Monthly Economic and Financial Developments, November 2015

Published: Wednesday December 23rd, 2015

Provisional indicators suggest that the domestic economy continued to expand at a modest pace during the review period, underpinned by gains in tourism output over the start of the key winter season, while construction activity benefited from several foreign investment projects. Reflecting the persistent decline in international oil prices, domestic energy costs maintained a downward trajectory. The fiscal deficit contracted significantly during the first four months of FY2015/16, as a VAT-led surge in revenues surpassed the growth in expenditure. In the monetary sector, both liquidity and external reserves expanded in November, mainly due to net foreign currency inflows from real sector activities.

Indications are that the tourism sector benefitted from the hosting of a major basketball tournament over the review period, which attracted an estimated 2,000 additional visitors to the country. Provisional data from the Bahamas Hotel & Tourism Association and the Ministry of Tourism showed total room revenue for a sample of hotels in New Providence firming by 3.0% during the ten months of 2015, over the prior year. This outcome corresponded to gains in both the average occupancy rate and the average daily room rate, of 3.1 percentage points and 6.0%, to 70.7% and $249.76, respectively.

Domestic energy costs were favourably impacted by the weakness in crude oil prices, which have fallen by almost 20% since the start of the year. In light of these developments, the Bahamas Electricity Corporation’s fuel charge decreased by 12.1% in November, on a monthly basis, to 10.03 cents per kilowatt hour (kWh), and more sharply by 62.4% for the annual comparison.

Data on the Government’s budgetary operations for the first four months of FY2015/16 showed that the overall deficit narrowed by $113.5 million (57.0%) to $85.5 million, aided by a $161.2 million (36.9%) expansion in total receipts, to $597.9 million, which overshadowed the more moderate $47.7 million (7.5%) hike in overall expenditure to $683.5 million. Growth in revenue was driven by a $156.2 million (41.7%) surge in tax receipts, to $531.3 million, as VAT collections of $229.5 million outpaced declines in the remaining categories. Specifically, taxes on international trade contracted by $20.1 million (10.5%) to $172.1 million, owing to reductions in import ($14.6 million) and excise ($7.9 million) taxes, which countered a $2.4 million rise in export taxes. In addition, “other miscellaneous” taxes fell by $31.0 million (21.2%), as lower real estate sales contributed to a $26.6 million (72.0%) drop in ‘other’ stamp taxes, while departure taxes fell by $7.7 million (15.8%). Similarly, the intake from business & professional fees declined by $13.6 million (63.5%) to $7.8 million, as timing associated factors resulted in a $13.4 million (70.0%) fall-off in general business licence fees. Selective taxes on services were lower by $6.3 million, with the elimination of the hotel occupancy tax leading to a $14.0 million reduction in this category to negligible levels, and negating a $7.8 million web shop-related increase in gaming taxes. By contrast, total non-tax revenue firmed by $8.0 million (13.6%) to $66.7 million, with the income component boosted by $9.9 million (63.0%) on account of dividend proceeds.

On the spending side, the reclassification of several transactions from net lending to current spending, contributed to an increase in the latter category, by $90.1 million (16.8%) to $626.9 million. As a consequence, subsidies and “other” transfers firmed by $59.5 million (35.1%) to $228.8 million, with the subsidies portion higher by $19.9 million (19.6%) and transfers to public corporations growing more than four-fold to $23.9 million. Meanwhile, interest payments increased by $1.5 million (1.8%) to $83.6 million. Consumption spending rose by $29.2 million (10.2%) to $314.5 million, comprising double digit hikes in both wages & salaries ($16.2 million) and purchases of goods and services ($13.0 million)—the latter inclusive of gains in utilities and contractual service payments. As a result of the reclassification exercise, Government’s net lending to public bodies declined sharply by $27.6 million (96.5%) to $1.0 million. Capital spending contracted by $14.7 million (21.0%) to $55.6 million, owing to a $7.5 million (38.1%) reduction in asset acquisitions and a $7.1 million (14.0%) decline in infrastructure development outlays.

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