The economic prospect for The Bahamas is “highly dependent” on the possibility of a Mideast war, Minister of State in the Ministry of Finance, Senator James Smith told participants at the 12th Annual Business Outlook on Monday morning.
But he said that even if the US-Iraq war occurs, The Bahamas has, over the years, developed institutions and international arrangements, which could, in some ways, cushion the adverse effects occasioned by a war.
He explained: “If there is a war, the plans and programmers of both the Government and the private sector over the next year could produce positive, although moderate economic growth and set the country on a sustainable path of economic development.”
The purpose of the Bahamas Business Outlook series is to allow presenters to review the state of the economy, and give projections for the ensuing economic year.
Business Outlook 2003 was officially opened by Prime Minister Perry Christie, who, in keeping with its theme, ‘The Bahamas: 30 Years and Global’, said that because of the strong linkage between political stability and economic progress over the last 30 years, “The Bahamas has been able to develop not only as a stable democracy but also as a prosperous economy.”
The one-day conclave held at the Radisson Cable Beach Resort drew persons from the diverse financial services sector, who returned to their offices with the ammunition to fight an impending global economic battle.
Presenting an ‘Outlook for The Bahamas economy’, Senator Smith noted that an Iraqi-US war is likely to produce severe economic disruptions in the short term.
Any increases in international oil prices would lead to increases in energy costs at home in the form of: higher electricity bills, increase in the price of gas at the pumps, higher operating costs at hotels and guest houses, and higher costs to the financial services providers.
“In short, we are likely to experience cost-push inflationary pressures which we have not seen in the past 12 years,” Senator Smith said.
Additionally, he said that there is a strong possibility of a reduction in travel by U.S. citizens to The Bahamas and elsewhere because of travel advisories issued by the U.S. Government in times of war.
Such was the case following the terrorist attacks on the United States in September 11, 2001, when three highjacked planes slammed into the World Trade Centre and the Pentagon.
Senator Smith also stated that the reduction in overall demand for travel by U.S. citizens would translate into less tourist arrivals in The Bahamas leading to less national income, decreases in employment opportunities and a general contraction in the economy.
In such circumstances, he said that all sectors of the economy would be required to make serious adjustments. And, that the Government would have to revise fiscal policies by curbing expenditure and intensifying revenue measures.
Additionally, the private sector is likely to defer or cancel investment in new or expanded activities, and, households and individuals would normally reduce consumption patterns to reflect any loss in income.
“A prolonged war in the Mideast could have serious consequences for the local economy,” the senator said.
On the other hand, he said if
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The Bahamas adopts a more optimistic outlook and assume that there are successful efforts to avert hostilities in the Mideast, the country might look forward to the following:
* If there is no war, the U.S. economy rebounds as predicted in a recent article in the Economist, which expects an average 2 percent growth in GDP in the first half and an average of 4 percent in the second half of 2003.
* And, if one takes into account the recently proposed Bush stimulus package which is expected to restore consumer confidence; positively impact stock prices; and induce further investment expenditure by U.S. businesses, then there could be a more positive outlook for both the United States and the Bahamian economies.
Most would agree that U.S. economic activity and by extension, U.S. household income growth is a prime determinant of travel to The Bahamas.
It follows therefore that if the U.S. economy resumes growth, “we in The Bahamas could expect similar growth in visitor arrivals by both air and sea,” Senator Smith said.
Since tourism accounts for almost half of the country’s GDP, he said that in order to obtain a clearer picture of the country’s growth prospects for 2003, it may be useful to examine, however briefly, the prospects for growth in the remaining sectors within the context of the Government’s policies and programmes for 2003.
In the area of financial services, it is expected that the increased promotional efforts by the Ministry of Financial Services and Investments, together with a streamlining of regulatory procedures and continued efforts to meet international ‘best practices’ should pay dividends in late 2003, Senator Smith said.
“Adherence to international regulatory and supervisory standards should position The Bahamas to attract new quality-brand entities which would not only add value to activities in the existing sector but should firmly establish the country as the offshore destination of choice,” he said.
By Lindsay Thompson, The Nassau Guardian
