Indications are that during the first three months of 2005, domestic economic activity strengthened in comparison to 2004. However, heightened domestic expenditure, stemming partly from accelerated credit expansion, contrasted with less marked increases in private sector inflows from tourism and foreign investments. The build-up in external reserves consequently narrowed from the previous year, and liquidity gains moderated significantly. Expansion in domestic credit during the first quarter was confined to Bahamian dollar claims on Government and the private sector.
As regard tourism's influence, the most recent data through February 2005 indicate that, although there was a modest increase in arrivals owing to firming in visitor traffic for New Providence and approximately recovered trends in the Family Islands, a significant output gap remained in Grand Bahama.
In the public sector, the Government's deficit in the first nine months of FY2004/05 expanded to $117.0 million from $77.0 million in the same period of FY2003/04. On an adjusted basis, net of the Clifton Cay property purchase that is to be refunded by the Heritage Foundation, the shortfall was approximately $103.1 million. Revenue trends, while strengthening, still reflected the weakness encountered during the hurricane season, and are expected to provide more support for fiscal consolidation during FY2005/06.
The positive outlook for tourism and foreign investments is expected to underpin firmer output growth in 2005 and, alongside domestic credit stimulus, support a gradual improvement in the fiscal situation. Trends in the US and other external economies remain supportive of this outlook.
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