Monthly Economic and Financial Developments, May 2011

Published: Wednesday July 6th, 2011

Domestic economic conditions maintained a positive momentum over the review period, supported by steady gains in tourism output, foreign investments in tourism related construction activity and public sector capital projects. Although domestic inflation remained relatively benign, energy costs continued to trend upwards, on account of elevated international oil prices. In the fiscal sector, the overall deficit for the ten months of FY2010/11 narrowed, as higher revenue collections offset the rise in expenditure. In monetary developments, external reserves were maintained at a very healthy level, despite a comparatively lower monthly rate of accretion, and bank liquidity was boosted by the Government’s utilisation of funds from the previous month’s privatisation transaction to reduce short-term debt obligations.

Preliminary data suggests that output in the tourism sector improved over the five month period, partly benefitting from the rebound in the key convention/group business—following a significant falloff during the peak of the recession. Based on partial data from a sample of hotels in Nassau and Paradise Island, total room revenue rose marginally by 0.6%, as the average daily rate firmed by 0.7% to $255.25 and countered a 20 basis point contraction in the average occupancy rate to 66.8%.

Available data on tourist arrivals for the first four months of the year showed the number of visitors increasing by 11.5% to 2.1 million, buoyed by sustained gains in sea passengers of 16.9%, which surpassed the 4.4% contraction in air arrivals. In terms of the major domestic ports, visitors to New Providence rose by 1.6%, as the 4.4% improvement in the sea component eclipsed the 4.1% decline in air passengers. A strong 38.4% hike in sea passengers also underpinned the 26.5% growth in visitors to Grand Bahama, with the air component contracting by 20.6%. Supported by gains in both sea and air visitors, of 27.2% and 5.3% respectively, visitors to the Family Islands advanced by 24.6%.

With international oil prices remaining at relatively elevated levels in May, the average prices of gasoline and diesel rose, by 6.1% and 2.8%, to $5.60 per gallon and $5.20 per gallon, respectively; the comparative annual average price gains were 23.9% and 35.4%, each. Similarly, the Bahamas Electricity Corporation’s fuel cost recovery charge increased over the month and year, by 2.1% and 39.7%, to 22.75 cents per kWh.

Based on Government’s budgetary operations for the ten months of FY2010/11, the deficit in the overall balance was lower by 31.6% ($95.2 million) at $205.9 million. Total receipts rose by 9.6% ($100.8 million) to $1,147.9 million, benefitting from a 19.9% ($173.3 million) improvement in tax revenue to $1,045.9 million. The latter was primarily due to an almost doubling in non-trade stamp taxes, linked to the sale of a business entity. Notable gains were also registered for departure taxes ($28.9 million), taxes on international trade ($23.2 million) and selective taxes on services ($19.0 million). Reflecting a return to trend levels following extraordinary inflows in the prior period, non-tax receipts fell by 41.6% ($72.6 million) to $101.9 million. Total outlays rose by 0.4% ($5.6 million) to $1,353.8 million, with current expenditures higher by 2.3% ($26.0 million) at $1,169.9 million, buoyed by an 11.4% growth in purchases of goods and services. A more than three-fold expansion in asset acquisitions—mainly land, boosted capital spending by 16.2% ($19.8 million) to $141.9 million. Also, spending for infrastructural projects rose by 3.9%, in contrast to a contraction in net lending to support the budgetary operations of public sector entities, of 48.9% ($40.2 million) to $41.9 million.

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