Monthly Economic and Financial Developments, January 2019

Published: Monday March 4th, 2019

Overview

Preliminary economic indicators suggest that the Bahamian economy maintained its modest growth pace during January 2019, reflecting gains in the tourism sector and ongoing foreign investment projects. The latest price developments through October 2019, continued to be dominated by the impact of the hike in the value added tax (VAT) rate, while increased tax receipts supported the decline in the Government's deficit during the first half of FY2018/2019. In monetary developments, both banking liquidity and external reserves expanded in January 2019, buoyed by net foreign currency inflows from tourism-related activity.

Real Sector

Tourism    

The tourism sector continued to exhibit positive momentum over the review period, benefiting from improved conditions in key source markets, as well as increased room capacity in both high and lower-end markets.

The latest official data from the Ministry of Tourism, revealed that during December, total arrivals rose by 10.0%, surpassing the 0.5% uptick recorded in the prior year. Specifically, air arrivals advanced by 12.7%, outpacing 2017's 10.1% expansion, while the larger sea component rose by 9.2%, reversing the 1.9% decline a year earlier.

A breakdown by major port of entry, showed that arrivals to New Providence- at 62.8% of the total- strengthened by 30.2%, vis-à-vis  a 4.9% contraction a year earlier, amid gains in both the sea and air segments of 36.6% and 15.6%, respectively. Similarly, total visitors to Grand Bahama firmed by 20.8%, a turnaround from an 18.6% decrease during the previous year, supported by gains in both air arrivals (26.6%) and sea traffic (19.8%). However, Family Island arrivals contracted by 18.8%, to reverse the 14.0% gain of a year earlier. This outcome was underpinned by a 21.3% decline in the sea component-as major cruise lines decreased the number of port calls to Abaco and the Berry Islands- while visitors by air softened by 0.4%.

Expansionary trends were noted overall for 2018, as total arrivals grew by 7.9% to 6.6 million- representing the strongest growth in eight years; this reversed a 2.1% reduction in 2017. It was supported by the highest expansion in air visitors in over a decade, of 16.7%, with traffic to New Providence firming by 19.2%, as the Baha Mar resort completed its phased opening, while visitors to the Family Islands and Grand Bahama also improved, by 10.6% and 5.4%, respectively. The cruise sector grew by 5.5% during the year, with support from the Family Island (15.7%) and Grand Bahama (9.6%) components; although the dominant New Providence market declined by 1.5%, as gains during the latter part of the year were negated by the weak performance earlier in 2018.  

In line with the improvement in stopover arrivals, preliminary statistics from the Bahamas Hotel and Tourism Association (BHTA) and the Ministry of Tourism for a sample of hotels in Nassau and Paradise Island, showed a 46.0% increase in room revenue during December, amid gains in the number of room nights sold of 21.0%, and the average daily room rate (ADR) of 21.0% to $366.92. Further, the addition of high-end capacity, led to room revenue strengthening by 34.0% in 2018, as room nights sold advanced by 28.0%, and the ADR firmed by 4.7% to $250.57.

More recent developments for January 2019, from the Nassau Airport Development Company Ltd. (NAD), revealed that total departures through the main airport- net of domestic passengers- firmed by 22.1%, outstripping the 8.0% increase a year earlier. In particular, U.S. departures firmed by 24.5%, vis-à-vis a 7.2% advance in 2018, while non-U.S. international departures expanded by 11.1%, after a similar gain a year earlier.

Preliminary indicators for the short-term rental market in January were also improved, as data from AirDNA showed a 37.0% advance in total booked listings, relative to the same period in 2018, with gains in both entire place bookings (34.9%) and private room bookings (44.9%). Meanwhile, the ADR for hotel comparable listings- which is more comparable across periods- firmed by 5.0% to $142.40; however, the ADR for entire place listings decreased by 1.7% to $330.35.

A breakdown of the short-term rental data, revealed that the dominant New Providence market noted gains in both the entire place and private room bookings, of 23.7% and 25.8%, respectively; although increased competition contributed to the decline in the respective ADRs by 9.0% and 2.1% to $266.46 and $118.18. Away from the capital, the majority of the listings relate to the entire place category.  In Exuma, the inventory for this segment rose by 43.8%, while the associated ADR firmed by 19.0% to $406.0.  Similarly, in Abaco and Grand Bahama, entire place listings advanced by 32.7% and 50.0%, respectively. Conversely, the ADR for Abaco and Grand Bahama contracted by 26.6% to $264.49 and by 5.8% to $171.01, placing them at the more affordable end of the spectrum.

Prices

During the twelve months to October 2018, inflation- as measured by the All Bahamas Retail Price Index- firmed by 83 basis points to 2.2%, reflecting the ongoing impact of the July 2018 hike in the VAT rate. In terms of the components, after registering declines in 2017, average costs for restaurant and hotels firmed by 4.8%; recreation & culture, by 3.9% and food & non-alcoholic beverages by 2.6%. Similarly, inflation rates quickened for transport (5.3%) and healthcare (1.9%). In a slight offset, accretions to average costs for the housing, water, gas and electricity- the largest component- tapered by 1.1 percentage points to 2.5%, while clothing & footwear, furnishing & household equipment and education, recorded price declines during the period.
 
In terms of domestic energy costs, both diesel and gasoline prices fell, by 3.0% and 4.1%, month-on-month to $4.55 and $4.73 per gallon during December; however, on a yearly basis, the average cost for both components firmed by 12.3% and 7.0%, respectively.

Fiscal Sector

Provisional data on the Government's operations for the first half of FY2018/19, showed a $79.7 million (31.4%) reduction in the deficit to $174.2 million, relative to the comparable period of the previous fiscal year. This outturn reflected a $129.5 million (14.7%) expansion in total revenue to $1,010.3 million, which eclipsed the $49.9 million (4.4%) increase in expenditure to $1,184.6 million.

Aggregate revenue gains were largely attributed to a $117.1 million (14.9%) increase in tax receipts, to $902.0 million. Specifically, with the 4.5 percentage point rise in the VAT rate to 12.0%, total collections firmed by $81.2 million (25.5%) to $399.5 million, while stamp taxes associated with financial and real estate transactions, rose two-fold to $107.7 million, due to Government's measures to streamline taxes on real estate transactions. In contrast, taxes on international trade fell by $12.1 million (6.0%), owing to broad-based declines in customs and other trade-related levies.  In addition, non-tax receipts firmed by $12.4 million (5.4%) to $108.3 million, as income from the sale of goods & services and fines, penalties & forfeits, advanced by $9.2 million and $2.5 million, respectively.

The expansion in total outlays was due solely to a $93.9 million (9.4%) increase in recurrent spending to $1,097.6 million. In particular, purchases of goods and services- mainly associated with financial transactions- firmed by $44.5 million (25.0%). In addition, subsidies rose by $28.1 million (20.0%), reflecting higher healthcare outlays. Smaller gains were also recorded for interest payments, by $19.2 million (13.6%), transfers, by $14.7 million (23.7%) and social assistance, by $5.3 million (30.0%), while wages and salaries contracted by $27.6 million (7.4%). Total capital expenditure narrowed by $44.0 million (33.6%) to $86.9 million, on account of a $46.8 million (41.6%) reduction in the acquisition of "other fixed assets".

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