Smith on economy: Brace for rough landing, dragged down reserves

The Bahamas should brace itself for a “not-so-good landing” economically as the COVID-19 pandemic rages on globally, former Central Bank of The Bahamas (CBOB) Governor James Smith asserted.

According to Smith, it’s because The Bahamas relies so heavily on the success of the United States’ economy, which, during the second quarter of 2020, saw a 30 percent drop in gross domestic product (GDP) across all 50 states and has an unemployment rate hovering around seven percent – double its rate before the onset of the COVID-19 pandemic.

“The economy is certainly not strong now and even if it rebounds, it’s not going to happen overnight. The economy itself is largely dependent on external factors such as US income, travel, et cetera, that’s the major part of it. As long as the US economy struggles, so will we,” he said.

“Bear in mind, now, you have huge unemployment levels in the United States… If you’re going to travel in the summer, you probably make your plans in January and you put your money aside and save towards it. But if you’re losing jobs, as they are in the United States, or you’ve lost a job, most of your savings will go to keeping you afloat and to pay off bills, so you don’t have anything left to travel this year or next year, even if you wanted to.

“And consequently, the rebound of the Bahamian economy, unless something drastic happens, will not be in the short term.”

The US Bureau of Economic Analysis has placed an advanced estimate of a 33.1 percent annual rate of growth in GDP for the third quarter of 2020. Employment in the US is expected to improve month over month.

Nonetheless, with a ballooned deficit from nearly a billion dollars in borrowing to keep the nation afloat during the crisis, Smith said it’s unlikely the Bahamas government can facilitate bulking up on foreign currency.

“And on top of that, of course the tourists are not coming, therefore, we’re not earning foreign exchange. The economy is very open and we import practically everything we consume, and to import, we need foreign exchange and that’s not coming in abundance,” he said.

“So, we are going to experience some shortages down the road because the government’s ability to even borrow foreign exchange will be limited, because we have borrowed over a billion dollars already over this period of time. So, I think we have to brace ourselves for a not-very-happy landing and maybe dragged down reserves.”

In August, Central Bank Governor John Rolle projected that the economy could shrink by 15 to 20 percent this year.

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source https://thenassauguardian.com/smith-on-economy-brace-for-rough-landing-dragged-down-reserves/