The 2020 Economy: Need for Expansionary Policies—Part 2

In the previous installment of the Business Perspective column, the various downside risks facing the Belizean economy were discussed. We ended that earlier article with the following point: “The Belizean economy—like others in the region—has a lot of downside risks bearing down on her this 2020. Consequently, if there was ever a year in which serious policy discussions regarding Belize’s economic response are to be had it is this year. Actually, it is possible to rightfully argue that policy discussions on expansionary policies are grossly overdue” (BP Article from Sunday, March 8, 2020).

Four weeks later those words have taken even greater significance, as the then potential economic impacts have surely been realized. In the March 8^th article, we wrote:

“At the time of writing, the United States—hands down Belize’s largest origin tourism market—has confirmed 9 COVID-19-linked deaths out of (as of March 4, 2020) approximately 80 reported cases, as explained by the CDC …At this point, while the predominant concern is about the lives of those infected, there is also the secondary economic concern as to how that eventuality would impact tourism demand, especially for cruise.”

Shortly thereafter, there was the mid-March announcement of the 30-day suspension of Cruise Lines’ global services, which came on account of the exponential growth in  number of confirmed cases in the USA and globally. By March 21^st and 23^rd, respectively, both the Northern border and the Philip Goldson International Airport (PGIA) were both essentially closed, with practical exceptions for cargo movement and the returning home of Belizean citizens. These necessary measures to avoid the local spread of COVID-19 had immediate effects on the Belizean economy, with the tourism sector taking the first hit.

Business Impacts

In an ongoing Belize Chamber of Commerce and Industry Survey (BCCI, 2020), more than 90 percent of the tourism-sector respondents have indicated that their losses will exceed 20% based on their projections for this year, with a large proportion saying that such losses may very well be well above 50 to 60 percent. When expanded to all sectors, the results are no different: approximately 60 percent of respondents expect to see that level of decline in revenues.

The severity of the impact is likewise shown in the number of companies that have opted to release workers. BCCI 2020 thus far shows that just below 15 percent of companies have permanently reduced staff due to the COVID-19-induced acceleration to an ongoing recession that began in 2019.

The remaining 85 percent of companies—most of which (75%) are MSMEs—are, nonetheless, doing their best to hold on to their existing employees. Many firms have opted to use a mix of methods in an effort to preserve their talent pool. These measures include temporarily reducing staff (35.4% of respondents), reducing hours worked (41.7%), or lowering production (21%). (Note: respondents were permitted to select multiple options as they may be using more than one approach).

Aside from the labour-force related measures, companies are also adopted other cost-saving measures such as asking employees to use their vacation time, scheduling shifts, and some have indicated augmented efforts to bolster sales where possible.

The Way Forward

Candidly speaking, it is fairly difficult for anyone to discuss the “way forward” with any real degree of certainty for two reasons. For instance, in an Inter-America Development Bank (IDB) piece entitled “COVID-19: Tourism-Based Shock Scenarios for Caribbean Countries”, the authors estimated three different levels of impacts over three time-horizon. In terms of the levels of impact on the overall economy, they estimated a 25%, 50%, and 75% drop in tourism’s total contributions to GDP. Each of those impacts was calculated under the assumptions that the markets would return as close to normal as possible by June, September, and December 2020, respectively.

For example, the 25% shock scenario for Bahamas was estimated to decrease the country’s GDP by 3.1 percent if the pandemic ends by June 2020. However, that figure jumps to 8.7 percent if it continues until the end of the year. The picture is conspicuously worse if the tourism fallout is of a magnitude closer to 75%, thereby, yielding declines closer to 9.4 percent and as high as 26.2%, respectively, for the same time horizons.

The sizable drags on The Bahamian economy due to the hit to tourism is largely on account of the contributions of this sector. In terms of total contributions, tourism accounts for close to 48 percent of Bahamas’ economy. Of course, there are several other variables and factors that the IDB authors underscored that were not included in their calculations; therefore, the results must be interpreted judiciously.

Like the Bahamas, the Belizean economy relies to a great extent on the tourism sector. According to the World Travel and Tourism Council (WTTC)’s data, tourism’s total contribution to Belize’s GDP is roughly forty percent. Therefore, when we apply an analogous methodology to Belize’s economy, it is revealed that our results are fairly similar to those obtained for the Bahamas.

While, as said earlier, it is difficult to rely on any type of projection in such uncharted waters, the picture of potential worse-case scenarios is, at minimum, useful as it pertains to informing the development of plans to help cushion the economic impact as well as to guide recovery strategies. And while details may be sparse at this juncture, one certainty exists at this stage: whatever recovery effort would require significant improvements in the Entrepreneurial Ecosystem to ensure that not only will employers and employees would be able to get back to their pre-COVID work and production levels, but also transcend those levels. A more thorough treatment of the conversation on that overhaul to the Entrepreneurial Ecosystem is where we resume with next week’s BP article.