NASSAU, Bahamas, CMC –Governor of the Central Bank of the Bahamas, John Rolle, Monday said it is likely that the country would have experienced economic growth of between seven and nine percent last year.
Addressing the release of the Monthly Economic and Financial Developments (MEFD) for December, Rolle said that the latest economic data through the fourth quarter of 2022 indicated a continued healthy recovery of the Bahamian economy from the coronavirus (COVID-19) related setback.
He said the projected economic growth for 2022 has been driven mainly by rebounded tourism inflows. Foreign investment activities also provided steady stimulus, concentrated on tourism development projects and residential real estate.
The Central Bank Governor said that the country is still in recovery mode, benefiting from significant demand for travel and capacity that is still being restored in the airline and hotel sectors.
“This will allow the economy to experience above-average growth again in 2023. While headwinds have drawn out the recovery timeline, they will not likely contract the economy soon.
“COVID-19 still poses downside risks, as does the cost of imported energy, imported inflation, and increasing international interest rates, which result from central banks working to lower inflation. Of course, many of these developments are also driven by spillovers from the war in Ukraine.”
Rolle said that while the Central Bank keeps these risks in sight, “a robust and recovered foreign exchange environment, alongside the healthy outlook for external reserves, continues to justify an accommodating monetary policy posture.
“This includes tolerance for banks to expand credit to the private sector credit even if some modest reduction in the external reserves occurs in the process,” the Central Bank Governor added.
Rolle said last year’s economy imported a significant uptick in inflation, in line with cost escalation in the Bahamas’ major trading partners, and the United States in particular.
“The economic rebound has positively impacted net foreign exchange inflows and the Central Bank’s international reserves. The Government’s revenue also recovered significantly, causing the fiscal deficit to shrink.”
Rolle said that although official data were not available, it is expected that the unemployment rate will ease considerably in 2022 from the deteriorated state of the previous two years.
“Nevertheless, the pace of the labor market’s recovery still trails the gross domestic product (GDP) performance because the recovery has, above all, had to restore jobs lost or placed on hold during the pandemic, even as new persons continued to enter the labor force.”
Rolle said about the tourism momentum, the recovery, though incomplete, is considerably advanced.
“In the overall trends, the gains from recovered stopover volumes were amplified by rising average nightly room rates for both resort properties and vacation rental units. In the stopover segment, by November, the seasonal rebound in air arrivals had broken even of the pre-pandemic high for the same month, which is a comparison against November 2018, which also preceded Hurricane Dorian.
“Every month, the cruise sector’s seasonal rebound had already significantly eclipsed the pre-pandemic base. However, cruise and stopover visitors still have calendar year shortfalls to recoup.”
The Central Bank Governor said that for the 11 months through November, total air arrivals had converged to just 82 percent of the pre-pandemic high, and sea arrivals were at about 95 percent of the exact comparisons.
“This remaining calendar year performance gap in both markets underscores the further healthy boost in the annual visitor volumes expected to occur during 2023.”
Rolle said that the foreign exchange markets continue to provide more quantifiable, real-time recovery indicators. On the inflow side, commercial banks’ total foreign currency purchases from the private sector rose by approximately one-third to US$7.2 billion in 2022, propelled by tourism and foreign investment receipts.
Rolle said as private sector demand strengthened, commercial banks’ foreign exchange sales to accommodate international payments increased by almost 30 percent to approximately seven billion US dollars.
“Since private sector inflows were more substantial than the outflows, there was a corresponding reversal in commercial banks’ transactions with the Central Bank, favoring a net inflow to the external reserves in 2022.
“In the meantime, because of the shift in the timing of the Government’s external bond issue from the second half of 2021 to the first half of 2022, the public sector transactions also netted a significant uplift to the external reserves, that is, before the SDR transaction was taken into account,” he added.
He said in the context of these developments, the Central Bank’s external reserves increased by approximately US$140 million to US$2.6 billion in 2022.
“At the close of January 2023, the external balances were still very close to this level, just before the anticipated seasonal build-up expected through the first half of the year. As domestic demand further picks up and commercial bank lending increases marginally about 2022, the external reserves will close out 2023 at a stable to the slightly decreased position from their present levels.
Rolle said that this continues to be a nutritional assessment for the reserves, which is also in keeping with anticipated further rebuilding from Hurricane Dorian and the use of reinsurance proceeds that are still inside the funds.
Regarding the banking sector, Rolle said the environment also continued to feature rising liquidity, as deposit base growth, fuelled by converted proceeds from foreign exchange inflows, contrasted with a further reduction in credit to the private sector.
“While the economy has improved the debt servicing capacity of many existing borrowers, it has yet to result in any meaningful increase in the qualified pool of new borrowers, either for consumer loans, mortgages, or enterprise lending.
“As to credit risks, at the end of 2022, the average delinquency rate on private credit had fallen back below eight percent, which was also slightly below the non-performing loans rate that was also trending lower just before the pandemic’s interruption,” Rolle said, adding that the Central Bank expects this improvement to continue over the medium-term.
“In the meantime, commercial banks’ lending is expected to increase incrementally in 2023, although this is still dependent on the characteristic of new potential borrowers who are entering the job market, as those gaining posts in tourism are considered riskier prospects.”
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