Wednesday, October 10, 2018
By NEIL HARTNELL
Tribune Business Editor
Businessmen were yesterday "pleasantly surprised" that the IMF did not cut The Bahamas' GDP growth forecast more deeply, some having feared a full percentage point slash in VAT's wake.
Michael Maura, the Bahamas Chamber of Commerce's chairman, told Tribune Business that the International Monetary Fund's (IMF) revised estimates amounted to an effective vote of "confidence" in this nation's short-term economic prospects.
For the Fund, in unveiling its revised World Economic Outlook yesterday, chose to shave - rather than slash - its GDP growth forecasts for The Bahamas for both 2018 and 2019. It cut its economic expansion prediction for this year from 2.5 percent to 2.3 percent, while reducing its 2019 estimate by just 0.1 percent - from 2.2 percent to a revised 2.1 percent.
With the revised national accounts data suggesting The Bahamas has a $10-$11bn economy, the IMF's estimates effectively slash economic growth by $20-$22m this year and $10-$11m for 2019. This, though, does not alter the Fund's prediction that this country will enjoy the most rapid GDP expansion it has seen for a decade over these two years.
Mr Maura told Tribune Business he was "pleasantly surprised" by the IMF's minor downward revisions to short-term Bahamian GDP growth, having - in common with other private sector executives - expected a greater cut due to the Budget's Value-Added Tax (VAT) rate hike to 12 percent.
"I would say that was expected," he said of the reduced growth estimate, "when one recognises that we've seen an increase in VAT of 4.5 percentage points, taking us to 12 percent, which has a direct impact on consumption and consumer spending."
The Chamber chairman said he "interprets" the minor IMF revisions "to mean that they have confidence in our market" moving forward, although the IMF's medium-term forecast is for Bahamian GDP growth to return to its long-term average of 1.5 percent by 2023.
Robert Myers, one of Mr Maura's predecessors as Chamber chairman, told Tribune Business he had feared a full percentage point cut to The Bahamas' GDP growth estimates as a result of VAT's impact on consumer spending and private sector confidence.
"When you raise VAT you're going to have some repercussions from that," he said. "I think that takes a while to hit the market, but I thought we'd probably have some reduction based on VAT, which is only to be expected.
"I'm actually quite happy that they did not cut more than that. I thought it might be more than that. I thought it might be as much as a one percentage point decrease, but I'm glad to hear it's much lower than that."
Mr Myers said the impact of Baha Mar's full opening, and the "double digit" increase in stopover tourist arrivals linked to it and a reviving US economy, had likely helped "to dampen the effect of VAT".
Yet he warned: "We need to keep trying to grow the economy and stimulate the economy. We just can't afford any more increases in taxation until such time as we see an improvement in the economy.
"If there's another global recession that would hurt us significantly. This whole trade war between the US and China is definitely having an impact on the global economy, and is a bit unnerving frankly.
"We need to be growing towards 3 percent, not going down to 2 percent growth. We need to see growth of 3, 4, 5 percent if we can. That's where we need to be," Mr Myers continued.
"I understand the Government's position with regard to the VAT increase, but ideally we need to move growth upwards, not downwards. They need to keep a keen eye on that. It's all about growth, that's for damn sure. Stabilising taxes and getting growth; that's the way to do that."
Mr Myers identified rising, and volatile, global oil prices as another downside risk for the Bahamian economy, and added: "We've got to get control of energy costs as soon as humanly possible. That will help if there is another recession."
Others were also surprised by the IMF's minor growth modifications, suggesting it did not reflect the reality on the ground. "What I'm hearing is that the economy is worse than that," Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business.
"There's no growth at all. I sense those estimates are still a bit generous. Taxation has seemingly slowed the economy even further. We just can't keep going to the well of taxation."
Mr Maura, meanwhile, reiterated concerns that the imposition of tariffs on each other's imports by the US and China would spark price increases and inflation that will ultimately impact The Bahamas.
"That is going to spill over into our market because we buy so much from the US," he added. "We're going to be impacted; we can't avoid it. We import over 90 percent of what we need, what we consume, and at least 50 percent of those imports come out of the US. We're going to see an increase in the cost of goods as those tariffs take effect."
The Chamber chairman added that many of the Chinese imports targeted by the Trump administration's tariffs are parts/components used to produce the finished goods ultimately imported by The Bahamas.
This, he suggested, together with the "very serious approach" taken by the Government to work towards a balanced Budget and other factors, would have been taken into account by the IMF in its revised Bahamian GDO growth estimates.
"I would say we are better positioned than many of our regional counterparts for opportunities, given our geography to the US, the fact the US market is still very strong for tourists coming to our shores," Mr Maura said. "While we see a slowdown based on what the IMF is projecting, our story is still a very good story.
"There are a lot of opportunities in front of us from a growth and development perspective, and there remain opportunities for both domestic and foreign investors in The Bahamas, and the Government is being fiscally responsible."
Still, Mr Maura said the US-China trade war served as a timely reminder of the need to monitor external events that were likely to impact and shape the Bahamian economy.
"I do think it's important to be aware of the potential impact that a trade war, between two significant foreign countries, will directly have on our economy, our standard of living, our disposable income, and everything from pressures on wages to inflation and pressure on investment," he told Tribune Business.
"The impact is very real. It's better to be informed and aware of the changes that are happening, and the impact they can have on ourselves from a cost of goods perspective and the impact this is likely to have on the tourist sector through the people that visit our shores, and how it impacts them and their families.
"It's something to be aware of, consider and be involved and educated on, instead of assuming these things are going to happen and we're going to ride the wave. It's better to be informed so we can make sustainable business decisions at home."