Quarterly Economic Review December 2020
Published: Monday March 15th, 2021
The Central Bank of The Bahamas is pleased to announce the release of its Quarterly Economic Review for the fourth quarter of 2020. The Review provides an examination of the performance of the domestic economy, as well as sectoral developments, principally during the period October to December.
Preliminary indications are that the domestic economy contracted during the fourth quarter of 2020, adversely impacted by the spread of the Novel Coronavirus (COVID-19). Tourism output reduced significantly, as internationally imposed travel restrictions dampened the high value-added air segment and the dominant sea component remained on pause. However, several varied-scale foreign investment projects, and to a lesser extent post-hurricane reconstruction works, provided positive impulses to the construction sector. In price developments, domestic inflationary pressures remained contained, despite a firming in the rate during the review quarter.
Preliminary estimates showed that the Government’s overall deficit widened considerably during the second quarter of FY2020/21, relative to the same period a year earlier. Underlying this outturn, was a sharp reduction in revenue collections, combined with an increase in spending, mainly for health and welfare related to COVID-19, and ongoing hurricane recovery. A large portion of budgetary financing was sourced from the external market, and was dominated by an accumulated $825.0 million in external bond issue.
In monetary developments, the contraction in domestic credit outpaced the reduction in the deposit base during the review quarter. Consequently, both bank liquidity and external reserves expanded, bolstered by the receipt of foreign currency inflows from the Government’s external borrowings. However, banks’ credit quality indicators deteriorated during the fourth quarter, attributed to the ongoing adverse impact of the COVID-19 pandemic. Further, the latest available data for the third quarter revealed a reduction in banks’ overall profitability, largely reflecting higher levels of provisioning for bad debt.
In the external sector, the estimated current account balance reversed to a deficit during the final quarter of 2020, from a surplus in the comparative 2019 period. Underpinning this outturn was a switch in the services account position to a deficit from a surplus in the prior year, as internationally imposed travel restrictions associated with the COVID-19 pandemic, led to a significant reduction in travel receipts. In contrast, the surplus on the capital and financial account increased considerably, owing primarily to an expansion in net debt-financed inflows to the Government.
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