In its first report since the Department of Statistics (DOS) released gross domestic product (GDP) figures showing three consecutive years of contraction in the economy, The Central Bank of The Bahamas (CBOB) has struck a somber tone, forecasting “only marginal gains” and “subdued domestic economic activity”, even with robust tax collection efforts led by the over-performing value-added tax (VAT).
In fact, the bank went so far as to tie improvements in the employment picture to improved growth. Given the prime minister’s downward revision of his own growth estimate for the coming year, this is grim news.
The National Accounts section of the DOS reported at the beginning of May that the country’s GDP shrank by 1.66 percent from 2014 to 2015, after shrinking by 0.52 percent the previous year and marking the third consecutive contraction in “real” GDP. The use of constant prices – in this case, prices as they stood in 2006 – is a standard among statisticians, used to better identify trends in an economy. It is to be noted that among statisticians, including those in The Bahamas’ DOS, the “constant prices” measure is also called the “real” measure. The DOS report on the 2015 GDP, issued on Friday, shows “real” GDP growth as 3.09 percent in 2012; 0.01 percent in 2013; -0.52 percent in 2014; and -1.66 percent in 2015.
In addition, according to the statistics, the size of the economy in real terms was $7.965 billion in 2012. In 2013, that number grew to $7.966 billion, but in 2014 it shrank to $7.924 billion, and again in 2015, it shrank to $7.792 billion.
And in his budget communication last week, Prime Minister Perry Christie referenced the DOS report, acknowledging that the real economy is estimated to have contracted by 0.5 percent in 2014, and that the contraction in real economic activity widened further last year, to the tune of -1.7 percent.
Christie said he expected “some degree of firming in economic activity this year on the basis of ongoing modest growth in the tourism sector, and foreign investment-led activity in the construction sector”, and said on that basis, real GDP is expected to grow by some 0.5 percent in 2016, following the 1.7 percent contraction last year.
Meanwhile, CBOB released its monthly economic and financial developments (MEFD) report for April 2016 on Friday, saying, “Expectations are that the domestic economy will register only marginal gains during the review year, following a construction-led contraction in output in 2015.”
According to CBOB, the economy should see modest improvement in the tourism sector, amid ongoing growth in key source markets, additional airlift and “cultural initiatives” – almost certainly a reference to the Bahamas Junkanoo Carnival – while activity in the construction sector should be supported by several foreign investment projects in both the capital and the Family Islands.
“Healthier employment prospects remain conditioned on more favorable growth dynamics, while inflation is expected to stay relatively subdued, given the persistence of low global oil prices,” the bank said.
In addition, the bank expects that revenues from VAT should result in further gains in tax collections and, in combination with measures to restrain expenditure growth, lead to a decline in the deficit. However, the regulator also predicted that credit to the private sector would remain subdued due to the high level of loan delinquencies and banks’ conservative lending stance.
The bank reported that domestic economic activity remained subdued during April, reflecting the weakness in tourism output, while construction sector developments continued to be underpinned by tourism-related foreign investment projects.
Preliminary data from the Bahamas Hotel and Tourism Association (BHTA) showed signs of softness in the tourism sector’s performance indicators over the first quarter, as total room revenue fell by approximately five percent relative to the previous year. This outturn reflected contractions in both the hotel occupancy rate and the average daily room rate (ADR) by two percentage points to 73.7 percent and by 3.7 percent ($10.46) to $275.33, respectively.
The bank noted an interesting mix of developments in the energy sector, where average gasoline and diesel costs were lower month-to-month and year-over-year, but the Bahamas Electricity Corporation’s (BEC) fuel charge rose by 16.3 percent in April, month-on-month, to 9.17 cents per kilowatt hour (kWh) — the largest monthly gain since March 2011 — although on average, prices remained (50 percent) lower in comparison to 2015.
CBOB also reported that an increase in advances from commercial banks boosted net credit to the government by $35.3 million, reversing the year-earlier net repayment of $14.5 million.
Interestingly, a component of the report was missing: Under “domestic monetary trends”, the MEFD usually contains a year-over-year comparison – for example, April 2016 vs. 2015 – and a year-to-date comparison, for example, January – March 2016 vs. 2015. It is that year-to-date comparison that is missing, without explanation.
K. Quincy Parker
The Nassau Guardian
Published: May 31, 2016