Monthly Economic and Financial Developments, March 2016
Published: Tuesday May 3rd, 2016
Preliminary economic indicators suggest that economic conditions remained relatively subdued over the review period, amid tempered tourism sector activity, while several varied-scale foreign investment projects supported construction sector output. In line with the sustained weakness in global oil prices, domestic inflation remained mild. The fiscal deficit narrowed over the eight months of FY2015/16, as the value-added tax (VAT) led gain in revenue outpaced the increase in spending. On the monetary front, both liquidity and external reserves firmed over the review month, supported by net foreign currency inflows from real sector activities.
Preliminary data from the Bahamas Hotel & Tourism Association and the Ministry of Tourism indicated that the tourism sector’s performance was relatively weak over the first two months of the year, as total room revenue for a sample of hotels in New Providence decreased by 9.0%. Reflecting this development, the average occupancy rate contracted by 2.3 percentage points to 68.2% and the average daily room rate fell by 7.2% ($19.42) to $248.69. There is potential for near-term improvement in the sector, as the hosting of a number of international events during the second quarter of the year, should provide impetus to the key stopover segment of the visitor market.
Buoyed by a VAT-led $198.7 million (20.2%) expansion in total receipts to $1,184.7 million, which eclipsed the $171.8 million (13.7%) upturn in expenditure to $1,427.3 million, the fiscal deficit narrowed by $26.9 million (10.0%) to $242.7 million during the eight months of FY2015/16, relative to the corresponding period last year. This improved outturn reflected the impact of the Government’s fiscal consolidation plan, which resulted in tax revenue growing by $210.4 million (24.6%) to $1,065.9 million, with VAT inflows totalling $423.7 million. In contrast, the adjustment in several tariff rates to compensate for the introduction of the VAT, resulted in broad-based declines in most of the remaining revenue categories. Specifically, taxes on international trade fell by $48.1 million (12.8%) to $328.8 million, as import and excise taxes reduced by $29.4 million (14.5%) and $20.0 million (11.9%), respectively. In addition, receipts from “other taxes” contracted, by $74.4 million (21.9%) to $264.7 million, owing mainly to a shift in stamp taxes from property sales to VAT. In the same vein, the elimination of the hotel occupancy tax resulted in a two-thirds ($20.3 million) decline in selective taxes on services to $10.3 million, while revenue from business and professional fees narrowed by $35.9 million (43.5%) to $46.7 million, due to a differed payment-related reduction in “other miscellaneous license” inflows. Similarly, non-tax revenues declined by $8.8 million (6.9%) to $118.7 million, owing to a $9.6 million (10.4%) reduction in fines, forfeits and administrative fees.
In terms of expenditure, current outlays grew by $219.1 million (20.2%) to $1,305.3 million over the review period. In particular, transfer payments firmed by $170.3 million (34.9%), as the reclassification of public corporations’ subventions from “net lending” to transfers, contributed to a $157.5 million (47.7%) rise in subsidies and other transfers to $487.8 million. In addition, interest payments firmed by $12.7 million (8.1%) to $170.7 million, reflecting the increase in the Government’s debt obligations. In addition, gains were also noted for spending on goods & services and wages & salaries by $34.9 million (20.7%) to $203.3 million, and $13.9 million (3.2%) to $443.5 million, respectively. In contrast, as a result of the reclassification exercise, net lending plunged by $45.9 million to a mere $3.0 million. Further, capital expenditure declined by $1.4 million (1.2%) to $119.1 million, as growth in the Government’s infrastructure development programme, offset declines in asset acquisitions.
Reflecting the pass-through effects of the persistent softness in international oil prices, domestic energy costs sustained their downward trajectory, with the Bahamas Electricity Corporation’s fuel charge decreasing by 6.0% on a monthly basis to 7.88 cents per kilowatt hour (kWh) in March and by 61.0% year-on-year.
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