While giving a Review of Current and Prospective Macroeconomic Developments, during his 2021/2022 Mid-Year Budget Statement, in the House of Assembly, on March 9, 2022, Prime Minister and Minister of Finance the Hon. Philip Davis noted that, throughout the COVID-19 pandemic, his party said repeatedly, in Opposition, that the country would not be able to manage the economic crisis until The Bahamas was effectively managing the health crisis.
“Our administration has taken a very different approach than the previous one,” Prime Minster Davis said.
“We immediately ended the curfew, because the data to justify it just didn’t exist,” he pointed out. “Businesses were able to open for longer hours. This had a significant impact for certain sectors of our economy, as well as restoring important civil liberties to our people.”
“And, by ending the Emergency Orders and using regular legislation, we brought the decision-making back to a deliberative, representative body, instead of having all that power reside with a single individual,” Prime Minister Davis added.
Prime Minister Davis noted that his Government had conducted tens of thousands of free COVID tests and were distributing medical-grade masks. Both of those were important tools in limiting COVID transmissions, he added.
“We hired more nurses to help is prepare for crisis,” Prime Minister Davis said.
He added: “By rationalizing the travel sector requirements, and eliminating the travel health visa for Bahamians, obstacles to international and domestic tourism were removed. By working closely with health professionals and relying on scientific advice, we have been able to safely re-open schools. And by maximizing all available resources to repair and refurbish those school buildings which had fallen into a terrible state, we were able to open schools without delay.”
Prime Minister Davis said noted that Bahamian hotels were filling up and businesses were open.
“Many Bahamians are back at work and our children are back in school,” he said. “This is progress, and indeed our economy has already begun to show promising signs of revival.”
“We are proud that our country has made such significant progress over the last few months, despite the Delta and Omicron variants; and we are grateful to the thousands of Bahamians who worked hard to get our country back on track again,” he added.
Prime Minister Davis said that, although his Government had taken “such promising strides forward” at home, factors in the global economy continue to exert adverse pressures.
As a result, he noted, the near-term outlook for the global economy had becomemore complicated. “In its World Economic Outlook (WEO) last October, the IMF had projected a strong rebound in the rate of global output growth of 5.9 percent, followed by 4.9 percent in 2022, as markets were expected to return to more normal levels,” Prime Minister Davis said.
“However, with the spread of Omicron, just last month the IMF reduced its 2022 global growth forecast to 4.4 percent, fully 1.5 percentage points lower than in the October forecast,” he added. Prime Minister said that, similarly, for The Bahamas’ major trading partner, the United States, the 2022 growth estimate was reduced by 1.2 percentage points, from 5.2 percent to 4.0 percent.
“Thus, while the external economic environment does still remain favourable, going forward it is clear that we will need to remain vigilant and prudent,” he said. Labour market conditions in the major economies had also improved steadily, Prime Minister Davis noted.
He pointed out that, in the United States, the unemployment rate was down to 4 per cent in January 2022, as compared to the pandemic high of 14.7 per cent in April 2020. In the Euro area, the un-employment rate declined to 7.2 percent in November 2021 from the pandemic peak of 8.7 percent in July 2020.
“But as global demand conditions improved, fueled by worldwide relaxation in COVID-19 restrictions, supply responses did not keep pace, and so global inflationary pressures began to increase over the period,” Prime Minister Davis said.
He noted that, In the Euro area, the annual inflation rate for December 2021 rose to 5.0 percent, from 4.9 percent in November, and 4.1 percent in October. Similarly, in the United States, consumer price inflation soared to 7.5 per cent in January 2022, up from 7 per cent the previous month and the highest 12-month
gain in 40 years.
“As an economy so heavily-dependent on imports, we have already seen a rise in prices in the country,” Prime Minister Davis said. “Our reduction in the rate of VAT from 12 percent to 10 percent has softened the blow to consumers to some degree, but the underlying price increases remain”
“We are in discussions with wholesalers and importers as to how we might work together to mitigate further the impact on consumers,” he added.
