THE PATH TO ECONOMIC RESILIENCE – A CASE FOR GROWTH

BACKGROUND – THE SEARCH FOR RESILIENCE

Reporting on the same presentation by the Deputy Prime Minister (DPM) and Minister of Finance recently, one of the main daily newspapers headline read, “Govt. wants ERC to assist in finding solutions to supplement economic growth”, yet other, “Govt. pins hope on recovery committee”. This signals the level of seriousness with which the work of the Economic Recovery Committee (ERC) is viewed by the government. The DPM’s stated, “We anticipate this committee will bring back some recommendations that we’ll be able to execute in the medium to short term…so, non-traditional activity but in the longer term, to help us visualize and to conceptualize what the restructuring of this economy could look like is tourism takes longer than we anticipate to rebound”. There are important conclusions to be drawn from these pronouncements. Indications that this is needed where the budget may not have gone far enough are signs that the dynamics have shifted especially because of recent developments, driven mainly by the realities in the USA.


Around the middle of March 2020, it started to become clear that the Bahamas and the rest of the region would be facing significant economic problems arising out of the COVID-19 pandemic. By this time China, the first epicenter was coming to grips with the health crisis in Hunan Province and the United States was showing all the early signs of inadequate management of the crisis. The general refrain was that The Bahamas would lose ten percent of its GPD and the event would terminate around June. At the time of writing, we are four days from the end of June. I asked then, whether the early models would hold and the implications if they did not. I pointed out that the June horizon was but the best-case scenario and with a timeline of December, the potential loss would be closer to thirty percent, based on the IDB modelling. How much more will be lost? What would a back testing of those model show now, given their initial highly tourism centric assumptions? Is there sufficient economic resilience, which will enable the country to return to some level of normalcy?


With major hotel properties adjusting their time for reopening, some projecting September or beyond, this likely the case. I also wrote, stating the desire for China and the rest of the world, especially USA to be successful in combatting the pandemic. My exact sentiment was, their wins will be our wins and their losses will be our losses. Today we are looking at potentially our worst fears. The Bahamas market which provides 80% of our tourism market is showing ever-deepening signs of a crisis out of control. The USA’s desire to open up its economy early, the philosophical stance of its national leadership, the subversion of the role of medical and scientific contributors looms large and thankfully in stark contrast to what we see in the region. In an article piece I made the point that while there is an economic crisis to be managed, the success thereof rests in treating this with the respect deserving in managing a health crisis. The USA has become a case study of what could happen when policy makers fail to take decisive and common-sense actions. Thankfully, generally, we are not seeing this in the region. There is, however, significant economic pressure to open the economy. The question is, can we survive? How resilient are these islands of the region in dealing with a second surge or a 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 the economies across the region the current picture was always inevitable. Downgrades by rating agencies, inevitable. Deep fiscal deficits, inevitable. Rapid increase in unemployment, inevitable. Huge economic counter cyclical expenditure, inevitable. With the onset and onslaught of the global Covid-19 pandemic, there is a deep and deepening financial crisis, in my opinion, deeper and more concerning than public pronouncements would suggest. The question which ought to occupy the minds of everyone 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. Problem definition though remains critical to any attempt to recover. The truth is that these Caribbean economies are having the microscope placed on their economic arrangements. While this crisis has undoubtedly damaged them significantly, an objective conclusion must be that resilience was always questionable. In the wings lies the very ominous major climate event, an ever-present vulnerability. 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 deficits across the region reasonable? Are we going to limp forward hoping that what we had before will was 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 reimagined, reengineered economic arrangement and a new consciousness that radically eschews the paradigms of the past?


I believe in the capacity of the region 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, a new region with serious regional interaction geared at advancing the cause of the people of the region, we will suffer in the long term. Where there is failure to let go of arrangements which result in low growth economic output, the result of any plans, projects or programs will be the same. The Bahamas, Jamaica, the region suffers from being caught up in a serious debt trap; the region suffers from low productivity; and the region suffers from significant vulnerabilities and external shocks that are not faced by many others. The only solution lies in finding a sustainable path for growth, consistent growth. Strategies, which 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 policy maker and every citizen and resident of these countries must know and accept that now, today, is the time to write a new normal of high productivity, economic vibrancy, and growth, by leveraging all national options available. The countries of the region will either rise by embracing new thinking (not limited to economics) or remain strangled by its existing paradigms. Economic resilience is about how an economy stand or recover from the effects of exogenous shocks. Finding the right and balanced formula to secure economic resilience is not easy but where the focus must be. In this process, appreciate that resilience assumes a return to a normative state and contemplate whether for us that state is optimal. Going back to a state which itself needed major improvements will not be sufficient to create sustainable resilience. For any regional economy, it will require effective debt management and consolidation; but as 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 are some issues that will affect the realization thereof.


For The Bahamas, which has embarked over the year on a number of studies and strategic planning for the economy, this is a pivotal moment, maybe a tipping point. I think that it is important that a truly nationally endorsed plan emerge. I am of the view that the level and depth of this crisis demand an across-the-board effort where all major stakeholders agree on what need to be done. This is especially true in the case of major political parties. Time is at a premium and therefore directional certainty is critical. Early commitment to a consensus position has true economic implication. Commitment to executing the agreed plan has true economic value or at least carries serious influence. The bottom-line question is will we see once and for all a position which drives the national effort regardless of who make up the leadership? Alternatively, will there be a scenario where we could find ourselves once again at the table, planning on what new direction should be taken? In this moment the issues should be well understood; the most important of which, is that collaborative leadership will be a major determining factor in whether The Bahamas wins in the end.


DEFINING RESILIENCE

The Deputy Prime Minster signaling a potentially emergent change noted, “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 or how more resilient would 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 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 definition “refers to or implies 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 that this is the crux of the matter. Returning to some level or normalcy and stabilizing the economy is critical, however, without serious transformation, which is by no means arguing for an abandonment of the fortunes of tourism, the economy will maintain the same level of vulnerability to external shocks it had before the crisis. Long-term transformation of the economy is necessary.


The economy must adapt to what the new global norms and trends are dictating. For example the way tourism services is delivered going forward will be different from the past which may impact th