Quarterly Economic Review September 2021

The Quarterly Economic Review (QER) is a publica�on of the Central Bank of The Bahamas, prepared by the Research Department, for issue in March, June, September and December. All correspondence pertaining to the QER should be addressed to:

The Manager

Research Department

Central Bank of The Bahamas

P.O. Box N-4868

Nassau, Bahamas

www.centralbankbahams.com

Email address: [e-mail]

SANDDOLLAR

Contents
REVIEW OF ECONOMIC AND FINANCIAL DEVELOPMENTS……….............................................................................	4
DOMESTIC ECONOMIC DEVELOPMENTS...............................................................................................................	4
Overview.............................................................................................................................................................	4
Real Sector..........................................................................................................................................................	4
Tourism ............................................................................................................................................................	4
Construction.....................................................................................................................................................	5
Prices................................................................................................................................................................	6
Fiscal Operations................................................................................................................................................	6
Overview ..........................................................................................................................................................	6
Revenue ...........................................................................................................................................................	7
Expenditure ......................................................................................................................................................	8
Financing and the National Debt........................................................................................................................	8
Public Sector Foreign Currency Debt...................................................................................................................	9
Money, Credit and Interest Rates...................................................................................................................	10
Overview ........................................................................................................................................................	10
Liquidity..........................................................................................................................................................	10
Deposits and Money .......................................................................................................................................	11
Domestic Credit ..............................................................................................................................................	11
Mortgages ......................................................................................................................................................	12
The Central Bank.............................................................................................................................................	13
Domestic Banks...............................................................................................................................................	13
Credit Quality..................................................................................................................................................	14
Provisions and Capital Adequacy......................................................................................................................	15
Bank Profitability.............................................................................................................................................	15
Interest Rates .................................................................................................................................................	16
Capital Market Developments...............................................................................................................................	17
International Trade and Payments........................................................................................................................	17
INTERNATIONAL ECONOMIC DEVELOPMENTS..........................................................................................................	19
STATISTICAL APPENDIX (TABLES 1-16)..............................................................................................................................	22

REVIEW OF ECONOMIC AND FINANCIAL DEVELOPMENTS

DOMESTIC ECONOMIC DEVELOPMENTS

OVERVIEW

Indications are that the domestic economy maintained a measured pace of recovery during the third quarter of 2021, despite the ongoing spread of the Novel Coronavirus (COVID-19). Specifically, tourism sector output further strengthened, undergirded by continuing gains in the high value-added air segment and an uptick in sea traffic, reflecting sustained progress in vaccination efforts, both locally and internationally. In addition, a number of varied-scale foreign investment projects, and to a lesser extent continued post-hurricane rebuilding works, provided some support to the construction sector. In price developments, domestic inflationary pressures remained subdued over the review period, although the recent uptick in international oil prices contributed to a firming in the rate.

Preliminary data for the first quarter of FY2021/22 revealed that the Government's overall deficit narrowed vis-à-vis the same quarter of FY2020/21. The outturn was underpinned by a rise in total revenue, attributed to a rebound in value added tax (VAT) collections, which outstripped the growth in aggregate expenditure. Budgetary financing was primarily sourced from the domestic market, and comprised a combination of short and long-term debt.

In monetary developments, the growth in domestic credit outpaced the rise in the deposit base, during the review quarter. Nevertheless, both bank liquidity and external reserves increased, bolstered largely by the receipt of Special Drawing Rights (SDRs) from the International Monetary Fund (IMF). Further, banks' credit quality indicators registered a marginal improvement during the third quarter, on account of a reduction in non-accrual loans, which overshadowed the rise in short-term arrears. In addition, the latest available data for the second quarter of 2021 indicated that banks' overall profitability increased, due mainly to a significant decline in provisioning for bad debt.

In the external sector, the estimated current account deficit narrowed considerably during the third quarter, as the services account position reversed to a surplus from a deficit in the previous year, owing primarily to a rebound in tourism receipts. In contrast, the estimated surplus on the capital account decreased markedly, while the financial account inflows reduced notably, explained by a decline in "other" investment inflows, due to a reduction in net currency and deposit liabilities.

REAL SECTOR

TOURISM

During the third quarter of 2021, indications are that tourism output maintained its positive momentum, albeit at a slow pace, reflecting widespread vaccination efforts both locally and internationally.

Preliminary data from the Ministry of Tourism showed that total visitor arrivals amounted to 532,206, vis-à-vis a 97.8% decline to 34,221 in 2020, when global travel restrictions, related to

4

COVID-19, virtually eliminated

air and sea traffic. An analysis by

Visitor Arrivals

component

revealed

that air

(000)

traffic

totalled

263,462,

600

following a 94.0% contraction to

500

only

21,802

during

the

400

comparative

period

last

year.

Further, sea passengers equalled

300

to 268,744, compared to a 99.0%

200

reduction to just 12,419 in the

year prior.

100

A breakdown by major port of

0

QIII-20QIV-20

Q1-21

QII-21

QIII-21

entry

revealed

that

tourist

arrivals

to

New

Providence

Air

Sea

Total

recovered to 310,883, relative to

a 98.8% decrease to 10,385 last

year, as air and sea passengers totalled 205,678 and 105,205, respectively. Similarly, visits to the Family Islands strengthened to 192,403 from a 96.1% falloff to 21,698 in 2020, underpinned by respective gains in both air and sea traffic to 52,043 and 140,360. In Grand Bahama, foreign arrivals advanced to 28,920, from only 2,138 passengers a year earlier, reflective of a rise in air and sea traffic, to 5,741 and 23,179, respectively.

Positive trends were also observed in the short-term vacation rental market, evidenced by the most recent statistics provided by AirDNA. In particular, total room nights booked increased markedly to 285,682, relative to 124,568 in the same period in 2020, as uptake of both entire place and hotel comparable listings more than doubled. In terms of the components, occupancy levels for entire place listings rose to 52.0% from 34.4% in the corresponding period last year, while the average daily rate (ADR) grew by 18.1% to $480.50. Similarly, hotel comparable listings recorded a 13.0 percentage points firming in the occupancy rate to 47.7%, as the ADR grew by 23.0% to $177.27.

The most recent data provided by the Nassau Airport Development Company Limited (NAD) for the third quarter indicated that total departures-net of domestic passengers-amounted to 263,249, recovering from a reduction of 96.7% to 13,598 in 2020, underpinned by the full reopening of the borders. Specifically, U.S. departures rose to 244,677, following a 97.0% decline to 11,003 last year. Likewise, non-U.S. departures strengthened to 18,572, after a 94.4% falloff to 2,595 in the previous year.

CONSTRUCTION

During the third quarter, output in the construction sector continued to be undergirded by a number of ongoing, varied-scale, foreign investment projects in the capital and the Family Islands. However, domestic private sector activity remained lackluster.

Total mortgage disbursements for new construction and repairs-as reported by domestic banks, insurance companies and the Bahamas Mortgage Corporation-decreased by 3.0% ($0.7 million) to $21.7 million, extending the 2.5% reduction in the prior year. Contributing to this development, commercial disbursements reduced by 67.1% ($0.9 million) to $0.4 million, extending the 47.5%

5