“We are also resolved to resume and intensify our efforts to achieve greater food security by investing in BAMSI. It is a matter of continuing regret that this landmark investment was degraded and neglected by the previous administration, with the result that the country has made no progress in this
Prime Minister Davis said that many Bahamians would already be aware, from international news coverage, that the Russian invasion of Ukraine in the past two weeks, and the consequent imposition of sanctions by countries around the world, were likely to have a further impact on the Bahamian economy.
“At the moment, it is not easy to determine the extent of that impact, but anything that affects any of our major trading partners, such as the United States, will almost certainly impact us,” Prime Minister Davis said.
“We are monitoring the situation extremely closely, especially in relation to the upward pressure on energy prices and other commodities that are likely to affect The Bahamas most,” he added.
“As a consequence of improvements in global market conditions, the rate of economic growth in The Bahamas was forecast by the IMF in October 2021 to increase by 2 percent and 8 percent in 2021 and 2022 respectively.”
Prime Minister Davis noted that, while the IMF had not yet revised that forecast to account for its latest global outlook, his Government remained confident that the upward momentum that it had witnessed to date will largely be sustained.
“That said, as I stated earlier, we will need to maintain a cautious and prudent policy stance, and adjust policies as necessary to sustain both economic momentum and the health of the public finances,” he said.
Prime Minister Davis said that labour market conditions in The Bahamas had also continued to improve, with the number of persons relying on the COVID-19 unemployment assistance programme administered by the National Insurance Board, decreasing to fewer than 8,000 people at the end of December 2021, from more than 22,000 at the peak of the programme.
“On the prices front, increasing global inflationary pressure has translated into domestic inflation peaking at 4.12 percent in September 2021,” he said. “In the short term, we expect inflationary pressures to continue throughout this fiscal year.”
Prime Minister Davis pointed out that the Government and its agencies were the largest providers of goods and services in the Bahamas economy. “This means that the Government feels the impact of inflation immediately,” he said.
“Despite this, we are committed to not increasing taxes or fees in the short term as we believe that this surge in inflation is not structural in nature,” Prime Minister Davis added.
“The lowering of VAT across-the-board is helping to reduce the impact of inflation on Bahamian households, although we recognize that the effect of the reduction is harder to appreciate in a time of rising prices. Nonetheless, 95 percent of goods and services are less expensive than they would otherwise have been because of the reduction in the tax burden.
Prime Minister Davis said that tourism activity, although still below pre-pandemic levels, had continued to improve with year-over-year increases in stopover and cruise ship visitors. The strengthening of the tourism sector ensued from the reopening of international borders and relaxed travel restrictions, as compared to the previous year, he said.
“Visitor arrivals in the last quarter of 2021 totaled 1.2 million, a significant improvement over the 55,000 arrivals in the same period of the year prior,” he said. “However, comparative tourism indicators remain far below pre-Dorian and pre-pandemic levels, accounting for only 64.1 percent of 2019 fourth quarter visitor totals.”
Prime Minister Davis noted that the uptick in domestic market conditions supported an increase in Bahamian dollar deposits in December 2021 to $324.5 million, compared to $128.1 million in the previous year.
“The expansion in the deposit base outweighed the $97.1 million increase indomestic credit, ultimately resulting in a broadening of bank liquidity,” he said. “Further, external reserves declined by $16.2 million to $2,459.2 million, reflective of a $30.3 million seasonal net foreign currency outflow through the public sector.”
“Banks weighted average loan rate firmed to 10.56 percent and the weighted average deposit rate was unchanged, at 0.53 percent at the end of the period,” he added.
“All told, while uncertainty as always remains, all signs point to a gradual return to normalcy as vaccination rates continue to improve, students return to school, businesses reopen, and the economy continues to rebound.”