It’s mid-spring and hotel rooms are usually filled with well-heeled travelers, and downtown Charlotte Amalie is heaving with visitors strolling the alleyways and cobblestone sidewalks looking for a bargain.
Until recently, air flights that have been near empty, have picked up but the once bustling cruise ship ports still sit idle. Without the crowd of visitors, some restaurants and stores are not faring as well. In short, the COVID-19 pandemic has upended almost every facet of life as it exacts its toll on the U.S.Virgin Islands economy.
The question that no one can answer just yet is: how much?
It’s too early to estimate the pandemic’s full impact on the economy as the data to measure the fallout from travel restrictions, “no-sail” orders and business halt are still to come. Monthly unemployment figures, however, point to early signs of trouble. According to the V.I. Labor Department, more than 8,500 Virgin Islands workers filed for unemployment benefits in just five weeks. Layoffs will likely climb higher as self-employment claims are filed, pushing the territory’s unemployment rate as high as 15% by year’s end.
The resumption of tourism — the engine that drives the USVI’s economy and one that injects $2.2 billion into V.I. coffers and directly employs more than 9,000 people — will be slow and hit especially hard. The tourism industry, as measured by the real output of goods and services sold directly to visitors, account for 30% of the gross domestic product (GDP). When the indirect and induced impacts of tourism are factored in, its share of GDP is over half. It also contributes to 42% of total exports earnings.
As the pandemic’s adverse effects roil the tourism sector and the ripple effect felt by other industries, GDP is projected to contract sharply by 17% this year, according to government analysts. In real terms, the economy is expected to shrink by as much as $537 million, wiping out any gains since hurricanes Irma and Maria in 2017. The impact on the GDP could be significantly higher, as data indicate a decrease of more than 80% in air travel, and cruise ships have suspended their operations until September 2020.
Even before this crisis, there were troubling emerging trends. The economy has been in a slump for more than a decade, shrinking an average real (inflation-adjusted) annual rate of 3.3% from 2009 to 2018. There were only four years of growth during this period — and then it was weak gains between 0.3% and 1.5%.
Fundamentally, the total number of visitors to the territory, which peaked in 2014, has been trending downward since. The decline is recorded in the visitor count, which fell in 2019 to 2 million versus 2.8 million in 2014. While the absolute number of air visitors steadily improved, growth has been uneven. More telling, the number of cruise passengers is not growing as before, declining in each of the past five years.
It is expected that the deep, and likely prolonged, downturn in the economy will directly result in large revenue losses without alternative sources of funding necessary to service government operations.
The Office of Management and Budget estimates that General Fund tax revenue will be at least $126 million below 2020 projections. The budget deficit is projected to be $150 million as a result of decreased tax revenue from all funding streams, including income taxes, gross receipt taxes, corporate taxes along with lower forecasts for property taxes.
The causes of the USVI economic stagnation, which foreshadow the current pandemic crisis, are shared by many countries that faced disruptions from the Great Recession and hurricanes. But it would seem that the territory’s economic decline is also one that some countries with an over-dependency on tourism are experiencing as technological and other changes in the global marketplace have made their economies less competitive.
What does all of this mean for the post-COVID-19 economy? In general, we may be able to weather the economic storm by relying on additional debt or using federal stimulus funds. However, these sources may not be enough to counterbalance the sharp declines in business and job losses. This current crisis thus heightens the need for forward-thinking economic development planning to look beyond the traditional sector and legacy industries to build a competitive advantage in a post-pandemic economy.
Still, government officials are confident that the economy will bounce back and recover. Regardless, we will face this reality: the global economy after the pandemic will look different. That is the new economy for which we must prepare.
— Lauritz Mills, Ph.D., is a former chief economist and director of the Bureau of Economic Research.