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  • Hubert Edwards

COVID-19 – Will the Early Models Hold and the Implications for Policy Response

Note: As we finalized this document, the minister of finance for The Bahamas announced enhancements to its “phase one” initiatives, namely more funds available for MSMEs, more than doubling previous allocation. There was also a new program of tax deferral for qualified companies and commitment to work with the private sector with a view of finding solutions for medium and large companies and support for family islands.


In our last piece we undertook and analysis of the impact and development of COVID -19 and how the fight calls for effective leadership from an economic and health perspective. We outlined the vulnerabilities which exist within the region generally but primarily The Bahamas and Jamaica, giving thought about measures which the governments will be forced to employ to save economies. We now turn to an examination of the measures taken to date, together with a careful look at the scenarios driving the economic thinking. The main point of focus is whether the various modelling hold and what are the implications of any underlying weakness they may display, on assessment.


THE INITIAL RESPONSE

As it became clear that this side of the hemisphere was going to be in for a big hit, governments sprang into action. Cases in the United States started to increase with the first Caribbean confirm showing up in the Dominican Republic. It was time to move. Multiple cases discovered on cruise ships. There were evidence of infected persons having travelled on airlines. The race was actively on to save the health and economic arrangements of the Caribbean with The Bahamas and Jamaica taking very proactive steps. As we write with the benefit of hindsight, potentially a race for the very existence of the region as we know it.


THE BAHAMAS

On Wednesday March 18th, 2020, the Deputy Prime Minister and Minister of Finance of The Bahamas, following consultation with industry players and his opposition counterpart, unveiled a suite of measures designed, appropriately dubbed as “phase one”, to respond to the expected fallout from COVID -19. Paraphrasing the actual presentation, made by the Minister, these included, $16 million allocation to cover detection, isolation, treatment and other COVID-19 mitigation activities. $4 million to provide food, assistance and social support for displaced workers directly impacted by the virus. An allocation of $10 million to provide for a temporary unemployment benefit offering assistance of $200 per week, for up to eight weeks with a pledge to be adjusted as needed. The government highlighted the availability of normal sick benefit scheme available for individuals who contract COVID-19 or quarantined because of exposure or suspected exposure will be eligible for sickness benefits. Those temporarily laid off because of the economic impacts of COVID-19 being eligible for unemployment benefits, up to the regular thirteen-week period.


Further, the Government requested the water utility provider to reconnect all recently disconnected services for residential customers having regard for implications of personal hygiene in the fight against the virus. It further directed both it and the power company to defer payment of bills, for an initial period of three months, for residential customers diagnosed with the virus, who are in quarantine or laid off. Banks committed to provide mitigating measures with some eventually offering deferral of loans on a blanket basis while others committed to doing it on a case-by-case basis, $20 million in short term loan allocated to support Bahamian small businesses impacted at zero percent and no repayment for the first four months of a sixty-four month tenure. Looking for other means of creating potential stimulus the announcements also included acceleration of a Youth Apprenticeship Programme; reprioritization of capital projects to increase the number of quickly deployable small-scale capital works to boost small business activity; acceleration of approvals process for all domestic and foreign capital investments projects currently in the pipeline; and restriction of all non-essential expenses. To date there has been no mainstream monetary policy action taken.


JAMAICA

Jamaica on the other hand, having the advantage of the timing of the event relative the end of its fiscal year and budget presentation, through its Minister of Finance, has rolled up new and previously announced fiscal measures as part of its fight. Excerpts from Jamaican newspapers detail the following approach. The country launched the largest fiscal stimulus in its history at J$25 billion ($185 million). This includes the reduction in GCT (sale tax) from 16.5% to 15% which puts J$14 billion back in the hands of consumers and supports consumption. MSME tax credit to provide critical cash-flow support to MSME's together with dramatic reduction in regulatory fees for agricultural producers. The Banking sector volunteering to forgo the reduction of the asset tax previously announced, increasing their COVID Fiscal Contingency from J$7 billion to J$10 billion ($74 million).


