Quarterly Economic Review June 2020
Published: Thursday September 17th, 2020
The Central Bank of The Bahamas is pleased to announce the release of its Quarterly Economic Review for the Second Quarter of 2020. The Review provides an examination of the domestic economic performance, as well as sectoral developments, principally during the period April to June.
During the second quarter, domestic economic developments were dominated by the spread of the Novel Coronavirus (COVID-19) and containment measures, which resulted in a contraction in economic activity. Specifically, internationally imposed travel restrictions negatively impacted tourism sector output. Both the high value-added air traffic and the sea segment remained on pause during the review quarter. However, the partial resumption of foreign investment projects, and to a lesser extent post-hurricane reconstruction works, provided some impetus to the construction sector. In price developments, domestic inflation remained relatively subdued over the review period, reflective of the decline in international oil prices.
Preliminary estimates showed that the Government’s overall deficit widened sharply during the fourth quarter of FY2019/20, relative to the same period a year earlier. Underlying this outturn were revenue losses and increased spending for health and social welfare related to COVID-19, along with outlays for post-hurricane rebuilding works. Deficit financing was led by borrowings from external sources, and included a $250 million loan from the International Monetary Fund (IMF).
Monetary developments were marked by a moderation in the buildup in bank liquidity, with the growth in domestic credit, contrasting with a decline in the deposit base during the review quarter. In addition, external reserves decreased, as globally imposed travel restrictions to contain the spread of COVID-19, led to a reduction in foreign currency inflows from real sector activities. Meanwhile, banks’ credit quality indicators improved during the review quarter, underpinned by the implementation of loan deferral schemes for persons and businesses impacted by the COVID-19 pandemic. However, the latest available data for the first quarter of 2020 revealed a contraction in banks’ overall profitability, largely reflecting higher levels of provisioning for bad debt.
In the external side, the estimated current account deficit deteriorated sharply during the second quarter, as the services account position reversed to a deficit from a surplus in the prior year, with globally imposed travel restrictions related to the COVID-19 pandemic, eliminating net tourism receipts. In contrast, the surplus on the capital and financial account rose considerably, largely attributed to a surge in net debt inflows to the Government and a rise in domestic banks’ short-term external liabilities.
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