Monthly Economic and Financial Developments for January 2018

Published: Monday February 26th, 2018

Overview

Indications are that the domestic economy sustained its modest improvement in January, reflecting the strengthening in tourism sector output, combined with foreign investment-led construction activity. Given higher global oil prices, the consumer price index increased in 2017, a reversal from the slight decline in the prior year. Government’s budgetary operations featured a reduction in the deficit over the first half of FY2017/18, amid higher tax receipts and a decline in capital spending. Monetary sector developments featured a build-up in both liquidity and external reserves, buoyed by the Government’s external borrowing activities.

Real Sector

Tourism

Preliminary indications are that tourism activity expanded during the first month of 2018. Data from the Nassau Airport Development Company Ltd. (NAD), showed gains in passenger traffic in January, with total departures—net of the domestic segment—firming by 8.0%, following a marginal, 0.1% increase in the previous year. In the underlying developments, the non-U.S. international component rose by 11.8%, a turnaround from a 6.0% reduction in the previous period, while U.S. departures firmed by 7.2%, outpacing the year earlier 1.5% uptick.

Meanwhile, more comprehensive data from the Ministry of Tourism revealed that the sector was buffeted by some headwinds in 2017, including a significant reduction in hotel capacity in the country’s second largest market. Total visitor arrivals fell by 2.1% during the year, vis-à-vis a gain of 2.5% in the prior period. By port of entry, both sea and air arrivals decreased by 1.5% and 4.0%, respectively, compared to gains of 3.2% and 0.1% in 2016. A breakdown by market, showed that visitors to Grand Bahama decreased by 26.6%, following a 13.2% falloff in the previous year, as the declines in air and sea arrivals were extended to 43.8% and 23.5%, from 21.3% and 11.6%, respectively. Further, the growth in visitors to the main New Providence market, slowed significantly to 1.2% from 9.8% in the prior year, as the air component declined by 3.6%, vis-à-vis a 0.8% expansion in 2016. Similarly, gains in sea arrivals narrowed to 3.2% from 13.7% a year earlier. In a slight offset, visitors to the Family Islands firmed by 2.6%, vis-à-vis a 2.0% falloff in the prior period, as the growth in the air segment quickened to 14.3% from 11.8%, while the main sea component expanded by 0.8%, a reversal from a 3.9% contraction in the prior period.

Prices

The All Bahamas Retail Price Index rose by 1.5% during 2017, a turnaround from a 0.4% decrease a year earlier. Following respective declines of 1.1%, 4.0% and 1.3%, in 2016, the average costs for housing related items, transport, and restaurant & hotels increased by 3.7%, 2.0%, and 2.3%, respectively. Further, accretions to average costs quickened for communication (by 1.6 percentage points to 3.4%), recreation & culture (by 0.9 percentage points to 1.3%) and alcohol beverages, tobacco & narcotics (by 0.8 percentage points to 1.6%), while the decrease for food & non-alcoholic beverages costs narrowed to 0.1% from 0.9% in the prior year. Further, average price declines were noted for education (0.2%), furnishing, household equipment & routine household maintenance (1.4%), clothing and footwear (1.2%) and miscellaneous goods & services (0.7%), compared to gains in the prior year; while the uptick in health-care costs moderated to 0.8%.

In line with the rise in international oil prices, domestic fuel costs firmed during December. Specifically, on a monthly basis the average prices for gasoline and diesel rose by 1.8% and 1.0% to $4.42 and $4.05 per gallon, respectively, with both also higher by 11.3% and 11.6% when compared to the prior year.

Fiscal Sector

Preliminary data on the Government’s budgetary operations for the first half of FY2017/18, revealed that the deficit narrowed by $110.0 million (36.0%) to $195.6 million, relative to the same period of FY2016/17. Supporting this outcome, total expenditure fell by $83.3 million (7.2%) to $1,074.1 million, while aggregate revenue firmed by $26.7 million (3.1%) to $878.5 million.

In terms of expenditure, capital outlays were halved to $75.8 million, reflecting mainly a $61.8 million (48.6%) reduction in infrastructure spending, largely reflecting the ratcheting-down of post hurricane rebuilding activity. In addition, asset acquisitions narrowed by $14.9 million (58.5%), as reduced outlays for land and other asset purchases, overshadowed larger purchases of financial assets. Similarly, current expenditure fell by $6.5 million (0.7%) to $998.3 million, led by a $31.9 million (6.5%) contraction in transfer payments. In particular, subsidies and other transfers decreased by $41.1 million (11.5%), due mainly to a $37.6 million (21.4%) fall in subsidies—mainly to educational and health-related institutions—and a $9.7 million (13.2%) reduction in transfers to public corporations. In a partial offset, transfers to households firmed by $14.9 million, buoyed by insurance-related payouts, while interest payments rose by $9.2 million (7.1%). Further, consumption spending expanded by $25.3 million (4.9%), amid gains in both wages & salaries and purchases of goods & services by $21.0 million (6.0%), and by $4.3 million (2.6%), respectively.

The rise in aggregate revenue was led by a $20.8 million (2.7%) increase in tax receipts to $782.7 million. Specifically, value-added tax (VAT) collections rose by $9.9 million (3.3%), while collections of business & professional fees increased by $5.3 million (34.3%), supported by a rise in the general business fee intake. Moreover, selective taxes on services advanced by $5.0 million (51.5%)—the bulk of which was due to gains in gaming taxes—while other taxes expanded by $3.0 million (1.7%). In a slight offset, taxes from international trade transactions decreased by $2.3 million (0.9%), as import duty receipts fell by $6.1 million (4.5%), eclipsing the $3.8 million improvement in excise taxes. Meanwhile, non-tax revenue grew by $5.9 million (6.6%), due to an increase in fines, forfeits & administration fees.

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