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Quarterly Economic Review, December 2019

Published: Thursday March 19th, 2020

The Central Bank of The Bahamas is pleased to announce the release of its Quarterly Economic Review for the fourth quarter of 2019. The Review provides an examination of the performance of the domestic economy, as well as sectoral developments, principally during the period October to December.

The domestic economy's modest pace of growth was sustained during the fourth quarter of 2019. Tourism output increased, supported largely by ongoing gains in the Family Islands unaffected by the passage of Hurricane Dorian. In addition, several varied-scale foreign investment projects, and to a lesser extent post-hurricane reconstruction work, provided stimulus to the construction sector. In price developments, domestic inflationary pressures remained contained, although the recent uptick in international oil prices contributed to a firming in the rate.

Preliminary estimates showed that the Government's overall deficit widened during the second quarter of FY2019/20, relative to the same period a year earlier, attributed mainly to a rise in unplanned hurricane recovery related spending, which outstripped the value added tax-led increase in aggregate revenue. Budgetary financing was primarily sourced from the domestic market, and comprised a combination of long and short-term debt.

In monetary developments, bolstered by the receipt of re-insurance proceeds, both bank liquidity and external reserves expanded, with the rise in the deposit base outstripping credit growth during the fourth quarter. Further, banks' credit quality indicators improved during the review quarter, underpinned by modest gains in economic conditions, alongside ongoing debt restructuring, hurricane relief measures and loan write-offs. However, the latest available data for the third quarter revealed a contraction in banks'overall profitability, mainly reflecting higher levels of provisioning for bad debt.

On the external side, the estimated current account position reversed to a surplus during the final quarter of 2019, from a deficit in the comparative 2018 period. Underlying this outturn was a marked increase in net current transfers, primarily associated with significant hurricane-related reinsurance inflows. In contrast, the surplus on the capital and financial account reduced considerably, largely attributed to a reversal in domestic banks' transactions to a net outflow, vis-a-vis a net receipt in 2018.

Given the Coronavirus (COVID-19) pandemic, the near-term economic outlook for The Bahamas has become uncertain and contractionary. Tourism earnings are projected to decline sharply in 2020, becoming particularly acute over the second quarter; and moderately evident even before the end of the first quarter. This will lead to a large reduction in net foreign currency receipts and consequently a sizeable falloff in the Central Bank's external reserves. Foreign reserves are, nevertheless, sufficient to absorb essential domestic foreign currency needs. In particular, outflows associated with tourism sector inputs have abated with the lull in the industry; non-essential domestic overseas expenditures, such as travel, are projected to abate until public health confidence recovers; and the economy stands to benefit from a considerable softening in international oil prices. The Government's budgetary financing also includes anticipated foreign currency borrowing that should supplement foreign exchange needs. Meanwhile, the domestic banking system is mobilized, given healthy capital buffers, to forbear, with likely increased debt servicing difficulties among businesses and households, and to prudently supply new credit when a recovery path opens up. The greater uncertainty for the economy though, is that the duration of the slowdown in tourism and the speed of the anticipated recovery are still unclear, and dependent on progress on the international public health front.

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