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Monthly Economic and Financial Developments for December 2016

Published: Monday January 30th, 2017

The mild pace of domestic economic activity was maintained during the final month of the year, as construction output continued to be supported by foreign investment and post hurricane rebuilding projects, while the tourism sector benefited from an uptick in tourist arrivals during the winter season. Further, domestic energy costs firmed, reflecting mainly the gradual rise in global oil prices from record lows. Fiscal sector developments for the first four months of FY2016/17 were highlighted by a reduction in revenue, which in combination with a rise in spending, resulted in an increase in the year-over-year deficit. In the monetary sector, both liquidity and external reserves contracted in December, as the traditional increase in holiday-related spending led to a net foreign currency outflows.

Indications are that tourism activity improved modestly during December, benefitting from several sporting events and the winter holiday season. Specifically, data from the Nassau Airport Development company (NAD) revealed that passenger traffic through the country’s main airport—net of domestic departures—grew by 4.1% in December, year-on-year, a reversal from a 0.9% reduction in the previous month. A breakdown by category, showed that the dominant U.S. component firmed by 5.7%, outpacing the 0.6% growth in November. In contrast, departures to non-U.S. countries softened by 4.2%, following an 8.8% contraction in the prior period. Similar trends were noted over the entire year, as total departures firmed by 1.0% when compared to 2015, due mainly to the high volume U.S. segment firming by 1.9%; however, non-US departures declined by 4.1%.

The partial NAD data was reinforced by the information provided by the Ministry of Tourism, which showed that overall arrivals firmed by 2.6% during the 10 months to October to 5.0 million, vis-à-vis a 3.1% contraction recorded during the same period last year. This outturn was underpinned by a rebound in the high volume sea component, which grew by 3.1%, a reversal from a 5.2% falloff in the prior year. In contrast, growth in the high value-added air component narrowed to 0.8% from 4.5% in 2015, due largely to the sharp, hurricane-related reduction in arrivals during the month of October.

A breakdown by market revealed that the improvement in sector was due solely to gains in New Providence, as the total number of visitors expanded by 9.3% to 2.9 million, a turnaround from an 8.1% decline in the prior year, buoyed by improvements in both air and sea visitors by 1.4% and 13.1%, respectively. In contrast, visitors to the Family Islands decreased by 3.2%, extending the prior year’s 5.5% reduction, with the increase in the air component by 10.5%, outweighing the 5.2% decrease in the sea segment. In addition, the weakness in several key source markets led to visitors to Grand Bahama contracting by 8.7%, vis-à-vis a 25.0% upturn in 2015, reflecting decreases in arrivals by both air and sea by 16.4% and 7.1%, respectively.

Reflecting the recent upward trend in global oil prices, domestic fuel costs firmed during November. Specifically, the average prices of both gasoline and diesel rose by 2.0% and 0.8% to $4.03 and $3.62 per gallon relative to the prior month, but on a year-on-year basis, average costs remained lower, falling by 1.7% and 3.5%, respectively.

Data on the Government’s budgetary operations for the first four months of FY2016/17, showed an increase in the deficit by $67.7 million (75.3%) to $157.5 million, relative to the same period last year. This outcome reflected a $38.4 million (6.4%) contraction in revenue, and a $29.3 million (4.3%) increase in spending.

The falloff in revenue was led by a $30.1 million (5.7%) decline in tax receipts to $501.2 million, reflecting broad-based reductions in several revenue categories. Specifically, value added vax (VAT) collections fell by $15.4 million (6.7%) to $214.1 million, as revenues stabilised after a period of significant early payments in the prior fiscal year. In addition, taxes on international trade narrowed by $9.5 million (5.6%) to $162.5 million, led by declines in excise and import taxes by $6.7 million and $4.3 million, respectively; however, export taxes firmed by $1.4 million. Further, a timing-related falloff in gaming taxes, resulted in selective taxes on services contracting by $7.0 million to $3.2 million. Similarly, ‘other’ miscellaneous taxes narrowed by $4.2 million (3.6%) to $110.9 million, as a reduction in other ‘unclassified’ taxes by $8.5 million (41.6%), eclipsed the increases in departure and “other” financial stamp taxes by $1.8 million and $8.7 million, respectively. In a slight offset, business and professional fees advanced by $2.8 million (35.8%) to $10.6 million. Non-tax revenue decreased by $8.3 million (12.3%), owing mainly to a fall in income from “other sources” by $9.0 million (36.3%), overshadowing gains in fines, forfeits and administrative fees by $1.1 million (2.6%) to $41.7 million.

In terms of expenditure, capital outlays rose by $24.0 million (43.2%) to $79.5 million, as increased spending on road development, along with outlays for costal protection, resulted in capital formation firming by $19.9 million (45.9%) to $63.3 million. In addition, the continued investments in ships for the Defence Force contributed to growth in asset acquisitions by $4.1 million (33.6%), to $16.2 million. Similarly, current spending firmed by $6.2 million (1.0%) to $638.3 million, due mainly to a $19.6 million (6.2%) gain in transfer payments to $333.8 million, amid growth in transfers to both public corporations by $18.9 million (79.3%)—largely for the maintenance of parks and beaches—and non-profit institutions by $5.5 million (22.7%). However, subsidies fell by $10.0 million (8.2%) to $111.7 million, as a $10.9 million (15.9%) increase in health-related outlays in preparation for the introduction of National Health Insurance (NHI), was overshadowed by a sharp reduction in tourism subsidies. In addition, consumption expenditure contracted by $13.4 million (4.2%) to $304.5 million, with the reduction in purchases of goods and services by $20.6 million (21.7%), outstripping the $7.3 million (3.3%) rise in personal emoluments.

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