Monthly Economic and Financial Developments (MEFD) Report May 2024

Published: Monday July 1st, 2024

Domestic Economic Developments

Overview

Provisional data suggest that the domestic economy sustained its growth momentum during the month of May, although at a more moderate pace, as economic indicators continued to move closer to their expected medium-term potential. Tourism output maintained its healthy growth, undergirded by robust gains in both the high value-added air segment and the sea component, as the demand for travel in key source markets persisted. Further, labour market conditions showed improvement over the last quarter of 2023, reflective of the ongoing strengthening in economic activity. Monetary sector developments for the month of May featured a reduction in bank liquidity, as the increase in domestic credit, outpaced the rise in the deposit base. Simialry, external reserves decreased, owing primarily to net foreign currency outflows through the public sector, which offset net private sector inflows.

Real Sector

Tourism

tourism data suggest that the sector continued to record healthy growth, attributed to the ongoing gains in both the high value-added air segment and sea traffic, reflective of the sustained demand for travel in key source markets.

Preliminary data from the Nassau Airport Development Company Limited (NAD) revealed that total departures—net of domestic passengers—grew by 4.2% to 137,866 in May, relative to same period of 2023. Notably, international departures increased by 12.9% to 19,525. Likewise, US departures rose by 2.8% to 118,341.

On a year-to-date basis, total outbound air traffic advanced by 7.2% to 0.7 million. Specifically, U.S. departures moved higher by 7.8% to 0.6 million, while international departures grew by 3.9% to 0.1 million, vis-à-vis the preceding year.

The short-term vacation rental market incorporated these positive trends. The latest data provided by AirDNA revealed that total room nights sold increased by 12.0% to 54,140 in May, as compared to the previous year. In line with this development, the occupancy rate for hotel comparable listings firmed to 46.8% from 45.2%. Conversely, the occupancy rate for entire place listings declined to 48.3% from 48.7% in 2023. Meanwhile, price indicators showed that the average daily room rate (ADR) for both hotel comparable listings and entire place listings rose by 3.3% and 0.7%, to $189.40 and $681.43, respectively.

2024/2025 Budget Communications Highlights

The Government’s Budget Communication for FY2024/2025 entitled “Changing the Status Quo, Changing Lives”, was presented in Parliament on May 29, 2024. The Budget conveyed the overarching objectives of encouraging economic activity, offsetting rising living costs, and supporting national security interests.

In the 2024/25 Budget, the Government signaled plans to encourage economic growth through targeted revenue collection measures to counterbalance new tax relief measures. In this regard, the Government projected a revenue intake of $3.5 billion in FY2024/25, relative to the revised estimate of $3.3 billion for FY2023/24.

With regard to revenue measures, no general increase in taxes nor fees are scheduled for FY2024/25, aligning with the Government’s goal of counteracting rising living costs. Although fees for Government services are set to be adjusted according to changes in the cost of providing the service, the Government mainly expects to boost revenue by increasing yields from foreign direct investment, and real estate transactions. The Government also aims to generate income by stimulating overall economic activity, particularly through small business development.

The Government introduced several custom duty reductions for various items to offset the increased cost of living. To support small businesses, the Government offered a series of duty concessions for items utilized in various industries, such as fishing, manufacturing and the creative arts.

Measures to increase proceeds from taxes largely targeted collection efficiency and enforcement. Although the Budget proposed no new taxes, adjustments were scheduled for fees on Government services, where the cost of providing that service had risen. In addition, heightened efforts were concentrated on increasing revenue from foreign direct investment and real estate transactions. The Government also anticipated that the international income tax regime for large multinational corporations would be enacted, to come into effect on January 1, 2025. Further, the Government announced a rise in the minimum investment requirement for permanent economic resident applicants, effective January 2025, to $1.0 million from $0.7, with the further stipulation that the assets be held for at least 10 years. A zero coupon government bond was also planned for introduction, which would have the same qualifying benefit as real estate investment. The proceeds from such bonds would fund public investments in sectors such as education, health, culture, and infrastructure on the Family Islands.

To improve the collection of revenue from real estate transactions, the Government proposed legal and administrative measures to strengthen compliance, including requiring the affixation of the real property tax assessment number assigned by the Department of Inland Revenue on all relevant documents presented to government agencies to ensure consistent and accurate tax auditing.

