Monthly Economic and Financial Developments, January 2020

Published: Monday March 2nd, 2020

Domestic Economic Developments

Overview

Preliminary indications are that the domestic economy exhibited mildly expansionary trends during the review month. Gains in the high value-added stopover visitor segment, mainly in New Providence and the Family Islands not damaged by Hurricane Dorian, supported the rise in tourism sector output. Further, activity in the construction sector was fueled by foreign investment-led projects, and to a lesser extent post-hurricane rebuilding works. On the fiscal front, the Government's hurricane-related expenditure hike, overshadowed the increase in revenue collections, and contributed to a widening in the deficit during the first half of FY2019/2020. In monetary developments, bank liquidity grew, reflecting an expansion in the deposit base and a decline in domestic credit. Similarly, buttressed by net foreign currency inflows from re-insurance and real sector activities, external reserves recorded healthy growth over the review month.

Real Sector

Tourism

Activity in the tourism sector remained positive, albeit moderated, during the review period, as growth in the high value-added air segment narrowed amid some drag on marketing efforts and unrestored capacity in Abaco and Grand Bahama. This overshadowed steadied gains in the sea component.

Official data provided by the Ministry of Tourism (MOT) revealed that total foreign arrivals for the month of December 2019 rose by 5.3%, but was below the 10.0% growth recorded in the prior year. Specifically, the sea segment grew by 8.9%, following a growth of 9.2% in 2018. In contrast, air arrivals declined by 6.9%, a reversal from a 12.7% expansion a year earlier.

A breakdown by major port of entry showed that arrivals to the Family Islands advanced by 32.7%, vis-à-vis an 18.8% reduction in the previous year, due to a rise in sea passengers of 43.0%, which outstripped a 28.4% contraction in air traffic. In contrast, total visitors to New Providence fell by 1.4%, to reverse the 30.2% expansion in same period in the prior year, underpinned by a 3.2% falloff in sea arrivals, which offset the 3.4% increase in the air component. Further, amid declines in both the air (75.1%) and sea (37.2%) segments, total arrivals in Grand Bahama contracted by 43.2%, a turnaround from a 20.8% growth in 2018.

Positive trends were preserved overall for 2019, as total arrivals expanded by 9.4%–the strongest growth in nine years–surpassing the 7.9% increase in 2018. Underpinning this outturn, the sea segment rose by 10.3%, extending the 5.5% rise in the prior year, while the air component grew by 6.7%, although lower than the 16.7% expansion in the previous year. A disaggregation by market, showed that total arrivals to New Providence moved higher by 11.0%, with gains in both air (11.6%) and sea (10.8%) traffic. In addition, visitors to the Family Islands advanced by 16.4%, owing primarily to a 19.7% growth in sea arrivals, which outstripped the 2.7% falloff in air passengers. In contrast, total visitors to Grand Bahama were reduced by 22.3%, as declines of 30.4% and 21.3% were posted for both the air and sea components, respectively.

Developments within the hotels segment reinforce comparatively subdued month of December outcome, but with the overall uptrend secured for the calendar year. Information provided by The Bahamas Hotel & Tourism Association (BHTA) and the MOT, showed a 1.0% falloff in room revenue for Nassau and Paradise Island properties during the month, but an 18.0% gain for the year. The contrast reflected negative marketing pressures that the industry was still steadily countering since the Hurricane. For the year, properties sustained gains in the both number of room nights sold of 11.0%, and in the average daily rate of 6.5% to $266.92; while the average occupancy rate rose by 5.4 percentage points to 67.1%.

Extending the analysis to the beginning of 2020, the latest data provided by the Nassau Airport Development Company Limited (NAD), showed that total departures from the country's main airport for the month of January–net of domestic passengers–firmed by 6.1%, but was markedly lower than last year's 22.1% growth. Underlying this development, the dominant U.S. component rose by 6.0%, after the previous year's 24.5% expansion. Further, non-U.S. departures grew by 6.4%, relative to an 11.1% gain a year earlier.

In the vacation rental market, data provided by AirDNA for the month of January, revealed a 5.3% decline in the total room nights sold, fueled by a 6.1% decrease in bookings for entire place listings, which outstripped the 0.9% rise in hotel comparable bookings. In addition, the average daily room rate (ADR) for both entire place listings and hotel comparable contracted by 9.6% and 1.5% to $371.75 and $153.07, respectively.

An analysis of the short-term rental data by island, indicated that reductions in total room nights sold were led by the storm ravaged Abaco market (32.1%), as bookings for both entire place and hotel comparable contracted by 32.4% and 24.5%, respectively. In the New Providence market also, bookings fell by 6.3%, underpinned by reductions of 6.7% for entire place bookings and 4.5% for hotel comparable listings. In Grand Bahama, entire place listings and hotel comparable listings declined by 5.1% and 2.9%, respectively. Conversely, in Exuma, data for bookings varied, as room nights sold for entire place listings weakened by 5.7%, while room nights sold for hotel comparable grew by 10.4%.

Fiscal

Provisional data on the Government's budgetary operations for the first half of FY2019/2020, revealed a $14.1 million (8.1%) widening in the deficit, to $188.6 million, relative to the same period in FY2018/2019. The outturn largely reflected a $106.1 million (8.9%) growth in total expenditure, to $1,292.2 million, related to Government's initial post hurricane spending, which overshadowed the $91.9 million (9.1%) rise in aggregate revenue, to $1,103.6 million.

The expansion in total spending was underpinned by a $69.4 million (6.3%) rise in current outlays to $1,175.6 million. Specifically, subsidies moved higher by $29.0 million (17.2%), owing mainly to higher disbursements to public corporations and other sectors. In addition, outlays for compensation of employees rose by $27.5 million (7.8%), while "other" payments, inclusive of current transfers and insurance premiums, grew by $15.1 million (15.9%). Government grants also increased more than two-fold ($2.6 million) to $4.1 million. In addition, associated with hurricane related expenses, capital expenditure rose by $36.6 million (45.8%) to $116.6 million, occasioned by a three-fold increase in capital transfers to $43.3 million, and the acquisition of non-financial fixed assets, by $8.1 million (12.4%).

Aggregate revenue gains were owing in large measure to a $95.3 million (10.6%) growth in tax receipts, to $995.2 million. Specifically, taxes on goods and services advanced by $72.2 million (11.1%) to $724.6 million, as value added tax (VAT) proceeds increased by $130.0 million (33.7%) to $515.3 million, despite the disruption in economic activities after the hurricane. Further, timing-related factors led to gaming taxes almost doubling to $19.4 million from $9.8 million in the previous year. In addition, excise taxes rose by $14.7 million (12.5%), while taxes on permission to use goods increased by $4.2 million (13.2%).Similarly, taxes on international trade and transactions grew by $25.3 million (12.3%), Conversely, property tax collections decreased by $0.9 million (2.7%) to $34.1 million, while receipts from general stamp taxes contracted by $1.2 million (21.0%) to $4.7 million. In an offset, receipts from non-tax revenue reduced by $5.0 million (4.4%) to $106.8 million, underpinned by an $11.2 million (64.4%) reduction in income from property and a $2.0 million (69.2%) falloff in proceeds from fines, forfeits and penalties. In addition, revenue from the sale of goods & services declined by $1.4 million (1.6%), while reimbursements and repayments edged down by $0.1 million (71.3%).

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