There is a heightened degree of uncertainty regarding the state of the Bahamian economy and Bahamians who are not yet doing so should start exercising fiscal prudence to safeguard against a possible further downturn in economic activity, Central Bank Governor Julian Francis said yesterday.
“This is a time to be quite cautious,” Mr. Francis said in an interview with the Bahama Journal at his downtown office. “Nobody knows what is going to happen during the next four to eight weeks between the United States and the Middle East, but we need to be rather pessimistic about that and keep our powder dry.”
The governor’s comments came a day after U.S. President George Bush delivered his State of the Union Address reiterating his resolve to launch war against Iraq if Saddam Hussein does not disarm.
The war signals sent by Mr. Bush provided a near confirmation that America would strike Iraq, even if it has to go it alone, observers have said.
Local authorities have been fearing for months the drastic impact the war would have on an already unstable Bahamian economy.
Judging from the fallout that came in the early 1990’s as a result of the Persian Gulf crisis, Mr. Francis said that if there is another war, tourism activity could drop by 20 percent.
At the end of 2002, tourism figures were promising, he said.
“We believe that tourist receipts for 2002, when the final numbers are in, will prove to have been a bit stronger than the year before, not a great deal, but a couple of percentage points higher than the year before,” Mr. Francis said.
The next four to eight weeks will be a crucial period that should better define the Bahamas’ economic future, he added. He said getting increased foreign investments could be “a hard sell” as investors watch developments in the Middle East, and Bahamians too must be cautious in their spending.
“I would urge the public to make a conscious effort to hold back over the next couple of weeks and not spend money that you don’t have to spend,” he said. “It would help our economy generally if we don’t import as much as we normally do and we defer or put off maybe that little vacation you wanted to take outside of the Bahamas.”
Also reacting to Mr. Bush’s speech yesterday, Prime Minister Perry Christie said he intended to discuss with his Ministers in a Cabinet meeting today specific steps the Bahamas should take to brace for the war fallout.
“In the final analysis, we have seen enough to know that we must prepare for the eventuality of war in the Middle East with all of the attendant consequences and, therefore, at my Cabinet meeting…we shall discuss, in anticipation of war, the options available to The Bahamas so that we are prepared for all eventualities,” Mr. Christie said.
While times are uncertain, the prime minister said he was encouraged that government revenue collection was picking up. In the first few months of the fiscal year, the government was behind by as much as $20 million in collection, but the intake at the end of November was above projections.
“The months of November and December were encouraging indicators that the revenue position was improving,” Mr. Christie told the Journal. “We believe that tourism has shown gains and we are encouraged that moving through January into February and March that there will continue to show improved figures subject, of course, to war.”
Mr. Christie said that if there is not a war, he is confident that his government will be able to proceed with major investments that are in the negotiation stages.
“We are faced with another setback potentially,” he said. “We believe that if there is not a war we will proceed uninterrupted with major investments that are in the process of being settled and investors would continue to demonstrate their confidence in the Bahamas by expanding existing tourism plants, by implementing plans for new hotels and in places like Abaco, Andros, and Eleuthera, they will see shortly or hear shortly about plans for those islands.”
Central Bank officials, meanwhile, are looking at the particular challenges a war would pose to the Bahamian economy.
Mr. Francis said that the Bank is examining whether it would be necessary to place further restrictions on commercial banks. In early September, 2001, shortly before the September 11 attacks on the United States, the Central Bank imposed tight lending restrictions on the banks to restrict the demand for foreign currency and reduce the outflow of foreign reserves.
Those restrictions have kept the reserves steady, Mr. Francis pointed out.
External reserves are about US $375 million, marginally above the end of the year. This is a key indicator that the economy is “holding its own” despite the fact that a cloud is hanging over the global economic environment, Mr. Francis said. He recognized that there is a delicate balance that the Bank will have to strike between a certain required level of protective measures to ensure that reserves are not squandered and the need to avoid snuffing out the existing level of economic activity.
The restrictions already put in place by the Central Bank has led to a high level of liquidity in the system – about $180 million – which has also kept interest rates at moderate levels.
By Candia Dames, The Bahama Journal
