By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ record annual $4.274bn trade deficit for 2024 is not something “to be alarmed about as yet”, a local economist told Tribune Business yesterday.

Rupert Pinder, assistant professor of economics at the University of The Bahamas (UoB), told Tribune Business that the deficit - which measures by how much physical goods imported to the country exceed this nation’s exports - only becomes worrying if the external reserves are being drained to finance it and there are no signs this is occurring.

Speaking after the Bahamas National Statistical Institute (BNSI) unveiled the 20204 annual and fourth quarter trade data, he pointed out that the statistics only relate to one aspect of The Bahamas’ balance of payments which is called the current account.

This measures the country’s trade in physical goods, and how much imports exceed exports, resulting in a deficit that broke through the $4bn mark for the first time last year. This represents a 22.6 percent, or close to $750m year-over-year increase, on 2023’s trade deficit.

However, it does not incorporate the capital account, which measures The Bahamas’ services export earnings from its two largest industries, tourism and financial services. These inflows are what finance an annual Bahamian multi-billion dollar trade deficit created by the country’s economic model, which sees it import virtually all of its consumption needs.

And Mr Pinder told this newspaper that the trade deficit is further offset by foreign direct investment (FDI) inflows into both real estate purchases as well as resorts and other projects. He added that the trade deficit also includes the importation of capital goods by both Bahamian and foreign investors, with the largest import category for the 2024 fourth quarter being ‘machinery and transport equipment’ valued at a total $287m.

Still, the $4.274bn trade deficit for last year sets a new annual record, exceeding the six-year high of around $3.487bn in 2023 which was itself a 7 percent or $233m jump on the figures for 2022. The Bahamas in 2024 imported close to $5bn worth of goods, the actual number standing at $4.944bn, while exports in comparison stood at a relatively meagre $669.949m.

Mr Pinder, though, reiterated that any alarm over the trade deficit would have been “sounded by the Central Bank” through the imposition of credit restrictions designed to reduce the outflow of external reserves that safeguard the one:one exchange rate peg between the Bahamian and US dollars. And the Central Bank, just last week, announced that the reserves grew by $270m to $2.62bn at year-end 2024.

“Generally speaking, in terms of the current account, it’s usually not a concern given the extent to which it’s typically offset by the capital account of the balance of payments,” Mr Pinder told Tribune Business of The Bahamas’ record trade deficit. “To me, on the face of it, I would only become concerned to the extent to which we are running down our external reserves.”

John Rolle, the Central Bank’s governor, last week said that while the external reserves are forecast to end 2025 below last year’s level there is no cause for concern as this is expected due to the faster pace of lending by Bahamian commercial banks. And Mr Pinder yesterday reiterated that the trade deficit only measures one aspect of The Bahamas’ balance of payments.

“The other component we must also take into consideration as well, in addition to tourism earnings, is foreign direct investment,” he explained. “The foreign direct investment also offsets some of the deficit we see on the current account, some of which may be due to the importation of capital goods to help facilitate some of that foreign direct investment.

“Clearly we are not producing the capital goods we need to help to propel foreign direct investment. I would only be concerned to the extent to which we see some serious outflows by way of the foreign reserves. The Central Bank has not sounded the alarm with respect to the foreign reserves.....

“To me, the biggest concern for an importing country is in terms of the fiscal deficit and the extent to which it gives the signal that you have a problem with your foreign reserves,” Mr Pinder added. “To the extent there hasn’t been any alarm sounded over the foreign reserves, I suspect a lot of those outflows may be due to the importation of capital equipment and, if that’s the case, there are benefits to the economy.

“The long and short of it is that we cannot look at these numbers in isolation. We have to look at the relationships, and how these things are connected. I am sure there are persons who may not necessarily understand a lot of this and may want to create some mischief, saying ‘you have this very large trade deficit’.

“But, on the face of it, I don’t see anything necessarily to be alarmed about as yet. We have to look at foreign direct investment and what is happening by way of capital goods and the importation of capital goods. We have inflows of foreign direct investment to finance those goods,” the UoB economics professor continued.

“I think that if there is any cause for concern in that regard it will come out in the wash over the foreign reserves if we have significant outflows to finance the trade deficit. There’s nothing to suggest there are issues with that and I wouldn’t sound the alarm.

“The Central Bank would be the first to do that and, in that regard we would have seen - without being alarmist - measures that say we need to conserve foreign exchange and that will come by way of positions that restrict credit expansion. We haven’t seen that so I wouldn’t be too concerned.”

The Bahamas National Statistical Institute, in its trade report for the 2024 fourth quarter, said that - while year-over-year growth in this nation’s goods exports beat the rise in imports by a double-digit figure in percentage terms - their dollar value was still relatively small compared to what was brought into this nation.

“Data on merchandise trade for the 2024 fourth quarter shows that the value of commodities imported into The Bahamas totaled $1.216bn, resulting in an increase of 16 percent when compared with the same period last year,” the Institute said.

“The major groups of merchandise were ‘machinery and transport equipment,’ which totalled $287m; ‘food and live animals’ at $212m; and ‘manufactured goods classified chiefly by materials’ which totalled $193m. The combined value of these categories represented 57 percent of total imports.

“Other categories that contributed significantly to total imports were ‘miscellaneous manufactured articles’, which accounted for $180m; ‘mineral fuels, lubricants and related materials’ valued at $144m; and ‘chemicals’ at $82m. These groups together represented 33 percent of total imports,” the Institute added.

“Categories that showed an increase when compared to the same quarter last year were ‘manufactured goods classified chiefly by materials’ and ‘machinery and transport equipment’, which increased by 38 percent and 31 percent, respectively.”

As for Bahamian exports, the Institute said: “Fourth quarter 2024 data shows that the value of commodities exported - domestic and re-exported - from The Bahamas totalled $196m, resulting in an increase of 27 percent when compared with the same period last year.

“The categories that contributed the largest proportion to the exports were ‘miscellaneous manufactured articles’, which totalled $57m; ‘food and live animals’ at $39m; and ‘machinery and transport equipment’ at $25m, which combined represented 62 percent of total exports.

“Categories that showed significant increases were ‘miscellaneous manufactured articles’, and ‘beverages and tobacco’, which increased by 926 percent and 109 percent, respectively, when compared to the same quarter last year,” it added.

“The groups that decreased in value when compared to the same period last year were ‘mineral fuels, lubricants and related materials’, and ‘animal and vegetable oils and fats’ and ‘manufactured goods classified chiefly by materials’ and which declined by 61 percent, 36 percent and 4 percent, respectively.”