Monthly Economic and Financial Developments, October 2016
Published: Tuesday November 29th, 2016
Domestic developments for the month of October were dominated by the passage of Hurricane Matthew, which resulted in significant damage to both private and public sector infrastructure in the main centres of New Providence and Grand Bahama. In this context, weather-related airline and cruise diversions, in addition to temporary hotel closures, tempered tourism sector activity during the period. The disruption to the construction sector was short-lived, as foreign investment projects and reconstruction work on homes and businesses resumed quickly after the storm’s passage. Expectations are that the storm will lead to further deterioration of the deficit, which expanded during the first three months of the FY2016/17, reflecting gains in spending, which outpaced growth in revenue. On the monetary front, an increase in Central Bank financing to the Government supported the growth in bank liquidity, while external reserves contracted, on account of the season uptick in foreign currency demand.
Indications are that the tourism sector remained lacklustre during the review month, as data from the Nassau Airport Development Company (NAD) suggested a significant weather-related reduction in passenger traffic through the country’s main airport, by 16.5% in October—net of domestic departures—relative to the prior year. A breakdown of the major categories showed that the number of departures to the dominant United States market fell by 20.0%; however, the number of visitors from other countries firmed by 3.2%. Conversely, data from NAD for the ten-month period showed a 0.9% gain relative to 2015, which suggests a mild improvement in the sector’s performance.
Data on the Government’s budgetary operations for the first three months of FY2016/17 showed a $23.0 million (36.6%) worsening in the deficit, to $86.0 million, relative to the comparable period last year. This outturn reflected a $35.8 million (7.2%) expansion in spending, which outstripped the modest $12.8 million (2.9%) rise in revenue.
Underpinning the expansion in expenditure, capital outlays climbed by $25.5 million (64.2%) to $65.1 million, as a rise in spending for road works and a costal protection project contributed to a $19.3 million (63.3%) increase in capital formation. Similarly, the acquisition of assets rose by $6.1 million (67.1%), owing to a three-fold increase in investments in “other” assets to $12.8 million—reflecting the purchase of additional defence force vessels—which eclipsed the $3.2 million (62.2%) reduction in land investments, following a property purchase last year. Similarly, current spending firmed by $10.3 million (2.2%) to $471.2 million, due mainly to an $11.8 million (5.0%) gain in transfer payments. This outcome reflected growth in transfers to both public corporations and non-profit institutions by $15.6 million and $6.1 million to $31.2 million and $24.1 million respectively, which overshadowed the $18.1 million timing-related falloff in subsidies—mainly to the Ministry of Tourism—to $74.9 million. In a slight offset, consumption expenditure decreased marginally by $1.5 million (0.7%) to $225.3 million, as the $4.8 million (2.8%) rise in personal emoluments, was outstripped by the decline in purchases of goods and services, by $6.3 million (10.7%), due largely to a reduction in “other contractual services”.
In terms of revenues, tax receipts—which comprised 88.5% of total inflows—firmed by $6.3 million (1.6%) to $398.6 million, reflecting increases in several revenue categories. Specifically, taxes on international trade rose by $5.8 million (4.5%) to $133.1 million, led by broad-based gains in excise, import and export taxes by $2.8 million, $1.5 million and $1.4 million, respectively. Further, selective taxes on services firmed to $3.2 million from $0.1 million—solely on account of inflows from gaming taxes, which were absent in the prior period. Similarly, business & professional fees advanced by $3.4 million (59.0%), due to timing-related increases in general business fees. In contrast, timing-related factors led to Value Added Tax (VAT) receipts falling by $5.2 million (3.2%) to $160.3 million, while ‘other’ miscellaneous taxes narrowed by $3.0 million (3.1%) to $92.7 million, as a reduction in other ‘unclassified’ taxes by one-half to $11.7 million, eclipsed the increases in departure and “other financial stamp” taxes by $7.7 million and $4.0 million, respectively. Non-tax revenue climbed by $6.5 million (14.3%), owing mainly to gains in fines, forfeits and administrative fees, and income from “other sources” by $4.0 million (12.8%) and $2.4 million (18.8%), respectively.
The Government’s financing needs for the period outpaced the deficit. In addition to the operating shortfall, resources totalling just over $100 million, were utilised to fund a capital injection into the Bank of The Bahamas, and the Government’s temporary majority equity stake in the new cellular communications company. In terms of the latter, the value of the investment approximated the fees received for issuing the license to the entity. Expectations are that the Government will divest itself of this ownership in the new company before the end of the fiscal period.
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