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Central Bank More Bearish On 'Significant Headwinds'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank of the Bahamas has adopted a more bearish stance on the Bahamian economy’s prospects in the 2013 second half, saying it was set “to face significant headwinds”.

While this outlook is not surprising, given the relatively weak tourism industry performance year-over-year, the Central Bank’s comments raise new doubts over whether the Bahamas will hit is 2.7 per cent GDP growth projection for 2013.

Many observers thought such a target over-optimistic, and the Central Bank’s review of July’s economic developments supports this, describing the situation as “challenging” due to “continued weakness in the major tourism sector”.

This meant there was little to no positive impact on the Bahamas’ official 13.7 per cent unemployment rate, and the Central Bank said the 2013 first half was characterised by “persistent softness in the high value-added stopover segment of the [tourism] market, due to reported declines in group business, increased competition from low-cost regional destinations, and some reduction in airlift capacity”.

It added: “Growth in visitors slackened sharply to 1.4 per cent, to number 3.2 million, from 9.6 per cent in the prior year. The air segment declined by 6.2 per cent, a strong reversal from the 10.2 per cent improvement achieved in 2012, and the expansion in sea passengers slowed markedly to 3.7 per cent from last year’s 9.4 per cent.

“Disaggregated by first port of entry, tourist arrivals to New Providence rose by 8.5 per cent to 1.9 million, occasioned by a 15.9 per cent advance in the sea segment, which outweighed the 6.4 per cent reduction in air arrivals.

“In contrast, the Grand Bahama market weakened by 4.8 per cent, reflecting contractions in both air and sea passengers, by 19 per cent and 2.4% per cent, respectively. Similarly, the number of visitors to the Family Islands decreased by 7.8 per cent, as a 9.1 per cent fall-off in sea traffic overshadowed the 1.7 per cent rise in the air component.”

With stopover arrivals contracting, the Central Bank said a data sample from 14 New Providence hotels showed a 6.6 per cent year-over-year room revenue decline for the first seven months of 2013.

The average occupancy rate fell by five percentage points to 69.6 per cent, which “outstripped” the 3.2 per cent increase in the average daily room rate (ADR) to $251.20.

“The domestic economy is expected to continue to face significant headwinds over the remainder of 2013, amid signs that the weakness in the key group segment will continue to weigh down tourism output,” the Central Bank warned.

“However, foreign investment projects in the capital and several Family Islands should continue to support activity in the construction sector. Against this backdrop, the unemployment rate is forecasted to remain elevated, until the recovery becomes more broad-based.”

The Government’s financial position also remained weak, with its fiscal deficit for the first 11 months of the 2012-2013 financial year up by $146.6 million or 49.3 per cent over the previous year at $444 million.

Total revenues were down by $78.8 million or 5.9 per cent at $1.25 billion, while total spending was up by $67.8 million or 4.2 per cent at $1.694 billion.

“Tax collections decreased by $59.8 million (5.1 per cent) to $1.121 billion, owing primarily to a $99.1 million (15.1 per cent) reduction in taxes on international trade, as excise taxes returned to trend levels after arrears payments provided a significant one-off boost last year,” the Central Bank said.

“In addition, non-tax collections were lower by $1.3 million (1 per cent) at $129.3 million, as a 15.5 per cent fall-off in income proceeds outstripped the 7 per cent rise in fines, forfeits & administrative fees.”

And it added: “Spending developments included an increase in current outlays by $59.8 million (4.5 per cent) to $1.394 billion, reflecting a $38.8 million (7.6 per cent) advance in transfer payments and a $19.3 million (3.7 per cent) gain in wages and salaries.

“Capital spending also firmed, by $15 million (7.7 per cent) to $210.7 million, buoyed by budgetary support to non-financial public enterprises ($12.1 million) and other infrastructure outlays ($11.3 million). However, net lending fell by $7 million.”

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