Monthly Economic and Financial Developments, September 2016
Published: Wednesday November 2nd, 2016
Despite signs of stability during the month of September, the passage of hurricane Matthew in the first week of October caused significant disruption in economic activity in The Bahamas’ two major economic centres, New Providence and Grand Bahama. North Andros also received considerable storm-related damage. The hurricane affected businesses through its adverse impact on property, lost electricity supply and communications, and other infrastructure damages. However, the majority of the hotel capacity in the New Providence was undamaged and work to complete the large-scale Baha Mar tourism project stayed on course. Significant recovery efforts have commenced, and initial estimates suggest that damages from the storm will exceed $600 million, with a large portion of the rebuilding costs being shouldered by the Government and the insurance sector.
A number of policy measures have been implemented to support the recovery efforts of both homeowners and businesses. The Central Bank relaxed the permissible monthly debt service ratio on commercial bank lending for hurricane relief facilities from a maximum of 40%-45% to 55% of personal income and suspended the mandatory 15% equity requirement on such loans. In the public sector, the Government issued an Exigency Order to provide tax exemptions on recovery-related expenditures by businesses and households for property damage suffered during the storm. The Government also proposed an additional $150 million in expenditure to remedy public infrastructure damage, debris clean up, and to assist displaced vulnerable households, including the residual damages from last year’s Hurricane Joaquin. A special resolution of Parliament authorised additional borrowing of this amount for these purposes.
The adverse impact of the hurricane compounded an already soft tourism sector performance, characterised by anaemic hotel occupancy rates, stable stopover arrivals and reduced foreign currency purchases by banks from their clients . Nonetheless, modest gains in tourism sector indicators are expected during the final months of 2016, in line with the start of the peak winter season and the return of renovated hotel capacity.
Reflecting the pass through effects of recent gains in global oil prices, domestic energy costs rose modestly in September. Specifically, the Bahamas Power and Light (BPL) fuel charge moved higher by 12.1% relative to the prior month, to 12.67¢ per kilowatt hour (kWh), but was 11.7% lower than the comparable period of last year.
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