By NEIL HARTNELL
Tribune Business Editor
The newspaper headlines reporting on a presentation given by the deputy prime minister (DPM) were very similar. One read: Government wants Economic Recovery Committee to assist in finding solutions to supplement economic growth, while the other simply stated: Government pins hopes on recovery committee. This signals the level of seriousness with which the work of the Economic Recovery Committee (ERC) is viewed by the government. K Peter Turnquest was quoted as saying: “We anticipate this committee will bring back some recommendations that we will be able to execute in the medium to short-term...but, in the longer term, to help us visualise and to conceptualise what the restructuring of this economy could look like if tourism takes longer than we anticipate to rebound.” There are important conclusions to be drawn from these pronouncements. They suggest that the COVID-19 dynamics have shifted, especially because of recent developments in the US, and acknowledge that the recent 2020-2021 budget may not have gone far enough in laying the platform for a sustainable future.
Around mid-March 2020, it started to become clear that The Bahamas and rest of the Western Hemisphere would be facing significant economic problems as a result of the COVID-19 pandemic. China, the pandemic’s starting point, was only just coming to grips with the health crisis, while the US was showing all the early signs of inadequate crisis preparation and management. The general refrain was that The Bahamas would lose ten percent of its gross domestic product (GDP), with the worst of the pandemic over by June. I asked back then whether the early models would hold, and what the implications were if they did not. I pointed out that the June horizon was the best-case scenario, and GDP could shrink by closer to 30 percent, based on Inter-American Development Bank (IDB) modelling, if the Bahamian and world economies did not recover until December 2020. How much more will be lost? What would a back-testing of those models show now, given their initial highly tourist-centric assumptions? Is there sufficient economic resilience that will enable The Bahamas to return to some level of normality?
With major hotel properties adjusting their reopening times, and some projecting they will only return to the market in October or December this year, a longer recovery scenario is likely to be the case. The Bahamas also needs China and the rest of the world, especially the US, to succeed in combating the pandemic. My sentiment was that their wins will be our wins, and their losses will be our losses. Today we are looking at our worst fears potentially being realised. The US, which provides 82 percent of our tourists, is showing ever-deepening signs of a COVID-19 crisis that is out of control. The desire to open up its economy early; the philosophical stance of its national leadership; and the subversion of medical and scientific contributors looms large, in stark contrast to what we see in the Caribbean. I made the point that while there is an economic crisis to be managed, any success relies on treating this with the respect the health crisis demands. The US has become a case study of what could happen when policymakers fail to take decisive and common sense actions. While we are not seeing this in the Caribbean, there is significant pressure to re-open the economy. The question is: Can we survive? How resilient are these islands in dealing with a second surge or real surge due to imported cases? What happens when health infrastructure meets economic challenges?
The picture is constantly becoming clearer as time passes. For those who follow and study the performance of economies across the Caribbean, recent developments were always inevitable. Downgrades by rating agencies, inevitable. Deep fiscal deficits, inevitable. Rapid increase in unemployment, inevitable. Huge economic counter cyclical expenditure, inevitable. Amid the onslaught of the COVID-19 pandemic, there is a deep and deepening financial crisis. In my opinion, this is deeper and more concerning than public pronouncements would suggest. The question which ought to occupy everyone’s mind now is: How will we recover? What will governments of these countries do, and is the recovery cost affordable? The vulnerabilities from this event are obvious and well-appreciated, or at least should be by now. Defining the problem, though, remains critical to the recovery effort. The truth is that Caribbean economies are under the microscope. While this crisis has undoubtedly damaged them significantly, an objective conclusion must be that resilience was always questionable. In the wings lies the ever-present hurricane threat. How resilient are our economies to these shocks? What other shocks will emerge as part of the global recovery process? What strategic treatments are needed to enhance that economic resilience? Are the projected fiscal deficits across the region reasonable? Are we going to limp forward hoping that what we had before will return, and we can once again enjoy some level of “normalcy”? Alternatively, will we take the path that will result in bold, exciting, innovative initiatives to strengthen our economies? A path that terminates in re-imagined, re-engineered economic arrangements and a new consciousness that radically eschews the paradigms of the past?
I believe in the Caribbean’s capacity to make the shift. The talent exists within, and outside in the diaspora. However, if leadership fails to drive an appropriate vision of a new national economy, and a new region with serious interaction geared at advancing the cause of its people, we will suffer in the long-term. Where there is failure to let go of arrangements that result in low growth economic output, the result of any plans, projects or programmes will be the same. The Bahamas, Jamaica and the region suffer from being caught in a serious debt trap. The Caribbean also suffers from low productivity, plus significant vulnerabilities and external shocks that are not faced by others. The only solution lies in finding a sustainable path for consistent economic growth. Strategies that are inconsistent with that idea will ultimately fail despite any positive impact they may have.
