By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Bahamian economy is likely to shrink by 15 percent this year due to the combined effects of COVID-19 and Hurricane Dorian, a financial analyst has predicted.

Anthony Ferguson, CFAL’s principal, speaking to a webinar hosted by the Chartered Financial Analyst (CFA) Society of The Bahamas, said: “It is estimated that our unemployment [rate] is now at 35 to 40 percent. The government’s [cash] burn rate is about $150m to $175m a month.

“The government debt, projected up to 2022, is probably going to come in around $11.5bn. GDP should contract. I see the government in their budget is suggesting a five percent contraction. I believe it will be significantly more than that. Based on the numbers I have calculated, it’s going to be around ten percent to 15 percent.”

Mr Ferguson said some of his “concerns” are that, “salaries, subsidies, of course interest on the debt, comes up to close to 95 percent [of GDP] projecting out two years, which leaves very little headwind for the government to make any substantive change to the economic model that we currently have”.

“The problem as I have seen it is that successive governments, since 1973, have had a broad economic consensus with a particular focus on tourism, which I believe continues to serve us well. I believe, however, this has limited the ability of politicians and their advisors to see cracks in the system and to imagine alternatives,” the CFAL chief added.

Acknowledging that The Bahamas can go in several different directions as it emerges from the COVID-19 pandemic, Mr Ferguson said: “Let’s be clear, our economy hasn’t grown significantly for the last five years. I think last year it was on track to grow 0.5 percent, and if you go back six or seven years, it actually was negative. In addition to what I would call slow growth, as well as Dorian, where we lost about 15 percent of our economy, Abaco and Grand Bahama, we now have this pandemic.

“So I believe we are in what I would call a pancession, a health pandemic which is now causing a recession pandemic, so hence pancession. I think, though, we have a wonderful opportunity to really look at how we manage this economy.

“Jeff (Beckles, chief executive of the Bahamas Chamber of Commerce and Employers Confederation) has spoken a lot about the private sector involvement. However, that requires what I would call a mature government - a government that is going to be non-partisan in their tapping the wealth of knowledge that a significant amount of young people in this country have, and they can help grow the future.”

Mr Ferguson praised the Budget for increasing the focus on digitising government. He called for funds allocated for this purpose to be spent “judiciously”, and called for the creation of an “office of budget and management” to oversee some of the spending.

However, he questioned the government’s decision to borrow a “significant portion” of its targeted $1.3bn deficit in foreign currency. The CFAL chief said: “Today we have about $2bn in foreign debt. The point is this. Continued foreign borrowing is extremely expensive.”

Warning that excessive foreign currency borrowing will begin to “slowly impair” the one:one exchange rate peg with the US dollar, Mr Ferguson questioned the strength of The Bahamas’ external reserves given this need to support them. He added that The Bahamas has $300m worth of foreign currency debt principal coming due in 2024 that may have to be refinanced.