Bahamas faces 'IMF programme by 2021'

Wednesday, May 6, 2020

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas will be in an International Monetary Fund (IMF) adjustment programme by 2021 due to a "balance of payments crisis", a noted Caribbean economist predicted yesterday.

Marla Dukharan, formerly Royal Bank of Canada's (RBC) top regional economics expert, told a webinar with Cayman Islands financial analysts that "the collapse of foreign exchange inflows" due to the tourism shutdown will leave The Bahamas with no choice but to seek the IMF's financial aid.

Now running her own economics consultancy, Ms Dukharan said the COVID-19 pandemic will set The Bahamas' back seven years - returning it to 2013 economic output (gross domestic product or GDP) levels if the fund's projection of an 8.3 percent contraction in 2020 comes true.

Warning that the true outcome this year will likely be worse than the IMF's forecast, given that assessments of COVID-19's impact are changing on an almost daily basis, she branded The Bahamas as "one of the most vulnerable countries" due to its overwhelming dependence on tourism.

"The Inter-American Development Bank estimated that The Bahamas could lose $900m in foreign reserves this year," Ms Dukharan said. "As a result, even though they have seven months' of import cover, based on what we saw earlier in terms of the relative dependence of The Bahamas on tourism, and particularly cruise tourism - about 75 percent of their tourism is based on cruises - I would imagine that their foreign exchange inflows are going to collapse or have collapsed already.

"This is why the government is implementing tougher restrictions on foreign currency outflows. I believe there's going to be a balance of payments crisis from what it looks like right now in The Bahamas by next year, and therefore an IMF programme."

The words "IMF programme" will likely fill many Bahamians with dread, as will Ms Dukharan's 2021 prediction. In return for receiving any financial bail-out, The Bahamas would likely have to accept strict austerity measures and a restructuring of its economy that could result in the downsizing of the public service and other conditions that could negatively affect employment, incomes and businesses.

An IMF "programme" would effectively result in The Bahamas' losing control over how its own economy is governed. However, Ms Dukharan yesterday argued that IMF "structural adjustment" initiatives have often been "demonised" by Caribbean countries, and are not the "hell" they are sometimes made out to be.

She pointed to Jamaica's recent exit from a seven-year IMF initiative, spanning three different administrations, which is viewed as having reduced a debt burden greater than that country's GDP and positioned it for greater economic growth moving forward. The former RBC regional economist also said Barbados's programme with the IMF was showing promising signs.

While The Bahamas may not be there yet in terms of Ms Dukharan's 2021 forecast, her projections underscore the threat to the foreign exchange reserves that support this nation's ability to feed itself and procure other essential imports as well as undergird the one:one fixed exchange rate peg with the US dollar.

Devaluation is the great unspoken fear of many Bahamians and residents especially given that the tourism industry shutdown has deprived the country of its normal foreign currency inflows. Much depends on how quickly tourism resumes, and the extent of visitor volumes and inflows, with many predicting the sector will not fully rebound until the Thanksgiving/Christmas period at earliest.

Many believe that is an optimistic timeline, and The Bahamas' vulnerability was further highlighted yesterday when Norwegian Cruise Line (NCL) - one of the major companies bringing passengers to this nation - warned in regulatory filings that there is "substantial doubt" about its ability to continue as a "going concern" because it does not yet have sufficient liquidity to meet its obligations for the next year.

John Rolle, the Central Bank's governor, on Monday indicated that maintaining the foreign currency reserves at adequate levels to support The Bahamas' balance of payment needs and the fixed exchange rate regime is among his top priorities.

Underscoring how real the threat is, he unveiled a four-strong package of measures designed to create a $300m "buffer" for the external reserves by restricting foreign currency outflows as well as seeking to generate badly-needed inflows.

The Central Bank has suspended all approvals for Bahamians seeking to invest in foreign securities and real estate, and requested that the National Insurance Board (NIB) liquidate "some" of its overseas investments and return the proceeds back home, as part of a package intended to protect the country's monetary foundation from the COVID-19 fall-out.