The Government also announced real estate tax relief measures. Under a new proposal, individuals investing in a real estate trust would be exempted from VAT when buying or selling shares, contingent on the participants being a minimum of ten (10) separate and unrelated investors, with investments constituting less than 10.0% of the ownership. The real estate trust would be responsible for paying VAT upon acquiring property. However, the Government also decided to increase the maximum customs processing fee to $1,000 from $750 for individual customs entries exceeding $750,000. Further, the Government agreed to allow individuals with unstamped property documents to obtain stamps until December 1, 2024, based on the transaction value at the time of purchase, rather than the current market value. The measure is intended to facilitate the proof of land ownership to the Department of Inland Revenue.

Providing some tax relief to the business community, the Government announced that the credit unions would be granted an exemption from business license fees conditional on the full payment of Central Bank regulatory fees.

Among non-tax efforts, the Government outlined a series of fee increases within the Department of Immigration, for expedited work permit applications, visitor stay extension applications and permanent resident application reinstatements.

As it pertains to Government spending, expenditure is planned at $3.6 billion, exceeding the revised $3.5 billion estimate in FY2023/24. Recurrent outlays are provisioned to reach $3.3 billion, compared to the revised $3.1 billion approximation in FY2023/24. Capital spending is allocated at $344.5 million in FY2024/25, lower than the $364.6 million estimate in FY2023/24.

In terms of major expenditure measures, the Government earmarked significant funding to improve infrastructure across the archipelago. Funds sourced from the Saudi Fund for Development, and other government guaranteed loans were allocated to construct and renovate airport infrastructure across various Family Islands. In addition, major roadwork projects were planned for New Providence, and for the Family Islands through public-private partnership financing and the Family Island Development Fund. In terms of energy infrastructure, the Government intended to invest in solar energy and LNG projects across the country. Specific to energy reform, the Government announced plans to reform and modernize BPL, through a consortium of partners—including upgrades to failing grids and increased use of solar power. Additional funding was committed to the Water and Sewerage Corporation to upgrade water infrastructure. The Government also committed substantial resources to public sector employees, including .a salary review, support continuing education, and implementing a reformed public service pension plan.

Targeting tourism, funding was allocated for the 2026 World Relays and the upcoming 2026 Bahamas Games. Funding was also provisioned for the restoration of several national sites. In addition, the Government planned to secure $30.0 million to purchase property in Grand Bahama to provide impetus to tourism activity.

To upgrade the healthcare sector, the Government envisaged to securing financing for the development and completion of new hospitals in Grand Bahama and New Providence, as well as to renovate the Princess Margaret Hospital.

To enhance national security, the Government announced provisions to outfit law enforcement agencies with new officers, new transportation vehicles and technological advancements. With regard to food security, the Government increased allotments to expand programs such as the Golden Yolk Egg Production initiative. Also noteworthy, targeting transportation, the Government increased provisions to expand Family Island for mail-boat contracts routes

As it relates to education initiatives, the Government committed $20.0 million of external funding to tertiary institutions. Specifically, $12.0 million will be used to secure additional accreditations for the University of The Bahamas, while the remaining $8.0 million will provide upgrades to the Bahamas Technical and Vocational Institute.

To promote home ownership, the Government allocated resources for a Rent-To-Own initiative, In addition, $5.0 million was earmarked for small home repairs.

Based on the current economic outlook, the Government projects that the fiscal deficit for FY2024/25 will amount to $69.8 million, representing 0.5% of GDP. This outturn would further consolidate the revised forecasted deficit of $131.1 million (0.9% of GDP) for FY2023/24.

Employment

Based on quarterly estimates compiled by the the Bahamas National Statistical Institute, labour market conditions showed further improvement, with the All Bahamas unemployment measured at 9.9% in the fourth quarter of 2023. The number of employed persons increased to 214,170, from 212,285 at September 2023. Given the new methodology, direct comparisons with earlier data was not possible. However, by major markets, that the end-2023 jobless rate in New Providence was 9.5%; Grand Bahama, averaged 10.4% and Abaco, 8.0% at end-2023.

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