Advance Release of Domestic Economic Developments, 4th Quarter 2006

Published: Monday April 16th, 2007

Preliminary evidence suggests that economic activity remained positive during the fourth quarter, buoyed by steady growth in construction output and domestic demand, which offset weakness in the tourism sector. Fiscal operations were characterized by a marked improvement in the overall deficit, as revenue gains outstripped moderate accretions to expenditures. Developments in the monetary sector featured continued tightening in liquidity conditions, with commercial banks rediscounting holdings of short-term Government debt to boost cash reserves. In this context, credit growth moderated and, alongside the receipt of public sector foreign currency borrowing proceeds, occasioned a more tempered decline in external reserves. Meanwhile, the current account deficit deteriorated as elevated outflows associated with tourism-related construction services offset the improvement in the visible trade deficit. However, this position was substantially funded by a surge in direct and other related investment inflows, which resulted in a four-fold increase in the surplus on the capital and financial account. Sustained credit expansion throughout the year lowered banks’ net free cash balances in the fourth quarter by $54.1 million (31.6%) to $117.2 million, and to a reduced 2.4% share of total Bahamian dollar deposits from 4.2%. Likewise, the broader surplus liquid assets contracted by 61.5% to $63.1 million, shaving the excess over the statutory minimum to 7.9% from 19.1% in 2005.