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Monthly Economic and Financial Developments, June 2009

Published: Friday August 7th, 2009

Despite modest signs that the global economic recession had started to stabilize during the review month, weakness in the major countries continued to feed through to the domestic economy. Consequently, activity in the tourism sector remained anaemic and the reduced levels of foreign investment inflows negatively impacted construction activity. Stimulus from private sector credit also declined, amid net repayment of business and consumer loans and a significant narrowing in residential mortgage lending. In this environment, Government’s revenue performance continued to deteriorate which, alongside increased outlays, resulted in the fiscal deficit almost tripling over the eleven-months of FY2008/09. Liquidity conditions remained buoyant, although tightening modestly over the month; with external reserves boosted by Government’s foreign currency financing activities.

Indications are that the sustained slump in air arrivals negatively impacted overall visitor trends during the first half of the year, following a 2.2% decrease a year earlier. The fall in air visitors remained broad-based, with the New Providence, Grand Bahama and the Family Island markets registering contractions. These trends continued to have an adverse effect on employment in the sector, with further downsizing expected at some properties during the summer months. Some offset was provided by the firming in cruise arrivals, which benefitted in recent months from significant price discounting and the rerouting of several cruise ships.

Reflecting the easing in inflationary pressures during the first half of 2009, annual inflation through June tapered to 1.7% from 5.1% last year. However, the average inflation for the twelve months ending June slowed to 4.28% over the previous month, but remained 1.29 percentage points above 2008’s level, amid the continuing impact of the escalated cost increases during the second half of 2008. In particular, cost increases remained accelerated for food and beverages (8.3%), housing (2.8%), clothing & footwear (1.7%), recreation entertainment & services (3.9%), education (3.3%) and “other” uncategorized goods & services (7.5%). However, average cost gains moderated for furniture & household operations (5.3%) and transportation & communication (2.3%). With regard to local fuel prices, the average cost of gasoline rose by $0.34 to $3.97 per gallon during the review month; however, prices remained 29.4% lower than the June 2008 level. Similarly, the cost of diesel rose by $0.18 to $2.81 over the month, but fell by 52.4% on an annual basis.

Data on the Government’s budgetary operations for the eleven months of FY2008/09 indicated that the deficit widened to $219.0 million from $79.9 million in the corresponding period. Underlying this outcome was a 6.1% ($78.0 million) reduction in revenues, coupled with a 4.5% ($61.2 million) firming in expenditures. In terms of collections, tax receipts fell by 11.0%, as the downturn in consumer demand constrained collections on international trade transactions by 13.0%. Similarly, other “miscellaneous” taxes were lower by 15.1%, reflecting declines in stamp taxes on financial transactions, departure collections and “unclassified” revenue items. In contrast, buoyed by dividend income, non-tax revenue rose by almost 50% to $155.1 million. Disaggregated data revealed that current outlays rose by 5.3%, explained by increases in payments for goods & services (7.0%), personal emoluments (4.2%) and transfers & subsidies (5.6%). However, capital outlays decreased by 6.7%, due to a falloff in acquisitions of assets and a slight reduction in transfers to non-financial public entities.

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