CB report highlights continued impact of Dorian, COVID-19

The government will continue to be weighed down by the cost of lost infrastructure because of Hurricane Dorian and an increase in spending for health and social welfare due to the ongoing COVID-19 pandemic, coupled with revenue losses, according to The Central Bank of The Bahamas’ (CBOB) Monthly Economic and Financial Developments (MEFD) report for October 2020, which was released yesterday.

The MEFD report states that the Bahamas economy is expected to recover at a slow pace in 2021 following a significant contraction this year because of the “COVID-19 pandemic and the residual impact from Hurricane Dorian”.

The report notes that the government’s revenue decline was due to a $229.3 million (46 percent) decline in tax revenue to $269.5 million.

“In particular, taxes on goods and services decreased by $197.3 million (52.2 percent) to $180.6 million, largely attributed to the falloff in value-added tax (VAT) receipts, to $134.7 million from $266.2 million in the previous fiscal year,” the MEFD states.

“In addition, taxes on international trade and transactions fell by $31.2 million (28.3 percent), given the reduction in departure taxes. Further, non-tax revenue reduced by $22 million (41.3 percent) to $31.4 million, underpinned by a $10.3 million retrenchment in receipts from the sale of goods and services, led by declines in immigration and customs fees.”

The document explains that tourism growth is hinged on several factors and is expected to remain modest.

“In this environment, tourism output is anticipated to decline to an historic low and the pace of the recovery in 2021 is contingent on improvements on the international health front and the subsequent resumption in global travel,” the MEFD report states.

“Nonetheless, new and ongoing foreign investment-led projects, combined with post-hurricane rebuilding works, are projected to provide stimulus to the construction sector.”

The CBOB report contends that the unemployment rate will remain high in the near term, with only construction sector jobs and the partial return of tourism sector employment bolstering those numbers.

External reserves are still forecast to remain robust through the end of the year, and “Balances are poised to remain adequate to sustain the Bahamian dollar currency peg,” states the report.

The CBOB stated it will maintain its current protective monetary policy stance and could impose further restrictions to protect external reserves.

“In light of the current outlook, the Central Bank will retain its targeted accommodative stance for private sector credit, while enacting policy measures that maintain a favorable outcome for external reserves and mitigate financial sector disruptions,” the bank stated.

“Further, the bank will remain diligent in its monitoring of foreign exchange developments and if required, will adopt appropriate measures to ensure a positive outturn for external reserves.”

The MEFD report further notes that Bahamian credit and debit card transactions in foreign currency sales fell by $39.8 million in October.

It adds that oil imports and travel-related payments, supported by foreign currency, fell by $27.5 million and $22.5 million, respectively.

“Provisional data on foreign currency sales for current account transactions showed a $108 million decline in outflows, to $342.3 million in October, relative to the same period of 2019, owing to decreases across almost all categories,” the MEFD report states.

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