IMF growth rate cut ‘appropriate’
Guardian Business Editor
Published: Oct 11, 2013
Economic analysts and private sector stakeholders yesterday expressed little surprise at the International Monetary Fund’s decision to lower its growth forecast for The Bahamas for 2013 and 2014, describing the adjusted rates as “more reasonable” and “very appropriate”.
Kevin Burrows, senior vice president at Colina Financial Advisors Limited (CFAL), said that the IMF has consistently overestimated global GDP rates since the start of the Great Recession in 2008, only to be forced into making revisions.
“Considering the U.S. is forecast to grow by 1.6 percent this year and 2.6 percent next year, the new growth rates seem more reasonable versus our major trading partner,” he said.
On Tuesday, the IMF adjusted its global real GDP growth forecast for 2013 down by 0.3 percent to 2.9 percent. The projected growth rate for the U.S. was lowered from 1.7 to 1.6 percent.
At the same time, the expected GDP growth rate for The Bahamas for 2013 was
lowered from 2.7 percent to 1.9 percent for 2013, and from 2.5 to 2.1 percent for 2014 – still leaving forecast growth higher than most its Caribbean neighbors, except Haiti and the Dominican Republic.
The lower forecast comes amidst considerable anxiety in the U.S. economy, the world’s largest and the most significant influence on the Bahamian economic outlook, over the question of when the U.S. government will approve a new budget – allowing the government shutdown that has paralysed many agencies to come to an end – and a new debt ceiling.
In its World Economic Outlook report, which contained the revised projections, the IMF described advanced economies in generally as “gradually strengthening”, while growth in emerging economies slows.
“Global growth is in low gear, drivers of activity are changing and downside risks persist,” said the institution.
Burrows said: “I think the lowered expectation (for The Bahamas) was purely externally driven by lower growth rates globally; since 2014 was cut from 2.5 percent to 2.1 percent, I do not think it was driven by the fact that VAT is being implemented that year.”
Ralph Massey, a retired Nassau-based economist who has written extensively on the Bahamian economy, said the change in forecast growth rates for The Bahamas seems “very appropriate” and consistent with the fact that the U.S. is “off their long term growth trend, and the current recession is hanging on. The U.S. hasn’t rebounded and The Bahamas is dependent on the U.S. for our tourism industry.”
Agreeing with Burrows that the original forecast was “optimistic”, Massey said that he would expect both “internal and external” factors would have played into the IMF’s decision to adjust the growth rate downwards in The Bahamas’ case.
Meanwhile, Massey expressed pessimism over The Bahamas’ ability to generate significant growth going forward, even as the IMF has suggested elsewhere that The Bahamas will need to hit an average 5.5 percent growth rate between 2013 and 2018 if it is to cut unemployment by 50 percent.
“You don’t think of The Bahamas being able to sustain growth because inherently you don’t have an education system to promote growth. The Bahamas is fortunate to have sun, sand and sea because they do attract foreign investment, but the education system hasn’t found the right formula.”
On Burrows’ part, he said: “There is no short term fix for us to change or improve matters – we are a small, open economy that is greatly impacted by external events.”
Meanwhile, the head of one of The Bahamas major retail banks, Ian Jennings, president of Commonwealth Bank, told Guardian Business he too was not taken aback by the adjustment.
“As far as what we are seeing, growth is very sluggish, slightly positive, but very sluggish. All in all we’re not surprised by it, sort of goes hand in hand with what we’re looking at for the future, which is another hard year. There’s many factors: lack of tourism and local businesses faced with uncertainties, which causes them to delay [investments]. All told we’re not surprised that the growth rate.”
In a statement issued yesterday from Washington D.C., where finance officials are attending the annual meetings of the IMF and the World Bank, Minister of State for Finance Michael Halkitis said the downgrade must be seen in the context of the global GDP growth rate cutback.
“The IMF in its flagship publication World Economic Outlook released this month, revised its forecast of global economic growth downward,” Halkitis said. “As a consequence, its growth forecast for global, regional and individual economies including The Bahamas, its economic growth projections have been revised down.”
“In its report, the IMF pointed to challenges faced by emerging economies of which The Bahamas is one. These challenges include: putting in place the right policy mix and ensuring that adjustment occurs at the right pace; the need to safeguard financial stability; the need to proceed with reducing deficits and the rate of growth of the national debt [and] the need for fundamental reform in the way the economies operate.”
Halkitis said Ministry of Finance officials received positive feedback from the IMF yesterday on their plan of action for the Bahamian economy.
“The meetings were positive and the IMF expressed confidence in the economic program being employed by The Bahamas government to reverse the drastic deterioration of the public finances that occurred during the period 2007 to 2012,” said Halkitis.