Monthly Economic and Financial Developments, January 2009

Published: Tuesday March 3rd, 2009

Initial data suggests that domestic economic activity remained weak during January, owing to the deepening effects of the global economic and financial crisis. The continued slowdown in tourism resulted in further job losses in the hotel industry, while foreign investment support for construction activity remained lackluster. Consumer price inflation stayed at elevated levels, given the ongoing transmission of higher global prices to the local economy. On the monetary front, developments were marked by improvements in both liquidity and external reserves, as the contraction in domestic credit outweighed the gains in Bahamian dollar deposits.

Tourism data for the first eleven months of 2008 indicated a 4.9% downturn in visitor arrivals to 3.9 million, extending the previous year’s decline of 3.7%. This was associated with a falloff in air traffic of 6.1% and a nearly unabated decrease in the sea component of 4.3%. In terms of the major markets, total visitors to New Providence fell by 8.3%, and to Grand Bahama, by 7.7%, both reflecting continued weakness in air and sea arrivals. Conversely, Family Island traffic rose by 3.8%, with gains in the sea segment offsetting a downturn in air visitors. Available data for the period January to October revealed that the largest contraction in stopover visitors was registered for the United State’s market (5.7%), which accounted for more than 80% of visitors. However, some offset was provided from the improvement in onshore traffic from Canada (21.8%), Europe (9.9%), and the Caribbean (7.4%), which were stimulated by the weakness in the US dollar during the first half of 2008.

As to the latest earnings indications, projected tourism inflows contracted during 2008, with major hotel properties encountering decreased room sales and weaker pricing opportunities. Although New Providence operations realized higher than expected room bookings in January 2009, the outlook is still for a reduced level of business during the first quarter, with some compression in both average nightly room rates and occupied room nights.

Owing to the continuing pass-through effects of higher international prices for fuel and other commodities, inflation for the twelve-month period ending January 2009 remained accelerated at 4.7%, compared to 2.5% a year earlier. Notable increases included the sharply accelerated hike in average housing costs of 3.6%––reflecting the energy surcharge in electricity bills––and the steady fuel-induced advance in average transportation & communications costs of 3.0%. Also, the rise in average food & beverages costs intensified to 7.1%, with the respective increases for furniture & household operations and medical care & health firming moderately to 6.7% and 5.0%. Conversely, the local cost of diesel, at $2.74 per gallon, stood 36.3% lower than the corresponding period last year, and gasoline prices, at $3.23 per gallon, were some 29.0% less both attributed to easing which started in the second half of 2008.

Provisional estimates of the Government’s budgetary operations for the first half of FY2008/09, revealed a 36.0% expansion in the overall deficit to $135.2 million when compared to the previous fiscal year. Overall expenditures rose by 6.7%; however, reduced tax flows on trade, and sluggish tourism activity, limited revenue growth to 1.9%. Tax receipts grew by 1.8%, including a doubling in other “unallocated” tax revenues which are mainly affected by trends in trade taxes; albeit, the recorded estimate of trade taxes fell by 5.9%. Gains were also noted for business and professional license fees (9.6%) and property taxes (3.5%). In addition, non-tax revenue rose by 2.6%, on account of higher receipts of fines, forfeitures and administrative fees. In terms of expenditure, current spending rose by 6.9%, occasioned mainly by higher payments for goods & services, personal emoluments, as well as increases in transfers and subsidies, partly in response to elevated social assistance to households adversely affected by the economic slump. Although capital outlays weakened by 7.8%, due mainly to reductions in asset purchases and transfers to non-financial public enterprises, spending on infrastructural works rose by 12.9%––in line with the Government’s increased focus on providing stimulus to the domestic economy.

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