Monthly Economic and Financial Developments (MEFD) August 2021

Published: Monday October 4th, 2021

Domestic Economic Developments

Overview

During the month of August, indications are that the domestic economy continued a slow pace of recovery, despite the ongoing spread of the Novel Coronavirus (COVID-19) pandemic. Specifically, tourism’s improvement reflected further seasonal strengthening in the high value-added air segment and the modest uptick in sea traffic, reflective of widespread vaccination efforts both locally and internationally. In addition, ongoing foreign investment-led projects, along with post hurricane rebuilding works, provided impetus to the construction sector. On the fiscal front, Government’s budgetary operations for FY2020/21 showed a notable rise in the deficit, underpinned by an increase in aggregate expenditure, primarily for social welfare related to COVID-19, combined with a reduction in total revenue. Monetary developments featured a buildup in bank liquidity, with the more constrained decline in the deposit base, contrasting with the expansion in domestic credit. Similarly, external reserves increased during the review month, buttressed primarily by the receipt of Special Drawing Rights (SDRs) from the IMF.

Real Sector

Tourism

Preliminary evidence suggests that monthly tourism output maintained signs of a slow recovery, albeit continuing to face headwinds, owing to the ongoing globally imposed travel restrictions related to the COVID-19 pandemic. Nonetheless, domestic demand continued to provide support to the vacation rental market.

Initial data from the Ministry of Tourism (MOT) indicated that total visitor arrivals by first port of entry expanded to 183,270 in July, from just 23,820 in the corresponding period of 2020, as international borders were reopened, although with imposed restrictions. Leading this outcome, air arrivals strengthened to 133,811, from 15,355 in the previous year—representing 76.0% of the arrivals recorded in 2019. In addition, sea traffic increased to 49,459, compared to a mere 8,465 in the preceding year, as the uptick in cruise bookings persisted and more ships and ports resume activity. Disaggregated by major market, total arrivals to New Providence rose to 118,797 from 7,899 in the same period of 2020. Contributing to this outturn, the air and sea segments measured 101,524 and 17,273, respectively. Similarly, foreign arrivals to Grand Bahama increased to 11,638, extending the volume of 1,854 registered a year earlier, as sea and air arrivals amounted to 8,689 and 2,949, respectively. Further, total traffic to the Family Islands grew to 52,835 from 14,067 in the prior year, attributed to respective improvements in the air and sea segments, of 29,338 and 23,497.

On a year-to-date basis, total arrivals reduced by 65.5%, surpassing the 61.8% decrease registered a year earlier, which had included healthy first quarter activity. Notable cruise business was more materially absent, with a 92.3% reduction in sea traffic, exceeding the 59.6% contraction in 2020. In contrast, air arrivals recovered by 34.6%, opposing the 68.4% falloff recorded in the previous year, as all major markets registered positive movements during the review period.

The most recent data provided by the Nassau Airport Development Company Limited (NAD) revealed that total departures—net of domestic passengers—rose to 101,530 in August, from a modest 2,139 in the corresponding month of 2020, reflective of the country’s complete reopening of its borders. In particular, U.S. departures advanced to 94,166 from just 1,074 in the prior year, while non-U.S. departures increased to 7,364, from a mere 1,065 in the preceding year. On a year-to-date basis, outward bound traffic recovered by 24.0%, following a decline of 68.5% last year. In particular, U.S. departures grew by 41.1%, after a 69.7% falloff in the previous year. In contrast, the reduction in non-U.S. departures extended to 63.4%, from 60.8% in the prior year.

In the vacation rental market, the latest data from AirDNA showed that the decrease in demand for short-term rentals moderated during the month of August. Specifically, the reduction in total room nights sold slowed to 27.8%, compared to 47.7% in the corresponding period of the preceding year, with declines in bookings for both hotel comparable and entire place listings easing to 20.1% and 28.6%, respectively, from 38.2% and 48.8% a year earlier. As depicted in Graph 1, price indicators improved year-over-year, as the average daily room rate (ADR) increased for hotel comparable and entire place listings, by 23.2% and by 18.7%, to $174.78 and $484.42, respectively.

On a year-to-date basis, total room nights sold firmed by 38.8%, reflecting respective gains in bookings for entire place and hotel comparable listings, to 41.0% and 21.7%. Meanwhile, pricing data revealed that the ADR grew for both entire place and hotel comparable listings, by 16.1% and by 11.4%, to $478.25 and $170.29, respectively.

Fiscal Sector

Preliminary data on the Government’s budgetary operations for FY2020/2021 showed that the deficit grew by $536.3 million (66.1%) to $1,348.0 million, largely attributed to the economic impact of the COVID-19 pandemic and related social welfare initiatives. Underlying this outturn, aggregate expenditure rose by $322.1 million (11.1%) to $3,220.7 million, while total revenue contracted by $214.2 million (10.3%) to $1,872.7 million.

As it relates to expenditure, recurrent outlays increased by $324.9 million (12.9%) to $2,851.3 million. The outturn was led by a more than doubling in social assistance benefits to $403.0 million, from $188.0 million in the preceding year, largely attributed to COVID-19 related outlays for unemployment and food assistance programs. In addition, interest payments advanced by $77.7 million (22.5%) to $422.4 million, while spending on goods and services grew by $43.7 million (7.8%) to $605.4 million. Further, subsidies and other miscellaneous payments—inclusive of current transfers and insurance premiums—moved higher by $42.2 million (9.9%) to $469.7 million and by $14.1 million (6.0%) to $249.1 million, respectively. Providing a modest offset, compensation of employees reduced by $65.5 million (8.6%) to $695.3 million, while grants tapered by $2.2 million (25.9%) to $6.4 million.

In contrast, capital expenditure declined by $2.7 million (0.7%) to $369.5 million. In particular, capital transfers contracted by $55.8 million (36.8%) to $95.8 million, partly reflecting a falloff in outlays for post-hurricane recovery efforts. Conversely, the acquisition of non-financial assets increased by $53.1 million (24.1%) to $273.7 million, due to a notable expansion in fixed assets.

The decrease in total revenue reflected a $255.0 million (13.7%) reduction in tax receipts to $1,603.3 million. By sub-component, VAT collections declined by $138.0 million (15.7%) to $741.7 million, largely influenced by the contraction in economic activity, due to temporary closure of business operations given the COVID-19 restrictions. Similarly, inflows from taxes on international trade fell by $176.3 million (43.5%) to $229.3 million, reflecting broad-based decreases across all categories. Smaller reductions were registered for financial & realty stamp taxes ($9.1 million) and gaming receipts ($2.1 million). In a partial offset, real property taxes registered a gain of $44.4 million (44.7%), excise taxes, $28.4 million (13.7%), motor vehicle taxes, $1.7 million (5.7%) and marine licenses, $1.4 million (82.4%). Meanwhile, non-tax revenue grew by $40.7 million (17.8%) to $269.2 million, owing in part to a $21.5 million (32.0%) rise in immigration fee collections to $88.7 million, and an expansion in income from other “miscellaneous” sources, to $18.8 million, vis-à-vis $2.8 million a year earlier.

For full text reading, please download the attached document.