These two initiatives join the bar on Canadian-owned bank dividend remittances. While the suspension of economic activity for the past six weeks due to the national lockdown has kept the country's foreign reserves at near-$2bn for the moment, Mr Rolle said the Central Bank is projecting a reduction "potentially exceeding $1bn" to leave them somewhere between $800m and $1bn at year-end.

Although this level will still offer "adequate support in place to uphold the value of the Bahamian dollar fixed exchange rate", Mr Rolle said he was prepared to act swiftly in imposing even harsher restrictions if the need arises by targeting "domestic import capacity".

Ms Dukharan, meanwhile, yesterday argued that The Bahamas' failure to address "structural weaknesses" in its economic make-up had resulted in an unemployment rate higher than 10 percent for the past decade while leaving it more exposed to COVID-19's ravages.

"Even before [Hurricane] Dorian, I don't think that The Bahamas had ever really gotten to the point where I would say its economy was really recovered and roaring after the global financial crisis," she said.

"The unemployment rate has been 10 percent since 2008. I feel there were structural weaknesses in the economy that, coming out of the global financial crisis, were not really dealt with. Dorian added to that and compounded these weaknesses, and now we have COVID-19.

Backing the Central Bank's decision to restrict foreign currency outflows as "a wise move", Ms Dukharan added: "I feel that they're [The Bahamas] one of the more vulnerable countries facing this crisis right now."

She noted that The Bahamas' credit had declined from 'A-' with a 'stable' outlook in December 2003 to 'BB' with a negative outlook currently, the latter of which she described as "non-investment grade". And The Bahamas' current debt-to-GDP ratio was higher than the 55 percent 'sweet spot' below which extra borrowing could boost economic growth.

Still, Ms Dukharan advised the likes of The Bahamas: "Now is the time for governments without fiscal space to borrow big, borrow hard, putting some of it aside if you have to. Focus on keeping people fed and maintaining the level of social stability. That is really the most critical because that kind of outweighs everything else you can do."

She also suggested the Minnis administration was on the right lines with its $120m "stimulus" package targeted at supporting small businesses, company payroll, and those who are unemployed or have lost significant income.

Calling on Caribbean governments to be more assertive in dealing with the cruise industry, Ms Dukharan added that the region also needed to tackle growing inequality - set to increase further with COVID-19 - by developing "progressive tax policies" based on a person's ability to pay and shifting away from regressive forms such as VAT.

Noting that hotels may be left with bad debt due to the inability of tour operators to pay 30-90 day receivables, she said the US dollar's strengthening against other global currencies is also undermining The Bahamas' competitiveness outside its main tourism source market.

And Ms Dukharan said the "most shocking part" of research relied upon by Moody's, which suggested that 67 percent of The Bahamas' population will be submerged if global temperatures rise by three degrees centigrade, is that this is "baked in".

She explained that regardless of whether the world cuts carbon emissions and other behaviours, this temperature rise is set to occur anyway, posing a significant threat to this country having a sustainable future.

Comments

Well_mudda_take_sic says...

> Maria Dukharan said: "Now is the time for governments without fiscal space to borrow big, borrow hard,......."

>And she went on to say: ".....67 percent of The Bahamas' population will be submerged if global temperatures rise by three degrees centigrade,....."

It's all too obvious she's a 'bleeping lib-nerd' and the last one our country should be taking advice from.

Posted 6 May 2020, 5:14 p.m. Suggest removal

tetelestai says...

Agreed, mudda.

Posted 6 May 2020, 11:40 p.m. Suggest removal

Porcupine says...

Mudda, while I agree with your criticism regarding borrowing, is there anything else that she said that is off base? I have been saying a lot of these things for some time. This is the most important article in 2020 so far. The age of democracy is over in The Bahamas. Don't we see this? Are we still denying the realities of sea level rise, no matter how it is caused? Do we really have an inkling of what a Structural Adjustment Program will look like? Do you have a listening ear representative in the IMF? This will change The Bahamas more than any thing has in our history. There is no light at the end of the tunnel once we enter this program, except for the handful of those who are liquid enough and have enough foreign reserves themselves to eat. Study your history. We don't need to take advice from her, but we sure as hell should sit up straight and listen because she is telling us what is coming down the pike. Ready or not. John Rolle is the most scared person in this country right now. Why? Because he sees the numbers and he knows there is not the intelligence, morality, nor money in this country to dig ourselves out of this hole.