Additionally, through the Bank of Jamaica, the country has implemented macro-prudential measures valued at some J$57 billion ($422 Million) to help deposit-taking institutions during the crisis. Based on economic strength, the central bank noted that it would not cut its reference rate at this point. The central bank is maintaining its overnight placements rates 0.5%. It will continue to support the foreign exchange needs but will halt investment transactions that require the purchase of foreign exchange and temporarily increased the limit on the foreign currency net open positions by 5 percentage points. It commenced a bond-buying programme for GOJ securities and declared that it is prepared for early redemption of its own securities. Taking into account financial stability the central bank removed the limit on the amounts that deposit-taking institutions can borrow overnight without being charged a penal rate. The bank believes these measures will help to facilitate the smooth functioning of the credit market and support inflation remaining within the inflation target of 4 per cent to 6 per cent over the ensuing eight quarters.


The COVID -19 event is a common threat but the circumstances and responses are fundamentally different up to this point. In part, this is a function of timing. As mentioned, Jamaica is at the end of its fiscal year and on the back of a relatively successful readjustment program with the IMF has been riding the wave of 20 consecutive quarters of growth, a robust stock market and fiscal measures in play, which have created fiscal headroom because of reductions in debt repayment. The Bahamas on the other hand is still a few months from its budget presentation. Generally, it has been operating under an austere program with implementation of fiscal reforms design largely to correct its debt to GDP position and structural weaknesses observed in the management of national finances, with the same intent as Jamaica, freeing resources for investment in the economy. Both countries though currently suffer from low growth.


The Bahamas while securing two years of above average growth, compared to the last ten years, missed its targeted 2%-plus growth target in 2018. The same is likely for 2019 once the numbers are crystalized. Jamaica, despite its impressive multiple quarters growth, the growth in GDP overall very anaemic and represents one of the most significant pressure point in its effort to reorganize the Jamaican economy. Notable commentators Denis Chung and the Chair of Jamaica Economic Development Committee Michael Lee Chin has recently lamented this fact. Despite cogent planning and marked successes, it is recognized that true transformation that economy demands growth that is more robust. This is critical to our examination of the impact of COVID -19. We have often echoed the sentiments of Lee Chin as it relates to the Bahamas. For the last few budget cycles we were of the view that greater focus should be placed on facilitative growth, leveraging the growth that was being experienced across the world but primarily in its most important market, the USA. Our consistent concern was that there was a closing window of opportunity and the drive for growth should have been better aligned to that opportunity. 2019 started to prove the efficacy of that thinking with the economic headwinds being created by Brexit and the US-China trade wars. We didn’t secure the growth desired and consequently COVID -19 economic impact is likely to prove a significant challenge, one which may have been easier to face with a stronger foundation on which to build a stimulus effort.


We are being careful not to minimize the depth of the risk faced by both countries and the wider Caribbean region. Neither is there any intention to pre-judge the efficacy of any response already announced and that which will come. This will undoubtedly be a hard road going forward and in many ways, a very complex set of realities. Supply side shock, coupled with demand side shock complicated by significantly disrupted value and supply chains further complicated by a global pandemic, the latter being the most significant and important factor. There is no easy or cheap way out of this. The US has passed the larger stimulus package in its history aimed at rescuing its economy, with clear signals of more to come. The early signs, however, show that this will be a very interesting time as the fundamentals at play are significantly outside the control of a single country and rests fundamentally on the effectiveness with which the health aspect of the event is managed. The US, in our opinion, is currently losing that battle or at least has not yet shown that it is in control of the effort to contain the spread of the virus. This is bad news for the Caribbean as the US represents one of its most significant tourism and export market.


GLOBAL

Long before the US and the Caribbean started to take this matter as seriously as it is now, Indonesia was taking steps to sure up its banking sector, January 30, 2020. Understandably, China’s central bank was applying monetary policy in early February, as was Thailand, Singapore and other Asian countries. These came more than a month before the US signalled its first real economic response. Under pressure from the Trump administration, the reference rate was cut with a further slash leaving it in a range of 0 -.25%. Over that period, the virus, was ravaging Europe, especially Europe. The Euro zone was feeling its impact, as was Iran. Meanwhile Russia and Saudi Arabia started to cross swords on oil, further destabilizing the financial markets. This event will be very costly. To date cursory analysis shows that fiscal and monetary responses across major countries is approximating $7 trillion and counting, well in excess of resources expended on 2008 global financial crisis. This holds important implications for the region, which generally has limited financial resources. In very serious ways, we need the global effort to be successful to create spill-overs for our benefit. Critically the Caribbean needs the United States economy to come back strong quickly. On observation, that though, may be wishful thinking. Unless there are fundamental changes in its approach to containing the virus, information coming out of the USA, with greater transparency and openness than China, will continue to create adverse pressures on global markets and economies. Economists generally agreed that the crisis could persist beyond June. If this holds, then the potency of the statements from The Bahamas stand out in very stark relieve for serious contemplation by the entire region.


