Monthly Economic and Financial Developments October 2015

Published: Sunday November 29th, 2015

Indications are that the economy’s mildly positive growth momentum was sustained during the review month, as tourism sector output benefitted from the ongoing strengthening in the stopover segment, while foreign investment projects supported construction activity. In addition, domestic energy costs continued to trend lower, reflecting the protracted decline in global oil prices. Fiscal developments during the first quarter of FY2015/16 were dominated by the receipt of proceeds from the Value Added Tax (VAT), which led to a significant contraction in the overall deficit. In the monetary sector, both liquidity and external reserves narrowed during the review month, largely due to the seasonal increase in foreign currency demand.

Despite a 1.9% falloff in the total number of tourists travelling to the country, to 4.2 million, preliminary data from the Ministry of Tourism for the eight months of 2015 indicated a strengthening in tourism output. This was led by a 4.0% increase in the high value-added air segment, to 1.0 million, outpacing the 3.6% gain in the same period of 2014. In contrast, the number of sea arrivals fell by 3.6%, a reversal from the prior period’s 2.8% expansion.

In terms of the major ports of entry, visitors to New Providence contracted by 9.1% to 2.2 million, vis-à-vis a 2.3% gain a year earlier. This outturn reflected a 13.1% decline in the sea component, which countered a slight, 0.1% rise in air arrivals. Following a 6.7% reduction last year, the number of visitors to Grand Bahama advanced by 28.3% to 0.7 million, as expanded hotel and airlift capacity bolstered air arrivals by 27.9%, and the dominant sea component grew by 28.4%. For the Family Island segment, the number of visitors weakened marginally by 0.6%, vis-à-vis an 8.9% increase in the comparative period, weighted down by a 1.8% falloff in the high volume sea segment, which overshadowed the 8.4% upturn in air arrivals.

Growth in long-stay visitors translated into an overall improvement in hotel performance indicators. Based on information from the Bahamas Hotel and Tourism Association, room revenues for a sample of major properties in New Providence rose by 3.0% during the nine months of 2015, when compared to the prior year. This outturn reflected gains in both the average occupancy rate and the average daily room rate (ADR), by 3.5 percentage points to 72.7% and 5.9% ($14.34) to $255.58, respectively.

In terms of domestic energy costs, the sustained downward trajectory in global oil prices translated into a further decline in the Bahamas Electricity Corporation’s fuel charge by 20.4% month-on-month to 11.42¢ per kilowatt hour in October. For the annual comparison, the decline in the fuel charge exceeded 50%.

The Government’s overall deficit narrowed sharply by $91.6 million (60.3%) to $60.3 million during the first three months of FY2015/16, supported by a tax-led $120.6 million (38.1%) rise in total revenue, to $437.1 million, which outpaced the $29.1 million (6.2%) increase in aggregate expenditure, to $497.4 million. In particular, buoyed by a net intake of $165.5 million in VAT, tax receipts surged by $113.7 million (40.8%) to $392.2 million. In a modest offset, taxes on international trade contracted by $15.8 million (11.0%) to $127.4 million, reflecting respective declines in import and excise taxes, of $10.1 million (13.3%) and $8.0 million (12.0%), which overshadowed a slight $2.3 million increase in export tax receipts. With the elimination of the hotel occupancy tax in January 2015, following the introduction of the VAT, selective taxes on services were almost negligible, at $0.1 million, compared to $12.0 million a year earlier. Non-trade stamp taxes declined by $10.5 million (30.3%), attributed mainly to a sharp $17.8 million (68.3%) falloff in tax receipts from real estate transactions, as property sales slumped, while timing-related factors led to a $10.1 million (63.4%) contraction in business & professional fees, to $5.8 million. In contrast, non-tax revenue rose by $10.3 million (29.5%) to $45.2 million, as the payment of dividends by a major telecommunications provider contributed to a more than four-fold increase in income to $13.9 million.

In terms of expenditure, current outlays expanded by $56.2 million (14.5%) to $444.2 million, owing mainly to a $43.6 million (24.7%) rise in transfer payments to $220.4 million, as an increase in subsidies to the tourism sector contributed to a $41.4 million (36.0%) rise in this category to $93.0 million. In addition, interest payments increased slightly, by $2.3 million (3.7%), to $64.0 million. Consumption expenditure firmed by $12.6 million (6.0%) to $223.8 million, reflecting gains in both wages & salaries and purchases of goods and services, of $6.7 million (4.1%) and $5.9 million (11.8%), respectively. In contrast, capital outlays fell by $20.6 million (34.2%) to $39.7 million, mainly explained by an $11.3 million (27.0%) reduction in infrastructure spending and a $9.3 million (50.3%) decline in asset acquisitions.

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