The severe economic impacts of COVID-19 are hindering livelihoods in The Bahamas. Between January and April 2020, the fraction of households reporting earnings below the minimum wage more than doubled.
The Bahamas has recorded COVID-19 cases in four islands. Positive cases have been recorded in New Providence, Grand Bahama, Bimini and Cat Cay, but the rate of growth of confirmed cases until July 15, 2020 had slowed down. As of July 20, 2020, The Bahamas recorded 153 positive cases, 11 deaths and 2,645 conducted tests.1 The number of cases surged between July 15 and July 20 as a result of imported cases. The Bahamas has been the C-6 country with the highest percentage of recorded deaths in relation to confirmed cases.2
The authorities have taken a phased approach to the implementation of both the lockdown and the reopening strategies. Both the lockdown and the reopening strategies have been guided by the number and dispersion of cases and the capacity of the health authorities to respond to the pandemic. Upon recording the first positive cases on the third week of March 2020, The Bahamas declared the state of emergency on March 17, 2020, closed all airports and ports and set a 24 hour curfew on March 24, 2020. A full lockdown was imposed on April 8, 2020. On April 20, 2020, the government started implementing its reopening strategy (Figure 1), which is divided into six phases and has been gradually rolled out throughout April, May and June. In July 2020, the country was transitioning from Phase 4 to Phase 5 with the resumption of commercial flights. However, the authorities decided to reinstate night curfews, close public spaces and halt flights from the USA on July 20, 2020, because of the increase in imported cases between July 15 and July 20, 2020. Following a breach of COVID-19 protocol, due to the arrival of a group of persons by plane whilst borders remained closed, the Minister of Health resigned on May 4, 2020. The Prime Minister has stepped in as acting Minister of Health.
The Economic Shock
COVID-19 is resulting in a serious shock to the economy. Prior to the pandemic, The Bahamas was overcoming the effects of Hurricane Dorian, a category 5 hurricane which hit the islands of Grand Bahama and Abaco in September 2019 and resulted in damages and losses reaching an estimated US$3.4 billion (27 percent of GDP) (ECLAC, 2019). COVID-19 has resulted in a sudden stop in tourism arrivals since March 2020, combined with close to a halt in domestic economic activity due to curfews and lockdowns. The economic contraction in 2020 is now estimated to reach 12.5 percent of GDP (Figure 2).
Unemployment claims have risen to unprecedented levels. Prior to COVID-19, the unemployment rate had increased as a result of Hurricane Dorian, from 10.4 percent in 2018 to 13.5 percent in 2019. However, the halt of activity in key economic sectors due to COVID-19, including tourism and construction, is resulting in a dramatic rise in unemployment claims. Unemployment claims to the National Insurance Board increased from 725 in August 2019 to over 26,000 in May 2020 (approximately 13 percent of the labor force).3 As seen in Figure 3, initial estimates obtained in April 2020 show that the incidence of job losses has been more prevalent amongst lower-earning households.
The fiscal stance has been severely hindered. The combination of Hurricane Dorian and COVID-19 have resulted in a fall in revenue collection and required increase in expenditure. The fiscal balance is estimated to reach -6.7 percent of GDP and -9.5 percent of GDP in FY2019/20 and FY2020/21 respectively, compared to -1.7 percent of GDP recorded in FY2018/19. Gross public sector financing needs are expected to reach 15 percent of GDP by 2021.4 After being removed from the tax blacklist in February 2020, on May 2020 the European Union announced their deliberation of reintroducing The Bahamas in their anti-money laundering blacklist, due to shortfalls in their regulatory systems relating to anti-money laundering and terrorism financing.Source: Author’s estimations based on IMF WEO April 2020 and Source: Data from Bottan, N; Hoffmann, B; and Vera-Cossio, D. 2020. The unequal burden of Coronavirus pandemic: evidence from Latin American and the Caribbean. Working paper (forthcoming)
Tourism performance and reinsurance receipts shaped the current account balance in 2019 and 2020. The current account balance improved from -12.1 percent of GDP recorded in 2018 to 0.7 percent of GDP in 2019 as a result of re-insurance inflows, following the passage of Hurricane Dorian, and strong tourism receipts in 2019. The Bahamas is greatly dependent on the trade of goods and services. During 2011-2019, imports of goods and services accounted for an average of 43 percent of GDP, while exports averaged 36 percent of GDP. Tourism services and receipts represented over 87 percent of total exports of services between 2011 and 2019. The Bahamas is also greatly dependent on imports, particularly for food and fuel, which jointly comprise 33 percent of imported goods in 2018. In 2020 exports will be hindered by the halt in tourism services. Imports are also expected to fall as a result of lower oil prices and lower tourism sector demand. The trade balance is thus expected to worsen, and The Bahamas is forecast to run a twin deficit with a forecast current account balance of -17.2 percent of GDP in 2020.
