Early signs indicate the economic hit will be “considerably worse: for Bermuda, than the Global Financial Crisis.
According to Curtis Dickinson, the Minister of Finance: “The economic impact of COVID-19 will also have severe knock-on effects on the 2020/21 Budget.
“The combination of lower fiscal revenues, and higher public spending, will no doubt cause the projected budget deficit of $19.8 million to increase,” he said.
Speaking at the latest government briefing on the impact of COVID-19 on Wednesday, the Minister said before the coronavirus hit, some 35,393 people were working in Bermuda.
The Ministry’s Fiscal Plan “calls for a reexamination and reduction of lower priority budget expenditures to ensure that spending needed for COVID-19 matters are maintained”, he added.
“In line with the zero-based budgeting methodology reintroduced this fiscal year, the 2020/21 budget will require a revised alignment of the allocation of resources to tackle the threats posed by COVID-19.”
To that end, over the next three months Government will:
- Delay the start of any capital projects that have not commenced; this could save between $10 – $15 million;
- Institute an immediate freeze on the funding of vacant post that are not required to address COVID-19 or to protect Bermuda’s national interests; this could save between $10-$15 million;
- Continue the ban on non-essential government travel which could save between $1-$2 million; and
- Reducing all discretionary spending including training, materials and supplies, clothing and uniforms etc. which could save $3-$5 million.
“We understand that the economy must be addressed, however we must make it clear that the Government’s number one priority is managing this health crisis,” said the Minister.
“Early signs imply that the economic hit will be considerably worse than the Global Financial Crisis.
“Predicting the exact scale of the economic damage at this point is difficult due to continuing uncertainties.”
Overall, he said: “A recent OECD interim economic outlook reported that the Coronavirus has put the world economy at risk, and that the public-health measures to suppress COVID-19 will cause a severe economic shock in all directly affected economies.
“The economic consequences will be extreme in the short term and could be severe in the long term if governments get their economic policy responses incorrect,” said Mr Dickinson.
“During the global financial crisis, the deepest contraction in the Bermuda economy was 5.6% in 2009.
“The 2009 recession was the most severe one to have affected Bermuda since the 1930s.
“In line with most other countries, we expect the contraction in the Bermuda economy in 2020 to be worse than in 2009, due to COVID-19,” he said.
“The Ministry is in the process of getting economic modeling done by independent parties.”
After considering the impact this deadly virus could have on all sectors in the Bermuda economy and the level of unemployment, while working with the Caribbean Regional Technical Assistance Centre (CARTAC), he said Bermuda’s revised growth forecast was 1.0% to 2.0% to -7.5% to -12.5%.
“It is important to note that this is a preliminary projection, is based on reasonable assumptions and is primarily dependent on how long intensive suppression measures remain in force,” Mr Dickinson added.
“The IMF, in their World Economic Outlook on April 14th, have predicted the global economy will contract by 3% in 2020, and in the US, 5.9%.”
Moving forward, he said: “The Ministry of Finance recognizes that to navigate appropriately through this crisis we will require the input and advice from all stakeholders in the community.
“Accordingly, as I mentioned in my March press conference, the Ministry of Finance has increased its monitoring of global economic conditions and its interaction with stakeholders in the public and private sector to obtain views from business leaders about industry sector performance and their outlook.
“This will assist in the development of our economic recovery plans for COVID-19.
“Additionally, the Ministry of Finance has already engaged with the Fiscal Responsibility Panel to seek their feedback.
“Further, on April 10th the Ministry of Finance and BMA convened an emergency meeting with the Financial Policy Council on COVID-19.
“The purpose of this Special Meeting of the Financial Policy Council (FPC) was to provide a forum for preliminary discussion and advice to me, as the Minister of Finance and the Bermuda Monetary Authority on the possible impact of COVID-19 developments on the financial stability of Bermuda.
“The scale and speed of the economic recovery in Bermuda will depend critically on the economic policy actions taken now.
“To build on the momentum from the FPC meeting, I can confirm that I will be establishing a COVID-19 Economic Advisory Committee,” he said.
“The committee will include key stakeholders in the Bermuda economy and community.
“They will provide advice to me and will help to get our economy moving again.”