PM Addresses Nation On State Of The Economy

Prime Minister, the Hon. Hubert A. Ingraham.

"Those of us who are employed must increase our productivity and do our best to hold on to our jobs. Now is not the time to do otherwise. Indeed, we must now be more committed to quality service than ever before", Prime Minister Ingraham echoed across the air waves.

Rt. Hon. Hubert A. Ingraham, Prime Minister of The Bahamas addressed his archipelagic nation on Monday evening on the State of the Bahamian Economy. He opened by reiterating the fact that the national economy is being seriously affected by a severe global financial crisis. His stated intensions were to communicate the extent of the critical economic situation facing the nation; and, his Government's plan of action in the face of this critical situation.
 
Ingraham, went to great lengths to explain the origin of the problem to be the collapse of the sub-prime mortgage market in the United States of America which has now grown into global market crises.
 
He explained how correlated the island's tourism industry is on the Consumer Confidence Index in the US, an index that he said, at last measure in October is at 38.0, its lowest point ever.  "Under these circumstances, we expect to end the year with a decline of more than 6% in total visitors to The Bahamas with stopover visitors declining more than cruise passengers", said the Prime Minister.
 
He further emphasized,"As an indication of the level of uncertainty that exists and just how quickly the economic situation is changing, the IMF published, just last week, an emergency update of its Fall World Economic Outlook. 
 
That update downgraded its forecast for global economic growth in 2009 from 3.0% to 2.2%.  The outlook now for the industrial countries is for their economies to shrink by about 0.3%.  This will be the first such shrinkage since World War II.
 
More critically for the Bahamian economy, the new forecast for US growth has been revised downward for 2008.  The US economy is now expected to contract by 0.7% next year."
 
In direct reference to Tourism , "the principal engine of the Bahamian economy", the Prime Minister said "to put it bluntly, we are facing a most difficult tourism season".
 
He explained that an increase in income up to August of this year due to increases in room rates in New Providence was experienced; but hotel occupancy levels then fell precipitously in September and October and continue to do so.  PM Ingraham went on to say that major hotels and resorts in New Providence and Paradise Island have experienced the lowest occupancy rates in many years, since August, while weakening in Grand Bahama's hotel sector was in evidence many months before. 
 
"Advance hotel bookings offer no sign that the situation in our hotel sector will be reversed in the coming months" he added.
 
He Continued: "Foreign direct investment inflows at the end of September, in respect of tourism related projects, increased by more than 16% over the corresponding period last year while property purchases by international persons registered a decline.
 
In the domestic market, mortgage loans from commercial banks and insurance companies for new home construction and repairs also reported a 15% increase during the first half of the year.  However, following moderate expansion earlier this year, construction activity is now subsiding.
 
Inevitably, the national debt has been impacted.  Preliminary estimates placed the national debt at $3.2 billion at the end of October, 2008, up 5.6% over the same month last year. 
 
This was a slightly accelerated rise in comparison to an increase of 4.7% in the 12 months ending October, 2007, and was a reflection of elevated financing needs throughout the public sector. 
 
Happily, at October 31, 2008, foreign reserves stood at $626 million, one third higher than at the same period last year, and domestic bank liquidity was about 50% higher.
 
But evidence of weakness in the economy is reflected in deterioration in the asset quality of the banking system.  Non-performing loans, that is, loans on which payments have not been made for at least three months, have increased by nearly 40%. 
 
Another revealing indicator is the ratio of loans in arrears to total claims outstanding which has risen to 10.4% in 2008 compared with 8.6% in 2007 and 7.6% in 2006."
 
Speculated by many as the trigger for the address, the prime minister also addressed the growing unemployment situation.  "Unemployment is now a most serious concern" he said. He then continued "many workers in the tourism sector face the prospect of layoffs or unemployment for a considerable period, and at least until the global economy, especially that of the US is stabilized and returns to forward movement".   On Tuesday reports surfaced that operators of Atlantis, Paradise Island, intend to cut nearly 1,000 jobs this week in an effort to contain costs – a report that was not confirmed nor denied by the Hotel.
 
The Bahama Journal reported on Monday that Bahamas Hotel Catering and Allied Workers Union (BHCAWU) Treasurer, Basil McKenzie said that if the 800 plus employees being laid off at the Atlantis resort are true, those employees could add to the 6,000 employees already trying to receive assistance from the union through its Health and Welfare Benefits Fund.
 
In regards to the Financial Services Sector the Prime Minister highlighted that "our offshore financial services sector is facing new challenges as some major countries are advancing the erroneous premise that, somehow, the offshore centres are related to the current crisis.  They will likely use the crisis to advance their anti-offshore financial centre agenda".  He added, "Further, the growth of major investment inflows into resort and hotel development which we had anticipated is slowing down and a significant portion may not materialize for quite a while. 
 
The slowdown and even cessation of direct foreign investment is due, not only to the uncertain outlook for tourism in the present environment, but also to the fact that many of the investors find it difficult to raise funds from their banking systems even for high quality investment purposes".
 
About Government revenue the Prime Minister said, "through the end of October, recurrent revenues were running just slightly above the level of the same period last year.  More critically, they are roughly 10% below the level projected for this fiscal period".
 
