Monthly Economic and Financial Developments, August 2011

Published: Wednesday October 5th, 2011

Economic developments for the month of August took place within the context of less positive performance indicators for the United States economy and the domestic disruptions, although limited, caused by Hurricane Irene in the latter half of the month. However, initial indications are that the gradual improvement in the domestic economy was upheld, supported mainly by ongoing construction sector projects and more modest gains in the tourism sector. Given the weakness in real sector activity, high unemployment persisted, while inflationary pressures were relatively benign, although impacted by the recent firming in global oil prices. The fiscal situation for the first month of FY2011/12 showed a contraction in the overall deficit, while monetary developments continued to feature high and stable levels of bank liquidity and external reserves, amid soft private sector demand.

Anecdotal information suggest more tempered tourism sector gains during August, as Hurricane Irene disrupted stopover arrivals during this traditionally “slow” period, and caused the rerouting of a number of cruise ships. The tourism infrastructure in the main markets of Nassau and Grand Bahama, however, were minimally affected by this event.

Preliminary data from a sample of hotels in New Providence and the Family Islands for August showed total room revenues marginally higher by 0.7%, reflecting a 4.5% increase in average daily rates (ADRs) to $220.08, which compensated for the 4.3 percentage point contraction in hotel occupancy rates to 64.9%. The improvement in revenue was, however, concentrated in a few properties, with the majority of hotels posting declines in overall receipts. Trends for the January to August period confirm the steady recovery in the sector. Room revenue gains of 1.7% were derived from a 2.9% hike in ADRs, which eclipsed the 1.1 percentage point contraction in the occupancy rate to 68.2%.

Inflation for the twelve months to June, as measured by the Retail Price Index for The Bahamas, firmed by 0.9 of a percentage point to 2.1%, partly reflecting the effects of elevated international oil prices. Average cost increases were recorded in almost all categories, with housing, water, gas, electricity & other fuels––the most heavily weighted item in the Index––advancing by 3.0% over the prior year. Gains were also noted for transport (6.0%), education (2.7%), medical care & health (2.4%), alcohol, tobacco, & narcotics (2.3%). Most of the remaining categories recorded price increases of less than 2.0%, with the exception of clothing & footwear and food & non alcoholic beverages, which contracted marginally by 0.6% and 0.1%, respectively.

Reflecting the volatility in international crude oil prices, gasoline and diesel costs increased in August by 3.2% to $5.44 per gallon and by 2.0% to $5.08 per gallon, respectively, and firmed by 26.2% and 41.9% year-on-year. This uptrend was also evident in the Bahamas Electricity Corporation’s fuel charge, which advanced by 14.3% over the month to 26.00 cents per kilowatt hour and by 41.0% over the previous year.

In fiscal developments, the overall deficit for the first month of FY2011/12 narrowed by $11.0 million (34.3%) to $21.1 million, owing to a $4.8 million (5.3%) increase in total revenue, combined with a $6.3 million (5.1%) reduction in aggregate expenditure. Specifically, tax receipts expanded by 3.6% ($3.0 million) to $86.4 million, occasioned mainly by gains in non-trade stamp taxes, taxes on international trade transactions—the largest component of tax revenue—and business & professional fees, by $5.5 million, $2.3 million and $2.2 million, respectively. Similarly, non-tax revenue rose by $1.8 million (26.6%) to $8.5 million, due primarily to a $2.1 million increase in fines, forfeits & administrative fees, which negated declines in income receipts. The reduction in expenditure reflected a timing-related $6.0 million (61.5%) fall-off in capital outlays to $3.7 million, linked to lower infrastructure spending, while net lending was lower by $1.8 million at $0.5 million. In contrast, current expenditure grew by $1.5 million (1.4%) to $111.7 million, as an increase in purchases of goods & services overshadowed a reduction in transfer payments.

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