Monthly Economic and Financial Developments, April 2009
Published: Tuesday June 2nd, 2009
During the month of April, the domestic economy continued to be adversely affected by the global economic recession. In particular, lower occupancy levels and declining hotel room rates constrained output in the tourism sector, while reduced foreign investments inflows further suppressed construction activity, with adverse implications for employment conditions; and the demand stimulus from private sector credit expansion remained subdued. While the increased public sector investments provided some support to the economy, pressures on the fiscal deficit continue to mount, owing to the falloff in revenue collections. With the global retreat in energy prices, domestic inflation moderated significantly during the review period.
Contracted demand in the major tourist markets contributed to ongoing weakness in the sector, and continued downsizing in hotel operations, including employment. Preliminary data for the four months of 2009 showed that although total visitor arrivals fell by 1.2%, this included a marked 15.5% contraction in the air segment, which outstripped the 5.5% increase in sea passengers which represent more than two-thirds of all visitors. Among the main markets, visitors to New Providence and the Family Islands both declined moderately, with the respective 10.5% and 27.6% reduction in air traffic outweighing gains in sea passengers; while the decrease in air visitors to Grand Bahama was estimated at 28.9%. As to stopover trends, indications are that total hotel room revenue continued to taper significantly throughout The Bahamas, with a sharp contraction in room night sales, and depreciated average nightly room rates. Amid the operating strains, the employment downsizing continued among hotels, with adjustments expected to persist throughout the summer months. The latest significant development has been the temporary closure of the Four Seasons Resort in Exuma, in May, affecting almost 500 employees.
The annual inflation rate continued to moderate from its food and energy-driven peak of 6.0% in August 2008, registering lower at 2.9% in April 2009 from an average 4.3% during the first quarter of 2009. With the retreat in energy prices, the annual advance in housing costs—which accounts for one-third of the Retail Price Index—abated to 0.2% from 3.2% in 2008; and the uptrend was tempered for transportation & communications (1.7%), medical care & health (1.6%) and “other” uncategorized goods & services. Conversely, cost increases remained elevated for food & beverages (7.5%), furniture & households operations (6.5%) and recreation & entertainment services (5.0%). With regards to electricity costs, which are included in the housing index, the average fuel surcharge receded by 1.3% to 8.14 cents per kilowatt hour (kwh) in April, and was 37.0% lower than a year ago. Although retail fuel prices trended mixed during the month, with the cost of diesel retreating by 3.4% and gasoline prices up slightly by 0.3%, the respective costs were 49.0% and 30.0% below the 2008 estimates, at $2.53 and $3.50 per gallon.
Preliminary data on the Government’s budgetary operations for the first nine months of FY2008/09 showed that the deficit widened to an estimated $223.4 million from $109.2 million a year earlier. The outturn reflected a 5.6% rise in aggregate expenditure, combined with a 5.4% decline in revenues. In terms of spending, current outlays advanced by 6.5%, explained by expansions in payments for goods & services payments (7.4%), personal emoluments (4.8%) and transfers and subsidies (8.0%). Although, expenditure on public works was elevated by 35.2%, total public sector investments abated by 9.2%, owing to reduction in purchases of asset (44.5%) and capital transfers to non-financial public enterprises (24.4%). With regards to revenue, tax receipts (90.7% of the total) lessened by 6.8%, reflecting notable declines in collections against international trade transactions (11.4%), stamp taxes on financial other transactions (21.9%) and departure taxes (12.4%). Conversely, non-tax collections rose by 11.9%, associated with a more than three-fold rise in income from public enterprises and other sources, and an increase in receipts from fines, forfeitures and administrative fees.
