By NEIL HARTNELL
Tribune Business Editor
A Standard & Poor’s (S&P) analyst yesterday said The Bahamas will need “close to $1bn” to finance this year’s fiscal deficit while predicting “a strong economic recovery” in 2021 and 2022.
Jennifer Love, the associate director who heads the rating agency’s assessments on this nation, told a webinar that the government will continue to rack up “large” amounts of red ink over the next two fiscal years due to the revenue loss/increased spending associated with both Hurricane Dorian and the COVID-19 pandemic.
In the fiscal year 2019-2020, I think we anticipate the financing needs to be close to $1bn - I think under that. It will be in excess of their present plan of $677.5m, but under $1bn,” Ms Love said of The Bahamas.
Her forecast is in line with the revised $800m deficit predicted earlier this week by K Peter Turnquest, deputy prime minister, who told the Old Fort Rotary Club via video conference that the government’s tax income had dropped by 70 percent compared to prior year levels due to a combination of tourism shutdown and the wider COVID-19 lockdown.
S&P, in materials accompanying the webinar, is projecting that the government’s net debt as a percentage of gross domestic product (GDP) will soar from around 50 percent in the prior fiscal year to near 70 percent come end-June 2020.
It will remain at or close to that level for the next two years through 2022 due to the lingering effects of COVID-19 and Hurricane Dorian, the latter of which was estimated to have inflicted some $3.4bn in damages and losses when it struck Abaco and Grand Bahama in early September 2019.
The rating agency is also projecting that the net increase in central government debt will be between seven to eight percentage points this year, although that will start to taper off from 2021 onwards. The fiscal decline is directly related to the 16 percent decline in economic output (gross domestic product or GDP) that S&P is forecasting that The Bahamas will suffer this year.
“Under our base case scenario, we expect a significant fall in GDP in 2020 followed by a strong recovery in 2021 and beyond,” Ms Love added. “We expect large fiscal deficits over the next two years.”
Hopefully signalling better days to come, S&P is projecting that The Bahamas will recover all the economic ground lost to COVID-19 by 2022. Its models show half that loss being regained next year, with the economy expanding by 4 percent beyond 2019 levels in 2023.
Still, The Bahamas was one of only two tourism-dependent Caribbean and north Atlantic economies - Belize being the other - to be downgraded by S&P last week. This pushed The Bahamas further into “junk” status as it had already lost its investment grade rating with S&P at Christmas 2016 when the former Christie administration was in office.
Acknowledging that The Bahamas had been derailed by external shocks beyond its control, Ms Love said: “Actually for most of last year, 2019, The Bahamas experienced good economic growth and fiscal results.
“The Government had been in the process of implementing more sustainable public finances, and had met its fiscal deficit targets. Up until the fall of 2019 the country’s economic growth had been good. However, in September 2019, the country suffered a devastating hurricane.”
The Government announced in Hurricane Dorian’s wake that it would temporarily deviate from the consolidation targets announced in the Fiscal Responsibility Act to focus “attention on recovery and rebuilding”, which was projected to increase the 2019-2020 fiscal deficit from $137m to $677.5m.
However, that is now forecast to increase further due to the tourism industry’s total shutdown. “The sector is important to The Bahamas. It generally contributes 40 percent of GDP and 50 percent of employment,” Ms Love added.
With the Government expected to finance its deficit from a combination of Bahamian dollar and foreign currency borrowing, Ms Love said: “We expect the current account deficit to widen... on lower tourism receipts that will be partially offset by falling goods imports and oil prices.
“We’ve left a negative outlook on The Bahamas, which reflects the uncertainty over the duration of the pandemic and strength of the recovery.” While S&P is projecting a strong economic rebound for this nation in 2021, it is unclear how this aligns with its projections that tourism in the Caribbean will not “get back to pre-pandemic levels in the next few years” - possibly not before 2022-2023.
S&P summed up: “The COVID-19 pandemic will cause a dramatic decline in tourism, and have significant impact on the country’s economy and government finances, which were already vulnerable following Hurricane Dorian in fall 2019.
“We expect the effects of the pandemic on the economy and fiscal deficits will be limited to one to two years. However, the country’s debt burden will take longer to recover. The negative outlook reflects the risks that the effects of the outbreak will be more severe or prolonged than we currently expect.”