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MEFD: May 2005

Published: Monday July 4th, 2005

Preliminary data for the first five months of 2005 indicate that the Bahamian economy continued to strengthen, underpinned by intensifying foreign investments which more than compensated for abated tourism receipts. Meanwhile, accelerated credit expansion also supported increased domestic expenditures, including an extension in residential investments. Occurring in the context of moderately reduced deposit base growth, this resulted in slowed gains in external reserves and bank liquidity.

The outlook remains healthy for tourism and foreign investment activity, with tourism expected to benefit from upbeat trends in the US and other external economies. Performance, nevertheless, remained constrained during the first four months through April, owing to the loss of hotel capacity in Grand Bahama, where total arrivals were one-fourth lower. Otherwise, growth in stopover activity supported continued output gains for New Providence and the Family Islands. New developments affecting the sector in May included the conclusion of the sale of properties to the Baha Mar Group for the re-development of the Cable Beach strip. This and the Kerzner International project on Paradise Island are expected to headline the expansion and upgrade of facilities on New Providence.

On the fiscal front, the Government's Budget for FY 2005/06 was presented to Parliament in May. While introducing no new taxes, the Budget projected continued revenue improvement from increased buoyancy in the economy, and direct measures to enhance efficiency among collection agencies and to tighten administrative loopholes. Increased infrastructure and recurrent expenditure needs, inclusive of a planned pay hike for civil servants, are expected to boost total outlays and maintain the deficit near a projected $163 million -- which would represent, however, a marginally reduced ratio to GDP of 2.8%, compared to the authorities expected outcome of 2.9% in FY 2005/06. With revenue intake remaining on an improving trend, the preliminary deficit during the first ten months of FY2004/05, stood only moderately higher, near $106 million on an adjusted basis, when compared to the same months of the previous fiscal year. In particular, growth in recurrent expenditure continued at a much faster pace (10.6%).