Monthly Economic and Financial Developments, May 2015

Published: Thursday July 2nd, 2015

During May, an improving tourism sector performance, alongside foreign investment-related projects, underpinned a steady, yet mild, growth momentum for the Bahamian economy. Although the implementation of the Value Added Tax (VAT), in January, resulted in broad-based price gains, domestic inflation remained relatively low, being partly constrained by the pass-through effects of lower global oil prices. In the latest fiscal assessment, the VAT-led rise in revenue secured a sharp reduction in the overall deficit through April of FY2014/15. The monetary sector registered gains in both bank liquidity and external reserves, buoyed by net foreign currency inflows from real sector activities.

Anecdotal information suggests that output in the tourism sector continued to strengthen in May, aided by improving conditions in key source markets and the recent hosting of the IAAF World Relays. The latest information available from the Bahamas Hotel Association showed total room revenues firming by 5.0% over the first five months of the year—although a significant reduction in room inventory caused overall earnings to dip by 1.0% in May. In terms of the components, growth in stopover arrivals translated into a 5.8 percentage point hike in the average occupancy rate, to 75.1%, and the average daily room rate (ADR) was higher by 6.6% at $275.40.

Average consumer prices for the twelve months to March—as measured by changes in the Department of Statistics’ revised Retail Price Index —rose by 1.25%. The highest average rate increases were recorded for alcoholic beverages, tobacco & narcotics (4.36%), recreation & culture (3.09%), education (2.31%) and health (2.15%). More muted gains were noted for furniture, household equipment & routine household maintenance, transportation, food & non-alcoholic beverages, clothing & footwear and restaurant & hotels of 1.90%, 1.84%, 1.80%, 1.44% and 1.26%, respectively, while the remaining categories had average cost advances of under 1.0%.

Benefiting from the significant reduction in international oil prices, which occurred over the last twelve months, the Bahamas Electricity Corporation’s fuel charge fell by 22.5% over the year. However, costs stabilised on a monthly basis, at 18.32 cents per kilowatt hour (kWh), at end-May.

In the fiscal sector, the overall deficit contracted by $139.2 million (37.8%) to $229.3 million during the ten months through April of FY2014/15, reinforced by the $202.1 million (17.1%) surge in total revenue to $1,384.1 million, which outweighed the $62.8 million (4.1%) rise in aggregate expenditure to $1,613.5 million. Tax receipts improved by $203.4 million (20.0%) to $1,223.0 million, buoyed by the total $143.9 million VAT intake, in the first four months of its implementation. In addition, financial and realty-related stamp taxes grew by $27.0 million (22.7%), while selective taxes on services expanded by $11.8 million (31.0%)—linked to a higher intake of gaming receipts following the regularization of the “webshop” industry. Yields from business & professional fees grew by $7.8 million (5.6%), and taxes on international trade and other “unclassified” taxes edged up by $2.9 million (0.6%) and $2.8 million (6.6%), respectively. In a modest offset, non-tax revenue declined by $4.4 million (2.7%) to $157.7 million, primarily reflecting a 26.6% reduction in income-related receipts.

The expenditure outcome included a $68.0 million (5.2%) hike in current spending, to $1,374.1 million. This was mostly explained by a $66.5 million (12.2%) gain in transfer payments to $612.5 million, as both interest payments and subsidies & other transfers were up by nearly 13% each, to $199.5 million and $412.9 million, respectively—with the latter reflecting the reclassification of certain items from other expense categories. Meanwhile, consumption outlays rose slightly by $1.4 million (0.2%) to $761.6 million, as the 9.7% decline in goods & services purchases, to $227.2 million, negated a 5.1% expansion in the wages and salaries bill. Budgetary support to public corporations, by way of loans, was higher by $17.0 million (31.4%) at $71.1 million. In contrast, capital spending fell by $22.1 million (11.6%) to $168.3 million, attributed to a $43.4 million (52.1%) reduction in asset acquisitions, which outstripped the $22.6 million (21.5%) rise in capital formation outlays, primarily related to infrastructural works.

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