NASSAU, BAHAMAS — A governance reformer has warned the “biggest risk” to the country’s economic development in 2023 and beyond remains the current stock of debt and the management thereof.
Hubert Edwards, head of the Organization for Responsible Governance (ORG) economic development committee, noted that concerns over a US recession are real and could hold major implications for this nation.
He told Eyewitness News that The Bahamas going into 2023 could face headwinds that will negatively impact its ability to secure much-needed improved growth levels beyond historical averages.
Edwards noted that the US economy is expected to decline, performing within a band of 0.5-1 percent for 2023, with a mild recession beginning in late 2023 and a longer-term average annual growth rate of 1.8 percent.
“Despite this expectation of decline the economic reconsolidation in The Bahamas which continues to move at a greater than anticipated rate will serve to blunt the effect,” he said.
“The current momentum in tourism could mitigate the effect by delaying the generally anticipated reversion to average growth rates. It is predicted that growth in 2023 for the country will be around 1.1 percent.”
Edwards said: “Should tourism continue at the current pace of performance any such decline could be pushed well towards the latter part of 2023. Caution must be taken of the potential impact that developments in the US could have on the market. A recessionary period would create downward pressure on disposable income and would therefore slow touristic activities.”
Edwards noted that the country’s demand for debt while declining is still relatively significant.
“It will be crucial for the government to be able to leverage announced initiatives, early in 2023, to tap into the domestic market credit in order to secure a much-needed reduction in the cost of borrowing,” he said.
“With a $1.8 billion borrowing requirement for the fiscal year 2022/23, of which less than $500 million has been borrowed to date, the implications of not securing cheaper debt will have a significant effect on government plans and would weigh negatively on economic outcomes despite positive performance to date.”
Edwards continued: “The biggest risk to the country’s economic development in 2023 and beyond remains the current stock of debt and the management thereof. Significant improvements in the trading range of foreign debt represent a major boost for the country’s debt circumstances.
“Fortunes over the near term will however turn on the ability to deploy an effective debt management strategy, which itself is highly dependent on economic performance and growth. As reconsolidation wanes, I anticipate greater attention to turn to the subject of revenue reforms with a view of achieving the targeted revenue of 25 percent of GDP.”
Edwards further noted that the country’s social security safety net is under pressure and its value is on the decline, with concern that this hangover effect is affecting middle-class segments of society. Edwards noted that with the social safety net experiencing a decline over the last five years, more specifically funding challenges facing NIB, policymakers should carefully study this development and anticipate making the necessary strategic adjustments to support strengthening and longevity.
“The concerns over recession in the US are real and could hold major implications for The Bahamas,” he said.
“The factors which determine a recession have been present throughout 2022 and will be present in 2023. It is noteworthy though that there has been no official declaration of a recession. According to some economists despite this reality for many 2023 is expected to feel like a recession having regard to the exhaustion of savings, continued unemployment, and reduce economic activities.
“This is likely to have the greatest manifestation within vulnerable population segments. There are clear already signs of increased demand for support by families across the country, especially for food. This holds serious implications for the weakened social apparatus of the country and could create added fiscal burden on the government. I would anticipate that this will be an area of careful deliberation for policymakers,” said Edwards.
Edwards also warned of global inflation and its effect on the domestic economy, given the extent to which the country imports food from the US.
Edwards noted that import substitution is one of the options available to the country to make significant inroads into reducing the fiscal deficit and lessen the strain on the requirement for reserves.
“Gains in the agricultural sector will have the added benefit of enhancing food security and domesticating more of the money earned in tourism and the seemingly burgeoning fast food industry. Such programs are unlikely to impact 2023 meaningfully but would augur well for the future. This, is followed through, will represent a very positive development,” said Edwards.
He further noted that as the country grapples with the fallout of FTX and gains more insight and a better appreciation of the risk involved, it is anticipated that regulatory changes to address gaps will emerge.
“Recognizing that the digital asset space was identified as critically important in rebuilding the economy, the challenge for policymakers will be how to find ways to navigate recent developments while staying true to the country’s stated ambition. The path to this lies in the regulatory arena. Policymakers and regulators will likely expend much effort in early 2023 with a view to signal the country’s commitment to emerging as a leader in the space,” Edwards noted.
According to Edwards, 2023 has the potential to be a productive one for The Bahamas, not necessarily in growth terms but through the facilitation of sectorial reforms and institutional strengthening.
He added: “2022 demonstrated the limited and narrowing fiscal space and policy options available to the government. For 2023, the options will remain limited but present great opportunities to focus on areas of long neglect and those in need of serious and urgent reform, financial and otherwise. Despite any significant growth, the country may realize, reforms are imperative to finding the path to sustainable economic resiliency. We would be delighted to see this journey started in earnest in 2023.”
