The Bahamas lost around $1bn in tourism earnings at the COVID-19 lockdown’s peak as this nation became a “net payer” for travel-related services for likely the first time in its history.
The Central Bank of The Bahamas’ report for the 2020 second quarter, which covers the three months that took the brunt of the Government’s pandemic restrictions, lays bare the extent of the economic and tourism-related devastation that was inflicted by revealing that this nation spent $3.5m more on travel during this period than it took in.
This represented a $980m negative swing compared to the same quarter in 2019, when The Bahamas earned almost $1bn in travel and tourism-related receipts to expose the full extent of the income and foreign exchange earnings lost during COVID-19’s initial months.
Referring to The Bahamas’ current account, which measures both this nation’s trade in physical goods and services, the Central Bank revealed: “The services account position reversed to an estimated deficit of $251.4m from a surplus of $723.2m in the prior year.
“In particularly, net travel – the largest segment of the services account – recorded a net payment of $3.5m, vis-à-vis a net receipt of $976.5m in 2019, primarily reflecting the pause in tourism activity due to the COVID-19 pandemic.”
Given the tourism industry’s near-total shutdown for the three months from April to end-June, which included the peak Easter holiday weekend, the huge reversal from 2019’s year-over-year position is not surprising. Tourism only gradually re-opened in certain niche markets on June 15, with the Central Bank report for the first time giving an insight into how much ground The Bahamas has to make up economically.
And government borrowing to prop up the economy, cover its fiscal holes and boost the external reserves was also responsible for The Bahamas’ capital and financial account surplus for the 2020 second quarter more than doubling to $473.3m as opposed to $167.8m in the prior year.
The Central Bank confirmed this was “attributed to a surge in debt-financed inflows to $438.7m from $87.3m in the prior year. Specifically, COVID-19 and hurricane-related Government external borrowings, including a $250m rapid financing instrument proceed from the IMF, contributed to net public sector receipts of $286.2m, following a net payment of $11m in the preceding year”.
The tourism and economic shutdown also resulted in The Bahamas’ merchandise trade deficit, which measures by how much this nation imports more physical goods than it exports, shrinking by $175.6m or 28.1 percent to $449.5m for the 2020 second quarter compared to the prior year.
“The $391.5m (57.7 percent) reduction in imports to $511.8m outstripped the $215.9m fall-off in exports to $61.9m,” the Central Bank said. “A further breakdown of trade flows showed that net non-oil merchandise imports declined by $102.9m (21.2 percent) to $382.4m, while net payments for fuel purchases fell by $98.8m (49.5 percent) to $100.9m.”
The Central Bank’s report also proved helpful in revealing that some $534m, or some two-thirds (67.8 percent) of the Government’s $788.1m full-year deficit for the 2019-2020 fiscal year, was incurred in then final quarter of that period as revenues plummeted amid COVID-19 while spending ramped up to cope with the fall-out from that and Hurricane Dorian.
The Government’s most recent “fiscal snapshot”, covering the April to end-June period, largely focused on the full-year performance and did not break out the fiscal fourth quarter figures that contained the majority of the ‘red ink’.
“Provisional data on the Government’s budgetary operations for the fourth quarter of fiscal year 2019-2020 revealed that the deficit increased to $534m from $79.3m in the comparative fiscal year 2018-2019 period,” the Central Bank report added.
“Contributing to this outturn were revenue losses and higher outlays for health and social welfare related to COVID-19, along with a rise in spending for post-hurricane reconstruction works. Specifically, total revenue reduced by $406.7m (55.2 percent) to $330.5m, while aggregate expenditure rose by $48m (5.9 percent) to $864.4m.
“Tax revenue, which constituted 90 percent of total receipts, contracted by $379.5m (56.1 percent) to $297.4m. Specifically, underpinned by revenue losses from Hurricane Dorian and the COVID-19 pandemic, VAT collections—at a dominant 41.9 percent of total receipts—reduced notably by $169.2m (55 percent) to $138.5m.”
The Government was forced to undertake some $300m in external foreign currency borrowings to fill the fiscal and external reserves holes, the majority of which was obtained from the $250m IMF facility.
“The direct charge on the Government grew by $300m (3.8 percent) over the previous three-month period, and by $664.2m (8.8 percent) year-on-year to $8.191bn,” the Central Bank said of the consequences for the national debt.
“The Government’s contingent liabilities were lower by $3m (0.4 percent) over the previous quarter of 2020, and by $21.6m (3 percent) on an annual basis to $714.8m. As a result of these developments, the national debt – inclusive of contingent liabilities – grew by $296.9m (3.4 percent) over the three-month period to $8.906bn and by $642.6m (7.8 percent) relative to June 2019.
“As a ratio to GDP, the direct charge rose by an estimated 12.7 basis points on a yearly basis to 68.1 percent at end-June. In addition, the national debt-to-GDP ratio increased to an estimated 74 percent, compared to 60.9 percent in the same quarter of 2019.”
The magnitude of that more than-13 percentage point increase has once again propelled The Bahamas beyond the 70 percent debt-to-GDP threshold that is regarded as a ‘danger zone’ where a country’s debt repayments could increase sharply and result in a rapid downward spiral.
As for the Government’s foreign currency debt, this hit $3.789bn at end-June as a result of its latest borrowing forays. “On an annual basis, obligations advanced by $348.7m (10.1 percent),” the Central Bank added.
“In terms of the components, the Government’s outstanding liabilities – which accounted for 77.9 percent of the total – increased by $297.2m (11.2 percent ) to $2.951bn on a quarterly basis. In contrast, the public corporations’ debt stock fell by $8.8m (1 percent) to $838m.”
“Elsewhere, the Central Bank reported that incoming private investment flows fell by $48.7m year-over-year to hit $40.3m. “In particular, net equity investment inflows declined by $17.3m (65.3 percent) to $9.2m, while net receipts from land sales fell by half to $31m.
“However, migrants’ net transfers abroad decreased by $2.8m (41.9 percent) to $3.8m, while net outward portfolio investments related to the Bahamas Depository Receipt (BDR) stabilised at $2m.”