Monthly Economic and Financial Developments, March 2009

Published: Monday May 4th, 2009

Preliminary data revealed that the global economic recession continued to adversely affect domestic economic activity during March, with persistent weakness in tourism and foreign investment-related construction activity. Demand stimulus from private sector credit expansion also remained soft. Inflationary pressures were sustained at significantly elevated levels, as earlier global price increases continued to be transmitted to the local economy. In monetary developments, the seasonal rebuilding of liquidity was more subdued, given less support to Bahamian dollar deposit growth from tourism and foreign investment inflows, relative to firmer public sector-led expansion in credit.

In a continuation of the weak trends started in the second half of 2008, indications are that tourism output contracted during the first quarter of 2009. Despite signs of growth in cruise visitor activity, a significantly negative trend in air arrivals during January to March, as signalled by the Ministry of Tourism, underscored a projected reduction in stopover traffic. In the hotel sector, the projected outcome featured lower room night sales and effectively discounted average room rates. Despite the sales falloff, preliminary assessments indicate that average occupancy rates exceeded early bookings expectations due to favourable last minute travel decisions. Nevertheless, major properties remained under significant operating strains and continued to make staffing and other adjustments.

Inflation for the twelve-month period ending March 2009 stood at 4.9%, unchanged from the previous month; albeit, strongly elevated in comparison to 2.4% a year earlier. Except for the slightly moderated rise in average transportation costs (3.0%) and a steadied increase for furniture and household operations (6.6%), other components of the Retail Price Index rose at an accelerated pace. Of particular note were the average cost run-ups for food & beverages (7.8%) housing (3.6%), recreation & entertainment services (4.3%) and medical & healthcare (4.1%). With regard to energy, local fuel costs subsided further in the first quarter, attributed to the easing in international oil prices which began in the latter half of 2008. On a 12-month basis, the average cost of gasoline and diesel declined by 27.7% and 37.1% to $3.35 and $2.73 per gallon, respectively. In addition, the average fuel surcharge in residential electricity bills retreated by 32.8% to 10.72 cents per kilowatt hour (KWH) in the first quarter, vis-á-vis the same period in 2008.

Preliminary estimates of the Government’s budgetary operations for the first eight months of FY 2008/09 revealed that the deficit almost doubled to $173.4 million, amid a 4.6% firming in expenditure, which contrasted to the 4.2% downturn in revenue collections. In particular, tax receipts fell by 5.5% to $758.7 million, owing primarily to a 10.0% reduction in international trade taxes. Declines were also noted in stamp taxes on financial and other transactions (18.7%) and in departure taxes (12.1%). These outweighed the improvements for business & professional taxes (15.9%), property taxes (5.2%) and increased yields under “other” unclassified revenue sources. A 10.8% gain was also recorded under non-tax revenues, at $78.4 million, reflecting a timing–related increase in income receipts. On the expenditure side, current spending firmed by 5.4% to $894.8 million, led by higher payments for wages & salaries (5.0%), contractual services (17.4%), interest costs on debt (6.9%) and subsidies (7.4%), mainly to quasi-public entities. Although capital spending fell by 14.7% to $73.9 million, related to a decline in the acquisition of assets, outlays continued to increase for public works and infrastructure projects (4.2%). Meanwhile, budgetary assistance (net lending) to public enterprises expanded by 36.8% to $41.8 million.