Monthly Economic and Financial Developments, October 2017

Published: Tuesday December 5th, 2017

Overview

Indications are that domestic economic activity stayed mildly positive over the review month, with the tourism sector showing signs of improvement, while construction sector output continued to be supported by foreign direct investment-related projects and to a lesser extent, ongoing post hurricane re-construction work. Foreign exchange flows through the banking sector, meanwhile, underscored further strengthening in domestic demand and hence spending on imports of goods and services. In the fiscal sector, a sharp increase in expenditures during June led to a sizeable increase in the deficit over FY2016/17; however, timing-related factors contributed to a narrowing in the budgetary gap during the first quarter of FY2017/18. Monetary sector developments in October were dominated by the Government’s foreign currency borrowing activities, which led to expansions in both liquidity and external reserves.

Real Sector Tourism

After a downturn in arrivals in September, due to a weather-related contraction in passenger traffic, data from the Nassau Airport Development Company Ltd (NAD) showed improved visitor activity for the month of October. Specifically, the total number of departures expanded by 16.1%, a turnaround from the weather-associated contraction of nearly the same magnitude last year. This outturn was supported by a 23.3% increase in the US segment, which reversed the prior year’s 20.0% contraction. In contrast, the low volume non-US international component decreased by 15.7%, vis-a-vis a 3.2% gain in the preceding year.

A further analysis of the data revealed that tourism activity remained subdued over the first 10 months of 2017, as visitor departures fell by 1.9% year-on-year, compared to 2016’s slight 0.9% expansion. In particular, non-US departures decreased by 4.2%, extending the previous year’s 3.7% reduction, while the US component contracted by 1.5%, reversing the 1.7% uptick reported for over the same period of 2016.

Fiscal Sector FY2016/17 vs. FY2015/16

Preliminary data for the Government’s operations over the entire fiscal year 2016/17 showed a more than two-fold expansion in the deficit to an estimated $669.4 million. This outturn reflected a $490.0 million (21.9%) rise in expenditure to $2,729.9 million, which outpaced the $131.0 million (6.8%) gain in aggregate revenue to $2,060.5 million.

The expansion in expenditure was driven by a $334.7 million (16.7%) gain in current outlays to an estimated $2,339.7 million, as consumption spending firmed by $248.0 million (24.9%), owing mainly to the $208.2 million (63.0%) increase in purchases of goods and services. In terms of the components, the largest gains were noted for rent, communications & utilities ($80.9 million), other contractual services ($60.7 million)—related mainly to payment of medical health insurance premiums. In addition, wages & salaries expanded by $39.8 million (6.0%); and transfer payments by $86.7 million (8.6%), including an estimated $94.9 million (12.9%) increase in subsidies and other transfers—largely to the Public Hospital Authority (PHA) and National Health Insurance. However interest costs on public debt, also classified as transfer payments declined by $8.2 million (3.0%). Meanwhile, capital outlays grew by $158.9 million (68.7%) to $390.2 million, supported by a $99.1 million (57.3%) increase in hurricane-related infrastructure spending and a doubling in asset acquisitions to $118.2 million.

With regard to revenue, tax receipts—comprising approximately 90.0% of the total—strengthened by $160.4 million (9.6%) to $1,836.6 million, inclusive of a $76.3 million (15.1%) advance in taxes on international trade, which featured significant gains in excise and import taxes of $57.6 million (25.0%) and $22.4 million (8.5%), respectively. Similarly, value-added tax (VAT) receipts moved higher by $10.1 million (1.6%) to $638.0 million, while selective taxes on services posted a more muted gain of $1.5 million (5.7%), comprising mainly higher revenue from gaming taxes. Further, business and professional fees expanded by $42.6 million (29.2%), led by an increase hike in “other” license fees ($42.7 million), while other taxes inclusive of property and financial stamps taxes grew by $29.8 million (8.1%). In contrast, non-tax revenue—which accounted for the remaining 10%—decreased by $29.3 million (11.6%) to $223.9 million, reflecting lower receipts of fines, forfeits and administration fees.

First Quarter of FY2017/2018 vs. Q1 FY2016/2017

During the first quarter of FY2017/18, the deficit narrowed by $18.9 million (22.3%) to an estimated $65.6 million, when compared to the same period last year. Underlying this development was a $17.1 million (3.2%) decrease in total expenditure to $517.7 million, together with a $1.7 million (0.4%) increase in revenue to $452.2 million.

In terms of spending, capital outlays were almost halved to $34.4 million. In particular, infrastructure-related expenditure contracted by $22.6 million (45.4%), as a number of roadwork and coastal protection projects were concluded. Similarly, the acquisition of assets was $8.2 million lower, reflecting in part reduced investments in land. In a partial offset, current expenses firmed by $13.7 million (2.9%) to $483.4 million, owing to a $25.0 million (10.4%) expansion in consumption outlays, due to a $16.7 million (9.7%) increase in payments for wages and salaries, and growth in purchases of goods and services, by $8.3 million (12.3%). However, transfer payments decreased by $11.2 million (4.9%) to $218.2 million, underpinned by a contraction in subsidies and “other” transfers, particularly related to healthcare services.

A disaggregation of revenue showed that the gain was attributed to a $15.5 million (3.9%) expansion in tax receipts, to $414.1 million, mainly sourced from improvements for motor vehicle licensing business and professional fees and selective taxes on certain services. In addition, the VAT registered a more muted gain of $3.3 million (2.0%). In contrast, taxes on international trade declined by $5.7 million (4.3%), due mainly to a fall in import duties. Further, non-tax inflows contracted by $13.8 million (26.6%) to $38.0 million, as income from non-public enterprises narrowed by $14.3 million (92.6%).

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