Monthly Economic and Financial Developments, June 2018

Published: Monday July 30th, 2018

Domestic Economic Developments

Overview

Indications are that the domestic economy sustained its positive growth trajectory over the review period. Activity in the tourism sector continued to improve, supported by increased high-end room capacity, new airline routes and strengthened economic conditions in key source markets. Meanwhile foreign investment-funded projects remained the most significant driver of construction sector output. Further, annual inflation increased modestly, reflecting in part the pass-through effects of sustained gains in global oil costs. On the fiscal front, the deficit narrowed over the first eleven months of FY2017/18, as lower capital spending led to a decline in total expenditure and revenue grew modestly. In the monetary sector, both liquidity and external reserves contracted, reflecting an expansion in credit and a reduction in the deposit base, associated with the net increase in foreign currency demand to support private sector travel and public sector oil imports.

Real Sector

Tourism

Preliminary data suggests that the improvement in the tourism sector’s performance over the year was maintained during the month of June. In particular, information from the Nassau Airport Development Company Ltd. (NAD), showed a 10.9% increase in total departures—net of domestic passengers—outpacing the 3.4% gain in 2017. More specifically, non-U.S. international departures strengthened by 31.4%, a turnaround from a 7.0% contraction a year earlier, while the growth in the U.S. segment accelerated to 8.8% from 4.6% in the prior year. An analysis over the six-month period revealed similar trends, as departing foreign traffic increased by 12.4%, vis-à-vis a 2.2% decline in the prior year. This outturn reflected gains in both non-U.S. and U.S. departures by 17.3% and 11.6%, vis-a-vis the previous year’s declines of 0.1% and 2.6%, respectively.

In terms of stopover visitors, a growing number of tourists utilize the short-term rental market and data sourced from AirDNA, showed that conditions remained positive in June, as the number of bookings increased by 37.3%, when compared to the same period of 2017. This was underpinned by an increase in bookings for the key markets of Abaco, Grand Bahama, Exuma and New Providence, which rose by 38.5%, 52.1%, 48.5% and 23.9%, respectively. Additionally, the total number of room nights sold increased for both entire homes and hotel comparable listings by 50.1% and 38.0%, respectively. Similarly, gains were also noted for the average daily rate for entire homes, by 11.7% to $360.63, and hotel comparable listings, by 4.8% to $141.86.

Prices

Buoyed by the pass-through effects of rising global energy costs, average consumer prices firmed by 1.2% during the twelve months to March, outstripping the 0.5% increase in the previous year. This development mainly reflected an uptick in the retail price index for housing, water, gas and electricity—the highest weighted segment—by 3.2%, surpassing the 0.8% gain in the prior year. Further, the average cost of communication was also higher; while increases for restaurant and hotels, recreation & culture, transport and food & non-alcoholic items, contrasted with declines in the previous year. Smaller average gains were estimated for health, and alcoholic beverages, tobacco & narcotics; while the remaining items in the index decreased on average.

The growth in global oil prices was felt most acutely in fuel costs, particularly in the long-term analysis. Specifically, average gasoline prices firmed by 3.5% in May, relative to the prior month, to $4.68 per gallon; however, diesel prices declined by 3.0% to $4.24 per gallon. When compared to the same month last year, prices for both diesel and gasoline increased by 11.6% and 9.6%, respectively.

Fiscal Sector

During the eleven months of FY2017/2018, the deficit on the Government’s operations narrowed by $87.5 million (29.2%) to $211.9 million, in comparison to the prior year, underpinned by a $59.8 million (2.8%) decline in expenditure to $2,058.8 million and a $27.7 million (1.5%) rise in revenue to $1,846.9 million.

The reduction in expenditure reflected a $120.5 million (43.7%) contraction in capital spending to $155.3 million, as asset acquisitions and infrastructure spending declined by $33.7 million (56.2%) and $86.8 million (40.2%), respectively. In contrast, current outlays expanded by $60.9 million (3.3%) to $1,903.6 million, amid a $31.7 million (3.3%) rise in consumption spending, as gains were recorded for contractual services and personal emoluments of $40.9 million (30.3%) and $22.1 million (3.5%), respectively. In addition, transfer payments firmed by $29.2 million (3.3%), due mainly to a $32.5 million (13.1%) increase in interest payments, which overshadowed a $3.3 million (0.5%) reduction in subsidies and other transfers.

The growth in revenue was buttressed by a $33.1 million (2.0%) increase in tax receipts to $1,673.2 million. In particular, VAT collections—which comprised 36.5% of the total—rose by $14.7 million (2.5%), while gaming and motor vehicle taxes grew by $10.6 million (44.6%) and $6.9 million (28.8%), respectively. Further, reflecting in part the preliminary placement of revenues in the “unallocated” category, there was a seven-fold ($52.0 million) increase in “other taxes”. In contrast, taxes on international trade fell by $22.5 million (4.5%), as import and excise tax receipts decreased by 8.5% and 2.1%, respectively. Further, non-tax revenue weakened by $5.4 million (3.0%) to $173.6 million, due to a $14.8 million (34.7%) contraction in income, which eclipsed the $8.4 million (6.2%) rise in collections from fines, forfeits and administrative fees.

As at end May, the deficit represented approximately 65.9% of the projected budgetary gap of $321.3 million for FY2017/18. Underlying this development, expenditure was 83.7% of the forecasted $2,460.4 million, with 85.3% of budgeted recurrent outflows expended, while only 67.3% of the amount allotted for capital spending was disbursed. Revenue collections represented an estimated 86.2% of the $1,941.6 million projected tax receipts, with VAT revenues reaching 92.3% of the expected total. Similarly, non-tax inflows accounted for approximately 88.9% of the anticipated $195.2 million forecast.

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