Monthly Economic and Financial Developments, June 2011

Published: Friday August 5th, 2011

Supported by the sustained—although still uneven and fragile—recovery in the global economy, domestic economic conditions continued to improve over the review month. The momentum benefitted from a modest firming in tourism output, gains in foreign investment led construction activity and public sector infrastructure works. Consumer price inflation remained relatively benign, posting a modest uptick over the twelve-months to May. On the fiscal side, the Government’s overall deficit narrowed during the eleven months of FY2010/11, as several significant one-off revenue transactions boosted revenue collections, and helped to offset an increase in expenditure. In monetary developments, both liquidity and external reserves contracted, due mainly to the repatriation of initial public offering (IPO) proceeds by a foreign-owned company.

Indications are that, after a slow start to the year, tourism sector activity was positive during the second quarter, with gains in the key stopover segment of the market accompanied by higher hotel revenues. In April, total visitor arrivals firmed by 14.8%, buoyed by a 2.8% hike in air arrivals—the first monthly increase for the year—and steady gains in sea visitors of 19.2%. All of the major destinations recorded improvements, with total arrivals to New Providence up by 6.1% and double digit gains in both Grand Bahama and the Family Islands, of 16.1% and 29.8%, respectively. The sample of hotel properties in Nassau and Paradise Island for May showed room revenues higher by 5.8%, based on growth in the average occupancy rate of 0.2 of a percentage point to 61.1%, combined with a 5.4% increase in the average daily room rate to $219.86.

Inflation for the twelve months to May—as measured by the Retail Price Index for The Bahamas—firmed by 0.7 of a percentage point to 1.9%. Accelerated average price increases were registered for transport (5.2%) and housing, water, gas, electricity & other fuels (2.9%)—the most heavily weighted item in the Index. Gains were also posted for education (2.5%), alcohol, tobacco, & narcotics (2.3%), restaurant & hotels (1.8%), recreation & culture (1.1%) and communication (0.6%). Reduced inflation rates were registered for medical care & health (2.5%), miscellaneous goods & services (1.2%) and furnishing, household equipment & maintenance (1.0%); while respective average price declines of 0.3% and 0.4% were recorded for food & non-alcoholic beverages and clothing & footwear.

In the context of the modest decline in international crude oil prices, average gasoline and diesel prices were lower in June by 2.0% at $5.49 and 3.1% at $5.04, respectively. However, measured year-on-year, the average price of both gasoline and diesel grew by 24.8% and 34.4%, respectively. Over the month, the Bahamas Electricity Corporation’s fuel charge stabilized at 22.75 cents per kWh; but firmed by 11.26 cents per kWh relative to last year.

The Government’s fiscal deficit for the eleven months of FY2010/11 narrowed by $90.0 million (27.5%) to $237.0 million, as total receipts expanded by $113.1 million (9.8%) to $1.3 billion, and outweighed a $23.1 million (1.6%) increase in expenditure to $1.5 billion. In regard to revenue, tax receipts firmed by 18.9% to $1.2 billion, occasioned by a $104.2 million (82.0%) surge in non-trade stamp taxes, associated mainly with the sale of a local oil company. Significant gains were also recorded for business & professional fees (10.5%) and selective taxes on services (11.0%), which collectively outweighed a $70.4 million (38.6%) contraction in non-tax revenue, which retreated to previous trend levels. In terms of spending, capital outlays firmed by $29.1 million (22.7%) to $157.4 million, as both asset acquisitions and infrastructure related spending advanced by $18.1 million and $12.2 million, respectively. Current expenditure also grew, by $34.4 million (2.7%) to $1.3 billion, due primarily to a $21.1 million (9.0%) hike in purchases of goods & services associated with the payment of utility expenses. In contrast, net lending, representing central Government’s budgetary support to the public corporations, declined by almost 50% to $45.7 million.

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