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Monthly Economic and Financial Developments, June 2014

Published: Tuesday August 12th, 2014

Preliminary indications are that the domestic economy sustained its mildly positive growth path over the review month, supported by modest gains in tourism output and stable contributions from foreign investment-led project activity. Reflecting the gradually improving economic environment, the unemployment rate declined over the six-months to May, while inflation was relatively benign, despite some firming in international oil prices. On the fiscal side, the overall deficit narrowed during the eleven months of FY2013/14, as broad-based gains in revenue outstripped the rise in expenditure. Monetary developments featured a continuation of elevated levels of bank liquidity, and marginal growth in external reserves, supported by tax-related foreign currency receipts.

Based on data from the Ministry of Tourism, total arrivals increased by 1.1% to 2.3 million visitors over the first four months of the year, following a 2.7% advance in 2013. A combination of improving economic conditions in several key source markets, along with ongoing joint public/private sector incentive programmes, contributed to a 3.1% expansion in the air segment, a reversal from a 6.8% decline in the prior year. In a sizeable offset, gains in sea visitors slackened to 0.6% (11,814) from 5.4%, year-on-year.

By port of entry, visitors to the Family Islands improved by 11.8% to 0.8 million, with increases in both sea and air arrivals, of 12.7% and 4.0%, respectively. In New Providence, tourists rose marginally, by 0.9% to 1.34 million, owing primarily to a 1.2% expansion in the sea component, as air arrivals steadied at 0.35 million. Conditions in Grand Bahama remained challenging, as the dominant sea segment fell by 30.7%; however, increased airlift, along with the launch of a new mid-sized resort at end-March, contributed to a 33.2% surge in air passengers, which held the decline in overall arrivals to 22.9%.

Against the backdrop of a sustained, but narrow, recovery, the latest labour market information for the six months to May 2014, showed a 1.1 percentage point reduction in the unemployment rate to 14.3%, as an additional 2,445 persons were added to the workforce. This outturn reflected declines in the jobless rates, in both New Providence and Grand Bahama, from 15.6% and 16.8%, to 15.0% and 14.7%, respectively. Unemployment among young people—the worst affected category—fell by 4.3 percentage points, to 28.0% and, suggestive of improving conditions, the number of discouraged workers contracted by 38.6% to 4,880.

Domestic consumer price inflation for the twelve months to May, 2014—as measured by the Retail Price Index—moderated by half of a percentage point to a mere 0.7%, as gains in average costs for housing, water, gas, electricity & other fuels—the most heavily weighted item on the index—and clothing & footwear, slackened to 1.1% and 0.4%, from 2.0% and 0.7%, respectively. Inflation rates also tapered for furnishing, household equipment & maintenance, by 1.4 percentage points to 0.5%; for food & non-alcoholic beverages, by 0.9 percentage points to 1.2% and for health, by 24 basis points to 1.6%. In an offset, accretions to average costs for alcohol, tobacco & narcotics items accelerated by 5.8 percentage points to 7.2%, and by 2.6% for recreation & culture—to reverse last year’s decline of 0.8%. Most of the remaining categories recorded gains in inflation rates of under 2.0 percentage points.

Domestic energy prices sustained their gradual upward trajectory, as the average cost of gasoline firmed by 1.3%, month-on-month, to $5.47 per gallon in June, while the price of diesel declined marginally by 0.4% to $5.06 per gallon. Relative to the same period of 2013, both fuels rose by 1.5% and 0.2%, respectively.

The Government’s overall deficit for the eleven months of FY2013/14, narrowed by $65.0 million (14.6%) to $379.0 million, as growth in total receipts of $77.1 million (6.2%) to $1,327.4 million, outpaced the $12.1 million (0.7%) increase in aggregate expenditure to $1,706.4 million. Revenue performance featured a $47.6 million (36.8%) hike in non-tax receipts, to $176.9 million, explained by increases in fines, forfeits & administrative fees, and a dividend boosted increment to income from “other sources”, of $35.5 million (40.9%) and $18.5 million (59.1%), respectively. The tax component was higher by $29.1 million (2.6%) at $1,150.0 million, as business & professional fees firmed by $63.6 million (54.7%), reflecting the implementation of a new broad-based, graduated fee schedule for businesses, based on turnover, and the increase in fees for international banks and trust companies. In contrast, non-trade tax receipts fell by $12.4 million (3.0%), as departure tax revenues declined by $20.3 million (15.5%) from the prior year, when one-off inflows from a major carrier boosted this category. In addition, receipts from taxes levied on both property sales and existing structures, contracted by $2.2 million (2.7%) and $1.3 million (1.3%), respectively; however, revenues from other “non-allocated” taxes firmed by 43.1% ($11.3 million).

Government spending on current items expanded by $36.9 million (2.7%) to $1,430.5 million. Specifically, the reclassification of certain health care-related outlays, from purchases in goods & services to transfers, contributed mainly to the $34.1 million (11.3%) fall in the former and the $54.6 million (10.0%) hike in the latter. Additionally, interest payments expanded by $12.7 million (6.7%), buoyed by the higher stock of outstanding debt, while outlays for wages & salaries advanced by $16.4 million (3.0%). Capital expenditure contracted by $2.1 million (1.0%) to $208.5 million, as the $51.0 million (29.9%) decrease in infrastructural spending, and $12.1 million reduction in transfers to non-financial public enterprises were completely offset by a four-fold surge in outlays for asset acquisitions, of $62.1 million to $86.8 million—primarily associated with the delivery of one of a series of new vessels acquired by the Defence Force.

The deficit for the eleven-month period was financed from both external and domestic sources. External borrowings totaled $425.8 million, and comprised a US$300.0 million bond and $125.8 million in project-based loan proceeds, while domestic financing, at $466.0 million, included short-term foreign currency loans ($191.0 million), long-term bonds ($115.0 million), Treasury bills ($81.0 million) and loans & advances ($79.0 million).

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