Monthly Economic and Financial Developments, April 2019

Published: Monday June 3rd, 2019

Overview

Preliminary indications are that the domestic economy maintained its modest growth trajectory over the review period. Gains in stopover visitor arrivals during the Easter holiday, supported the expansion in tourism, while activity in the construction sector reflected ongoing small to medium-scale foreign investment-related projects. Domestic inflation firmed during the 12 months to February, due in part to the pass-through effects of the hike in the value added tax (VAT) rate in earlier periods. In addition, the fiscal deficit narrowed during the nine months of FY2018/2019, as the VAT-led rise in revenue overshadowed the growth in expenditure. Monetary sector developments were dominated by accelerated Bahaman dollar deposit base gains, buoyed by receipts from tourism-related inflows which contrasted with very moderate local currency credit growth. The corresponding build-up in liquidity and external reserves therefore exceeded the 2018 pace.

Real Sector

Tourism

Indications are that tourism sector output remained buoyant over the review period, with sustained gains in both the high value-added air segment, and cruise travelers.

The latest official data from the Ministry of Tourism, showed that total visitor arrivals advanced by 5.9% in March, outpacing the 3.6% gain recorded in the prior year. Specifically, the dominant sea segment firmed by 4.6%, a reversal from the previous year's 2.5% contraction, while the growth in air arrivals slowed to 9.5% from 26.1% in 2018, due in part to the late start to the Easter holiday period.

By major ports of entry, total arrivals to the capital expanded by 20.9% during March, compared to a 2.6% increase a year ago, with rebounded sea traffic of 24.4% and narrowed air visitor gains of 14.1%. Reduced ports of call resulted in a 19.0% contraction in Family Island sea traffic, while air tourists softened by 1.6%. Similarly, in Grand Bahama, both air and sea visitors declined by 9.7% and 0.6%, respectively in March.

For the quarter, gains in air arrivals to The Bahamas remained strong at 17.3%, after the prior period's 18.0% advance, while sea traffic rebounded from a 1.0% decline to a 10.8% expansion. Arrivals to New Providence recovered by 27.0%, after a 1.8% falloff in the prior period, as the growth in both air and sea traffic exceeded 20.0%. In contrast, visitors to Grand Bahama contracted by 19.5%, with the 21.7% reduction in sea traffic, negating the 0.6% uptick in air arrivals, while the Family Islands had a 5.8% improvement in air arrivals, which outweighed the 1.9% decrease in the high volume sea component.

Indications are that the positive momentum in air arrivals was sustained during April, which captured the Easter holiday traffic. Data from the Nassau Airport Development Company Ltd. (NAD), showed an 18.3% expansion in total departures-net of domestic passengers-more than two times higher than the 7.9% gain recorded in the previous year, as growth in the U.S. segment quickened to 21.3% from 6.8%; however, the gains in the non-U.S. international component slowed to 2.8% from 14.3% in the previous period. Similarly, over the first four months of the year, aggregate departures strengthened by 21.0%, outpacing 2018's 12.1% improvement. This outturn reflected an increase in the U.S. component by 23.1%, overshadowing the prior year's 11.3% expansion. In contrast, gains in the non-U.S. segment narrowed by 5.8 percentage points to 10.4%.

The increase in air visitors fueled growth in the non-hotel based vacation rental segment of the market. In this regard, data obtained from AirDNA, showed that the total number of off-resort room nights sold firmed by 31.7% in April and by 18.7% for the year-to-date, with both hotel comparable and entire place listings firming over the four months by 22.0% and 18.3%, respectively. A breakdown by market, showed that the cumulative growth in room bookings was underpinned by a 51.4% expansion in demand for accommodation in Exuma, while New Providence, Abaco and Grand Bahama, accounted for smaller increases of 14.5%, 6.8% and 2.5%, respectively. In terms of pricing, the average daily room rate (ADR) of the entire place listings-which is generally more comparable across periods-firmed by 3.8% to $398.75, due mainly to gains in room rates in Exuma; however, the ADR for hotel comparable listings declined by 6.2% to $159.24, as average prices for accommodation in Grand Bahama and New Providence contracted.

Prices

Amid higher international oil prices, as well as the pass-through effects of the hike in the VAT rate, domestic inflation-as measured by the All Bahamas Retail Price Index-rose by 1.2 percentage points to 2.6% during the twelve months to February. This outturn reflected mainly an acceleration in average price gains in the components for transport items, food & non-alcoholic beverages, health, restaurants & hotels and alcoholic beverages, tobacco & narcotics. Also of note were average price rises for furnishing & household equipment and clothing & footwear, compared to declines in the previous period; and continued but smaller increases for housing, water, gas and electricity and recreation & culture. In contrast, average prices declined for the communications and education components of the index.

Domestic energy costs rose during April, with the average price of gasoline firming by 7.2% over the previous month, and by 8.7% vis-a-vis 2018 to $4.75 per gallon. Similarly, diesel prices were higher by 1.9% month-on-month at $4.35 per gallon, but were 3.8% lower when compared to the prior year.

Fiscal Sector

Data on the Government's budgetary operations for the nine-months of FY2018/19, showed that the deficit narrowed by $132.5 million (50.6%), relative to the comparable period of the previous fiscal year, to $129.5 million. This outcome was underpinned by a $219.2 million (14.9%) expansion in revenue to $1,689.1 million, which outpaced the $86.7 million (5.0%) increase in spending to $1,818.6 million.

The rise in total receipts was largely attributed to the 4.5 percentage points hike in the VAT rate to 12.0%, which boosted collections in this category by $98.7 million (20.1%) to $588.9 million. In addition, stamp taxes related to financial and realty transactions, doubled to $161.6 million-reflecting the reclassification of VAT on realty taxes to stamp taxes. Further, business license fees firmed by $24.7 million (35.0%), while receipts from banks and trust companies rose by $7.1 million (39.2%). In contrast, tax inflows related to international trade, waned by $3.5 million to $312.7 million, owing to reductions in both import and export taxes, which partially offset the growth in departure tax receipts. Further, non-tax revenue increased by $21.2 million to $167.3 million, due in large measure to a $26.5 million increase in income tied to the sales of good and services; largely related to higher immigration fees.

The expansion in expenditure was anchored by the $143.5 million (9.3%) rise in recurrent spending to $1,691.9 million. The Government increased its subsidies, mainly for healthcare, by $41.4 million (18.0%), while interest payments-predominantly on external debt-grew by $22.4 million (30.9%). Less pronounced gains were recorded for social assistance benefits, of $4.5 million (16.3%), and pensions & gratuities of $5.4 million (5.8%). Conversely, recurrent compensation disbursements declined by $27.6 million. In contrast, capital outlays contracted by $56.8 million (31.0%) to $126.7 million, due to a $56.4 million (36.6%) decline in the acquisition of non-financial assets and a $4.2 million (18.7%) fall-off in capital transfers.

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