Monthly Economic and Financial Developments, December 2015

Published: Wednesday February 3rd, 2016

Preliminary indicators suggest that the mild growth in the domestic economy was maintained during the month of December, mainly reflecting modest gains in tourism sector output, while foreign investment projects continued to support construction activity. Although an improvement from the previous year, employment conditions deteriorated in the six months to November, owing to the retrenchment of workers from the Baha Mar project and return of previously discouraged workers to job search activity. Inflationary pressures remained well contained, due to the sharp falloff in global oil prices. Buoyed by net inflows from the Value Added Tax (VAT), the fiscal deficit contracted over the first five months of FY2015/16, while monetary sector developments in December were dominated by the receipt of proceeds from Government’s external loan, which supported the modest gain in external reserves, although a reduction in commercial banks’ Treasury bill holdings led to a decline in broad liquidity.

Initial data from the Ministry of Tourism showed that output in the sector expanded modestly during the first ten months of 2015, as improving economic conditions in several source markets supported the rise in the high value-added air segment by 4.5% to 1.2 million, in line with the previous year’s growth. However, total visitor arrivals fell by 3.1% during the review period, a reversal from a 3.5% increase in the prior year, reflecting a decline in the dominant sea segment by 5.3% to 3.8 million, vis-à-vis 2014’s 3.2% expansion.

By major port of entry, the total number of visitors to New Providence declined by 8.0% to 2.7 million, compared to a 2.3% uptick in the preceding year. This outturn reflected a fall in the sea segment by 11.5% to 1.8 million, which outpaced the marginal 0.4% rise in air arrivals to 0.8 million. Further, total visitors to the Family Islands contracted by 5.9% to 1.5 million, a turnaround from the 8.5% gain registered in the previous year, as the number of sea passengers contracted by 7.6% to 1.3 million, outpacing the 8.8% increase in the air segment to 0.2 million. In contrast, total visitors to Grand Bahama rebounded by 25.0% to 0.8 million, after a 2.4% contraction in the prior year, with increased airlift and higher room capacity spurring the 30.4% surge in air arrivals to 0.1 million, while the sea component expanded by 24.0% to 0.7 million.

In line with the gain in air visitors, provisional data from the Bahamas Hotel & Tourism Association showed that total room revenue for a sample of resorts in New Providence advanced by 3.0% during the eleven months of the year. Supporting this outturn, the average occupancy rate rose by 2.5 percentage points to 69.2%, while the average daily room rate firmed by 5.9% to $248.26.

The Department of Statistics’ Labour Force survey results showed that since reaching a peak in 2011, the unemployment rate has remained within a narrow band of between 14.0% and 16.0%. The latest data for the six months to November 2015, noted that the jobless rate rose by 2.8 percentage points to 14.8%—although lower than the 15.7% rate recorded a year earlier—reflecting the layoff of 2,000 Baha Mar employees and a 30.0% reduction in previously discouraged workers who have resumed job search activities. The jobless rate remained highest among the young persons (15-24) category at 30.0%.

A breakdown by major market showed that the unemployment rate in New Providence rose to 15.9% in November from 12.0% in the prior six-month period, while the rate in Grand Bahama grew by 1.3 percentage points to 14.2%. In contrast, decreased unemployment in Abaco led to the corresponding rate falling by 2.5 percentage points to 9.7%.

Domestic inflation for the twelve months to September, as measured by the All Bahamas Retail Price Index, rose by 52 basis points to 1.64%, relative to the comparable period of 2014. This outturn reflected accelerated price gains for health, recreation & culture, and furnishing, household equipment & maintenance, of 9.2 percentage points to 11.2%, 5.3 percentage points to 8.4%, and 4.9 percentage points to 5.6%, respectively. Similarly, higher inflation rates were noted for communication (by 3.0 percentage points to 3.7%), clothing and footwear (by 2.9 percentage points to 4.2%), restaurant & hotels (by 2.6 percentage points to 4.7%), education (by 2.4 percentage points to 4.9%), food & non-alcoholic beverages (by 2.3 percentage points to 4.2%), and alcohol beverages, tobacco & narcotics (by 1.0 percentage point to 7.2%). In addition, the decline in the housing, water, gas electricity and other fuels component—the most heavily weighted item on the index—tapered by 46 basis points to 0.3%. In a slight offset, the downward trajectory in global oil prices contributed to the 4.0% falloff in transportation costs, compared to a similar gain a year earlier, while cost increases in miscellaneous goods and services narrowed significantly to a mere 0.6%.

Reflecting the direct impact of the significant fall in global crude oil prices, domestic energy costs moved lower during the review month. In particular, the Bahamas Electricity Corporation’s fuel charge fell by 11.2% month-on-month, in December, to 8.91 cents per kilowatt hour (kWh) and by 62.1% on an annual basis.

The Government’s overall deficit was approximately halved to $134.1 million during the first 5 months of FY2015/16. Reflecting reforms, including the rebalancing of revenue sources and the broadening of the tax base with the introduction of VAT, revenue expanded by $209.2 million (39.8%) to $735.5 million, countering the $64.9 million (8.1%) increase in aggregate expenditure, to $869.6 million. Specifically, tax revenue rose by $202.3 million (44.7%) to $655.1 million, with VAT revenue totaling $271.4 million. Tariff rate reductions in the context of VAT resulted in decreased collections on international trade and transactions by 13.6% to $216.9 million, with both import duties and excise taxes lower by $17.6 million (13.6%) and $9.0 million (8.3%), respectively. Further, selective taxes on services fell by $7.4 million to $10.2 million, as the reform eliminated hotel occupancy taxes of $15.2 million; however, the initial licensing fees from the legalization of web-shop gambling raised gaming revenues by $7.8 million. The composition of revenue from real estate conveyances also shifted predominantly to VAT, with stamp taxes correspondingly reduced by $29.5 million (69.7%). Meanwhile, non-tax inflows also firmed by 13.9% to $80.3 million, supported by dividend payments from the Bahamas Telecommunications Company (BTC).

The expenditure growth also incorporated major classification shifts to recognize flows to public corporations as direct budgetary assistances, rather than capital transfers and loans. Current payments rose by 15.1% to $794.0 million, due mainly to a $77.2 million (24.4%) expansion in transfer payments to $393.8 million. This captured significant outlays classified last year as net lending to public corporations ($33.4 million). In addition, increased incentives and support for tourism activities elevated subsidies by $20.3 million (15.9%) to $148.1 million. In addition, government consumption expenditure increased by 7.3% to $400.2 million, amid higher spending on goods and services by $16.6 million (15.9%) and wages & salaries by $10.4 million (3.9%). However capital expenditure contracted by 7.5% to $73.6 million, as the $14.2 million (74.4%) reduction in the ‘other’ asset purchases, overshadowed the $4.5 million increase in land acquisitions.

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