According to CNN Business, “the United States, Europe, Japan, China and India are unleashing trillions of dollars in government spending and newly created money as they desperately attempt to keep the global economy from sinking into depression. The response to the coronavirus pandemic has been unprecedented in terms of speed and scale. Commitments from governments and central banks to date are close to $7 trillion, according to an analysis by CNN Business. The total includes government spending, loan guarantees and tax breaks, as well as money printing by central banks to buy assets such as bonds and stock funds.”


The following, as reported by CNN Business of March 26, 2020, provides a summary of the measures taken by select countries. It provides an insight into the enormity of the effort to date.


United States

  • $2 trillion stimulus package including direct payments to individuals, a boost to unemployment benefits and a $500 billion lending program.

  • Congress has approved more than $112 billion to ramp up vaccine research and provide two weeks of paid sick leave for those who are being tested or treated for Covid-19.

  • The Federal Reserve stimulus measures includes an initial pledge to purchase $700 billion in US Treasuries and mortgage-backed securities, which now has no cap and can include corporate bonds and bond exchange-traded funds.

  • The Fed also announced $300 billion in new financing to keep credit flowing to businesses and consumers.


United Kingdom

  • £330 billion ($397 billion) in loan guarantees and suspended local business taxes for the retail, hospitality and leisure sectors for 12 months.

  • Cover 80% of workers' salaries for at least the next three months, up to a maximum of £2,500 ($2,900) a month. Unclear how much that initiative will cost.

  • Provide the self-employed with a cash grant of 80% of their average monthly profit, up to £2,500 ($3,000) a month, over the next quarter.

  • The Bank of England has said it will increase its holdings of UK government and corporate bonds by £200 billion ($242 billion).


European Union

  • Germany has unveiled a rescue package worth up to €750 billion ($825 billion) that includes measures to spur lending to businesses and take direct stakes in companies.

  • France has approved €45 billion ($50 billion) in relief for small businesses and unemployed workers. It is also guaranteeing €300 billion ($330 billion) in corporate borrowing.

  • Italy has greenlit €25 billion ($27.5 billion) to help workers and support the country's health system, while Spain has put up €200 billion ($220 billion).

  • The European Central Bank has said it will spend €750 billion ($824 billion) buying government debt and private securities before the end of 2020, and stands ready to do more if necessary. That is on top of €120 billion ($133 billion) in extra purchases it announced previously.


China

  • So far, China has announced at least 116.9 billion yuan ($16.4 billion) in financial relief and stimulus, plus 800 billion yuan ($112.5 billion) in tax and fee reductions. However, if necessary, the country could very well spend trillions of dollars and rack up massive amounts of debt to shore up its economy.

  • The People's Bank of China has adopted various credit easing measures, allocating at least 1.15 trillion yuan ($162 billion) to help businesses hit by the virus.


Japan

  • The Japanese government is expected to consider an economic stimulus package in the coming weeks that would likely include cash handouts as well as measures to help small and medium-sized companies get access to loans. The package could total 30 trillion yen ($274.2 billion).

  • The Bank of Japan has said it will raise the annual rate of its purchases of exchange-traded funds by 6 trillion yen ($55 billion) and boost the annual rate of purchases of real estate investment trusts by 90 billion yen ($822 million). It also raised the limit for purchases of commercial paper and corporate bonds by 2 trillion yen ($18 billion).


