Central Bank projects negative out-turn for domestic economy

Central Bank projects negative out-turn for domestic economy
The Central Bank of the Bahamas.

NASSAU, BAHAMAS — The Central Bank has predicted that a rise in domestic and external borrowing will be required to fill the budgetary gap due to COVID-19.

The regulator also noted that the domestic economy is expected to experience a negative out-turn in 2020 from the fallout from Hurricane Dorian, combined with the coronavirus (COVID-19) pandemic, which is adversely impacting global economic activity and travel.

The bank said borrowing will be necessary as the government commits to restoring key infrastructure and social welfare spending amid revenue intake disruptions.

The regulator made the observations in its monthly economic and financial developments report for the month of February 2020.

“In terms of the fiscal sector, expenditures related to the restoration of key infrastructure and social welfare spending, combined with revenue intake disruptions related to COVID-19, are anticipated to weigh profoundly on the Government’s fiscal out turn,” Bethel.

“Re-insurance receipts and donations from domestic and international sources should mitigate some of the shortfall in revenue.

“However, the remaining budgetary gap will require a rise in domestic and external borrowings.”

The Central Bank continued: “Developments in the monetary sector will continue be underpinned by elevated banking sector liquidity, as commercial banks sustain their cautious lending posture.

“External reserve balances are projected to decline during the year, owing to a falloff in foreign currency receipts related to tourism activity and increased spending on imports for reconstruction work.

“However, external balances are poised to remain well above international benchmarks, amid reinsurance inflows and proceeds from external financing.”

As for its projections of a negative out-turn, the bank said: “Tourism output is anticipated to moderate, with any recovery heavily dependent on the progress on the international health front.

“Against this backdrop, the unemployment rate is projected to increase over the near-term, with any job gains concentrated within the construction sector. In price developments, domestic inflation is expected to remain subdued, benefitting from a reduction in international oil prices.”

For its part the regulator said that given the current outlook, it will maintain an “accommodative policy stance” and continue to pursue policies that support economic growth and the overall recovery.

“In addition, the Bank will continue to monitor international and domestic developments, with a view to sustaining financial stability,” it said.

For the month of February, the Central Bank noted that preliminary indications suggest the domestic economy exhibited moderated, but slightly positive performance in line with tourism output constraints.

“Sustained growth in the sea segment contrasted with a reaction in the high value-added air component which contracted, as some capacity remained offline in hurricane-damaged areas,” it read.

“The effects of travel restrictions related to COVID-19 began to take an accelerated toll in March. Nevertheless, ongoing foreign investment projects provided a stimulus to the construction sector, and to a lesser extent post-hurricane rebuilding works.

“Monetary sector developments featured an expansion in bank liquidity, amid a build-up in total deposits and a reduction in domestic credit. Similarly, during the review month, external reserves registered growth, on account of foreign currency inflows from re-insurance and real sector activities.”