Monthly Economic and Financial Developments January 2016

Published: Tuesday March 8th, 2016

Buoyed mainly by the growth in tourism sector output and positive impulses from foreign investment-related construction activity, indications are that the domestic economy sustained its growth trajectory in January. Inflation remained relatively subdued over the twelve months to October, reflecting the pass-through effects of the persistent decline in global oil prices. A Value Added Tax (VAT) led expansion in revenue, which outpaced a moderate gain in spending, resulted in a significant narrowing of the Government’s deficit over the first six months of FY2015/16, while monetary sector developments were dominated by net inflows from real sector activities, which supported gains in both bank liquidity and external reserves.

Preliminary data from the Bahamas Hotel & Tourism Association and the Ministry of Tourism for a sample of hotels in New Providence, indicated that the improvement in hotel sector performance was sustained over 2015, as total room revenue firmed by 3.0%. This outturn reflected gains in the average occupancy rate by 2.5 percentage points to 69.2%, as the recovery in the key group segment led to rates exceeding their comparable 2014 levels in 8 of the 12 months. Similarly, the average daily room rate (ADR) firmed by 6.0% ($14.41) to $253.88.

Indications are that the positive trends noted in the tourism sector in 2015 were maintained over the review period, reflecting in part the hosting of several international sporting events, along with sustained economic growth in several of the main visitor markets.

Compared to the year prior, domestic consumer price inflation—as measured by the Retail Price Index (RPI) of The Bahamas—firmed by 44 basis points to 1.64% in the twelve months to October 2015. This included accelerated rises in average prices for health care (12.6%) recreation & culture (9.2%) and furnishing, household items (6.1%). Also noteworthy were increases for alcoholic beverages tobacco & narcotics (7.9%), restaurant & hotels (5.3%), education (5.0%), food & non-alcoholic beverages (4.7%), and communication (4.2%). However a more tempered advance was recorded for miscellaneous goods and services (0.8%), while the index of housing, water, gas, electricity & other fuels—the largest component of the RPI—contracted further by 0.8%. Likewise, amid the sharp falloff in global crude oil prices, transport costs fell by 4.9%, reversing a similar increase in the prior year.

With respect to domestic fuel costs, in January, the Bahamas Electricity Corporation’s fuel charge rose by 3.8% over the previous month to 10.41 cents per kilowatt hour (kWh); however, in comparison to 2015, the pass-through was 54.7% lower.

Data on the Government’s budgetary operations for the first half of FY2015/16, showed that the deficit narrowed by $110.9 million (42.6%) to $149.3 million. Supported by a series of revenue enhancement measures and the widening of the tax base following the introduction of the VAT, total receipts rose by $209.6 million (30.6%) to $895.6 million, outpacing a $98.8 million (10.4%) gain in aggregate expenditure to $1,044.9 million. Tax revenues firmed by $213.2 million (36.3%) to $800.9 million—with a VAT yield of $317.0 million. However, on account of tariff rate reductions which were applied to offset the VAT related increases, taxes on international trade declined by $41.9 million (13.9%) to $259.4 million, as the import and excise tax components decreased by $26.2 million (16.3%) and $17.0 million (12.4%), respectively. The elimination of the hotel occupancy tax displaced $14.9 million in receipts from selective taxes on services, while a timing-related reduction in “other miscellaneous inflows” contributed to business and professional fees declining by $17.6 million (58.1%). Receipts from “other taxes” contracted by $25.1 million (10.8%) to $207.3 million, reflecting a $38.3 million (71.2%) reduction in stamp taxes from property sales, as most of the corresponding revenue had shifted in composition to the VAT. Meanwhile, non-tax revenue fell marginally by $0.7 million to $94.5 million.

Driven mostly by reclassification of subventions to public enterprises, current outlays firmed by $141.2 million (17.4%) to $953.1 million. The most significant increase was recorded for transfer payments, which expanded by $105.7 million (28.7%) to $474.2 million, with the reclassification of “net lending” resulting in an eight-fold ($42.3 million) rise in transfers to public corporations. Subsidies and transfers to households also rose by $19.7 million and $10.2 million, respectively. In addition, consumption expenditure grew by $35.4 million (8.0%) to $479.0 million, as spending on goods and services climbed by $23.6 million (19.4%) and disbursements for wages and salaries rose by $11.9 million (3.7%) amid some public sector union-negotiated payments. In contrast, capital outlays contracted by $4.5 million (4.7%) to $89.3 million, mainly attributed to a $9.9 million decline in “other” asset purchases, which offset respective increases in land and financial asset acquisitions by $3.7 million and $2.8 million.

For full text reading, please download the attached document.