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Monthly Economic and Financial Developments, May 2009

Published: Thursday July 2nd, 2009

During the month of May, the global recession continued to negatively affect domestic economic developments. Available data on tourism activity revealed sustained weakness in the sector, owing to depressed demand conditions in the major markets; while reduced foreign investments further constrained construction output. In the fiscal sector, persistent softness in revenue collections resulted in a further widening in the estimated deficit for the first 10 months of FY2008/09. However, inflationary pressures continued to retreat from the mid-2008 peak, owing to lower average fuel costs. Monetary developments were highlighted by the Government’s foreign currency financing activities, which contributed to a sizeable boost in bank liquidity and external reserves.

The latest data on tourism suggest a much steeper overall decline in arrivals during the first five months of the year, after a 0.9% reduction experienced in the corresponding period of 2008. Underscoring the persistent weakness in the stopover segment was a projected double digit downturn in air arrivals, which outpaced a modest recovery in sea traffic. By port of entry, New Providence trends were dominated by a decline in the air segment, which offset a projected improvement in sea arrivals; while more sizeable stopover declines also contributed to reduced activity in Grand Bahama and the Family Islands. For earnings indicators, total inflows remained contracted in comparison to 2008, with stopover receipts constrained by the projected declines in both hotel room night sales and average daily room rates; and eclipsing modest gains in cruise visitor inflows.

As external price pressures eased, the annual domestic inflation rate decelerated to 1.8% in May from 4.9% in 2008. Nevertheless, the 12-month average rate remained significantly higher at 4.6%, owing to accelerated price gains in excess of 5.0% during most of the latter half of 2008. Of particular note were the energy cost related moderation in average price increases for housing (0.1%)—the largest component of the Index—and transportation (0.7%); tempered advances for medical care & health (1.6%) and furniture & household operations (0.8%), and a decline for recreation & entertainment services (0.8%). These countered higher average cost increases for education (3.7%) and clothing & footwear (2.2%). Supporting the tapering in domestic prices, the monthly fuel surcharge in electricity bills receded by 8.5% to $7.45 per kilowatt hour (KWh) in May, sustaining a nearly 60% decrease since the same period last year. With some recent firming in global fuel cost, the retail prices for diesel and gasoline increased during the month by 4.0% and 3.7%, to $2.63 and $3.63 per gallon, respectively; however, they remained below the 2008 estimates by 49.9% and 30.7%, respectively.

The Government’s budgetary operations for the first 10 months of FY2008/09 resulted in a widening in the estimated deficit, to $219.7 million from $77.7 million in FY2007/08. An 11.0% decrease in tax collections led to a 5.8% reduction in total receipts, while total expenditure firmed by 5.8%. Disaggregated data showed a 7.0% advance in current spending, mainly reflecting increased outlays on consumption, as gains were recorded for purchases of goods and services (11.5%), personal emoluments (4.6%) and other contractual services (23.3%). Although capital expenditures were reduced by 6.8%, investments in infrastructural works rose by 9.4%. The slump in tax receipts was led by a 12.5% reduction in taxes on international trade and transactions—which comprised over 50% of the total. Significant declines were also noted for taxes on financial and other transactions (24.3%), departure taxes (15.4%), and “other” uncategorized taxes (32.9%). In contrast, non-tax receipts rose by 52.7%, mainly owing to a hike in dividend receipts from public corporations.