Falling foreign direct investment (FDI) and higher external borrowing will shape the financial account in 2020. The level of FDI declined from 4 percent of GDP in 2018 to 2.2 percent of GDP in 2019. External financing needs are expected to increase threefold compared to 2019 and reach approximately 9 percent of GDP in 2020. In response, the Government of The Bahamas (GoBH) is increasing borrowing, particularly external borrowing. The debt-to-GDP ratio, including contingent liabilities, stood at 65.2 percent of GDP in 2019 and is expected to reach over 80 percent of GDP in the next 2-3 years. In addition to the planned $200 million policy-based loan from the IDB and an expected $120 million in investment loans from the Inter-American Development Bank for 2020, the GoBH approved a $250 million rapid financing instrument with the International Monetary Fund on June 1, 2020. This will have a positive impact on investor confidence, which will likely be hindered by the looming credit downgrade.
Gross international reserves continued an upward trend in the first half of 2020. Gross international reserves stood at $1,760 million (17.8 weeks of import cover) at the close of 2019 and continued an upward trajectory to reach $2,033.9 million in April 2020. The Guidotti-Greenspan ratio is 1.7 and the adjusted Guidotti-Greenspan ratio is 1.3, which shows sufficient levels of reserves to cover external debt obligations.5 Reinsurance flows, following Hurricane Dorian in the last quarter of 2019, net tourism contributions in 2019 and the halt of repatriation of dividends from the first quarter of 2020, contributed to this rise. Having gone into the pandemic with sufficient external buffers is of extreme importance to maintain the exchange rate peg, particularly as tourism is likely to remain subdued until at least 2021.
Effects on the social sector
The Bahamas scores highly on human development indicators, reflecting broad access social services, which have been important to channel resources during COVID-19. The Bahamas is classified in the very high human development category, scoring 0.805 on the 2018 multidimensional Human Development Index (HDI) and ranking of 60th out of 189 countries. This was slightly below the average 0.892 score of other very high HDI scoring countries, but above other countries in the region such as Jamaica (scoring 0.726) or Trinidad and Tobago (scoring 0.799). The Bahamas also scored 0.353 in the 2018 Gender Inequality Index (GII) and ranked 76th out of 162 countries. These numbers reflect a widespread social protection system, which provides universal access to education and health. The authorities have been making use of its preexisting social assistance programs and the national insurance board to channel support for COVID-19, as can be seen by the rising coverage of preexisting and new social programs in Figure 6.
Between 2011 and 2014, the bottom quintile of the population was either in poverty or at risk of falling into poverty.6 As seen in Figure 4, extreme poverty hovered in the range of 1 to 2 percent of the population and fell to 1.1 percent in 2014 (compared to 1.4 percent registered in 2011 and 2 percent recorded in 2012). Poverty levels also decreased, from 5.3 percent of the population in 2011 to 4.4 percent in 2014. Although poverty levels are low compared to those of other countries in the Caribbean region, they are more than twice the poverty rate typically recorded in other high-income countries.7 Vulnerability declined more modestly, from 17.6 percent in 2011 to 16.7 percent in 2014. On the upper end of the income distribution, approximately 16 percent of the population was consistently living on more than US$62 dollars per day over the period of study. This is substantially higher than other high-income countries in the Caribbean. For example, Barbados recorded 4.2 percent in 2014, and Trinidad and Tobago recorded 1.2 percent in 2014. The effects of COVID-19 on livelihoods are being severe. As seen in Figure 5, the fraction of households reporting earnings below the minimum wage more than doubled between January and April 2020.
1 Ministry of Health, Government of The Bahamas.
2 C-6 countries are the Inter-American Development Bank Caribbean Department’s countries: The Bahamas, Barbados, Guyana, Jamaica, Trinidad and Tobago and Suriname. The Bahamas’ ratio of deaths per confirmed case was 10.6, followed by Barbados (7.2) and Guyana (7).
3 https://bahamasbudget.gov.bs/media/filer_public/35/3c/353cac9d-265c-40ba-b930-5b08769667c0/2020-21_budget_communication_-_final_1-compressed.pdf Total labor force is estimated at 194,605 based on the December 2019 and May 2020 Labour Force Survey.
5 The Guidotti-Greenspan ratio is used as an indicator of liquidity vulnerability which measures the level of reserves compared to short-term external debt. The rule of thumb is that foreign reserves should cover at least 100 percent of short-term external debt. The adjusted Guidotti-Greenspan ratio also considers the current account balance. Inter-American Development Bank. 2020. “Financing Needs & Liquidity Report” Washington DC, United States: Inter-American Development Bank Research Department (forthcoming)
6 Extreme poverty is defined as those earning below US$1.9 a day. Poverty is defined as those earning below US$5 a day and vulnerability is defined as those earning between US$5 and US$12.4 a day. The lack of more recent data impedes an updated poverty and inequality estimates.
7 The World Bank’s income category is used as a reference. High-income countries are those with a GNI per capita income of US$12,376 or more.
8 The definitions used in this graph are the following: Extreme poverty: percent of population with income below US$1.9 a day. Poverty: percent of population with income below US$5 a day. Vulnerability: percent of population with income between US$5 and US$12.4 a day. High class: percent of population with income above US$62 per day.