India

  • The Indian government unveiled a relief package worth $22.6 billion just 36 hours after the country's lockdown was imposed. It includes health coverage and food assistance, as well as subsidies and benefits for workers

The listing above give us a clear idea of how deep and costly this event is expected to be. Contextually most of the measures are within the last thirty days of writing. Why is this important? The health event is unfolding and changing the outlook very rapidly. Therefore, the basis on which any projections are made must be dynamic and any pronouncements are simply indicative, for the moment. We see this in The Bahamas initial expectation of a $1B loss to the economy around March 18th. By March 25th according to the Tribune, the Minister of Finance declared “the Bahamas faces a very deep and stark recession” urging the country to brace for major problems if the crisis persist beyond the summer. Therefore, what are the outlooks on this? Does this event have legs to take us into the summer? Note, with the Bahamas being highly dependent on tourism, upward of 50% of GDP, and with tourism and travel being the most significant sector impacted, timing is extremely critical. The impact on others will be no different only potentially at a lower level. In addition, will the region be able to afford, should this extend over the mid-term, to true defend its various economies.


THE MODELLING

The IDB carried out its early analysis of the projected impact of the crisis. It based its assessment mainly on the tourism sector. The scenarios it used were assuming shock magnitudes of 25%, 50% and 75%. This was then matched over three time horizons, June, September and December 2020. This model does not take into account shocks to other sectors of the economy, it ignored merchandise and commodities trade. The assumption is that the further out we go the more pronounced the impact would be. This is important because it parallels closely the modelling done by the Ministry of Finance for one of our countries, The Bahamas. As its output, the analysis considered the impact to both direct and total contribution of the sector on GDP. The conclusion was that on best-case scenario (25% and duration to June) the Bahamas would see a 3.1% hit on GDP while at the extreme end of 75% and duration to December the loss could be 26.2%. Jamaica on the other hand will would see 1.9% and 17.3% respectively. The analysis is very consistent with at least one other, which took into account broader variables such as the price of oil. In this instance, the largest contraction observed was 30% for one Caribbean island.


When the Bahamas finance minister opined that if the event goes beyond June he was effectively saying that as opposed to a maximum projected loss of around 10% over three months, the country stands to lose 17% is extended to September, or as noted before 26% in the case of December. Note that all these are worst-case scenarios. Jamaica’s position would be significant but lesser at 10.7% to September and the afore-mentioned 17% to December as opposed to its best-case scenario of 1.9%. It is important to put these in proper context. These outputs were determined prior to some very important occurrences. Firstly, The Bahamas government's decision to impose a twenty-four hour curfew, in seeking to help maintain social distancing, significantly curtailed economic activities. Up to this point, a night to morning curfew was in play. Secondly, despite hotels being exempted, all the major hotels in the country subsequently did exactly that with a general timeline of May 2020 for reopening. This has done great violence to the results of the initial analysis. The underlying assumptions projected to December are now in play, two weeks from announced fiscal and macro-prudential treatments. There is no question that as to whether the tourism industry has taken a 75% hit. What is to be determined is how close it actually is to 100%. Further, to combat the virus, all airports were closed to inbound passengers, the cruise port already being closed. Therefore, over the currency of two weeks the underlying assumptions that would bring the result over a time horizon to December is already in play.


The out turn of the above, with the benefit of hindsight, shows up the weakness of the scenario analysis. It simply did not consider a deep enough loss or at least that was not reported. Consider cash flow difficulties that will come to bear on businesses and households. A number of companies may be forced to lay off employees. As the lynchpin of the economy, the dramatic loss of the tourism sector will adversely affect local investors and consumer confidence.


The results from the IDB contrasts with that of the Economic Commission for Latin America and Caribbean (ECLAC) with a projected contraction of 1.8% in GDP for the wider region. This number becomes challenging to accept on the basis that it projected a loss of 25% on tourism demand over three months. The actual loss is likely to be deeper, again with the benefit of additional developments. It anticipated a 10% growth in unemployment. On current trend, at least for The Bahamas, this could be surpassed. A historical perspective may provide a better feel of the extent of the impact on the Bahamas, Jamaica and rest of the region is likely to face. In the aftermath of the 2008 global financial crisis, the Caribbean saw a decline of 3%. Statistics for three select countries shows that Bahamas, Jamaica and Barbados saw contraction of 1.5%, 4.5% and 2.8% respectively. The proper interpretation of these numbers must take into account the nature of the impact on tourism. While other countries were hard hit, the Bahamas, especially in its high-end market, enjoyed reasonable buoyancy. The situation is significantly different today due to the health risk complication of this crisis.


