Rolle: Economy is experiencing moderately higher inflation
“Recovery is projected to continue, with much stronger growth in 2022 than in 2021”
NASSAU, BAHAMAS — The Central Bank has projected that the Bahamian economy will not achieve pre-pandemic levels of activity before 2023.
According to Central Bank Governor John Rolle, the Bahamian economy began a slow recovery from the COVID-19 pandemic during the first half of this year due to resumption of most tourism-sector business, except for cruise activity.
“Outside of tourism, it is estimated that construction continued to receive important stimulus from foreign investment inflows,” said Rolle.
“Given anecdotal reports of strong demand for upscale residential properties, such support could continue alongside the impulse from Hurricane Dorian-related rebuilding.
“In the meantime, the economy is experiencing moderately higher inflation because of increased costs on imports, as the pandemic has caused supply shortages for some goods and fuel prices have risen.”
He added: “In the outlook, the recovery is projected to continue, with much stronger growth in 2022 than in 2021; but with a return to 2019 levels of activity not forecasted to be fully achieved before 2023.
“The rebuilding in tourism has been most marked in respect of the second quarter of 2021; although on a year-to-date basis, the half-year outcome is still lower than in 2020.
“Two other factors also stand out in tourism. The first is that there has been a relatively faster recapture of business in the Family Islands compared to New Providence and Grand Bahama. The second is that the vacation rental market has experienced stronger demand recovery than hotels.
“In the meantime, the cruise sector business will only begin to resume in the second half of 2021.”
According to Rolle, the first-half tourism improvement was evident in strengthening foreign currency inflows through the banking system.
“In particular, commercial banks’ foreign currency purchases rose by 10 percent compared to 2021,” said Rolle.
“With fewer restrictions on local commerce and travel, the sale of foreign currency for travel and other uses outside The Bahamas strengthened by approximately seven percent.
“Turning to the financial sector, the pandemic has resulted in increased lending risks and credit losses to domestic institutions. However, banks continue to maintain high levels of excess capital and retained earnings to absorb these losses and have, in most respects, already made sizeable allowances for losses.
“The associated non-performing loans are expected to continue to rise in the near-term, as more clarity emerges about the employment status of borrowers who experienced difficulties as a result of the pandemic.”
Rolle noted that the non-performing loans rate has risen to 9.5 percent of private-sector loans, compared to an estimate just below eight percent before the pandemic struck.
“In June, banks were still extending repayment deferral arrangements on just 2.3 percent of loans to businesses and households,” said Rolle.
“This was a considerable reduction from slightly more than one-third of such facilities one year ago. This, however, understates the remaining difficulties for borrowers, because some forbearance also continues for many who are still only able to partially resume loan payments.
“Underemployment continues to be a factor for some borrowers who have returned to work.
“Bank lending has continued to be constrained because of heightened risks and subdued demand for credit. As such, there has been further overall reduction in credit to the private sector in the first half of 2021.”
Rolle noted that the regulator’s foreign exchange conservation measures had conservatively provided at least a $200 million cushion.
Loading ...
