By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

HURRICANE Irma-related reconstruction is expected to widen the 2017-2018 fiscal deficit by $44 million, the Inter-American Development Bank (IDB) has warned.

The multilateral lending institution, in its assessment of the economic loss and damages inflicted by last September's storm, said the main macroeconomic effects would be felt in the Government's finances and balance of payments as construction-related imports increased.

"The rehabilitation and reconstruction effort is therefore expected to lead to a widening of the fiscal deficit by $44 million," the IDB report said. "Total revenue is projected to decline by 0.5 per cent [of GDP], reflecting loss of revenue from tax exemptions for citizens in the affected islands....

"Total expenditure is projected to expand by $35 million to $2.3 billion, or 22.2 per cent of GDP, in line with growth in both current and capital spending. Current spending is expected to increase by 1.2 per cent, owing to higher outlays on goods and services that is associated with the purchase of equipment, materials and supplies to aid recovery and reconstruction after the hurricane.

"Capital expenditure is projected to increase by 4.5 per cent ($11 million) in 2015 to aid in the reconstruction process."

While Irma's macroeconomic impact is relatively mild, given that it largely spared the Bahamas' major population centres as it carved through the southern Bahamas, the IDB assessment said several restoration projects begun in the aftermath of hurricanes Joaquin and Matthew in 2015-2016 had been impacted.

"Important among these were the rehabilitation of the Queens Highway in Acklins at a cost of $16.7 million, the Crooked Island seawall and carriageway rehabilitation estimated at $6.6 million, and the construction of a seawall and road rehabilitation in Long Island ($1.07 million)," the IDB said.

"It is expected that given the desire to contain the growth of debt, the Government would seek to reallocate expenditure from some projects and activities wherever feasible to contain growth in capital expenditure. However, additional spending will still be required, especially for the most affected islands."

Turning to Irma's other impacts, the IDB analysis said: "The balance of payments current account deficit is expected to widen by roughly $40 million; from 14.4 per cent of GDP to 14.7 per cent of GDP in 2017 after Irma.

"The outcome will be mainly driven by an additional increases in merchandise imports, reflecting higher imports of building materials, equipment and supplies for the reconstruction and relief efforts after the hurricane. Domestic imports are projected to increase by an additional $20 million to $3.2 billion, while exports are expected to decline by 2 per cent to $363 million, partly reflecting lower salt exports from Inagua and other exports."

It continued: "The tourism sector did not suffer as much damage or losses as during Hurricane Matthew last year. Nevertheless, some properties on Grand Bahama, Bimini and the other islands were affected. Therefore, travel receipts are estimated to decline marginally by 0.4 per cent to $2.7 billion after Irma.

"Net payments for construction services are projected to increase by around 6 per cent, reflecting the hiring of foreign contractors by some hotel and other properties to aid with the repairs and reconstruction.

"The capital and financial account surplus was projected to expand by 1.8 per cent to $1.7 billion. Foreign direct investment is expected to increase by around 5 per cent to $305 million, partly reflecting increased inflows for reconstruction of some hotel and other tourism properties. Public sector long-term capital is also expected to increase marginally in line with increased borrowing for reconstruction and repairs."