By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

More than one in every six "formal" jobs in The Bahamas could be lost due to COVID-19, the Inter-American Development Bank (IDB) has warned, making 100,000 workers "vulnerable" to the fall-out.

An IDB report on the repurposing of more than $19.5m towards the Government's tax credit and deferral initiative, which is designed to give Bahamian firms payroll support and keep workers off the National Insurance Board (NIB) lines, lays out in stark detail the pandemic's consequences for Bahamian workers, their families and income levels.

Drawing on a paper produced to assess COVID-19's impact on regional employment, the IDB said the findings estimated that almost 18 percent of jobs in the Bahamian formal economy could be lost due to the contraction and subsequent restructuring the pandemic will likely cause.

Combining this with the impact on the "informal" economy, which some observers believe accounts for between 20-30 percent of Bahamian GDP (gross domestic product), the IDB report predicted that 100,000 workers are "vulnerable" to losing either employment, incomes or both if this nation remains locked in recession for three consecutive quarters.

That would mean the Bahamian economy has to shrink throughout the final nine months of 2020, a development that appears increasingly unlikely given that the tourism industry will not rebound in any significant way before year-end 2021.

The IDB report, which has been obtained by Tribune Business, also exposes the immediate impact COVID-19 had on Bahamian poverty levels by revealing that the "share" of households reporting earnings below the minimum wage "more than doubled" in the four months between January and April 2020 - a period containing the first full month of the initial lockdown.

"The repercussions of the crisis will hinder a large portion of the population’s income," the IDB said, acknowledging that The Bahamas is not the only nation facing such challenges, as the United Nations' Economic Commission for Latin America and the Caribbean (ECLAC) has forecast that the number of persons living in poverty within the region will rise by 35m - from 185m to 220m.

"Formal sector workers will also be at risk, as businesses are hard pressed to preserve pre-crisis employment and wage levels," the report added, drawing on the findings of COVID-19 related employment studies produced for the IDB.

"A loss of formal jobs could occur, affecting between 5.4m and 18m workers in the region. Estimated formal job losses for The Bahamas range between -9.3 percent and -17.7 percent," the IDB paper said.

"A scenario that assumes a recession for three consecutive quarters would affect around 100,000 vulnerable workers in The Bahamas - those who were already informal workers before the crisis, and those who could lose their jobs (all without sufficient income).

"These estimates reveal the possible extent of the dramatic effect COVID-19 will have on the labour market and thus on household incomes in The Bahamas." However, the IDB quickly conceded that forecasting the precise impact was made difficult by the absence of "timely and representative data" - a common occurrence in this nation.

In particular, it noted that no labour market data has been collected in the Dorian-ravaged islands of Grand Bahama and Abaco for more than one year, with the 2020 Labour Force survey having been delayed due to the pandemic.

"Unemployment claims to the National Insurance Board (NIB) in March and April 2020 increased almost twenty eight-fold compared to the same period of 2019, and the share of households reporting earnings below the minimum wage more than doubled between January and April 2020," the IDB paper added.

"Between March and April 2020, the National Insurance Board (NIB) received 27,870 unemployment claims compared to 973 claims received in the same period of 2019. The combination of subdued tourism activity and lower domestic production and consumption (due to company closures resulting from the imposition of strict curfews and lockdowns) are the main reasons behind these trends.

"In the medium-term (over the next two to five years), the Bahamian economy will face the challenge of recovering economic activity to pre-COVID-19 levels, ensuring the continued protection of livelihoods as well as financial and fiscal pressures to absorb the negative shock of business closures and the fall in household income."

Justifying the decision to switch more than $19.5m from a project designed to improve the Bahamian workforce's skills to the Government's payroll support initiative, the IDB said the step was critical to preserving as many local jobs as possible.

"The formal sector is a highly vulnerable sector because liquidity constraints may cause firms to reduce employment demand, causing a general effect on the economy," the report added. "Fewer jobs would result in reduced labour income.

"In the short-term, this implies reduced consumption levels, and in the long-term human capital depreciates affecting expected quality of life and lower tax contributions. Therefore, if the liquidity constraint in these firms is not addressed, they would be forced to reduce their workforce and, in some cases, completely halt operations."

The IDB said it expects more than 6,500 Bahamian workers will benefit from switching its funding to the tax credit and deferral initiative, with the monies fully distributed by the end of the 2020 third quarter.

"The actions proposed in this operation will directly benefit formal enterprises in specific industries affected by a potential loss of employment due to COVID-19," the IDB report said. "We thus expect 6,503 individuals from these target firms to benefit from IDB funds and preserve their jobs based on the information of enterprises that have applied to the programme.

"This is 10 percent of the potential pool of 64,925 workers currently working in the following industries: Agriculture, hunting, forestry and fisheries; mining, quarrying, electricity, gas and water; manufacturing; construction; transport, storage and communication.

"As of May 25, 2020, 53 firms have been approved for the tax deferral employment retention programme. The average declared turnover amounts to $16.313m, and the average number of employees per firm is 102 with an average wage of $2,240.54," the report continued.

"The size of these firms varies greatly. The smallest declared turnover is $45,000 and the highest $174.415m. Total employees amount to 7,072. The total approved tax relief is $6.639m per month."

The IDB admitted that there was a risk that the initiative might be "under-subscribed" given that many companies will have already released employees and sent them to the NIB queues. However, the Government previously said the first round of the initiative saved 7,000 Bahamian jobs through providing businesses with $18m worth of COVID-19 relief via tax credits and deferrals.

The second phase, which the IDB funds will help finance, is being expanded to include all qualifying VAT registrants with a turnover of $100,000 or greater plus the hotel industry. The first phase was targeted only at firms with annual turnovers exceeding $3m and a minimum of 25 employees.

Qualifying businesses were able to withhold due VAT or outstanding business licence fees between April and June to enable them to meet payroll expenses. The tax deferrals and credits were split 50/50, meaning that the $9m worth of deferred tax payments in the first phase will have to be paid back by those companies in 2021 via a 12-month payment plan to be agreed with the government.

Companies that may have received assistance under phase one can also apply for further assistance in phase two.