Monthly Economic and Financial Developments, April 2017

Published: Monday May 29th, 2017

Overview

Indications are that the domestic economy expanded mildly during April, supported by modest gains in the tourism sector, which benefitted from the hosting of a number of sporting and cultural events. Moreover, continued work on a number of varied-scale foreign investment projects, underpinned activity in the construction sector. Signs of increased domestic consumer demand, meanwhile, were evident from higher private sector spending on travel and imports, both for the month and on a year to date basis. This stronger internal demand paced moderately ahead of the improvement in the foreign exchange earnings sectors, influencing a more subdued seasonal accumulation in external reserves. Inflationary pressures remained well contained over the 12-month period ending March 2017, although short-term firming in international oil prices resulted in higher domestic fuel costs. In monetary developments, liquidity narrowed during the month; although external reserves expanded amid deposit base growth that contrasted with reduced Bahamian dollar credit.

Real Sector

Tourism

Buoyed by the hosting of several international sporting events, as well as Easter holiday-related tourists, data from the Nassau Airport Development Company (NAD) showed that visitor traffic through the country’s main airport—net of domestic departures—grew by 4.4% in April, year-on-year, a turnaround from a 2.1% decline in the same month of 2016. Underlying this increase, the dominant United States’ (US) market grew by 2.3%, extending the 1.1% uptick noted in the prior period. Moreover, the number of the non-US international travellers improved by 17.9%, a reversal from the year earlier contraction of 18.7%.

Data available for the first four months of the year still reflected a subdued cumulative outcome for tourism. Specifically, the number of passenger departures contracted by 3.6%, in contrast to a 2.3% increase in the comparable period of 2016. The United States component was reversed to a 4.5% decline, vis-à-vis an increase of similar magnitude in the prior year. In a partial offset, non-US international departures firmed by 1.2%, compared to a 7.5% falloff a year ago.

Prices

Average consumer prices–as measured by the Bahamas Retail Price Index—firmed marginally by 0.5% during the 12 months to March, a slowdown from a 1.4% increase recorded in the prior period. Underlying this outturn, accretions to average costs for health and alcohol beverages, tobacco & narcotics, fell sharply by 15.1 and 7.8 percentage points to 1.5% and 0.8%, respectively. Similarly, the inflation rates for clothing & footwear, and furnishing, household equipment & routine household maintenance, were both 3.7 percentage points lower at 0.8% and 1.9%, respectively, while more muted declines were noted for communication and miscellaneous goods and services, to 2.1% and 0.6%, respectively. Moreover, prior period increases in the average costs for recreation & culture, restaurant & hotels, and food & non-alcoholic beverages of 10.6%, 6.8% and 5.4%, were reversed to respective declines of 0.8%, 2.1%, and 1.8%. In a slight offset, the average price of housing, water, gas electricity and other fuels—which accounts for one third of the index—increased marginally by 0.9%, vis-à-vis a 2.7% contraction a year earlier, while the contraction in average transport costs slowed by 5.6 percentage points to a mere 0.7%, reflecting the pass-through effects of higher global oil prices.

Fiscal Sector

Data on the Government’s budgetary operations for the eight months of FY2016/17, showed a $54.5 million (21.9%) expansion in the fiscal deficit to $302.9 million, when compared to the same period last year, as the $85.1 million (5.9%) increase in expenditure to $1,518.2 million, outstripped a $30.6 million (2.6%) gain in aggregate revenue to $1,215.3 million.

The growth in total expenditure was driven mainly by a $44.1 million (3.4%) advance in current outlays to $1,337.4 million. Specifically, transfer payments firmed by $20.9 million (3.3%), led by a $13.0 million (7.6%) expansion in interest payments. Further, subsidies and other transfers grew by $7.9 million 1.7%—on account of the $24.7 million (16.6%) growth in subsidies to the Public Hospital Authority for the rollout of National Health Insurance (NHI). Consumption expenditure rose by $23.2 million (3.5%), reflecting an $18.5 million (4.2%) rise in personal emoluments and a $4.6 million (2.2%) gain in purchases of goods and services. In addition, a $47.5 million (51.1%) increase in capital formation—mainly for hurricane repairs—underpinned a $61.6 million (51.7%) rise in total capital expenditure, while asset acquisitions grew by $14.1 million (53.9%). As reclassification of support to public enterprises also contributed to the estimated increase in subsidies, a corresponding reduction was registered in net lending to these entities, to $0.01 million from $20.7 million in the same months of FY2015/16.

The expansion in aggregate revenue was driven by a $16.3 million (1.5%) broadening in tax receipts to $1,082.2 million. In particular, gains in import and export taxes by $11.3 million (6.5%) and $7.3 million (4.9%), supported a $17.9 million (5.4%) increase in taxes on international trade. Moreover, selective taxes on services firmed by $8.0 million (78.0%) to $18.3 million, owing largely to a $7.2 million timing-related increase in gaming tax receipts, while revenues from business and professional fees rose by $8.0 million (17.2%) to $54.7 million. In addition, receipts from stamp and departure taxes both moved higher by $6.8 million (10.3%) and $5.0 million (6.4%), respectively. Providing a slight offset, value added tax (VAT) inflows receded by $6.2 million (1.5%) to $417.5 million. Similarly, other ‘miscellaneous’ taxes declined by $26.2 million (88.0%), solely reflecting the reduction in the ‘unclassified’ taxes component. Further, non-tax revenue firmed by $14.4 million (12.1%) to $133.1 million, with fines, forfeits and administration fees increasing by $10.6 million (12.7%), and income from ‘other’ sources expanding by $3.8 million (12.0%).

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