Posted 7 May 2020, 6:05 a.m. Suggest removal

I believe in the science behind global climate change and appreciate the risks global warming presents for our country. But I have great disdain for those who would use that topic as a 'pile on' scare tactic to make us believe it's okay to borrow like there's no tomorrow because tomorrow 67% of us will be submerged. Hope you understand.

Posted 7 May 2020, 2 p.m. Suggest removal

I do, and agree.

Posted 7 May 2020, 9:57 p.m. Suggest removal

We should step back as a nation and ask ourselves: "Why are all of these clowns like Maria Dukharan trying their hardest to scare us into borrowing like there's no tomorrow?"

Posted 6 May 2020, 5:33 p.m. Suggest removal

BlackWealth1202 says...

Well.......This message was very cryptic.

Posted 6 May 2020, 5:50 p.m. Suggest removal

Well......This story was very cryptic at the end.

Posted 6 May 2020, 5:52 p.m. Suggest removal

DDK says...

The woman must be mad. The PM and DPM don't need any encouragement to borrow and spend like drunken sailors. I wonder, have they ever heard off GREECE (not the kind the average Bahamian considers a hugely necessary part of the daily diet)?
The leaders did not tighten their belts as promised to bring down our enormous deficit. Instead, it was business as usual, with a double dose of betting shops. Now IT IS INDEED THE PEOPLE'S TIME to pay the price and feet the pain.

Posted 6 May 2020, 6:07 p.m. Suggest removal

DDK, listen closely. She is not mad. She is part of the neo-liberal structure that has taken over all economies now. No conspiracy. Just like you said, no leader needs any encouragement to borrow. The other shoe to drop will be finding out how much of The Bahamas is owned by China once the shit hits the fan.

Posted 7 May 2020, 6:09 a.m. Suggest removal

themessenger says...

@DDK, I don't suppose that the previous five years of the PLP's outstanding fiscal policies or last year's hurricane had anything to do with the country's present financial woes now would they?

Posted 6 May 2020, 6:48 p.m. Suggest removal

Oh, enough with the PLP nonsense. Its 3 years later. If that is still the excuse, then the FNM were/are not worthy of our votes.

Posted 6 May 2020, 11:41 p.m. Suggest removal

Partially, a total of fifty odd years of poor governence and corruption is the culprit. It's blatantly clear that our leaders should leave the mentality of the Dark Continent behind them and focus on something like forward, upward, onward and together. One can only dream!

Posted 6 May 2020, 8:21 p.m. Suggest removal

Hurricanes, viruses, and the former government, whichever, are only lame excuses for the ignorantly deliberate, corrupt destruction of our Country.

Posted 6 May 2020, 8:27 p.m. Suggest removal

THIS!

Posted 6 May 2020, 11:42 p.m. Suggest removal

No disagreement. Now what do we do? Seriously. What do we do? The comments section and editorials in our national dialog are clear evidence that we haven't a clue. Not our political leaders, not our business leaders, not our citizens. I am not being demeaning, I am being honest. Which is also a crime in our country, it seems.

Posted 7 May 2020, 6:12 a.m. Suggest removal

Don't despair. We didn't get to where we are in a day and we certainly won't get to where we should be in a day. So just take it day by day and keep doing what you've been doing, i.e. wisely using your voice. People still listen to well reasoned view points, albeit some much more reluctantly than others.

Posted 7 May 2020, 2:25 p.m. Suggest removal

The_Oracle says...

No worries about China owning the Bahamas, they don't want land,
they want fisheries which are already underwater.........
Borrow big, Borrow hard? why not, if you stand no chance of paying it back.......
Insane.
We need a cash crop, that can earn U.S. $$
Only one I know of. Irrespective of your personal views on Marijuana it is a literal cash crop, potentially.
3-4 months average grow time. A local cooperative, export only (local leakage will occur but shouldn't be too hard to manage)
Find some experts fast and let them have at it. Lease them crown land.
Start on more isolated islands if you wish. Keep the criminals out of it.
We have very few options, and even less time.

