Monthly Economic and Financial Developments, July 2005

Published: Monday August 29th, 2005

Preliminary indications for the month of July showed that the growth momentum of the Bahamian economy continued to be underpinned by strong foreign investment inflows and a vibrant domestic housing market. Meanwhile, improvements in occupancy rates, average daily room rates and room revenues in the major New Providence properties, boosted tourism output and helped to offset weaker overall arrivals. Exchange Control data on foreign currency outflows also point to increased domestic expenditures on imports, partly reflecting the impact of higher oil prices. Firming in domestic expenditures has been supported by more accelerated credit expansion, albeit, in the context of some moderation in banking sector deposit growth. While this slowed the first-half buildup in external reserves, the seasonal improvement in bank liquidity continued at the same pace as in 2004.

Available data, through July, for the larger properties in New Providence, reveal that tourism output, measured by total room revenues, increased by 8.1% to $219.5 million, while room rates and revenue per room rose by 7.0% and 14.3%, respectively. Similarly, occupancy rates were broadly higher at 83.4% compared to 78.1% last year. Data for the first half of 2005 indicated a broad-based falling off in visitor arrivals to The Bahamas, by 5.6% to 2,641,931, with sea arrivals lower by 7.0% and air arrivals off by 2.5%. The decline in arrivals was led by Grand Bahama, where the weakness was most pronounced, with total arrivals falling 23.6%, including a 16.7% reduction in sea arrivals and a more than one-third contraction in air arrivals. However, air arrivals to New Providence and the Family Islands rose by 7.2% and 0.4%, respectively.

Fiscal developments during the first 11 months of FY2004/05, showed revenue growth of 4.9% to $910.4 million, reflecting generally improved economic conditions. The performance was reinforced by an 8.2% hike in tax receipts, which was only partly countered by a decline in non-tax and capital revenues. Non-tax collections fell by 21.1% and capital revenues by 32.0%, following last year’s higher dividend and leasehold income and sale of Government equity holdings, respectively. In contrast, broad-based increases were recorded for all expenditure categories, with current expenditures higher by 6.8% at $927.3 million. Spending on infrastructural projects related to the 2004 hurricane season, alongside road improvement works, boosted capital outlays by 37.9%, while net lending to public corporations rose by 45.5%. Consequently, the overall fiscal deficit deteriorated by 59.7% to $137.2 million, which represented 77.3% of the budgeted deficit for the full fiscal year. Some fiscal consolidation is expected as we move into the new fiscal year as the Government seeks to increase the efficiency and effectiveness of revenue collection by the introduction of a revenue system that facilitates the use of credit and debit cards to pay tax assessments to government agencies.

Prospects for the Bahamian economy for the second half of 2005 and 2006 remain generally favourable, reinforced by foreign investment inflows in tourism-related projects and construction for both the domestic residential and the foreign second homes markets. In addition, the outlook is supported by stable growth forecast for the US economy, despite higher energy prices and rising interest rates.