Monthly Economic and Financial Developments, October 2011

Published: Thursday December 8th, 2011

Amid the heightened uncertainty surrounding the global economic outlook, domestic economic conditions were relatively subdued over the review month. Indications are that tourism output softened, as the downturn in the key air segment overshadowed the weather-related improvement in cruise ship visitors. However, foreign investment and public sector projects continued to support activity in the construction sector. On the fiscal side, the Government’s overall deficit decreased during the first quarter of FY2011/12, as a hike in “non-trade” stamp taxes boosted revenue collections to offset the rise in expenditure. In monetary developments, both liquidity and external reserves contracted during the review month, reflecting a combination of the traditional increase in consumer demand in the latter half of the year and bank profit remittances.

Based on preliminary data, in October tourism sector activity was relatively mild. Total visitor arrivals fell by 0.2%, associated primarily with a 7.1% falloff in the high value-added air segment, as sea visitors grew by a modest 1.4%, due to the re-routing of several cruise ships from ports in the Yucatan peninsula during the passage of Hurricane Rina. Overall, visitors to New Providence firmed by 7.7%, as a 13.1% gain in sea passengers contrasted with the 7.5% contraction in air tourists. Despite a 9.3% hike in air passengers, Grand Bahama experienced a 7.0% decrease in total visitor count, owing to an 8.9% reduction in the larger sea segment. Visitors to the Family Islands also slumped by 12.2%, amid decreases in both the air and sea components, by 14.0% and 12.1%, respectively.

More positive tourism performance trends were noted over the ten-month to October period, as total visitors rose by 4.6%, buoyed by a 7.5% expansion in sea passengers which negated the 3.8% decline in the air component. Based on a sample of properties in Nassau and Paradise Island, hotel room revenues firmed by 1.8% over the January to October period. This was supported by a 2.0% rise in average daily room rate to $236.44, and a stable average room occupancy rate of 64.5%.

Inflation for the twelve months to October—as measured by the Retail Price Index for The Bahamas—rose by 1.6 percentage points year-on-year to 2.9%, buoyed in part, by the uptrend in international oil prices. Accelerated average cost increases were recorded in almost all categories, led by a 6.3 percentage point hike in transportation costs to 8.7%. Other items registering gains were furnishing, household equipment & routine maintenance (3.7%), education (3.3%), housing, water, gas, electricity and other fuels (3.2%), restaurant & hotels (2.8%) and food & non-alcoholic beverages (1.2%). In contrast, inflation rates slowed for medical care & health (1.7%), alcohol, tobacco & narcotics (1.5%) and miscellaneous goods & services (0.2%); and contracted for clothing & footwear by 0.6%.

Despite the upward trajectory in global oil prices, the Bahamas Electricity Corporation’s fuel charge decreased in October by 12.5% to 22.75 cents per kilowatt hour from the previous month, but remained 18.0% above 2010’s level on an annual basis. Similarly, the average monthly cost of gasoline was reduced by 5.4% to $5.08 per gallon; however, year-on-year the price surged by 20.1%. In contrast, diesel costs increased marginally in October, by 0.6% to $5.01 per gallon, and advanced by 36.1% on an annual basis.

Government’s overall deficit for the first three months of FY2011/12 narrowed by 8.7% ($9.1 million) to $95.5 million, as accretions to revenue outpaced the rise in expenditure. Total receipts expanded by 4.9% ($13.4 million) to $284.6 million over the comparative period last year, supported by an $18.0 million (7.5%) gain in tax revenue, as realty transactions boosted “non-trade” stamp taxes by two-thirds. International trade taxes also grew by 5.4% ($7.7 million), owing to a 26.2% increase in the excise tax component and business and professional taxes firmed by 62.5% ($4.1 million), buoyed solely by growth in the general business segment. In contrast, other “miscellaneous” taxes fell by 44.2% ($9.4 million) and taxes on selected services decreased by 13.7% ($1.4 million), due to lower hotel occupancy tax collections. Non-tax revenues were lower by $4.7 million (15.6%) at $25.2 million, reflecting mainly a timing-related reduction in dividend payments. On the spending side, the 1.1% ($4.3 million) increase in aggregate expenditure to $380.1 million was occasioned by a $15.3 million (4.6%) rise in current outlays to $346.1 million, associated with gains in purchases of goods & services and personal emoluments, of 36.9% ($20.5 million) and 1.2% ($1.6 million), respectively. In addition, net lending to public sector entities rose by 1.9% to $8.3 million, while capital spending decreased by $11.2 million (30.3%), led by a $7.9 million decline in asset acquisitions and a $3.2 million reduction in infrastructure outlays.

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