NASSAU, BAHAMAS — The Bahamian economy is still expected to grow at an above-average pace this year in the three to four percent range, according to Central Bank Governor John Rolle, who noted that there are downside risks that justify caution regarding this nation’s economic outlook.
Governor Rolle, while speaking at a press briefing to discuss the regulator’s Monthly Economic and Financial Developments report, reported: “The near-term risks to the economy remain concentrated around imported inflation, escalating geopolitical tensions, and the multiple adverse impacts that rising international interests rates could have on the financing costs for the public and private sectors.
“Based on trends in tourism and the observed level of foreign currency inflows through the private sector, the economy is still expected to grow at an above-average pace in 2023, in the three to four percent range. This compares to the majority of the COVID-19 rebound that grew the economy by about 14 percent in 2022. In the first half of 2023, there continued to be some residual recovery in stopover tourism, compared to the pre-pandemic highs.”
Governor Rolle noted that given net foreign exchange trends, the external reserves of the Central Bank remained on course to contract this year.
“In particular, the Central Bank’s net foreign exchange purchase from the commercial banks decreased by almost one-third from January through September 2023. Moreover, there was an approximate $700 million reversal in transactions with the government sector, from a net purchase or boost to reserves over the same months in 2022, to a net sale of foreign exchange in the first three quarters of the current year.
“As a result, the external reserves fell incrementally over the nine months to September 2023, compared to a net accumulation of nearly $750 million in the same period last year. As regards the leading influence of the government’s debt management operations, some of the drawdowns in reserves already experienced could be reversed over the remainder of the year, given some planned foreign currency borrowing, but the cumulative impact in 2023 is still expected to be a reduction,” said Governor Rolle.
At the end of October, the external reserve balances were at $2.5 billion, which is about five percent below the closing levels for 2022. Rolle said that these balances continue to be healthy and more than adequate to support the value of the Bahamian dollar fixed exchange rate.
Rolle concluded that the economy is projected to experience continued growth in 2023, although more moderated.
“By 2024, activity could settle closer in line with the economy’s medium-term growth potential. This evolution is expected to sustain continued high levels of banking liquidity and comfortably adequate external reserves. From a policy perspective, it continues to leave the Central Bank open to accommodating more growth in lending to the private sector and the domestic markets in a sustainable state to finance an expanded share of the fiscal deficit in local currency,” he said.
“In any event, the outlook is also expected to encompass continued fiscal consolidation that should reduce the government’s total borrowing requirements. Nevertheless, there are downside risks that justify caution. Imported inflation could impede the economy’s ability to retain foreign exchange, while escalated energy costs could make the tourism product more expensive and less attractive. In addition, the rising interest rates, which push back against inflation, could impose higher costs on the government’s foreign currency debt and could slow the pace of foreign investments that rely on debt financing. Weaved throughout these trends are geopolitical tensions from the war in Ukraine, and now the Middle East.”
