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Monthly Economic and Financial Developments February 2018

Published: Thursday March 29th, 2018

Overview

Preliminary indicators suggest that the domestic economy improved over the review period, buoyed by gains in tourism and foreign investment supported activity in the construction sector. In fiscal developments, the deficit narrowed during the first seven months of FY2017/2018, reflecting a sustained reduction in outlays, combined with a modest increase in revenue. In the monetary sector, both liquidity and external reserves strengthened in February, amid a reduction in domestic credit as opposed to a small increase in Bahamian dollar deposits. Underlying trends also reflected net foreign currency receipts from tourism sector activity.

Real Sector

Tourism

Following a challenging 2017, initial tourism performance metrics—including data on arrivals, departures and foreign exchange earnings—suggest a rebound in the sector’s activity during the review period. Of particular note was the strengthening in onshore activity in New Providence and the Family Islands. Preliminary data from the Ministry of Tourism showed that visitor arrivals to The Bahamas firmed by 5.0% to 0.5 million in January, vis-à-vis a 4.7% contraction during the comparable period of the prior year. This reversal reflected gains in both air and sea visitors by 7.0% and 4.6%, relative to reductions of 1.6% and 5.3%, respectively, in 2017.

In terms of the major markets, traffic to Grand Bahama strengthened by 44.0% in January, a reversal from a 28.0% decline in the prior year. This was due to a 52.4% expansion in sea visitors, amid higher passenger volumes from two major cruise lines, overturning the 25.6% reduction in 2017. However weakness persisted in the onshore market with a further 18.2% decrease in air arrivals relative to a 41.9% contraction in 2017. In New Providence, growth slowed by 2.4 percentage points to 1.6%, as the dominant sea segment fell by 0.3%, a reversal from last year’s 5.5% gain; nevertheless, the high value-added air component advanced by 7.9%, vis-à-vis a 0.6% softening in the prior year. Further, Family Island arrivals decreased by 1.4%, following a 9.7% contraction a year earlier, as sea traffic fell by 3.1%, after a 12.8% reduction in the prior period; however, air arrivals expanded by 11.8%, following a 23.8% increase in 2017.

Indications are that the positive tourism trends were sustained during February, as preliminary data from the Nassau Airport Development Company Ltd (NAD) showed an 11.2% rise in visitor departures through the main airport, vis-à-vis an 8.4% reduction in the same period last year. In terms of the components, gains were recorded for both US and non-US passenger departures of 9.6% and 18.4%, in contrast to respective declines of 9.2% and 4.5% recorded in the prior year.

Fiscal Sector

Data on the Government’s budgetary operations for the seven months of FY2017/18, revealed a $123.4 million (39.2%) reduction in the deficit to $191.3 million, compared to the corresponding period of FY2016/17. This outcome reflected a $102.4 million (7.6%) contraction in total expenditure to $1,251.4 million, along with a $21.0 million (2.0%) expansion in aggregate revenue to $1,060.1 million.

The expenditure outcome was dominated by a $92.3 million (53.0%) reduction in capital outlays to $82.0 million, led by a halving in infrastructure spending to $68.2 million, following a hurricane rebuilding-related expansion in the prior year, while asset acquisitions narrowed by $22.2 million (61.7%) to $13.8 million. Similarly, current expenditure decreased by $9.9 million (0.8%) to $1,169.5 million, due mainly to a reduction in transfer payments, by $35.0 million (6.0%) to $545.9 million. In particular, subsidies and other transfers decreased by $42.9 million (10.4%), owing mainly to a $36.8 million (18.1%) decline in healthcare-related subsidies. In comparison, interest payments firmed by $7.9 million (4.7%), amid gains in both internal and external repayment obligations. Further, consumption spending rose by $25.0 million (4.2%) to $623.6 million, with personal emoluments higher by $23.2 million (5.7%). Meanwhile, purchases of goods and services edged-up by $1.9 million (1.0%), due mainly to gains in ‘other’ contractual services, which eclipsed declines in most of the remaining categories.

The growth in aggregate revenue was led by an $11.0 million (10.4%) increase in non-tax receipts to $116.2 million, as proceeds from fines, forfeitures & administration fees rose by $11.5 million (14.0%). Similarly, tax revenue expanded by $10.0 million (1.1%) to $943.9 million, reflecting a $21.4 million (10.6%) advance in “other miscellaneous” taxes, inclusive of a $6.6 million (58.7%) increase in motor vehicle tax inflows. Further, value added tax (VAT) receipts grew by $8.4 million (2.2%) to $382.2 million, while the $2.3 million (15.6%) gain in selective taxes on services to $16.9 million, was buoyed by a $3.4 million (25.0%) uptick in gaming tax receipts. In contrast, timing-related factors led to business & professional fee receipts decreasing by $16.2 million (36.8%) to $27.8 million, while taxes on international trade contracted by $5.8 million (1.9%) to $293.9 million, due to reduced collections on import duties.

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