Monthly Economic and Financial Developments, August 2019

Published: Monday September 30th, 2019

Domestic Economic Developments

Overview

Domestic economic developments, which remained healthy through August, pre-dated the passage of Hurricane Dorian which caused extensive damages to private and public sector infrastructure in Grand Bahama and Abaco. Tourism maintained a positive momentum, evidenced by sustained gains in high value-added stopover arrivals, while ongoing foreign investment projects provided stimulus to the construction sector. The latest price developments continued to show pass-through influence from the hike in the value added tax (VAT) rate at the beginning of the 2018/19 fiscal year, while Government's budgetary operations for the fiscal period showed a halving in the deficit, owing predominantly to a VAT-led increase in total revenue. On the monetary front, bank liquidity contracted during the review month, amid a reduction in total deposits and a rise in domestic credit; similarly, external reserves declined, on account of the seasonal uptick in foreign currency demand.

Real Sector

Tourism

Both July and August indicators confirm ongoing strengthening in tourism.

In the latest official data from the Ministry of Tourism (MOT), total visitor arrivals rose by 7.9% during July, after a 10.7% growth the year earlier. In particular, both air and sea traffic registered increases of 7.7% and 8.0%, compared to 13.0% and 9.9%, respectively last year. Stopover lead gains for New Providence were incrementally firmer at 2.9%; while cruise trends undermined most of the robust but moderate boost to the Family Islands of 17.8%. However, Grand Bahama's slackened stopover performance caused an overall slowing in arrivals to 2.6%.

On a year-to-date basis, total arrivals grew by 13.2%, surpassing the 5.0% growth during the same period last year. Underlying this outcome, gains in sea visitors accelerated to 12.7%, from 2.1% in 2018, while air arrivals growth steadied at 14.6%. By island, total visitors to New Providence advanced by 20.0%, as both air and sea traffic strengthened. Similarly, total arrivals to the Family Islands rose by 10.1%, attributed to gains in both the air and sea segments. In contrast, the sustained weakness in Grand Bahama tourism was evidenced by a 10.1% decrease in total arrivals, with declines recorded for air and sea passengers.

In line with the rise in arrivals to New Providence, the latest data from The Bahamas Hotel & Tourism Association (BHTA) and the MOT showed improvements in key performance indicators. Specifically, the average hotel occupancy rate rose by 9.9 percentage points, to 82.9% for the month of July, as the number of room nights sold advanced by 16.0%. Further, the average daily room rate (ADR) firmed by 2.9% to $258.87 per night, contributing to a 19.0% growth in room revenue. Over the seven-month period, the occupancy rate grew by 10.5 percentage points to 77.5%, while the number of room nights sold expanded by 19.0%. Further, the ADR advanced by 8.2% to $277.40, resulting in a 29.0% strengthening in room revenue.

The latest data from the Nassau Airport Development Company Ltd. (NAD), which extend stopover indicators through August, showed that total departures for the month of August - net of domestic traffic - expanded by 12.1%, extending the 11.7% growth in the prior year. Specifically, the dominant U.S. segment firmed by 13.2%, following a 10.7% increase a year ago, while gains in the non-U.S. segment slowed to 4.1% from 20.0% a year earlier. A similar trend was evident on an 8-month basis, as total departures advanced by 17.0%, outpacing the 11.7% rise recorded over the same period of 2018. In particular, growth in U.S. departures accelerated to 18.4% from 10.9% in the prior year, while gains in non-U.S. departures decelerated to 8.3% from 16.9% last year.

In the vacation rental market, the latest data from AirDNA revealed that total room nights sold improved by 49.1% in August over the same month in 2018, reflecting increased bookings for both hotel comparable and entire place listings within all of the major markets. However, pricing indicators varied as the average daily room rate (ADR) for entire place listings edged up by 0.4% to $403.31, while the ADR for hotel comparable listings decreased by 5.1% to $153.76. By island, ADRs for entire place listings across all of the major destinations, with the exception of Abaco, increased during the month, while for hotel comparable listings, declines were registered across all the major markets, with the exception of Abaco and Grand Bahama.

Over an eight-month period, vacation rental sales grew by 30.4% in comparison to 2018, with all major destination groupings showing improvements. However, average nightly pricing for entire place listings fell by 1.4%, while that of hotel comparable accommodations decreased by 6.5%.

Prices

Reflective mainly of the increase in the VAT rate, domestic inflation-as measured by the All Bahamas Retail Price Index - rose by 2.0 percentage points to 3.3% during the twelve months to June. A breakdown by category showed that after posting reductions in 2018, average prices for furnishing, household equipment & maintenance, rose by 6.4%; clothing & footwear, by 2.3% and miscellaneous goods & services, by 4.9%. In addition, average prices quickened for transport (8.4%), alcohol beverages, tobacco & narcotics (3.7%), food & non-alcoholic beverages (2.0%), as well as for housing, gas, electricity & other fuels (2.6%). In contrast, during the review period, average costs decreased for communication, recreation and culture, education and restaurant & hotels.

Fiscal Sector

Provisional data on the Government's budgetary operations for the entire FY2018/19, revealed a reduction in the deficit, by $192.5 million (46.4%), to $222.4 million vis-a-vis FY2017/2018. Underlying this outturn, total revenue expanded by $373.6 million (18.3%) to $2,416.0 million, outstripping the $181.1 million (7.4%) growth in aggregate expenditure, to $2,638.4 million.

Total revenue gains were largely bolstered by the 4.5 percentage points increase in the VAT rate, which led to a $214.3 million (31.5%) expansion in VAT receipts to $894.9 million. Further, amid the reclassification of VAT on realty taxes to stamp taxes, financial and realty-associated stamp taxes rose more than two-fold, to $225.3 million from $109.5 million in the comparable period of the previous fiscal year. In addition, receipts from business license and banks & trust companies'fees advanced by $31.8 million (28.1%) and $9.5 million (52.3%), respectively. In addition, gains in customs & other import duties, as well as a rise in inflows from departure taxes, supported a $10.4 million (2.4%) growth in taxes on international trade to $442.4 million. Further, non-tax revenue rose by $19.4 million (9.5%) to $223.4 million, attributed to a $30.1 million rise in income from the sale of good and services, explained by higher immigration fees, and increased collections from fines, penalties & forfeits.

Expenditure growth was due in large measure to a $232.6 million (10.6%) rise in recurrent spending to $2,421.2 million. Specifically, purchases of goods and services - mainly related to the settlement of arrears - rose by $141.6 million (31.5%). In addition, subsidies were higher by $64.9 million (19.8%) and social assistance, by $20.3 million (12.3%). Further, increases were also posted for current transfers, by $21.7 million (16.8%) and interest payments, by $15.8 million (5.0%). In contrast, disbursements related to employee compensation fell by $17.6 million (2.4%). Total capital outlays were reduced by $51.6 million (19.2%) to $217.2 million, attributed mostly to a $41.1 million (18.0%) decline in the acquisition of non-financial assets and a $10.4 million (26.1%) falloff in capital transfers.

For full text reading, please download the attached document.