Quarterly Economic Review March 2021
Published: Friday June 25th, 2021
The Central Bank of The Bahamas is pleased to announce the release of its Quarterly Economic Review for the First Quarter of 2021. The Review provides an examination of the domestic economic performance, as well as sectoral developments, principally during the period January to March.
During the first quarter of 2021, domestic economic developments were largely influenced by the Novel Coronavirus (COVID-19) pandemic, which contributed to depressed conditions. Tourism output remained contracted, with the high value-added stopover segment of the market at historic lows and the dominant sea component suspended. Nevertheless, a number of small to medium-scale foreign investment projects, combined with ongoing post-hurricane rebuilding works, undergirded activity in the construction sector. In price developments, inflation remained relatively subdued over the review quarter, despite an uptick in international oil prices.
Provisional estimates for the third quarter of FY2020/21 revealed that the Government’s overall deficit widened sharply, vis-à-vis the comparative quarter of FY2019/20. The outturn was owing in large measure to a significant decline in revenue collections, reflecting the falloff in tax receipts due to the disruption in economic activities as a result of COVID-19, which overshadowed the decrease in aggregate expenditure. Budgetary financing was mainly sourced from the domestic market, and consisted of a combination of both long and short-term debt.
Monetary developments were marked by contractions in both bank liquidity and external reserves, with the growth in domestic credit surpassing the rise in the deposit base. In addition, banks’ credit quality indicators weakened, underpinned by lackluster economic conditions, associated with the COVID-19 pandemic. Further, the latest available data for the fourth quarter of 2020, indicated that domestic banks recorded a net loss, explained significantly by higher provisioning for bad debt and write downs of other asset valuations.
On the external side, the estimated current account balance registered a deficit during the review quarter, a turnaround from a surplus recorded in the same period last year, amid a considerable reduction in the services account surplus, as globally imposed travel restrictions related to the spread of the virus, led to a notable decline in travel receipts. Similarly, the estimated surplus on the capital account decreased, while the financial account liabilities, excluding reserve assets, increased sharply, underpinned by a surge in other and direct investments liabilities (see Box 1 that explains the transition from previously compiled external sector statistics to the Balance of Payments Sixth Edition Manual (BPM6) format).
The report also features a review of financial services activity in 2020 and its contribution to the overall economy. According to The Bahamas’ financial services sector 2020 survey, balance sheet and fiduciary activities declined. Further, increased operations efficiency remained a focus, with gradually reducing levels of employment. The annual outcomes nevertheless continue to indicate incremental gains in value-added from expenditures in the economy, given modest increases in taxes and Government fees and a firming in other operating costs. Meanwhile, international assets under management increased for the securities industry, while credit unions exhibited gains in balance sheet assets. However, onshore insurance operations reverted to trend, after a significant growth in the previous year, which was due to undisbursed re-insurance claims settlements following the passage of Hurricane Dorian.
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