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Monthly Economic and Finanical Developments, April 2014

Published: Tuesday June 10th, 2014

Indications are that domestic economic activity was relatively modest over the review month, based on an improved tourism performance and steady support for the construction sector from foreign investments. Inflation remained subdued, reflecting the relative stability in global oil prices. In the fiscal sector, the overall deficit narrowed over the nine months of FY2013/14, due to the combined effects of higher non-tax receipts and reduced infrastructure-related capital outlays. Monetary sector developments featured expansions in both liquidity and external reserves, benefitting from net foreign currency inflows related to real sector activities.

Preliminary data suggests that tourism output expanded modestly in April. Supported by increased levels of stopover arrivals, total room revenue—based on a sample of large hotels in New Providence and Paradise Island—grew by 12.3% in April, vis-à-vis the prior year. Both the average daily room rate (ADR) and hotel occupancy rate improved, by 12.6% to $290.13, and by 3.2 percentage points to 75.2%, respectively. Notwithstanding, the year-to-date outcome remained relatively soft, due mainly to lower inventory levels, including the closure of one property for refurbishment. Overall room revenues fell by 1.0% over the four-month period, despite gains in average occupancy rates and ADRs, of 1.1 percentage points to 70.1% and by 1.3% to $270.8, respectively.

Consumer price inflation for the twelve months to April—as measured by the Retail Price Index—slowed by 93 basis points from the prior year, to 0.45%. This outturn reflected declines in the average prices for housing, water, gas, electricity, water & other fuels—the most heavily weighted category in the Index—clothing & footwear and furnishing, household equipment & maintenance, of 1.16%, 0.76% and 0.10%, following year-earlier respective gains of 2.36%, 0.79% and 2.12%. In addition, average price increases slackened for food & non-alcoholic beverages, by 1.45 percentage points to 0.95%. However, inflation accelerated for alcoholic beverages, tobacco & narcotics (by 4.9 percentage points to 6.35%), miscellaneous goods and services (by 1.6 percentage points to 2.04%), restaurant & hotels (by 1.2 percentage points to 3.08%), transport (by 0.6 of a percentage point to 1.12%), health (by 0.5 of a percentage point to 2.32%) and education (by 0.5 of a percentage point to 2.18%). Further, recreation & culture costs firmed by 1.54%, a reversal from a 0.74% decrease in 2013, and the rate of decline for communication costs slackened to 0.19% from the year earlier 3.98%.

Domestic energy prices trended upwards in April, as the average cost for both gasoline and diesel rose, by 1.3% and 1.4% to $5.38 and $5.21 per gallon—for respective year-on-year gains of 4.0% and 2.7%. In contrast, the Bahamas Electricity Corporation’s fuel charge fell, by 3.5% over the review month, to 22.96¢ per kilowatt hour (KWh), and by 18.7% relative to last year.

Budgetary operations over the nine months of FY2013/14, showed that the overall deficit narrowed by $123.8 million (32.2%) to $260.8 million, benefitting from a $45.8 million (4.6%) rise in total revenue to $1,052.7 million, and a $78.0 million (5.6%) capital-led contraction in aggregate expenditure to $1,313.5 million. In terms of receipts, non-tax collections grew by $38.6 million (35.4%) to $147.5 million, explained by a $27.4 million (38.8%) timing-related surge in fines, forfeits & administrative fees, alongside a $12.7 million (34.8%) gain in ‘other sources’ of income, linked to dividend receipts from an ownership stake in a telecommunication company. Tax revenue also rose by $7.2 million (0.8%) to $905.1 million, as rate increases led to a $37.5 million (48.6%) hike in business & professional fees, which offset the $27.5 million (6.1%) decline in taxes on international trade. On the expenditure side, the decrease in outlays was underpinned by a $59.2 million (34.0%) decline in capital spending, to $115.1 million, associated with a $46.5 million (32.2%) reduction in infrastructure-related projects and a $4.0 million (20.5%) falloff in asset acquisitions. In addition, net lending for budgetary support to the public bodies was curtailed by $38.3 million (46.4%) to $44.1 million. Conversely, recurrent spending advanced by $19.4 million (1.7%) to $1,154.3 million, as higher interest payments and subsidies boosted transfer payments by $40.9 million (9.3%). In contrast, a reclassification of tourism-related contractual services to the transfers category, resulted in a $21.4 million (3.1%) decline in direct consumption expenses.

The deficit was financed through a combination of external and domestic sources. External borrowings, of $425.8 million, comprised a US$300 million bond and $125.8 million in project loan drawings. The $370.0 million secured domestically was almost equally distributed between short-term foreign currency loans ($125.0 million), Government bonds ($115.0 million) and short-term debt ($130.0 million).

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