Monthly Economic and Financial Developments for January 2017

Published: Friday February 24th, 2017

Overview

Preliminary indicators suggest that domestic economic activity remained soft during January. This reflected subdued tourism gains, which dampened strengthened construction output from the post hurricane rebuilding efforts and stimulus from varied-scale foreign investment projects. The Government’s hurricane recovery related expenditure hike, alongside disrupted revenue collections, contributed to a sizeable expansion in the fiscal deficit during the first half of FY2016/17. In the monetary sector, both bank liquidity and external reserves increased in January, buoyed by net foreign currency inflows from real sector activities.

Real Sector

Tourism

Initial data on foreign currency purchases by commercial banks from the private sector, underscored some gains in trade and FDI related activity; however, statistics on airport traffic showed that the tourism impulse was constrained. Data from the Nassau Airport Development Company (NAD) indicated a marginal, 0.1% uptick in passenger traffic through the main airport in January, year-on-year, a slowdown from the 4.1% increase recorded in the previous month. An analysis by region showed that the dominant U.S. segment rose by 1.5%, following December’s 5.7% upturn. However, traffic from other markets contracted by 6.0%, extending the prior month’s 4.2% falloff.

Prices

The Bahamas All Price Index declined by 0.35% during 2016, a turnaround from the 1.78% rise a year earlier. Placing downward pressure on the overall price level, were declines in the average costs for restaurants & hotels and food & non-alcoholic beverages, by 1.3% and 0.9%, versus gains of 6.0% and 5.8%, respectively, in the prior period. Further, the inflation rates for several sub-indices decelerated significantly, namely, health (to 3.7% from 15.6%), recreation & culture (to 0.4% from 11.1%), alcohol beverages, tobacco & narcotics (to 0.5% from 8.8%), furnishing, household equipment & routine household maintenance (to 1.3% from 6.7%), clothing & footwear (to 0.7% from 5.6%) and communication (to 1.8% from 5.0%). Providing a slight offset, the reduction in average transportation costs decelerated by 2.3 percentage points to 4.0%, while the decline in the housing, water, gas electricity & other fuels index—the most heavily weighted category—softened by 20 basis points to 1.1%. Meanwhile, accretions to average education costs quickened by 20 basis points to 5.6%.

Fiscal Sector

The Government’s budgetary operations for the first six months of FY2016/17 were dominated by hurricane rebuilding outlays and disruptions in revenue collection, which contributed to an expansion in the deficit to $314.2 million from an estimated $147.9 million in first half of the previous fiscal year. Total expenditure rose by $121.9 million (11.7%) to $1,166.1 million, while revenue contracted by $44.4 million (5.0%) to $851.8 million.

On the expenditure side, capital outlays grew by $71.7 million (80.2%) to $161.0 million, as activities linked to hurricane rebuilding, coastal protection, and road reconstruction & development, led to an almost doubling ($66.5 million) expansion in infrastructure spending to $135.6 million. In addition, the acquisition of assets rose by $5.1 million (25.2%) to $25.4 million. Meanwhile current outlays rose by $52.6 million (5.5%) to $1,005.0 million, led by a $29.9 million (6.5%) increase in transfer payments to $488.5 million. Specifically, subsidies and other transfers rose by $27.2 million (8.2%), owing mainly to expansions in health-related outlays on National Health Insurance (NHI) initiatives; while transfers to non-profit institutions grew $3.8 million (24.9%). In addition, consumption expenditure firmed by $22.7 million (4.6%), reflecting an increase in personal emoluments of $13.9 million (4.2%). In addition, purchases of goods and services firmed by $8.8 million (5.5%).

The contraction in aggregate revenue was due largely to a $39.5 million (4.9%) decline in tax receipts to $761.9 million. Amid filing deadline extensions and disruption in economic activities after the hurricane, value added tax (VAT) receipts fell by $15.4 million (4.9%) to $302.1 million and taxes on international trade softened by $0.7 million (0.3%) to $258.7 million. Similarly, selected taxes on services decreased marginally by $0.5 million (5.3%) to $9.7 million, as gaming taxes narrowed by $0.4 million (3.9%). The disruption was also reflected in other ‘miscellaneous’ taxes, which fell by $31.1 million (15.0%) to $176.1 million, amid a $21.0 million (49.8%) decrease in unclassified receipts and an $18.1 million (36.7%) reduction in property tax collections. In contrast, business and professional fees increased by $2.7 million (20.9%) to $15.4 million, departure taxes, by $5.0 million (9.2%) and “other” stamp taxes—mainly on mortgages—by $4.0 million (8.0%). In addition, non-tax revenue fell by $4.7 million (5.0%) to $89.9 million, with an $11.8 million (40.7%), timing-related reduction in income from ‘other sources’, outpacing the $7.2 million (11.4%) expansion in fines, forfeits and administrative fees.

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