full tourism recovery not expected until 2023
Tourists flock the streets of Nassau on September 21, 2019.

NASSAU, BAHAMAS — Central Bank Governor John Rolle said yesterday the full recovery of the country’s tourism sector is not expected until 2023.

Rolle noted that the pace and timing of the recovery will depend largely on how effectively domestic interventions manage the spread of COVID-19 inside The Bahamas, and the speed of global efforts to contain infections and make a vaccine widely available.

“As such, domestic economic policies must remain equally focused on preserving monetary and financial stability; while assigning the appropriate role to fiscal interventions to support essential domestic demand. As said before, fiscal interventions are still expected to stay within the bounds that the medium-term fiscal framework can credibly sustain. For its part, the Central Bank’s stability focus will encompass sustainability of the currency peg,” said Rolle.

Central Bank Governor John Rolle (file photo)

He noted that the COVID-19 pandemic continues to weigh negatively on the Bahamian economy.

“Delayed resumption of tourism has significantly deprived the economy of private sector foreign exchange inflows and employment, even though construction and foreign investment projects are providing impulses,” he said.

“With the peak winter tourism season approaching, and the recovery further behind than was expected, it is now projected that the economy will experience lower inflows next year, in 2021, than were forecasted in the earlier months of the pandemic.

“It was always anticipated that when tourism reopened, seasonal activity would be a diminished fraction of the occupancy rates normally enjoyed, and that thereafter the gradual strengthening of business might span more than 24 months.

“This would place the expected full recovery of tourism at some point in 2023.”

Still, Rolle cautioned that although the economy could experience moderate growth in 2021, it would only be in comparison to the very restrained outcome of 2020.

“As a result, fiscal challenges will remain very significant, and the monetary policy priorities will have to stay focused on managing the reduced availability of foreign exchange from private sector activity and safeguarding the stability of the domestic financial sector. The Central Bank expects that will be a continued reliance on public expenditures to stabilize the economy and that a prominent share of the deficit financing will have to be in foreign currency. The fact that policy options are available for The Bahamas to manage economic risks, should not be taken as an understatement of the severity of the immediate headwinds facing the economy.”

Rolle said the government will have to continue to engender confidence among both the domestic and external holders of its debt, in order to preserve its access to deficit financing.

“This comes down to a factor of sustaining confidence that the medium-term fiscal consolidation strategy will pay down the accumulated debt from the pandemic, within a time-frame that does not protract the economy’s exposure to devastating hurricanes that could further derail debt reduction efforts,” Rolle said.

“The government will be under increased obligations to economize on expenditures and to undertake reforms to strengthen revenue collections. consistent with the public sector’s sizeable role in stabilizing domestic consumption.

The Central Banks is projecting that the domestic economy will contract sharply in 2020, attributed to the negative impact of the COVID-19 pandemic and the residual effect from Hurricane Dorian.

“Tourism output is forecasted to decline markedly, as global economic activity and international travel continued to be adversely impacted by measures implemented to contain the spread of the virus,” the Central Bank said. “The outlook for the 2021 winter season is now also further reduced from forecasts made earlier in the pandemic, given the more extensive delays in restarting activities.

“Both the timing of the onset, and the pace of recovery remain conditional upon both progress on the international health front, and sustained advances in abating the domestic health sector challenges.

“Otherwise, new and ongoing foreign investment-led projects, along with post-hurricane rebuilding works, are expected to provide support to the construction sector.”

The regulator added that in the labor market, the unemployment rate is expected to remain significantly elevated in the near term, with any job gains concentrated largely in the construction sector and limited re-engagement of tourism sector employees.

“However, domestic inflationary pressures are estimated to stay subdued, notwithstanding any shocks in international oil prices. In the fiscal sector, outlays associated with the restoration of key infrastructure following the devastating storm in 2019, along with a rise in spending for health and social welfare related to COVID-19, combined with revenue losses, are anticipated to weigh heavily on the Government’s fiscal position. The budgetary gap, estimated near 11.6 percent of GDP, is expected to be financed in large measure by external borrowing,” the regulator added.