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Monthly Economic and Financial Development, October 2019

Published: Monday December 2nd, 2019

Domestic Economic Developments

Overview

Indications are that, during the review period, the domestic economic activity remained mildly positive, following the passage of Hurricane Dorian. Specifically, tourism output was supported by gains in the New Providence market and the unaffected Family Islands. Further, foreign direct investment projects continued to provide stimulus to the construction sector, although post-Hurricane rebuilding is gaining some momentum. In prices developments, domestic inflation firmed during the twelve months to August, amid increases across most categories. Meanwhile, the fiscal deficit contracted during the first quarter of FY2019/2020, on account of revenue gains, which outpaced the rise in expenditure. On the monetary front, bank liquidity declined during October, as an expansion in domestic credit contrasted with a reduction in the deposit base; while the growth in external reserves slowed, reflective of the seasonal uptick in foreign currency demand.

Real Sector

Tourism

Tourism metrics for the month of October showed that the sector's output remained positive post Hurricane Dorian, although performing under potential, with reduced capacity in Grand Bahama, and Abaco largely offline.

In terms of traffic through the country's gateway airport, data from the Nassau Airport Development Company Limited (NAD) revealed a recovery in departures vis-a-vis September's contraction, with a 1.7% growth year-over-year in October, but this was markedly lower than the 19.1% expansion during the same period in 2018. In particular, the U.S. component grew by 2.6%, significanly lower than the 17.2% growth in the prior year. However, the non-U.S. international segment contracted by 3.7%, contrasting with a 31.6% increase a year ago.

Amid the strong gains secured in earlier months, departures rose 14.2%, on a year to date basis, compared to a 13.8% increase a year earlier. By region, U.S. departures, which are highest in volume, grew by 15.5%, extending the 13.0% growth recorded in 2018. Conversely, the non-U.S. international component rose by 6.2%, a slowdown from an 18.8% growth a year earlier.

Developments within the hotel market were also tepid for October. Information from The Bahamas Hotel & Tourism Association (BHTA) and the Ministry of Tourism (MOT)--which covers a sample of large hotels in New Providence and Paradise Island--showed a 5.0% falloff in room revenue during the month, despite the 5.9% increase in the average daily room rate (ADR) to $190.39. This was due to a 10.0% decline in room nights sold, with the occupancy rate lower by 4.8 percentage points. In contrast, room revenue expanded by 24.0% during the ten months to October, amid respective gains in room nights sold and the ADR of 21.0% and 8.2%, while the average occupency rate rose by 7.1 percentage points to 68.7%.

Data on activity within the short-term rental market revealed that overall output remained positive; however, the recent storm's impact on the affected islands remained evident. In particular, total available listings firmed by 8.9%, relative to October 2018, amid growth in the Exuma and New Providence markets, which partly compensated for the declines in Grand Bahama and Abaco. Likewise, with higher engagements in New Providence and Exuma, total booked listings rose by 32.1% when compared to last year. Against this backdrop, the average daily room rate (ADR) for entire place listings gained 1.3% to $351.27, although the hotel comparable rate fell by 0.5% to $148.25.

Over the ten-month period, available off-resort listings expanded by 16.3%, reflecting gains in entire place and private room offerings. Similarly, bookings grew by 31.7% relative to 2018. However, the ADR for both hotel comparable accommodations and entire place listings were lower by 6.6% and 2.0%, respectively.

Prices

Reflecting the lingering impact of the increase in the VAT rate, domestic inflation--as measured by the All Bahamas Retail Price Index--rose by 1.2 percentage points to 2.9% during the 12 months to August. More specifically, the average prices for furnishing, household equipment & maintenance increased by 6.5% and for clothing & footwear, by 1.8%, after both posted reductions in 2018. Further, average prices rose over the review period for transport (9.0%), restaurants & hotels (5.2%), alcoholic beverages, tobacco & narcotics (4.0%), health (2.4%), housing, water, gas, electricity & other fuels (2.1%) and food & non-alcoholic beverages (0.7%). In contrast, average costs decreased for communication, education, and recreation & culture.

Fiscal

Preliminary data on the Government's budgetary operations for the first quarter of FY2019/2020, revealed a $23.3 million (36.0%) narrowing in the deficit to $41.5 million, relative to the same period in FY2018/2019. The outcome was largely supported by a $39.0 million (7.6%) rise in aggregate revenue to $552.8 million, which outweighed the $15.6 million (2.7%) increase in total expenditure to $594.4 million.

Expansion in total revenue was underpinned by a $26.8 million (5.7%) growth in tax receipts, as VAT levies advanced by $66.8 million (33.5%) to $266.2 million, owing in part to the reversion to impose VAT on realty transactions, and remove most stamp taxes on the same. Accordingly, stamp collections decreased by $43.8 million (80.5%) to $10.6 million. Further, receipts from business license fees grew by $6.7 million; excise taxes, by $4.4 million and gaming taxes, by $2.2 million. However, property taxes fell by $3.7 million (30.4%) to $8.5 million, while taxes on international trade reduced by $3.5 million (3.1%) to $110.3 million, as a falloff in customs and other import duties outpaced gains in departure and export taxes. In addition, non-tax revenue rose by $12.1 million (28.7%), to $54.1 million, attributed to Hurricane Dorian proceeds from the Caribbean Catastrophic Risk Facility (CCRIF).

Reflecting Governments initial post hurricane outlays, growth in aggregate expenditure was largely due to a $16.7 million (43.1%) expansion in capital spending to $55.5 million. In particular, capital transfers more than doubled to $17.6 million, while the acquisition of non-financial assets rose by $7.7 million (25.3%), owing to increased spending for buildings other than dwellings. In contrast, the dominant recurrent expenditure component decreased by $1.1 million (0.2%) to $538.8 million, anchored by a $26.1 million (19.7%) decline in purchases of goods and services. In a partial offset, subsidies advanced by $11.7 million (15.3%) and insurance premiums, by $7.1 million; while current transfers were higher by $6.2 million (15.6%), due mostly to a rise transfers to households. More muted gains of less than $3.0 million were recorded for employee compensation and interest payments.

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