Monthly Economic and Financial Developments May 2016

Published: Monday July 4th, 2016

Domestic economic conditions remained relatively subdued over the review period, amid signs of the softness in tourism output, while a number of varied-scale foreign investment projects provided support to the construction sector. Reflecting the persistence of low international oil prices, inflation tapered during the 12-month period ending March. In the fiscal sector, the overall deficit deteriorated, as an increase in short-term financing to the public sector led to a rise in spending, outpacing the gains in revenue; while monetary sector developments were dominated by a reduction in broad liquidity, owing in part to a falloff in institutions’ holdings of Government securities.

Tourism indicators available from the Bahamas Hotel and Tourism Association (BHTA)—for a sample of major hotels in New Providence—suggest that the sector was relatively weak over the review period. Total room revenues declined by an estimated 7.0% during the first four months of 2016, relative to the corresponding period a year earlier, reflecting a 1.4 percentage point reduction in the average occupancy rate to 75.6%, along with a 5.8% ($16.83) decrease in the average daily room rate (ADR) to $270.91.

Domestic inflation—as measured by the All Bahamas Retail Price Index—fell by 13 basis points to 1.13% in the twelve months to March 2016. This outturn reflected mainly a contraction in the average cost for housing, water, gas electricity and “other” fuels—the most heavily weighted component in the index—by 2.5%, a reversal from the previous year’s 0.1% expansion. Similarly, transportation costs fell by 5.3%, vis-à-vis a slight gain a year earlier of 0.6%. In a modest offset, accretions to average costs quickened for health (by 9.7 percentage points to 14.0%), recreation and culture (by 4.7 percentage points to 9.5%), restaurant & hotels (by 3.8 percentage points to 5.7%), and communication (by 2.6 percentage points to 3.9%). Comparatively, gains in inflation rates of less than 2.0 percentage points were recorded for the remaining components.

Information on the Government’s budgetary operations for the ten months of FY2015/16, showed a $36.9 million (16.1%) widening in the deficit to $266.1 million, relative to the prior year, as the $235.1 million (14.6%) expansion in overall expenditure to $1,848.5 million, eclipsed the $198.2 million (14.3%) growth in total revenue to $1,582.4 million.

With regard to spending, given the reclassification of most of the support to public enterprises as expenses rather than net lending, current outlays rose by $318.3 million (23.2%) to $1,692.4 million. Such shifts were captured in a $245.7 million (40.3%) expansion in transfer payments to $855.9 million. Further, given growth in debt obligations, interest payments expanded by $31.8 million (15.9%) to $231.3 million, with the bulk of the rise related to domestic currency obligations ($26.8 million). Meanwhile, outlays for goods and services grew by $54.0 million (23.5%) to $283.5 million, while wages & salaries payments increased by $18.6 million (3.5%) to $553.0 million. In contrast, capital spending declined by $15.3 million (9.1%) to $153.0 million, on account of an $8.0 million (6.3%) reduction in infrastructural outlays and a $6.6 million (16.6%) falloff in asset acquisitions. Similarly, given the reclassification of various items, net lending narrowed to $3.1 million from $71.1 million in the previous year.

On the revenue side, robust gains for value added tax (VAT) elevated tax receipts by $201.1 million (16.4%) to $1,424.2 million. Reflecting almost full fiscal year collections, VAT receipts stood at $550.8 million relative to the $143.9 million recorded over the four months of receipts in the comparative period last year, on a base which still excluded real estate and insurance transactions. Concurrently, a reduction on several tariff rates to rebalance indirect taxes towards the VAT, contributed to declines in levies on international trade (mainly import duties and excise taxes) by $41.6 million (8.7%) to $435.2 million. In addition, receipts from “other” miscellaneous taxes contracted by $93.2 million (22.3%) to $325.3 million, due predominantly to shift from stamp to VAT on real property transfers, as well as notable reductions in “unclassified” taxes. The more than halving in tourism-related taxes to $22.2 million, also reflected the compositional shift from the room occupancy tax to VAT, while gaming taxes also declined by $3.2 million (13.1%) to $21.7 million. Further, receipts from business and professional fees decreased by $31.0 million (21.2%) to $114.9 million, amid some timing-related delays in collections. Meanwhile, non-tax revenues were relatively stable at $158.1 million.

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