Monthly Economic and Financial Developments, August 2005

Published: Wednesday October 5th, 2005

Preliminary indications are that economic conditions remained favourable during the first eight months of the year, fueled by robust private sector credit demand, which supported domestic expenditures, particularly for residential construction activity. Since the lifting of the Central Bank’s credit restrictions in August 2004, elevated demand has led to increases in non-oil imports; and firming in international oil prices has resulted in higher oil imports and significantly higher prices for consumers in the second quarter. Consequently, accretions to external reserves during the January to August period were appreciably lower than in the previous year.

Year-to-date tourism statistics up to August 2005 revealed a decline in arrivals of 6.9% to 3,743,558 for the entire Bahamas, with air arrivals down by 1.9% and sea by 9.1%, relative to year-to-date 2004 figures. Weakness was particularly pronounced in Grand Bahama which was most affected by last year’s hurricanes; overall arrivals contracted by 25.6%, with double digit declines in both air (34.5%) and sea (20.1%) visitors. Arrivals to the Family Islands were reduced by 8.8%, with declines in air and sea visitors of 1.4% and 10.3%, respectively. Overall developments continued to be supported by the positive performance in New Providence, where the 8.5% hike in air arrivals offset the 5.3% fall-off in sea arrivals for a relatively unchanged position. Available data for the first eight months of the year revealed that total room revenue for New Providence rose by an estimated 9.4%, buoyed by both higher average daily room rates (1.1%) and occupancy levels (4.1%).

Consumer price inflation advanced slightly to 1.8% for the twelve months ending August; however, the impact of higher energy prices was more pronounced in the second quarter when the overall rate of increase advanced to 2.5% from the corresponding period last year. Notable cost increases were registered for transportation & communication, food & beverages, education and medical care & health.

On the fiscal front, indications are that the overall position improved to a modest surplus of $0.1 million for the month of July, from a deficit of $12.0 million in the same period of FY2004/05. The general buoyancy in economic activity underpinned a 29.9% growth in import and related stamp duties, the key driver of the 22.3% rise in total revenue. The latter outpaced the 5.1% increase in total expenditure, which was concentrated in interest payments as well as subsidies and other transfers.

During the month, Government released its Capital Market Development Policy Statement outlining its intention to implement a series of policy measures to further develop domestic capital markets. The policy targeted the strengthening of the financial sector regulatory system, adoption of financial management and investment policies within the government and its related agencies, and the involvement of The Bahamas International Securities Exchange (BISX) in the distribution of any public-offered debt or equity issues related to privatization of public entities.

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