The country will see lower foreign currency inflows in 2021 than what was initially forecasted at the onset of the COVID-19 pandemic, though foreign currency reserves are currently at $2.3 billion and are expected to be higher than at the end of 2019, Governor of The Central Bank of The Bahamas (CBOB) John Rolle said yesterday, adding that a full tourism recovery could happen sometime in 2023, given the current circumstances.
In his quarterly update, Rolle explained that foreign currency inflows from investments, tourism and other export earnings, contracted by almost one third in the first nine months of the year.
“With the peak winter tourism season approaching and the recovery further behind than was expected, it is now projected that the economy will experience lower inflows next year, in 2021, than were forecasted in the earlier months of the pandemic,” Rolle said.
“It was always anticipated that when tourism reopened, seasonal activity would be a diminished fraction of the occupancy rates normally enjoyed, and that, thereafter, the gradual strengthening of business might span more than 24 months. This would place the expected full recovery of tourism at some point in 2023.
“We expect to see less total returns from tourism in 2021 than we anticipated in earlier forecasts of the economy. If you shift the date for restart, then you’re also shifting the entire timeline in terms of how we climb out of the low point in the industry.”
He added that in 2021, foreign reserves will begin to be depleted, especially if the tourism recovery remains delayed.
“The demand for foreign exchange to pay for imports and other external obligations fell by nearly 15 percent, still placing the reduced usage more than $750 million higher than private inflows,” Rolle said.
“As intended, proceeds from the government’s foreign currency borrowing have helped to cover this difference, in a manner consistent with the public sector’s sizable role in stabilizing domestic consumption.”
Rolle warned that any growth noted in 2021 will be gauged against a backdrop of the dismal economic numbers seen in 2020, brought on by the continued fallout from Hurricane Dorian and the economic shock caused by COVID-19.
According to Rolle, spending on imports will also remain muted until the recovery of the tourism sector and the return of thousands of Bahamians to their jobs in the sector.
“The ability to spend in this economy is automatically constrained if the full strength of the tourism recovery is not there,” said Rolle.
“So, it is not going to be the case that a full opening up of the economy means that we’re spending on imports at the level that we would ordinarily. We won’t be at that capacity until we’re all earning the income that we previously earned.”
He added that monetary policy will have to continue to focus on reducing the availability of foreign exchange to the private sector.
“The fact that policy options are available for The Bahamas to manage economic risks, should not be taken as an understatement of the severity of the immediate headwinds facing the economy,” said Rolle.
“The government will have to continue to engender confidence among both the domestic and external holders of its debt, in order to preserve its access to deficit financing. This comes down to a factor of sustaining confidence that the medium-term fiscal consolidation strategy will pay down the accumulated debt from the pandemic within a time frame that does not protract the economy’s exposure to devastating hurricanes that could further derail debt reduction efforts.
“The government will be under increased obligation to economize on expenditures and to undertake reforms to strengthen revenue collections.”
Rolle said managing foreign exchange usage continues to be a top priority. He said there will continue to be reduced access to foreign exchange until “at least the first half of 2021 and potentially longer, if the recovery is too delayed or subdued”.
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source https://thenassauguardian.com/central-bank-forecasts-lower-foreign-currency-inflows-in-2021/
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