Monday 1 June, 2020

Bahamas Central Bank expects economic decline due to coronavirus

Photo: iStock/poladamonte

Photo: iStock/poladamonte

The near term economic outlook for the Bahamas has become uncertain due to global travel cuts caused by the spread of the coronavirus (COVID-19)

This assessment was given by the Bahamas Central Bank (BCB) in its Quarterly Economic Review for the fourth quarter of 2019.

According to BCB, the tourism sector has declined sharply for the first three months of 2020 and it will continue into the second quarter.

BCB said: “This will lead to a large reduction in net foreign currency receipts and consequently a sizeable falloff in the Central Bank's external reserves. Foreign reserves are, nevertheless, sufficient to absorb essential domestic foreign currency needs.”

The bank said there are adequate buffers to deal with the foreign exchange and debt servicing issues that may arise due to the economic slowdown.

However, the duration of the slowdown and the pace of recovery is unclear and is causing most of the uncertainty.

Meanwhile, there was modest growth during the period from October to December 2019.

Tourism, particularly in the Family Islands which weren’t affected by hurricane Dorian, contributed largest to the country’s economy.

Projects supported by foreign investment and reconstruction efforts in hurricane-ravaged areas also contributed to the Bahamas’ fortunes.

The Government’s deficit widened due to unplanned hurricane recovery related spending, which the BCB said: “outstripped the value-added tax-led increase in aggregate revenue.”

Local bank liquidity and external reserves expanded, with the rise in the deposit base outstripping credit growth during the fourth quarter.

“Further, banks' credit quality indicators improved during the review quarter, underpinned by modest gains in economic conditions, alongside ongoing debt restructuring, hurricane relief measures and loan write-offs. However, the latest available data for the third quarter revealed a contraction in banks' overall profitability, mainly reflecting higher levels of provisioning for bad debt,” the bank said.

On the external side, the estimated current account position reversed to a surplus during the final quarter of 2019, from a deficit in the comparative 2018 period.

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