It is fair to conclude that with recent developments, USA becoming the global epicentre for the event and again seemingly struggling to come to grips with it; closure of major hotels; Europe struggling; and sooner than anticipated changes in employment arrangements, the projections as they were are very weak and governments must be looking at a totally different set of outcomes. While we are closer to the Bahamian situation, all developments in Jamaica and sister countries of the region suggest that the issues are generally the same with the main difference being extent of impact. Countries with more diversified local economy are likely to fare better in the long run but in the near term the need for any prolong lockdown will bring all economies to their knees. In our view, given the nature of the COVID -19 crisis the time horizon has redefined itself. An event which attracts early fiscal and monetary treatment north of $7 Trillion cannot be a near term event. This demands a repeat of our question in our previous piece. Should the governments of the region keep their powder dry? With important aspects of the economic engine taken away, will fiscal stimulus becomes a waste of resources?


EXPERIENCE AS A GUIDE

There may be no coincidence in the fact that the countries, which seems to have responded best to the COVID -19 crisis are those with experience from the SARs. China, Korea which never closed its economy, Hong Kong, Vietnam, Taiwan response with greater certainty on the strength of its experience dealing with the 2003 event. Similarly, we may wish to look to the past to fully appreciate what we may be faced with and allow the results of our actions then to guide us. In 2008 the Bahamas saw its GDP plunge by 2.3% followed by a further 4,2% contraction in 2009 with debt to GDP climbing progressively every year from 39% in 2008 to 74% in 2014. Jamaica realised a collective decline of 3.5% over the three years from 2008 to 2013, with debt to GDP rising to a high of 133% over the same period. Unemployment in both countries rose significantly to both peak above 15%.


What was the outcome of the stimulus back then, how was it funded and what, on analysis, could have been done better? These are reasonable questions to contemplate. How effective were the programs and was there any glaring weakness in the response. Even if this holds no interest for policy makers one important take away is the level of contraction the 2008 event caused. This could be much bigger. In 2008, there was no health event. While the markets were in turmoil, supply-chains were intact and China was not as significant a player in global GDP. Importantly, there was no need to lock down any aspect of the

economy other than for economic reasons though, one of the main stimulus project in the Bahamas did in fact displace or disrupt a number of businesses.


According to ECLAC the impact is expected to be more intense that the 2008 Global Financial Crisis. The Caribbean is expected to be impacted by numerous channels to include, decline in economic activity in trading partners; lower demand for tourism (we explored this prior). There will also be impact from interruption of value chains. This may have greater import for manufacturing countries but there is a general impact for all imports as we are seeing a high level of concentration of supply chain in countries being significantly impacted; drop in the price of exports – primary as a result of a demand side shock. Finally greater risk aversion on the part of investors. With economies highly dependent of FDI, this is critical and one of the unfortunate exclusion from the modelling discussed earlier. While such a factor is always highly uncertain, we think that there is sufficient annual or periodic experience, which should allow for inclusion, given its importance. The immediate pre-COVID -19 performance of the Bahamas for example is in a large way the result of the completion of the Baha Mar campus of hotels.


Jamaica has unveiled a number of fiscal initiatives, well beyond what has been the case for The Bahamas to date. Again, we believe timing plays a big role in the reality. This could provide us with interesting feedback. We note however that the structural fundamentals of the Jamaican economy may cause this to work to its benefit. In fact, the structure of the Jamaican economy may dictate a much earlier move than the Bahamas with a liberalized forex regime and floating exchange rate, a pronounced and active monetary policy regime, managed by the central bank, an active capital market, and a more developed and diversified export oriented indigenous productive sector. Therefore, having unveiled its “phase one” response, with contrasting fundamentals, is it time to wait and intentionally plan for the mid to long term that will require short term adjustments as the crisis develops and change? Alternatively, should the Bahamas move speedily forward given the gravity of the situation? There is more observing to be done but we are of the view that firing too early could be suboptimal.


