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Economic and Financial Developments May 2018

Published: Monday July 2nd, 2018

Domestic Economic Developments

Overview

Developments within the domestic economy remained largely positive during the review period of May 2018, as tourism indicators continued to trend upwards, while foreign investment projects supported construction-related activity. Reflecting the increase in global oil prices, domestic energy costs rose during the period, while on the fiscal front, the cumulative deficit contracted over the ten months of FY2017/2018, due to a decline in capital expenditure and an increase in revenue. In monetary developments, broad liquidity expanded, owing to increased short-term financing to the Government; however, external reserves contracted, attributed in part to the seasonal uptick in foreign currency demand during the holiday period, combined with public sector net foreign currency debt payments.

Real Sector

Tourism

Preliminary tourism sector indicators suggest that the sector continued to exhibit signs of strengthening during the review period. In particular, data from the Nassau Airport Development Company Ltd. (NAD), showed that total visitor departures—net of domestic departures—grew by 15.3% in May, a reversal from a 2.4% decline a year earlier. This was supported by gains in both the U.S and non-U.S components, by 15.9% and 11.8%, compared to declines of 2.6% and 1.0%, respectively, in the prior year. Similar trends were noted over the five-month period, as total visitor traffic advanced by 12.7%, vis-à-vis a 3.4% contraction a year earlier. This corresponded to a 12.2% increase in the U.S. segment, reversing 2017’s 4.1% reduction; and accelerated gains in the non-U.S. segment of 15.6%, from 0.8% in 2017.

Provisional indicators of stopover activity, suggest that the increase in air arrivals translated into higher occupancy levels in the private vacation rental market. Specifically, information from AirDNA, showed a 51.3% increase in overall bookings through the global Airbnb website during the month of May, relative to the same period last year, as the total number of available listings on the platform firmed by 34.3%. This development reflected higher bookings in four of the largest markets, Exuma, Abaco, New Providence and Grand Bahama, which rose by 68.3%, 47.6%, 47.4% and 42.9%, respectively. Similarly, the number of room nights sold advanced by 50.6% for hotel comparable bookings—which include studio and one bedroom entire dwelling rentals—and by 52.1% for listings of entire homes. In addition, estimates of the average daily room rate (ADR) for the entire Bahamas market, firmed by 7.7% to $338.40 for entire homes and by 8.0% to $146.57 per night for hotel comparable listings, over the prior year.

Prices

Buoyed by the persistent supply-led increase in global oil prices, domestic energy costs continued to firm during the review period. In April, gasoline and diesel retail prices rose by 0.7% and 3.8%, to $4.52 and $4.37 per gallon, respectively, relative to the prior month. Similarly, on a year-on-year basis, gasoline prices increased by 7.4% and diesel prices firmed by 13.8%.

Fiscal Sector

Data on the Government’s budgetary operations for the ten months of FY2017/18, revealed a $141.5 million (46.8%) reduction in the deficit to $160.6 million, when compared to a year earlier, amid a $119.0 million (6.1%) contraction in expenditure to $1,836.9 million and a $22.5 million (1.4%) increase in revenue to $1,676.3 million.

The contraction in total Government expenditure was due primarily to a halving in capital outlays, by $130.2 million (49.5%) to $132.7 million, as the winding-down of hurricane rebuilding work led to a $92.6 million (45.6%) reduction in infrastructure spending. In addition, asset acquisitions declined by $37.5 million (63.0%), owing mainly to a $25.0 million (74.8%) decrease in the purchase of other “miscellaneous” assets. In contrast, current expenditure firmed by $11.4 million (0.7%) to $1,704.3 million, with consumption spending up by $13.1 million (1.5%), driven by a the $22.5 million (3.9%) increase in personal emoluments, which overshadowed the $9.4 million (3.0%) decline in purchases of goods and services. Meanwhile, transfer payments fell marginally, by $1.8 million (0.2%), with the $13.0 million decrease in subsidies and other transfers, outpacing an $11.2 million (5.0%) rise in interest payments.

Revenue gains were underpinned by a $28.5 million (1.9%) increase in tax inflows. Specifically, value added tax (VAT) receipts firmed by $12.1 million (2.2%), while departure taxes and motor vehicle collections grew by $8.5 million (8.2%) and $6.8 million (32.8%), respectively. Several of the other categories recorded increases, as evidenced by the over ten-fold ($44.0 million) rise in the “unclassified” taxes category, while selective taxes on services firmed by $5.8 million (26.3%). In contrast, international trade tax receipts decreased by $17.9 million (4.0%), owing mainly to a $19.0 million (8.1%) decline in import taxes. Similarly, business and professional fees recorded a reduction of $16.5 million (12.4%). Non-tax revenue also contracted, by $6.1 million (3.7%) to $157.5 million, due to a timing-associated decline in income by $15.3 million (37.1%), which overshadowed the $8.3 million (6.8%) increase in receipts from fines, forfeits & administrative fees.

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