Monthly Economic and Financial Developments (MEFD) August 2020
Published: Monday September 28th, 2020
Domestic Economic Developments
Domestic economic activity during the month of August continued to be driven by the Novel Coronavirus (COVID-19) pandemic. As globally imposed travel restrictions persist, impeding the tourism sector, both the high value-added air and sea segments remained largely eliminated. However, the resumption of ongoing foreign investment-led projects and post-hurricane rebuilding works, provided some impetus to the construction sector. On the fiscal front, Government’s budgetary operations for FY2019/20 showed a considerable increase in the deficit, reflective of a falloff in total revenue and an expansion in aggregate outlays, underpinned by the occurrence of the two major economic shocks, the storm and COVID-19, during the fiscal year. Monetary developments were marked by a build-up in bank liquidity, as the decline in domestic credit outpaced the contraction in the deposit base. Further, external reserves increased, primarily attributed to the Government’s external borrowing activity.
Preliminary evidence suggests that, tourism sector activity continued to contract during the month of August, as global travel restrictions related to COVID-19, negatively affected both air and sea arrivals.
Initial data provided by the Ministry of Tourism (MOT) showed that the number of visitor arrivals totaled 23,398 during the month of July, following a complete, albiet with restrictions, reopening of international borders to commercial travel on July 1. This was compared with a 7.9% expansion in the previous year, to 650,353. In particular, air arrivals amounted to 14,970, in contrast to a 7.7% growth to 175,971 in the same month of 2019. Further, sea arrivals totaled 8,428, relative to an 8.0% expansion to 474,382 a year earlier.
By major port of entry, total arrivals to New Providence declined to 7,899, contrasting with a 2.9% uptick in the prior year, to 329,520, with the air and sea components comprising 7,199 and 700, respectively.
Similarly, total traffic to the Family Islands decreased to 13,645, vis-à-vis a 17.8% increase to 241,962 in the preceding year, reflecting reductions in the air and sea traffic segments, to 7,253 and 6,392, respectively. Further, arrivals to Grand Bahama fell to 1,854, following a 2.6% growth to 78,871 in 2019, as respective sea and air passengers declined to 1,336 and 518.
On a year to date basis, total arrivals contracted by 61.9%, a reversal from a 13.2% increase during the same period of the preceding year. Underlying this outurn, the air component fell by 68.5%, while the sea segment decreased by 59.6%.
The latest data provided by the Nassau Airport Development Company Limited (NAD) revealed that total international departures stood at 2,139 during the month of August, relative to a seaonal growth of 12.1% to 169,045 in the preceding year. On a year-to-date basis, outward-bound traffic declined by 68.5%, a turnaround from a 17.0% expansion during the comparable period of 2019. By destination, the U.S. component reduced by 69.7%, a reversal from an 18.4% increase in the prior year. Similarly, the non-U.S. international component fell by 60.8% vis-à-vis a gain of 8.3% a year ago.
As it relates to the vacation rental market, data provided by AirDNA for the month of August, compared with the same period last year, showed that total room nights sold contracted by 70.5%, as bookings for entire place listings and hotel comparable listings reduced by 71.0% and 65.5%, respectively. Pricing indicators varied, with the average daily room rate (ADR) for entire place listings firming by 4.0% to $407.99, while the ADR for hotel comparable listings fell by 6.9% to $141.87. On a year-to-date basis, total room nights sold declined by 45.3%, attributed to respective reductions in bookings for both the entire place and hotel comparable components, of 46.6% and 33.0%. Pricing indicator outcomes were mixed, as the ADR for hotel comparable listings decreased by 2.5% to $152.83, while the ADR for entire place listings rose by 2.4% to $411.96.
Provisional data on the Government’s budgetary operations during FY2019/2020 revealed a significant widening in the fiscal deficit, to $788.2 million from $219.3 million in FY2018/2019, reflective of revenue losses, combined with a rise in spending for health and social welfare associated with COVID-19 responses and outlays for post-hurricane reconstruction works. Underlying this outturn, total revenue declined by $337.2 million (13.9%), to $2,089.1 million, while aggregate expenditure rose by $231.8 million (8.8%) to $2,877.3 million.
The reduction in total revenue was largely attributed to a $349.0 million (15.9%) decrease in tax receipts, as taxable economic activities contracted. There were also shifts in revenue composition as, taxes on goods and services fell sharply by $250.0 million (15.3%) to $1,384.4 million, as stamp collections on realty and financial transactions declined by $158.5 million (70.3%), to $66.9 million, due to the reclassification in VAT payments on these transactions. Nevertheless, VAT receipts reduced by $19.2 million (2.1%) to $877.4 million, outweighed by the overall narrowing of the tax base. Further, taxes on the permission to use goods were lower by $82.4 million (35.7%) at $148.4 million, led by a falloff in receipts from licenses to conduct business activity by $45.1 million (31.1%). Taxes on international trade also contracted by $85.4 million (19.2%) to $359.5 million, largely attributed to a reduction in proceeds from customs and import duties by $58.9 million (20.7%), partly on account of tax exemptions to stimulate the economy following the 2019 storm and a decline in departure taxes, by $22.0 million (14.9%), reflecting the closure of borders due mainly to the COVID-19 pandemic. Likewise, receipts from property taxes fell by $10.2 million (9.3%) and general stamp taxes by $3.5 million (34.3%). In contrast, non-tax revenue grew by $11.8 million (5.2%), owing partially to a surge in reimbursements and repayments. In addition, “other” miscellaneous revenue sources rose to $15.4 million from $2.4 million, partly reflecting proceeds from the Caribbean Catastrophic Risk Insurance Facility (CCRIF), following Hurricane Dorian. Further, income from property increased by $10.7 million (54.7%).
In terms of expenditure, capital outlays increased markedly by $145.4 million (65.1%), to $368.8 million, reflective of a considerable rise in capital transfers to $155.6 million from $30.6 million, explained by unplanned hurricane-related spending. In addition, the acquisition of non-financial assets advanced by $20.4 million (10.6%), due to a notable expansion in spending on fixed assets.
Recurrent expenditure also rose by $86.3 million (3.6%) to $2,508.6 million, underpinned by higher payments for employee compensation, which grew by $47.6 million (6.7%). Likewise, subsidies and other miscellaneous payments—inclusive of current transfers and insurance premiums—increased by $34.8 million (8.9%) and $31.6 million (15.5%), respectively. Further, interest payments advanced by $10.6 million (3.2%), while social assistance benefits registered a relatively modest gain of $1.6 million (0.8%).
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