Monthly Economic and Financial Developments, May 2017
Published: Monday July 3rd, 2017
Overview
Preliminary data suggests that domestic economic activity was relatively subdued during the review month, reflecting the softness in tourism activity, while foreign direct investment projects continued to support construction sector output. The external sector’s contribution to the economy continued to be marked by a strengthening in foreign currency inflows through the banking system; however, domestic demand was paced slightly faster, as spending on imports of goods and services increased broadly, both for the month and the year-to-date. Inflationary pressures remained well contained, although domestic energy costs firmed moderately. In fiscal developments, the deficit rose modestly during the first nine months of FY2016/17, as revenue gains were outstripped by the growth in spending. Liquidity in the banking sector contracted in May, despite the slight rise in external reserves, reflecting a falloff in deposits and an increase in credit.
Real Sector
Tourism
Although official tourism sector statistics are not yet available for the year, preliminary information from secondary sources suggests that the industry continued to face challenges in 2017, due in part to the loss of significant hotel capacity in Grand Bahama—which has only been partially compensated by the phased opening of the Baha Mar hotel. Data from the Nassau Airport Development Company (NAD), showed a 2.4% reduction in visitor traffic—net of domestic departures—during May, in contrast to the 3.3% gain recorded during the same period last year. Specifically, departures to the United States fell by 2.6%, a reversal from the 4.3% increase in 2016, while the non-US international component contracted by 1.0%, following a 2.1% reduction recorded last year.
Data for the first five months of the year exhibited a similar trend. Net passenger departures through NAD fell by 3.4%, a turnaround from the 2.5% hike recorded in the comparable period of 2016, as travellers to the United States declined by 4.1%, a reversal from growth of similar magnitude in the prior year. In a mild offset, non-U.S. international passengers rose marginally, by 0.8%, relative to a 6.6% reduction in the previous period.
Prices
In price developments, household energy costs firmed during the May, as the Bahamas Power and Light’s (BPL) fuel charge increased by 8.3% to 13.7¢ per kilowatt hour (kWh), on a monthly basis, and by 49.7% when compared to May 2016.
Fiscal Sector
With the Government recording a small surplus on its budgetary operations during the third quarter of the FY2016/2107, the cumulative fiscal deficit rose by $5.0 million over the nine-month period to a preliminary $265.9 million. In terms of the components, total expenditure grew by $65.3 million (3.9%) to $1,723.7 million, outpacing the $60.3 million (4.3%) advance in total revenue to $1,457.7 million.
The expansion in expenditure was driven by a $71.6 million (51.7%) rise in capital outlays to $210.0 million, due mainly to a $55.5 million (51.2%) increase in hurricane rebuilding-related infrastructure spending, and a $16.1 million (53.8%) expansion in asset acquisitions. In addition, current expenditure expanded by $30.8 million (2.1%), with a $37.4 million (5.0%) rise in consumption outlays, and respective increases in personal emoluments and purchases of goods and services of $21.7 million (4.4%) and $15.7 million (6.4%). In a slight offset, transfer payments contracted by $6.6 million (0.9%), as subsidies declined by $28.1 million (9.9%), on account of decreases in outlays to the Ministry of Tourism, while transfers to households fell by $8.7 million (7.7%). In contrast, interest payments—predominantly on external obligations—rose by $7.3 million (3.8%).
The broad-based gains in revenue over the first three quarters of the fiscal period were led by a $53.7 million (4.3%) rise in tax receipts to $1,308.2 million, as taxes on international trade advanced by $22.3 million (5.9%)—due to higher import and excise tax collections. Similarly, selective taxes on services more than doubled to $21.9 million, due to a two-fold increase in gaming tax receipts to $20.8 million. Further, business and professional fees firmed by $9.7 million (9.5%), buttressed by a $9.2 million (13.2%) gain in general business fees. ‘Other’ non-trade tax inflows grew by $11.9 million (4.0%), as measures to improve revenue administration contributed to a $16.3 million (18.2%) expansion in property tax collections. In contrast, with the hurricane-related disruption still evident, value added tax (VAT) receipts narrowed by $9.5 million (2.0%) to $465.2 million,. In addition, the $4.9 million (13.6%) uptick in income—mainly from “other” miscellaneous sources—as well as the $2.1 million (2.0%) rise in fines, forfeits and administrative fees supported the growth in non-tax revenue.
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