TAKE A LONG POSITION

There has been sufficient information to help policy makers refine the initial positions and projections discussed. A paper by Hugo Erken et al of RoboResearch Global Economics and Market delineates some issues that we consider should be informing the thinking of policy makers in The Bahamas, Jamaica and the rest of Caribbean at this point. The risk factors on which any scenario analysis is built must be widened by these assumptions. The world in in the midst of a real global financial crisis. Consideration must be given to potential bankruptcies or business failures, the reluctance of firms to use capital, and dramatic changes on the flow through of money within the economy. In the case of the latter, this is where focus on tourism has its greatest import. It is responsible for the lion share of foreign exchange into both economies, more so for The Bahamas. Jamaica though still has a point of bother as remittances, which also contributes significantly to its economy, is likely to see marked contractions.


The shutdowns across the world could be prolonged but more importantly in our main trading partner. This could be many, many weeks. China is rumbling back to life but for many in the region, the USA is the intermediary in our supply chains and the main source of demand for the region’s tourism product and main export market. Therefore, while the initial point of supply in many supply chains maybe ramping up

the most important point in that chain could be facing its own shut down. Despite efforts to the contrary the evidence on the ground suggest that the US has some ways to go before normalcy can be entertained.


There is a risk to financial stability. The crisis holds great implication for global financial stability and is under pressure. We anticipate that the action of central banks across the globe will take the requite actions to secure this. Evidence of the large monetary policy response is exactly for this reason. However, we must focus on our local economies. With firms suffering, with household incomes under pressure from loss of employment the banking sector could see a spike in non-performing loans. Traditionally, small businesses in the region have had financing tied to personal mortgages or sources. This represents a big risk for these entities as the means of repayment are tied to their ability to trade. Lock downs will affect cash flows and if prolonged will hurt these businesses. The impact on the banking system therefore must become an important factor in developing scenarios going forward.


With these in mind there must be a long-term outlook taken. The decision makers must now decide what fiscal, monetary and macro-prudential treatment will then best suit what the outcomes suggests and the extent to which they can be afforded. Here is where the position of fiscal reform will become important. Will the governments be willing to borrow in order to finance stimulus? Do they actually have sufficient headroom to address, not the previously determined potential out-turn but scenarios, which could result in marked reduction in FDI; closures of businesses; spike in bad loans; lack of currently funded substantial projects to drive employment and further investments; precipitous fall in foreign exchange inflows and the implications for net internal reserves and balance of payments.


Debt- to-GDP looms large in the successful strategies being pursued by Jamaica. It also looms large as a measure of success for Bahamas' recently detailed fiscal strategy and this is generally the same across the region. We remind of the state, which Barbados found itself not too long ago. To what extent are policy makers willing to buck the trend and do what may be required to inject growth through deficit spending? This moment calls for playing the long game. There are certainly near term issues to be addresses and which must be given careful attention if success is to be secured in the long term. However, long-term success and sustainability must not be sacrificed for short-term outcomes. If historical experience holds true for the event then this could be at least a three to five year cycle. Planning and response should be tailored accordingly.


THE POLICY TREATMENTS

The policy responses, as indicated before, can range from fiscal where the government uses its tax revenues to support firms and persons affected by the event. There can be monetary easing usually designed to support demand confidence and reduce the borrowing cost for households and firms. Central banks can take actions to provide liquidity to market and ease stresses on credit and currency mechanisms. The reality is that as we look across the region the ability for implementation, across these options, vary significantly and in a number of instances the economic arrangement of the country limits the range of options available and the potency as it relates to monetary policy.

With that in mind, we outline our views on possible actions, which can be taken. We limit our focus to the Bahamas, being the jurisdiction we are most familiar with, on the assumption that they will hold instructive value for others.


  • Controversially, reduce the reference rate for from 4%. We understand many will not agree. There are significant complexities resting on this rate. The earnings, reserves and balance sheets of insurance companies; the level of earning of banks and asset liability challenges, potential demand for currency with cheaper funding, etc. Without discounting the complexities, we caution not to make the mistake of 2008 when NPLs ballooned and hurt the housing market and householders. In many ways, The Bahamas banking sector has not fully recovered from the event. While the issue may be currently concentrated in certain institutions, further pressure on mortgages could create an interesting reality for both the government and the sector. While currently highly capitalized, individual entities could feel pressure on their capital adequacy ratios.

