DPM 'hopeful' GDP growth will escape oil price shocks

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Deputy Prime Minister is expressing confidence that The Bahamas will meet its 2.5 per cent GDP growth target despite rising oil prices, adding: "Hopefully we'll be able to ride it out."

KP Turnquest, pictured, conceded to Tribune Business that increased energy costs, with global oil prices hitting the $80 per barrel mark last week, could throw the Government's economic growth and fiscal consolidation plans off course.

However, he expressed optimism that a healthy foreign direct investment (FDI) pipeline, combined with external reserves just shy of $1.6bn at end-March 2018, would help cushion any reduction in consumer spending and confidence.

"That is obviously something we're watching," he said of rising oil prices. "It could have an effect on our consolidation plans, so we have to manage it is as an outlier and build in as many contingencies as we can.

"Where we have a rise in oil prices it affects the amount of investment dollars and consumer confidence. Those are factors we have to watch, but hopefully the oil price will not rise too much further and we will be able to contain the risk in the envelope we have developed."

Many analysts are predicting that prices will continue to rise past $100 per barrel, driven by supply cuts from key Oil Producing and Exporting Countries (OPEC) members, particularly Saudi Arabia and Russia.

Much of the world's oil reserves are located in volatile and politically unstable regions, such as the Middle East and Venezuela, and Donald Trump's decision to withdraw the US from the Iran nuclear deal has helped spark last week's price surge amid fears of supply interruptions following the renewed imposition of sanctions.

The Bahamas relies 100 per cent on imported fossil fuels for virtually all its energy needs, making it especially vulnerable to upward movements in global oil prices - something acknowledged by Mr Turnquest.

"In an open economy these are risks we are constantly faced with," he told Tribune Business. "We don't control them. It only gives credence to the fact that during periods of declining oil prices we ought to be investing in alternative energies and encouraging persons to invest in alternative energies, as well as energy efficient equipment.

"Fortunately for us we have very healthy reserves, so hopefully we will be able to ride it out, hope it's a temporary issue and get back to more normal prices in short order. It does have an affect on the reserves, but we have no concerns at the moment."

Mr Turnquest conceded that further, sustained oil prices will cause investors and consumers to "pull back" due to the resulting uncertainty. Yet he added: "At the moment we have very healthy investments in the ground, so we have confidence that we'll be able to meet that [2.5 per cent] growth or not be too much off.

"We feel pretty confident where we are, fingers crossed and all that."