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Monthly Economic and Financial Developments, September 2009

Published: Friday November 6th, 2009

Although the global economy showed sustained signs of “bottoming out” during the review month, domestic economic conditions continued to be negatively impacted by the worsening of key economic indicators in several major markets. Consequently, tourism activity remained weak, and the downturn in foreign investment inflows depressed output in the construction sector. However, with global demand remaining relatively anaemic, domestic inflationary pressures continued to ease from the mid-2008 peak. Fiscal developments featured a widening in the deficit for the first two months of FY2009/10, as the ratcheting down of private sector demand translated into lower tax revenue collections. In the monetary sector, both liquidity and external reserves contracted over the month, occasioned by the seasonal, although tempered, rise in net foreign currency demand in the latter half of the year.

Preliminary indications are that tourism output contracted for the first three quarters of the year, owing mainly to double digit declines in the higher value added and longer stay stopover visitors. Broadly consistent with this outcome, initial data from the hotel sector showed that, from January to August, revenue receipts fell by 22.0%, reflecting the combined impact of a 7.4 percentage point reduction in average occupancy rates to 66.2%, and a 9.6% decrease in average daily room rates to $234.55.

Buoyed by lower average energy costs, inflation for the twelve months to September softened by 0.83 percentage points to 3.07%, versus a 1.47 percentage point firming to 3.90% in 2008. Average price increases moderated for housing (1.1%), transport & communication (1.5%), recreation & entertainment services (1.7%), medical care & health (2.6%), furniture & household operation (4.1%), and “other” goods & services (5.2%). However, notable price gains were registered for food & beverages (7.0%), and education (3.6%). In terms of the cost of electricity, the average fuel surcharge for September rose by 13.3% to 11.24 cents per kilowatt hour (KWh), in comparison to the previous month; however, it remained some 51.8% lower than the previous year’s rate. Similarly, average prices for gasoline and diesel moved higher by 4.5% to $4.19 per gallon and 5.0% to $3.36 per gallon, respectively; but were below last year’s respective upturns of 21.7% and 36.5%.

Government’s budgetary operations for the first two months of FY2009/10 revealed that the deficit widened by $17.3 million (61.6%) to $45.3 million, relative to the corresponding period a year earlier, as the reduction in expenditures was overshadowed by the falloff in revenue receipts. Total expenditure fell by $12.1 million (4.9%) to $232.6 million, reflecting a 3.5% decrease in current outlays, which was linked to declines in subsidies & other transfers and purchases of goods & services. Similarly, capital expenditures narrowed by 11.2% to $16.9 million, due mainly to lower spending on infrastructure projects. On the revenue side, aggregate collections contracted by $29.4 million (13.6%) to $187.2 million, mainly associated with a 19.7% decline in tax receipts to $137.9 million, as lower intakes from property and tourism-related taxes, as well as business and professional fees, eclipsed a timing-related increase in international trade taxes. In addition, non-tax revenue was reduced by $1.1 million (6.5%) to $15.7 million, occasioned by lower proceeds from fines, forfeits & administrative fees.

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