  • Public sector spending will need to be ramped up. Over the last three fiscal cycles, there has been a depression in capital spending. Consequently, there are not many substantial project hanging which can form the basis for a stimulus package. Maybe it is time to look at how effectively managed debt financing may deliver infrastructural expansion which will facilitate future growth and development. This must be done within the context of a long-term plan and implementing the checks and balances, which will prevent loss of public resources. Effectively all the fundamental elements of the fiscal reform plans minus not borrowing.

  • Consideration should be given to reducing the VAT (sales tax) as a means of supporting the citizenry going forward. We understand the implications for government revenue but argue that should unemployment deepen to the levels projected government would still need to find resources for welfare support. A reduction in taxes increases the buying power of the individual and potentially reduces the level of government spending and the natural ineffectiveness which tend to be present in public sector machinery reaching those in need.

  • The announced loan program for MSMSE of $20 million will likely need to be expanded with a significant pool targeted at supporting these entities over the next 12 to 18 months. Consideration would therefore need to be given to the cost of accessing these funding.

  • As part of a long-term outlook, the policy makers should consider how it could use its fiscal apparatus to start encouraging the development of sectors, which have potential but are not growing. There is an urgent need for greater diversification and exploiting potential horizontal and vertical integrations and linkages across sectors. This is where this crisis event represents an upside potential. Having bared vulnerabilities across the economies it is critical that the status quo is broken and the search for other economic contributors in growing GDP.

  • Plans should be considered for supporting tourism on the back end. It is our view that this sector could display a delayed recovery due to left over concern from the virus. Other than that, the impact on disposable income and may be demand for more budget locations, anticipate tentativeness in the market. Smaller properties and concerns connected to tourism may therefore have a longer support horizon.

  • Given fiscal space considerations, public private partnership should be actively considered as part of any stimulus approach. With creative structuring this event could present the impetus for driving this much-discussed means of supporting government investment in infrastructure and provision of public goods.

  • The government should deploy its concession regime to support retooling of companies and encourage expansion of existing ones into the digital space. Allocations should be made for the development of generic digital sand boxes and made available to entities willing to commit to reasonable conditions.

  • There must be a return to the national development plan with an emphasis on building a more resilient economy. The opportunity should be taken, regardless of how the event unfolds, to take a serious look at health systems and their capacities; social welfare systems; food security; and those elements, which support ease of business across all sectors.

We believe that with a fundamental recasting of the projections with appropriate adjustments to the above-proposed actions, will provide an effective battle box for policy makers. The issue of timing remains for their consideration, informed by the continued unfolding of the COVID -19 crisis. In all instance we anticipate that all actions taken will be regulated by the individual country’s foreign currency reserves.


CONCLUSION

In our last piece we outlined the vulnerabilities that exist within the region giving thought about measures that the governments will employed. Here we sought to look at the efficacy of those responses and consider whether they could be suboptimal given the early projections that were made. We argued, using Jamaica and The Bahamas points of references, for a rethink of the outcomes and the timeline over which these will unfold and suggested actions which policy makers can take specific to The Bahamas but holding indicative value for other countries.


The issues at hand are very complex for the region. As we write we remain minded that we are in the midst of an unfolding event with a high level of uncertainty. Our hope is that none of the dire circumstances alluded to will materialize. This is not an exploration of doom but an exercise geared at preparedness. If the worst materializes, the region must be ready to the best of its ability. The fight in the first instance is for the lives and well-being of the citizenry and playing an important part of protecting all of humanity from the ravages of COVOD -19. That must never be lost in all that is contemplated and implemented. This is a health event with significant economic and financial implication and impact. Success in beating the health aspect is success in saving the economy, both are intrinsically intertwined but demand separate treatments. Any country which loses the battle on any aspect of this event will pay dearly. We believe that while challenging, the capacity resides within the region to so do.


In our next piece, we will look at other developments and perspectives relating to the COVID -19 crisis.




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