By Jeffrey Todd
Nassau Guardian Business Editor
NASSAU, Bahamas -- The Bahamas’ deficit is expected to expand to around 15 percent of GDP despite a modest economic recovery for 2012, according to a report by the United Nations.
The Economic Commission for Latin America and the Caribbean (ECLAC), a regional commission within the United Nations comprising 44 member states, found that The Bahamas experienced 2.5 percent growth this year.
Tourism numbers and foreign direct investment improved year-on-year, and while the financial services industry faces challenges, that sector also continues to hold its own.
"However, the upturn had a lag on unemployment, which declined only slightly. The policy environment remained challenging, with the authorities finding it difficult to embark on fiscal consolidation in the face of a limited recovery," the report stated.
ECLAC projected economic growth in the Bahamian economy for 2013 at 3 percent.
However, the county's debt woes are well documented in the 2012/2013 fiscal year. In the first two months of this period, the deficit grew by nearly 50 percent year-on-year. High spending and capital expenditures overshadowed an 8.5 percent improvement in revenues and higher international tax receipts due to higher imports.
The report made particular reference to an 11 percent hike in expenditure, mainly due to the New Providence Road Improvement Project. ECLAC also noted that liquidity remains very high "in the face of weak private sector credit demand".
The weighted average deposit rate declined by 22 basis points, more than the fall in the lending rate.
"Growth in private credit demand continues to be undermined by high unemployment, investor uncertainty and higher loan loss provisions by banks, which have been affected by high non-performing loan levels," according to the report.
It went on to estimate that 2012 saw a 8.4 percent increase in air arrivals, partly due to a recovery in the U.S. market. Hotel revenues managed to rise 5.5 percent until August 2012, but the average daily room rate fell 2 percent because of discounts being offered by most resorts in the country.
Cruise arrivals also enjoyed a 8.7 percent improvement compared to the previous year.
Foreign direct investment has been led by the ongoing construction of Baha Mar on Cable Beach and Nassau's airport redevelopment. International reserves dropped sharply by 22.6 percent to $756.6 million after being bolstered in 2011 by the sale of shares in Bahamas Telecommunications Company to Cable and Wireless Communications.
On a regional level, ECLAC said it would see stronger economic growth across the board in 2013. The region should end 2012 with a collective GDP growth of 3.1 percent. That is actually higher than the expected world growth of 2.2 percent.
The world saw 4.3 percent GDP growth in 2011, according to the report.
Republished with permission of the Nassau Guardian