Central Bank unveils $2.7bn FDI 'pipeline'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank is reporting a foreign direct investment (FDI) "pipeline" worth around $2.7bn excluding Baha Mar and other "headline" projects, the IMF has revealed.

The International Monetary Fund (IMF), in its just-released Article IV report, said that number - equivalent to about 24 per cent of Bahamian gross domestic product (GDP) - did not include the controversial $5.5bn Oban Energies deal or the potential $2.5bn development of the former Ginn project in Grand Bahama's West End by Toronto-based Skyline Investments.

"Projected FDI flows and tourism receipts are subject to upside and downside risks," the IMF said. "The Central Bank of The Bahamas reports a value of about $2.7bn (about 24 per cent of GDP) in FDI projects in the pipeline, excluding completion of Baha Mar...

"Therefore, there are significant upside risks to staff's baseline outlook for FDI cumulative flows of about $2bn, excluding Baha Mar. At the same time, external risks associated with US growth and global financial conditions, as well as the risk of policy slippages, imply downside risks to the FDI outlook. Equally two-sided are the risks around the outlook for tourism activity, related mainly to Baha Mar and the occurrence of natural disasters."

Elsewhere, the IMF expressed concern about further slippage in The Bahamas' cost and structural competitiveness, with real wage growth outstripping worker productivity. And it also noted that the foreign currency component of The Bahamas' national debt had risen further, potentially putting pressure on the external reserves.

The Article IV report also reiterated that that The Bahamas' one to one peg to the US dollar had resulted in a real effective exchange rate (REER) that was overvalued, with a 9.8 per cent to 12.3 per cent adjustment needed to "align the current account balance with economic fundamentals".

"Several indicators point to an erosion in cost and structural competitiveness in recent years," the IMF said. "From a cost perspective, despite the depreciation of the currency in real effective terms, the value of The Bahamas' REER remains above the average among key tourism competitors (Jamaica and the Dominican Republic) with more flexible exchange rate arrangements.

"The risks to tourism competitiveness are mitigated somewhat by the large share of US tourists in total arrivals," the Fund added. "However, real wages in The Bahamas have been rising faster than labour productivity in recent years and the costs of electricity are relatively high.

"Finally, the World Bank's 'Doing Business Indicators' suggest that the Bahamas has steadily lost ground from a business climate perspective since 2013, despite regaining some ground in 2017. The country still scores poorly in administrative processes, infrastructure, access to credit, ease of trading across borders, and protecting minority investors."

As for the national debt's composition, the IMF said: "Despite continued increases in debt, its composition remains favourable in terms of maturity, but has deteriorated somewhat in terms of currency.

"Foreign currency debt is projected at 36 per cent of total debt in fiscal year 2018 (up from 27 per cent in FY2017), while short-term debt, denominated entirely in domestic currency, represents only 14 percent of total debt."

The Fund added: "The stock of public external debt increased by 6.2 percentage points of GDP in 2017, reaching an estimated 27.3 per cent of GDP by end-year. The increase is primarily accounted for by the $750m external sovereign bond placement in November.

"Under the baseline scenario, external debt is projected to rise to 27.6 per cent of GDP in 2019, reflecting the planned issuance of a rate reduction bond by the state-owned electricity company, then fall to 26 per cent of GDP at the end of the forecast horizon."