The Economist Intelligence Unit (EIU) on Wednesday gave The Bahamas a favourable rating in an assessment of its tourism sector, political climate and overall economy.
However, it said government revenue collection and relations with the U.S. in the fight against drug smuggling and related issues were areas that needed improvement.
EIU provides analysis and forecasts on more than 200 countries in eight key industries, which generally measure standard of living and economic power. Individuals and companies study these indicators so that they are better able to make informed business decisions before investing in a country.
Stopover arrivals increasing
EIU said investment in The Bahamas’ tourism sector and the increasing trend in stopover arrivals would continue to support economic growth in 2005/06 It said the construction sector would benefit from tourism-related investment projects as well as ongoing post-hurricane repair work and new housing investments.
According to preliminary data from the Central Bank of The Bahamas, the current-account deficit for the fourth quarter of 2004 narrowed sharply year on year, to US$20.7million, down from US$157.5m in October-December 2003.
EIU said the balance of payments would benefit from reinsurance inflows and tourism. It also said the Central Bank’s reserves position should remain strong and investment-related inflows would boost the capital account.
“Despite an 18.4 per cent increase in merchandise exports, the effect of higher international oil prices, which increased the energy imports bill by 52.7 per cent year on year, resulted in the trade deficit in the fourth quarter widening by 6 per cent,” the report said.
“However, the widening trade gap was counteracted by an increase in the surplus on services as net receipts rose by over two-thirds, despite a fall in tourism earnings.”
Government assessment
In examining the country’s political stability, EIU indicated that the Progressive Liberal Party government, which recently celebrated three years in a five-year term, has a secure parliamentary majority and remains in a strong position, despite controversy surrounding some PLP members of parliament.
The government’s standing with the people was also said to have been bolstered by several large-scale private-sector investment proposals, with the potential to boost employment in tourism and construction. These include Kerzner International’s billion-dollar Phase III Development, Baha Mar’s $1.2 billion Cable Beach deal, the $500 million Guana Cay project and the $34 million Cape Eleuthera development.
Government revenue
Touching on government revenue, EIU said following deterioration in this revenue, as a result of a dip in tourism-related taxes and import duties in September-November 2004, a recovery is expected in the first half of 2005 as continuing economic expansion would boost import demand and import-related duties.
However, it noted that the outturn in fiscal year 2004/05 (July-June) would suffer from the impact of customs exemptions granted for tourism-related investments and hurricane repairs in the wake of damage to the northern islands in the second half of 2004.
The need to control government spending was also said to rule out attempts by the government to implement the more expensive of its 2002 campaign promises e.g. the National Health Insurance Plan.
EIU further noted that it had to downgrade the country’s Gross Domestic Product estimate for 2004 from 3 per cent to 2.5 per cent due to capacity constraints within the tourism sector in the fourth quarter of that year following hurricane damage in September, and the likely dampening effect on the overall pace of growth.
International relations
The Bahamas’ international relations with the U.S. received the harshest review by the economic assessment organisation. It said relations with the U.S. in the fight against drug smuggling and related issues were likely to remain difficult.
“The lack of movement on the extradition of important drug suspects is a particularly contentious issue,” EIU noted.
“The release of any of those suspects currently held pending extradition, although unlikely, would be met with disfavour by the U.S. There are few policy differences with the U.S. on other matters relating to the region, although increased pressure from the U.S. in relation to tax evasion and money laundering could sour relations.”
EIU is the business-to-business arm of The Economist Group, which publishes The Economist Newspaper. It is a world leader in country analysis and forecasting and has been providing business intelligence to corporate executives, government officials and academics for nearly 60 years.
By MINDELL SMALL, Nassau Guardian Staff Reporter
