Monthly Economic and Financial Developments, January 2015

Published: Wednesday March 4th, 2015

Indications are that the domestic economy maintained its positive growth momentum during the review month, buoyed by gains in tourism output and foreign direct investment-led construction activity. Amid broad-based increases in the prices of several categories of goods and services, domestic inflation firmed during 2014—although energy costs declined in January, reflecting the pass-through effects of the recent sharp fall in global oil prices. The overall fiscal deficit deteriorated over the first half of FY2014/15, as the expansion in spending outpaced revenue gains. Monetary sector developments featured a build-up in both bank liquidity and external reserves, supported by net foreign currency inflows from real sector activities.

Benefitting from improving conditions in several key source markets, preliminary data from a sample of hotels in Nassau and Paradise Island showed sustained growth in the tourism sector in December 2014. Hotel room revenue firmed by 5.0% over the prior year, reflecting gains in both the average occupancy (by 4.6 percentage points to 63.4%) and the average daily (by 7.0% to $300.61) rates.

Domestic inflation—as measured by changes in the Retail Price Index—firmed to 1.19% in 2014, from a mere 0.35% a year earlier. Specifically, average price increases for alcoholic beverages, tobacco & narcotics and transportation accelerated by 3.6 percentage points to 7.1% and 3.8%, respectively. The rate of inflation also moved higher for recreation & culture (by 3.4 percentage points to 3.6%), food & non-alcoholic beverages (by 1.2 percentage points to 1.7%) and furnishing, household equipment & maintenance (by 1.1 percentage points to 1.6%). More muted accretions to inflation rates, of under 1.0 percentage point, were noted for health, education and miscellaneous goods & services, while communications costs rose by 0.4%, a reversal from a 2.3% decline a year ago. In a modest offset, average price gains for the restaurants & hotels category slowed by 1.7 percentage points to 2.0% and clothing and footwear costs were unchanged, following the prior year’s 0.5% upturn. In addition, average costs for housing, water, gas, electricity & fuels—the most heavily weighted component—softened by 0.3%, in line with the prior year’s 0.4% contraction.

Reflecting the sharp reduction in global oil prices over the last six months, the cost of gasoline contracted by 9.0% to $4.06 per gallon in January, and was 20.9% lower when compared to the previous year. Similarly, diesel prices fell by 13.6% over the month and by 24.7%, year-on-year, to $3.81 per gallon.

In the fiscal sector, the overall deficit widened by $45.0 million (21.5%) to $254.1 million during the first half of FY2014/15, relative to the corresponding period a year earlier. In the underlying developments, aggregate expenditure advanced by $69.4 million (8.0%) to $940.0 million, to exceed the $24.4 million (3.7%) rise in revenue to $685.9 million. Current spending was higher by $41.9 million (5.5%) at $805.9 million, partly explained by a reclassification of tourism expenditures as transfers, which posted a gain of $44.5 million (14.0%). In a partial offset, consumption expenses softened by $2.6 million (0.6%), as the reduction in goods & services purchases outpaced the increase in personal emoluments. Capital spending grew by $17.4 million (22.8%) to $93.8 million, with $15.8 million of the increment for asset acquisitions associated with the purchase of new Defense Force ships. Net lending to public entities also firmed, by one-third to $40.3 million. Under revenue, tax receipts expanded by $34.6 million (6.3%) to $587.7 million, supported by gains in collections from international trade ($15.9 million), selective taxes on services ($6.7 million), business & professional fees ($6.0 million) and other “miscellaneous” taxes ($5.1 million), and capital revenue firmed by $3.0 million. In a slight offset, non-tax revenue contracted by $13.0 million (12.0%) to $95.3 million, as the $16.4 million (36.5%) decrease in income from other sources, overshadowed the $3.0 million (4.7%) expansion in fines, forfeits & administrative fees.

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