Monthly Economic and Financial Developments, July 2015

Published: Monday August 31st, 2015

The pace of domestic economic growth continued to be relatively mild over the review period, underpinned by the favourable tourism performance and on-going foreign investment-led construction activity. Temporary hiring for cultural events helped to secure gains in employment conditions over the six months to May, and the sustained contraction in global oil prices kept domestic inflation subdued. In a positive development, the fiscal deficit narrowed over the eleven (11) months of FY2014/15, as the receipt of Value Added Taxes (VAT) buoyed gains in revenues. Meanwhile, monetary sector developments reported strengthened positions for both liquidity and external reserves, on account of foreign currency inflows from real sector activities.

In a continuation of the recovery evidenced over the first half of the year, tourism sector activity was supported by the sustained growth in several key source markets, especially the United States, and the addition of both room and airlift capacity in several Family Islands. Foreign investment in the industry gained impetus with the commencement of construction on the multi-million dollar “Pointe” hotel and marina project in New Providence, while the opening of the large-scale Baha Mar development continued to be delayed by on-going legal and financial challenges.

On the employment front, the Department of Statistics’ most recent Labour Force Survey showed a 3.7 percentage point decline in the jobless rate, to 12.0% in the six months to May 2015, mainly reflecting short-term hiring for cultural events and the on-boarding of employees at the Baha Mar resort in anticipation of its opening. Signs of improving job prospects also contributed to a 13.0% (590 persons) reduction in the number of discouraged workers; however the number of workers in the financial services, insurance, real estate and other business sector fell by 36.0%. A breakdown by major labour market showed broad-based declines in the jobless rate in New Providence, Grand Bahama and Abaco, by 4.0, 5.7 and 8.1 percentage points, to 12.0%, 12.9% and 12.2%, respectively. Unemployment among young people (ages 15-24 years) remained well above other age groups at 25.3%, although this represented a fall of 5.7 percentage points from the prior period.

Domestic inflation—as measured by the Department of Statistics’ revised Retail Price Index—firmed by 52 basis points to 1.34% in the twelve months to May. This outturn was associated with gains in average prices for recreation and culture, and furnishing, household equipment and routine household maintenance, of 5.98% and 4.14%, a reversal from respective declines of 0.27% and 0.97% in 2014. Significant rate increases were also noted for health (by 4.48 percentage points to 5.64%), alcohol beverages tobacco and narcotics (by 3.47 percentage points to 5.97%), and education (by 2.07 percentage points to 3.88%), while food and non-alcoholic beverages, communication, and housing, water, gas electricity and other fuels—the largest component in the Index—recorded increases of less than two percentage points. In contrast, the rate of inflation for miscellaneous goods & services, clothing and footwear, and restaurant and hotels slowed, from 4.33%, 4.19% and 3.04% to 0.23%, 2.97% and 2.37%, respectively. The downward trajectory in crude oil prices led to a 1.16% fall in average transportation costs, although not erasing last year’s comparative 3.66% advance.

Government’s overall deficit narrowed by $124.7 million (32.9%) to $254.3 million over the eleven (11) months of FY2014/15, explained by a tax-related $206.2 million (15.5%) uplift in total revenues to $1,533.6 million, which outpaced an $81.4 million (4.8%) rise in aggregate expenditure to $1,787.8 million. Specifically, tax receipts surged by $209.9 million (18.3%) to $1,359.9 million, as VAT inflows totalled $182.0 million in the first five (5) months of implementation and other non-trade stamp taxes firmed by $30.2 million (23.1%) to $161.1 million. In addition, departure taxes grew by $16.2 million (14.6%) to $127.3 million, while the payment of back taxes by the “web shop” industry contributed to selected taxes on services rising by $2.4 million (5.1%) to $49.9 million. In a partial offset, declines were reported for taxes on international trade, of $8.2 million (1.6%) to $518.5 million, as a $23.8 million (7.9%) contraction in import tax inflows outstripped the $16.4 million (7.5%) increase in excise tax receipts. Similarly, business & professional fees fell by $10.5 million (5.9%) to $169.4 million. Non-tax revenues declined by $6.7 million (3.8%) to $170.3 million, led by a $15.0 million (30.2%) reduction in income from “other” sources, which was partly countered by an $8.1 million (6.6%) rise in fines, forfeits & administrative fees.

On the spending side, current expenditure rose by $92.7 million (6.5%), occasioned by a $78.0 million (12.9%) increase in transfer payments to $681.7 million—with nearly three-fourths attributed to subsidies and other transfers due to the reclassification of items from other expense categories. In addition, increased external debt servicing obligations pushed interest payments higher by $22.1 million (10.9%) to $223.5 million. Consumption spending also grew, by $14.7 million (1.8%) to $841.5 million, as a $33.8 million (6.1%) expansion in wages and salary payments overshadowed the $19.1 million (7.1%) reduction in goods & services outlays. In contrast, capital expenditure narrowed by $23.1 million (11.1%) to $185.4 million, as asset acquisitions fell by almost 50% following the purchase of defense vessels last year and outpaced a $20.4 million (17.0%) gain in infrastructure-related spending.

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