Faced with the overwhelming burden and urgency of ushering in a new day, every policymaker, citizen and resident of these countries must know and accept that today is the time to write a new normal of high productivity, economic vibrancy and growth by leveraging all options available. Caribbean countries will either rise by embracing new thinking (not limited to economics) or remain strangled by existing paradigms. Economic resilience is about how an economy stands or recovers from the effects of external shocks. Finding the correct and balanced formula to secure economic resilience is not easy, but that is where the focus must be. In this process, appreciate that resilience assumes a return to a normative state, and contemplate whether that state is optimal for us. Going back to a state which itself needed major improvements will not be sufficient to create sustainable resilience. For any regional economy, this will require effective debt management and consolidation but, more importantly, it demands a robust plan for economic growth. The Bahamas has underlined its response to the crisis with a budget styled Resilient Bahamas: A plan for restoration. We will explore the issue of resilience to see how well-positioned the country is to give true life to that slogan, and look at what the issues impacting this are.
For The Bahamas, which has embarked on a number of studies and strategic plans for the economy, this is a pivotal moment. It may be a tipping point. I think it is important that a true nationally-endorsed plan emerges. I am of the view that the level and depth of this crisis demands an across-the-board effort where all major stakeholders agree on what needs to be done. This is especially true in the case of major political parties. Time is at a premium, and therefore certainty of direction is critical. Early commitment to a consensus position has true economic implications. A commitment to executing the agreed plan has true economic value, or at least carries serious influence. The key question is: Will we see, once and for all, an all-party position that drives the national effort regardless of who is in government? The issues should be well understood. The most important is that collaborative leadership will be a major factor in whether The Bahamas wins through in the end.
Mr Turnquest, the deputy prime minster, signalled a potentially critical change. He said: “We may be shifting from the traditional big volume, big box tourism. We are seeing a move to a more specialty product; a more indigenous product which we anticipate will have even more benefits to Bahamians.” This is a very powerful statement of potential adaptation and transformation. Does this constitute a form of diversification? Would this secure greater economic value, and how more resilient will The Bahamas be with such a shift. What exactly does resilience look like?
We can look at resilience in a number of ways. In a 2014 paper, Building Economic Resilience, by the Institute for Public Policy Research North, a dedicated think-tank for the North of England, we can see an exploration of working definitions. “The ability to adapt both to shocks and to long-term changes”; “to resume form and function elastically following a disturbance”; “bounce back to pre-shock state or path”; and “capacity to maintain core system performance through adaptability of structure and function”. However, one striking point noted by the paper is that all these definitions “refer to or imply returning to some kind of ‘normal’ state, rather than adapting or transforming fundamentally in response to the change”. For The Bahamas (and the region), I think this is the crux of the matter. Returning to some level of normality and stabilising the economy is critical. However, without serious transformation, which is by no means arguing for an abandonment of tourism, the economy will maintain the same level of vulnerability to external shocks it had before the crisis. Long-term transformation is necessary.
The economy must adapt to what the new global norms and trends are dictating. For example, the way tourism services are delivered going forward will be different from the past, which may impact the level of earnings enjoyed before. This will demand re-thinking what we produce and the economic sectors into which we may move. The role of government in driving the strategic thrust for the re-imagined state must be accepted with greater conviction. While this may be an uncomfortable position, the truth is, especially in a small island state with a limited internal market and ability for scaling up, the Government will consistently have to do a bit more than it would like in helping to drive the economy. Where the Government is the dominant employer, and income-earning sectors highly concentrated, it is not hard to see why this argument is important. However, until the Government creates an environment which better facilitates greater economic robustness, that will be a norm and a limiting one. In an economy where consistent growth is elusive, focus must be place on this.
The search for remedial strategies should answer why,for over a decade, Bahamian GDP growth has meandered below one percent annually. What new plays can be introduced to the economic arrangement, and what existing elements of the economy are currently restricting its growth and should be eliminated? Resilience must embrace adaptive behaviours. Simply tinkering with the status quo is not going to be enough. There should deep exploration aimed at recognising what exists, what has positive value to give, and where we were not doing enough or not being strategic enough. To get to the resilient economy all efforts must be taken to maximise limited resources.
To be continued.....