Monthly Economic and Financial Developments (MEFD) April 2020

Published: Sunday May 31st, 2020

Domestic Economic Developments

Overview

The Novel Coronavirus (COVID-19) pandemic significantly disrupted domestic economic activity during the month of April. Travel restrictions imposed globally negatively affected the tourism sector, as both the high value-added air segment and sea traffic came to a standstill. However, the partial resumption of foreign investment-led projects and post-hurricane rebuilding efforts provided limited stimulus to the construction sector. On the fiscal front, the overall deficit widened during the third quarter of FY2019/2020, as unplanned hurricane-related outlays led to a sharp increase in expenditure, which outpaced the growth in revenue collections. Monetary developments registered a contraction in bank liquidity, owing to a notably rise in domestic credit, which exceeded gains in the deposit base. Similarly, external reserves contracted during the review month, reflective of a falloff in foreign currency inflows.

Real Sector

Tourism

Preliminary data suggests that monthly tourism output contracted, largely reflecting the impact of globally imposed travel restrictions related to COVID-19, which adversely affected both sea and air arrivals.

As international travel came to a standstill, data provided by the Ministry of Tourism (MOT) showed that total visitor arrivals reduced by 59.7% in March, a reversal from a 5.9% growth during the same period in 2019. Underlying this outturn, the high value-added air segment fell by 62.5%, a turnaround from the 9.5% gain a year earlier. Similarly, the dominant sea component declined by 58.6%, vis-a-vis a 4.6% increase last year.

A breakdown by major port of entry revealed broad based declines across the major markets. Specifically, total visitors to New Providence contracted markedly by 64.6%, contrasting with the 20.9% growth in the prior year, as both the sea and air components fell, by 66.7% and 60.2%, respectively. Similarly, underpinned by reductions in both air (74.0%) and sea (65.9%) traffic, total arrivals to Grand Bahama decreased sharply by 66.9%, extending the 1.7% downturn recorded in the previous year. Likewise, visitors to the Family Islands reduced by 46.0%, exceeding the 6.0% falloff in 2019, amid respective declines in the air (68.9%) and sea (40.3%) segments.

March's adjustments also contracted tourism for the first quarter, as arrivals fell by 14.7%, a turnaround from a 12.3% expansion in previous year, attributed to respective reductions in the air and sea components, of 28.0%, and 10.5%.

Data from The Bahamas Hotel & Tourism Association (BHTA) and the MOT confirmed the deterioration in hotel sector performance. In March, the average hotel occupancy rate declined significantly to 41.8% from 86.7% the same period last year. The number of room nights sold contracted by 56.3%, while the average daily room rate (ADR) reduced by 15.5% to $300.20, resulting in a 59.0% falloff in room revenues. Over the three-month period, the occupancy rate fell by 14.8 percentage points to 63.2%, as the number of room nights sold decreased by 21.0%. In addition, the ADR moved lower by 9.3% to $273.57, with room revenue declining by 28.0%.

With the closure of the borders in full effect, data provided by the Nassau Airport Development Company Limited (NAD) revealed that during the month of April, total international departures contracted to a mere 445, relative to the prior year's 18.3% growth, to 160,275. In the previous year, the expansion was broad-based with U.S. and non-U.S bound departures strengthening by 21.3% and by 2.8%, respectively. Over the first four months of the year, outward bound traffic reduced by 33.0%, a turnaround from a 21.0% increase in the preceding year. By region, the dominant U.S. component fell by 37.9%, after growing by 23.1% last year. In addition, the non-U.S. international component declined by 33.2%, overturning the 10.4% gain in 2019.

With regard to the vacation rental market, data provided by AirDNA for the month of April showed a 59.4% falloff in total room nights sold, underpinned by contractions in bookings for entire place listings and hotel comparable listings, of 60.1% and 52.1%, respectively. Conversely, the average daily room rate (ADR) for entire place listings and hotel comparable listings firmed, by 5.1% and by 3.8%, to $427.77 and $166.16, respectively. On a year to date basis, total room nights sold fell by 7.9%, as the 9.7% reduction in bookings for entire place listings overshadowed the 8.3% gain in bookings of hotel comparable listings. Similarly, the ADR for hotel comparable and entire place listings decreased, by 4.0% to $155.16, and by 0.9% to $394.50, respectively.

Fiscal

Preliminary data on the Government's budgetary operations for the third quarter of FY2019/2020 showed a widening in the deficit to $251.5 million from $140.0 million in FY2018/2019, attributed to unplanned spending related to hurricane recovery efforts. Underlying this outturn was a $179.4 million (9.8%) rise in total expenditure to $2,008.5 million, which outstripped the VAT-led $67.9 million (4.0%) growth in aggregate revenue to $1,757.0 million. Under expenditure, recurrent outlays rose by $109.2 million (6.4%) to $1,810.3 million, partly due to a $47.9 million (9.1%) advancement in payments for employee compensation, related to increases in allowances and salaries. Similarly, other "miscellaneous" payments --inclusive of current transfers and insurance premiums --and subsidies registered increases of $41.4 million (29.1%) and $39.0 million (14.3%), respectively. Further, interest payments grew by $7.4 million (3.1%) and pension & gratuity payments, by $6.0 million (6.0%). In contrast, purchases of goods & services contracted by $21.8 million (5.6%), due to declines in the tourism component, special financial transactions and financial charges. Similarly, social assistance benefits reduced by $10.7 million (32.4%).

Capital outlays advanced by $70.2 million (54.8%) to $198.3 million, as capital transfers more than tripled to $72.2 million, while the acquisition of non-financial assets rose by $18.3 million (17.0%), as a result of a rise in spending on other machinery & equipment and buildings other than dwellings.

The increase in total revenue was led by $30.3 million (2.0%) growth in tax receipts. In particular, taxes on goods and services grew by $40.7 million (3.7%) to $1,149.0 million, as VAT receipts expanded by $149.8 million (25.4%) to $738.7 million. In addition, inflows from excise and gaming taxes advanced by $39.2 million (23.1%), and by $8.3 million (37.0%), respectively. In a partial offset, stamp collections on realty and financial transactions declined by $115.6 million (71.5%), due to a shift in VAT payments on these transactions, while taxes on the permission to use goods reduced by $41.0 million (24.8%). Further, receipts from property taxes fell by $8.7 million (9.3%), while proceeds from customs and import duties decreased by $4.8 million (2.4%), owing in part to the Government's Exigency Order, which was implemented after the hurricane. Likewise, general stamp taxes and taxes on exports edged down by $1.3 million (18.0%) and by $1.3 million (13.7%), respectively. Meanwhile, non-tax revenue rose by $37.5 million (22.4%) to $204.8 million, largely associated with higher reimbursements and repayments. In addition, income from property increased by $2.8 million (15.2%). Conversely, revenues from the sale of goods & services decreased by $14.6 million (10.4%), while the income from fines, forfeits and penalties fell by $0.9 million (24.0%).

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