Monthly Economic and Financial Developments (MEFD) May 2020

Published: Monday June 29th, 2020

Domestic Economic Developments

Overview

During the month of May, developments in the domestic economy were dominated by the spread of the Novel Coronavirus (COVID-19), which led to a contraction in economic activity. Specifically, globally imposed travel restrictions impeded tourism sector activity, as the high value-added air and sea segments grounded to a halt. Nevertheless, the partial restart of foreign investment-led projects and post-hurricane rebuilding works, provided an impetus to the construction sector. Monetary developments featured a modest expansion in bank liquidity, as the notable rise in domestic credit, was offset by the growth in the deposit base. However, external reserves decreased, largely reflecting the reduction in foreign currency inflows from real sector activities.

Real Sector

Tourism

Preliminary evidence suggests that activity in tourism output contracted during the month of May, as both air and sea arrivals came to a standstill, due to the ongoing COVID-19 global pandemic.

As the borders remained closed, the latest data provided by the Nassau Airport Development Company Limited (NAD) showed that total international departures were just 238 during the month of May, in comparison to the 15.8% growth, to 139,376 recorded same period last year. During the first five months of the year, aggregate departures reduced by 49.1%, reversing the 19.9% expansion, in the same period of 2019. Underlying this outturn, the U.S. segment decreased by 49.9%, contrasting with a 21.6% growth in the prior year. Similarly, the non-U.S. segment fell by 44.8%, vis-a-vis an 11.2% increase a year earlier.

Data provided by AirDNA on the vacation rental market revealed similar trends for the month of May. Specifically, total room nights sold contracted by 61.9%, reflecting reductions of 62.7% and 53.6% in bookings for entire place listings and hotel comparable listings, respectively. In contrast, the average daily room rate (ADR) for entire place listings and hotel comparable listings firmed by 7.0% and by 5.6% to $421.31 and $160.20, respectively. On a year-to-date basis, total room nights sold reduced by 18.2%. In particular, bookings for entire place listings fell by 19.9%, while bookings for hotel comparable listings were lower by 3.2%. Pricing indicators varied, as the ADR for entire place listings, edged up by 0.6% to $399.00, while the ADR decreased by 2.0% to $156.15 for hotel comparable listings.

2020/2021 Budget Communications Highlights

The Government's Budget Communication for FY2020/2021, entitled "Resilient Bahamas: A Plan for Restoration", which was presented in Parliament on May 27, 2020, overarching objectives are to maintain economic stability during the COVID-19 pandemic and to pursue policies that will accelerate the recovery of the economy.

Given the current economic environment, the Government expects that the fiscal deficit will surge to an estimated $1.3 billion in FY2020/2021, or 11.6% of GDP, the largest projected deficit in history. Correspondingly, the National Debt is anticipated to rise to approximately 82.8% of GDP.

Reflective of the contraction in the tax base, alongside extensive tax relief measures and limited revenue enhancements, the Government forecasts a significantly reduced revenue intake of $1.8 billion compared to a projected outturn of $2.6 billion in FY2019/20. The reduction is broadly across revenue categories with tax receipts (86.0% of the forecast) expected to fall by 28.2% and non-tax collections (14.0% of the forecast) receding by 13.7%. Under socially targeted reliefs, the Government announced its intention to provide tax reductions in several areas, including the implementation of a "back-to-school"VAT holiday on school supplies, clothing and selected food items purchased domestically, in the two weeks preceding the reopening of schools. The Government also announced the extension of previous relief measures, such as the Special Economic Recovery Zone to continue to support the ongoing restoration of the islands impacted by Hurricane Dorian. Specifically, Abaco and Grand Bahama will continue to receive VAT and duty exemptions until the end of the year, with a planned scale-back from January 1, 2021, to June 30, 2021, to just building materials. To stimulate domestic economic production, tax relief measures also included the reduction of import duty on fishing materials from 45% to 20% and on farming equipment for use in backyard farming from 25% to 10%. Additionally, the duty on building materials decreased to 20%, to encourage increased construction activity. Meanwhile, revenue enhancement measures included an increase in customs storage fees and a fee structure to facilitate custom-ordered license plates.

The expenditure budget targeted a mix of stabilisation, social support, and stimulus measures. In particular, capital spending is budgeted to rise sharply to $515.5 million, approximately $190.0 million (58.4%) higher than the FY2020/19 projected outturn, while recurrent outlays are estimated at $2.6 billion, some $35.3 million (1.4%) above last year's revised budgeted outcome. The former provided for investments in public infrastructure works, health facilities, energy conservation projects, digital infrastructure, housing and small business lending. Meanwhile, reprioritisation and cuts provisions for most agencies supported elevated recurrent allocations for social services, unemployment and a range of public health interventions.

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