Monthly Economic and Financial Developments, January 2005

Published: Monday February 28th, 2005

Indications are that the Bahamian economy continued to expand at a strengthening pace during the first month of the year. Compared to January 2004, foreign currency inflows through the banking sector were significantly elevated, resulting in a larger seasonal build-up in external reserves and bank liquidity. Developments were mainly attributed to ongoing robustness in tourism, particularly in New Providence and the Family Islands. Although monthly private sector credit trends were more expansionary, mortgage gains slowed, contrasting with more relaxed conditions for consumer loans and other private flows.

Fiscal sector trends continued to reflect the revenue and expenditure strains imposed by the September 2004 hurricanes, with the overall deficit in the first half of the Fiscal year increased to $83.9 million from $53.1 million in the first half of FY2003/04. Indicative of the heightened calendar year financing needs, the Government's Direct Charge rose during January - December 2004 by 8.3% to $2,101.0 million, as compared to an increase of 7.4% in 2003, reflecting a marginal net repayment (1.5%) on foreign currency debt, and a larger net increase (10.1%) in Bahamian dollar obligations. Nevertheless, the comparative gap is expected to narrow, as highlighted by the improved revenue intake during October-December, which resulted in a second quarter shortfall that was unchanged from the previous year.

Positive trends in the United States continue to support a healthy outlook for the domestic economy in 2005, and are expected to sustain steady growth in tourism. The construction sector remains poised to benefit from stronger foreign investment inflows, continued expenditures on hurricane repairs over the first half of the year, and sustained housing investment activity