"Those of us who are employed must increase our productivity and do our best to hold on to our jobs.  Now is not the time to do otherwise.  Indeed, we must now be more committed to quality service than ever before", Prime Minister Ingraham echoed across the air waves.
 
To combat the current Crisis Ingraham outlined actions his government intends to take.
 
As a direct response to the current crisis, he said, government borrowings will appreciably increase. "I am now of the view that it would be inappropriate to cut recurrent Government expenditures at this time in an attempt to mitigate the fiscal impact of revenue weakness" he explained.  
 
The remainder of his action list is outlined below:
 
My Government has sought to provide enhanced financial support to those families most in need.  To that end, we increased the level of assistance available under the various programmes of the Department of Social Services. 
 
He said that a number of clearing banks had advised that they have been discussing with their home-mortgage clients ways to protect them from losing their homes and that some of them have already implemented delinquency management techniques to help their clients.  He cited The Royal Bank of Canada and First Caribbean Bank as having announced details of these arrangements for their respective institutions and further said that they have been informed that Commonwealth Bank and other banks have put in place similar programmes.
 
"I encourage other banks and insurance companies that have over the years made substantial profits from their Bahamian operations to follow this lead" he said. 
 
To the populace he said "Under no circumstances should you wait until the bank offers your home for sale or attempts to foreclose on your mortgage before you contact your bank to discuss your circumstances".
 
Steps are also being taken to provide a government programme to ease difficulties for unemployed persons experiencing problems with meeting mortgage payments on owner-occupied houses.
 
To ease difficulties for unemployed persons the prime minister advised that Government's capital investment programme was being reviewed to accelerate those projects that would contribute most to dealing with the emerging unemployment problem.  

He continued:
 
"These will include most if not all of the following:
The redevelopment of the Lynden Pindling International Airport;
The resumption of work on the New Providence Road Improvement Project;
The construction of three government office complexes in New Providence, Grand Bahama and Abaco;
The completion of the new school in Oakes Field;
The construction of the new Registrar General's office complex on Market Street;
The completion of the Magistrate's Court complex on Meeting Street;
The completion of the Government office building next to the Ministry of Works on JFK Drive; 
The restoration of the historic Supreme Court and Colonial Secretary buildings at Bay Street and Bank Lane;
Construction of a new Straw Market on its original site;
The construction of an Authentically Bahamian Craft Market;
Commencement of the Downtown Revitalization Programme; and
Enhanced beautification programmes around New Providence.
 
Additionally, the government housing scheme has resumed and several hundred houses are slated for construction by the end of next year.  A number of other public sector projects, including the development of public recreational spaces, will also be undertaken.
 
The Bahamas.com website has been redesigned making it both more attractive and interactive.  We are significantly increasing the marketing and advertising of our destinations in the television and print media and we are also aggressively promoting our country online. 
 
Much of this initiative is directed to the United States market as the closest, friendly, English-speaking destination which uses the same currency and enjoys US customs and immigration pre-clearance facilities.  
 
The Bahamas has the considerable advantage of proximity to the United States of America; we will exploit that proximity advantage to the fullest.
 
These efforts are being supplemented by aggressive initiatives to improve airlift from the US to The Bahamas at competitive rates.
 
Increased promotional television and print marketing initiatives are also underway in the UK and Canada.  Public relations initiatives are being pursued in key markets in Asia and Latin America with a view to positioning The Bahamas to benefit as and when the economy begins to improve in those regions.
 
But even the best pump in the world is of little value if there is no water in the well.  We must all await the return of consumer confidence in the global financial system and most especially consumer confidence in the US before we can get our tourism sector back on track completely.
 
We can be encouraged that the World Tourism Organization's press release of earlier today also noted that "so far, international tourism has resisted the downturn better than other economic sectors such as construction and real estate or car manufacturing.  As in previous crisis situations, traffic to closer destinations . . . is expected to be favoured as compared to long haul travel".
 
I have, as well, announced measures:
 
to enable persons to work out a solution to arrears of bills with BEC and the Grand Bahama Power Company, and,
to subsidize surcharges over 15 cents per unit on residential utility billing to some 80% of consumers that use less than 800 kw of electricity per month.
 
The price of crude oil, which caused a sizeable hike in the oil import bill for The Bahamas and fueled an increase in the cost of living, stood approximately 25% lower in October compared to the same month last year, and some 52% below the July peak of $140 per barrel, but was still moderately above $60 per barrel in 2006. 
 
Given the deepening weakness in global economic conditions, the outlook is for generally lower oil prices, although with persistent unpredictability.
 
Having regard to current and expected economic conditions, it is projected that unemployment levels will rise to lower double digits in The Bahamas.
 
In light of this, my Government will put in place various measures to mitigate the impact of joblessness or reduced income. 
 
Hence, the Government is considering the implementation of a temporary unemployment assistance programme to be administered by the National Insurance Board. 
 
Although unemployment benefits are not presently offered, NIB's primary objective is to ease the burden. 
 
My Government will, therefore, cause to be allocated some of the excess funds accumulated in the Medical Benefit Branch of the NIB Fund to provide weekly unemployment assistance payments to workers who have recently become unemployed or placed on reduced work-weeks.