Monthly Economic and Financial Developments (MEFD) January 2021

Published: Monday March 1st, 2021

Domestic Economic Developments

Overview

Domestic economic activity during the month of January continued to be largely impacted by the ongoing Novel Coronavirus (COVID-19) pandemic. Tourism sector output remained contracted, as widespread containment measures dampened the high value-added air component, and the dominant sea segment remained suspended. However, foreign investment-led projects, combined with post hurricane rebuilding works, provided some impetus to the construction sector. In price developments, the domestic inflation rate narrowed sharply during the twelve months to December 2020, underpinned by a reduction in fuel costs. On the fiscal front, the overall deficit widened considerably during the first six months of FY2020/21, as the fallout associated with COVID-19 and Hurricane Dorian, resulted in a reduction in total revenue and a significant rise in aggregate expenditure. In the monetary sector, the narrow measures of bank liquidity improved, as domestic credit expansion trailed the moderated gains in the deposit base. However, external reserves contracted, owing in large measure to the decline in foreign currency inflow from real sector activities.

Real Sector

Tourism

Preliminary evidence suggested that monthly tourism sector activity contracted in December 2020—the latest period for which such data was available—as globally imposed travel restrictions related to COVID-19 negatively impacted both air and sea arrivals. Official data provided by the Ministry of Tourism (MOT) revealed that total foreign arrivals by first port of entry were 95.3% lower during the month, overturning the 5.9% growth in the same period of 2019. Specifically, sea arrivals were virtually absent, compared to the 9.7% gain in the prior year, while air arrivals fell by 78.6%, extending the 6.9% contraction during the same period in 2019.

A breakdown by major ports of entry showed that December arrivals to New Providence corresponded to 4.5% of the 2019 volumes, reflective of decreases in both sea (99.6%) and air (85.3%) traffic. Similarly, visitors to Grand Bahama were only 4.7% of the prior year’s outturn, with air arrivals matching 61.6% of the previous year’s levels. For the Family Islands, arrivals reached just 5.2% of the preceding year’s volumes, as air arrivals matched 56.0% of the 2019 levels.

For 2020, total foreign arrivals reduced by 75.2%, a reversal from a 9.5% expansion in 2019. Underlying this outturn, air arrivals declined by 74.8%, vis-à-vis a 6.7% rise in the prior year. Likewise, sea arrivals decreased sharply by 75.4%, following a 10.3% growth a year earlier.

The latest data provided by the Nassau Airport Development Company Limited (NAD), for January 2021, showed that total departures—net domestic departures—fell to 23,099 passengers, overturning the 6.1% increase to 142,445 passengers last year. Underlying this development, the dominant U.S component, contracted by 83.1%, a reversal from a 6.0% rise in the prior year. Further, non U.S. departures declined by 87.5%, contrasting with a 6.4% expansion in 2020.

As it relates to the vacation rental market, data provided by AirDNA for the month of January 2021, compared with the same period last year, revealed that total room nights sold reduced by 19.0%, as bookings for entire place listings and hotel comparable listings decreased by 20.7% and 4.0%, respectively. Moreover, an analysis by Islands indicated reductions in bookings in key markets of Grand Bahama and Exuma, of around 27.0% each, and New Providence, with 17.1%.

Pricing indicators showed that the average daily room rate (ADR) for both entire place listings and hotel comparable listings, fell by 11.0% and by 6.5%, to $421.94 and $151.72, respectively, amid declines across almost all of the major destinations.

Prices

Attributed to the pass-through effects of the decline in global oil prices, domestic consumer price inflation—as measured by the All Bahamas Retail Price Index—narrowed to a muted 0.04% in 2020 from 2.49% in 2019. An analysis by category revealed that average costs for transport declined by 4.4%; clothing & footwear, by 1.3%; housing, water, gas, electricity & other fuels, by 0.7% and recreation & culture, by 0.7%, after posting gains in 2019. In addition, the average cost decrease for communication extended to 5.5% from 0.5% in the prior year. Further, average inflation rates moderated for furnishing, household equipment & maintenance (1.9%), restaurants & hotels (4.1%), alcoholic beverages, tobacco & narcotics (3.2%) and health (5.0%). Providing some offset, the rise in average costs accelerated for miscellaneous goods & services (2.8%) and for food & non-alcoholic beverages (1.6%), while the average price decline slowed for education (3.4%).

Fiscal

Data on the Government’s budgetary operations for the first six months of FY2020/2021, revealed a significant widening in the deficit to $736.1 million, from $194.0 million in the comparable FY2019/2020 period, attributed to a notable falloff in revenue collections and an increase in expenditure, mainly for health and social welfare, related to COVID-19. The outturn reflected a $430.0 million (39.0%) reduction in total revenue, to $671.4 million and a $112.1 million (8.7%) growth in total expenditure, to $1,407.5 million.

The reduction in aggregate revenue, was underpinned by a $284.0 million (39.2%) decrease in taxes on goods and services. Specifically, VAT receipts reduced by $229.0 million (44.4%) to $286.3 million, while excise taxes fell by $43.6 million. Further, modest declines were noted for gaming taxes ($8.4 million) and taxes on the permission to use goods ($4.0 million). Likewise, proceeds from international trade and transactions—inclusive of departure taxes, taxes on imports, customs and other import duties—decreased by $128.7 million (55.5%), reflective of depressed international travel due to COVID-19. In addition, property tax intake and general stamp taxes lessened by $9.0 million and by $3.3 million, respectively. Further, non-tax revenue reduced by $4.9 million (4.6%) to $101.9 million, largely associated with a contraction in receipts from the sale of goods & services, which fell by $20.5 million, due to a falloff in fees and service charges.

The acceleration in expenditure was largely credited to a $119.5 million (10.1%) expansion in recurrent outlays, to $1,298.2 million, primarily due to a $91.6 million increase in costs for social assistance benefits, to $104.4 million, relative to the prior year. Likewise, disbursements for the purchases of goods and services rose by $30.3 million, while outlays for subsidies increased by $21.5 million. In addition, interest payments grew by $17.8 million, compared to the same period in FY2019/2020. Further, muted gains in outlays were registered for pensions and gratuities ($1.9 million) and grants ($0.2 million). In contrast, capital expenditure declined by $7.4 million (6.3%) to $109.3 million, led by a $17.5 million (40.4%) reduction in capital transfers.

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