Caribbean & Central America - March 2014 (ISSN 1741-4458

Perry Christie, prime minister and finance minister of The Bahamas, made no bones about his priority in his 12 February mid-year budget statement.  He opened with a catalogue of some 28 new or ongoing projects, and 28 times he proclaimed: “These are jobs, more new jobs Mr Speaker”.  The November Labour Force Survey had recorded unemployment at 15.4%, an improvement on the 16.2% recorded in May 2013, but still a big problem for the government, and one that has to be resolved within the constraints of a necessary fiscal consolidation programme.

Christie’s Progressive Liberal Party (PLP) came to power in May 2012 with a decisive victory over the incumbent Free National Movement (FNM) government headed by Hubert Ingraham, but within six months it was having to cope with the consequences of a ratings downgrade prompted by the country’s burgeoning debt burden.  Debt had grown from below 40% before the 2008 financial crisis to 54%, leading the IMF to warn: “The deficit is much higher than projected.  Once these things start to slip, it can easily get to a point where it becomes a problem.”

The International Monetary Fund (IMF) returned to its warnings on debt and the fiscal deficit in its January Article IV Consultation report, saying that “economic activity remains tepid…[and] the fiscal and external positions have weakened”.  Its first recommendation remains that the government needs “to implement comprehensive policies to curb the central government deficit and reduce debt to comfortable levels”.

The latest IMF survey shows that in fiscal year 2012/13, the fiscal deficit widened to 5.5% of GDP, with GDP growth estimated at 1.9% for 2013.  Central government debt touched 56%, up from 49% in FY2011/12, and it is expected to peak at nearly 60% in 2014/15.

The government is relying upon three factors to be able to move forward. The first, an increase in economic activity in the US and Europe, is beyond its control.  The other two are a fiscal consolidation programme that includes the introduction of VAT later this year, and efforts to boost capacity in the tourism industry.  On the latter, the success of the Baha Mar resort that is due to open on 8 December this year.

This crucial development will include a 100,000 sq foot casino, an 18-hole Jack Nicklaus golf course, a dozen swimming pools, and 200,000 sq feet of state-of-the art conference facilities, including a 2,000 seat performing arts centre.  The developers say that the project has already created more than 2,800 job opportunities for Bahamians and more than US$615m worth of contracts for Bahamian contractors.  The resort will take on more than 4,000 hotel workers this year.

But despite all this, the IMF’s report includes a note of caution.  It notes that the full operation of Baha Mar would entail an increase of almost 10% in total arrivals (with two smaller hotel projects adding another 2.25%), but it warns that the project’s success “critically hinges on effective implementation of [its] strategic positioning”, that is more focus on high-end products and more diversification to Europe, South America, and East Asia.  It adds: “In a tail risk scenario where the project completely fails to raise overall tourism exports, the uptick in growth currently projected for 2015 onward would not materialize, with adverse implications for fiscal revenues and the public debt outlook…If the project did fail to deliver, there could also be significant pressure on reserves.”

• “The latest IMF survey shows that in fiscal year 2012/13, the fiscal deficit widened to 5.5% of GDP, with GDP growth estimated at 1.9% for 2013.  Central government debt touched 56%, up from 49% in FY2011/12, and it is expected to peak at nearly 60% in 2014/15.”