Posted 7 May 2020, 3:26 p.m. Suggest removal

KingFish says...

Hey Porcupine and DDK - good stuff. Corruption is a drag - we need a real anti-corruption commission like they have in Cayman. Also when the IMF comes a knocking, they will require many government jobs to be cut, this is OK. But they will also kill the financial services industry. I guess we can all go to the straw market and sell stuff to the tourists. Oh, drat that may not work either. As for the Chinese, they are merchants of mischief, so we let them have the wet parts, we keep the dry parts.

Posted 7 May 2020, 4:48 p.m. Suggest removal

PoisonIvy says...

Simple way out of this is to dollarize the Bahamian economy. Get rid of the Bahamian Dollar we don’t need to have Monopoly money with our leaders on it for national pride if our currency is
going to be worthless. With just US dollars in the Bahamian economy we do not have to worry
about foreign exchange and our currency getting devalued. The trade off is that we won’t have our own currency with our political leaders on it and also the monetary policy will be conducted by the Federal Reserve Bank in the US instead of the Central Bank of the Bahamas. This is ok because we can use interest rates to stimulate our economy if we switch to the US Dollar which we can’t right now with the Bahamian dollar. Our paychecks will be in US Dollars and we will not have to change Bahamian dollars to US when we travel to the US for shopping. The other option is to borrow from the IMF which will destroy us like all the other countries that have gone before us like Jamaica and now Barbados and all the African and Latin American countries. The IMF will make us devalue our dollar, and make us cut out all our good comfortable government jobs which gives us almost permanent employment (that’s why banks give government workers loans). Next option is to borrow cheaply from the Chinese which they will be very happy to do. But I say NO to this because the Chinese already own prime Cable Beach property because of Bahamar and they know we will be unable to pay back their loan and we will be like Sri Lanka which had to give up their Sea Port to China for 99 years. There are other countries in Africa which have went through the same issues of China owning their infrastructure because of debt payments. Our tourism will pick up thanks to President Trump forcing the opening of the US economy even though CNN, MSNBC, NYTIMES, Washington Post, the Democrats don’t want to open up the US and keep it locked down indefinitely because they hate Trump and want the US economy to fail so that he will lose the election. A lot of Bahamians should thank Donald Trump because tourism will come back with a huge bounce but it will take time. It will come back in November for thanksgiving and Christmas. Usually in good times the summer tourism period is not as strong as our winter period. Plus right now most Americans (where we get most of our tourists from) will be more concerned about their jobs, and getting a paycheck and paying their bills and sending their kids to school and college. When they sort through all of this in 6 months they will be back. So hang in their Bahamas and make sure our dumb politicians don’t do anything stupid like signing up with the IMF or China for money.

Posted 7 May 2020, 5:11 p.m. Suggest removal

Wow! That's one heavy duty free flow stream of thoughts you've dumped there.....I need a stiff drink!

Posted 7 May 2020, 7:28 p.m. Suggest removal

The drinks are on me. You will need more than one. There are more thoughts :-)

Posted 7 May 2020, 8:22 p.m. Suggest removal

totherisingsun says...

Astute points. Carry on.

Posted 8 May 2020, 6:57 a.m. Suggest removal

I have a sense that our Pride, the one not based in accomplishments , will be our undoing. What is the point of having paper with pretty colors and pictures, if it has no value outside these shores. It is a straw man.

Posted 8 May 2020, 7:03 a.m. Suggest removal

ColumbusPillow says...

Another fear monger "67% of Bahamians will drown because of sea level rise/global warming"
Total nonsense! The tidal gauges refute this lie. Enough garbage..

Posted 8 May 2020, 5:38 p.m. Suggest removal

moncurcool says...

Clearly what she was saying was wrong as this is 2022 and it has not happened.

Posted 23 January 2022, 7:15 p.m. Suggest removal