Quarterly Economic and Financial Developments Report March, 2017 Prepared by the Research Department 1
Global Economic Forecasts 12 % Real GDP Growth Since the economic recovery in 2010, countries have struggled to secure strong, long lasting growth. 10 8 6 In the latest update, the IMF forecasts 3.5% global growth in 2017, up from 3.1% in 2016 Supported by recovery in investment, manufacturing, and trade. Increased global demand Financial market stability US real GDP expansion projected at 2.3% 4 2 0-2 -4-6 2008 2009 2010 2011 2012 2013 2014 2015 2016 *2017 World United States United Kingdom Euro Area China Bahamas Source: IMF World Economic Outlook April 2017 *Projection 2
Overview of Domestic Economic Developments REAL SECTOR FISCAL SECTOR CONSTRUCTION: Output led by foreign investment projects and hurricane rebuilding. TOURISM: Output remains mild. NAD airport traffic down over the three-month period. PRICES: Remain stable. Prices fell marginally (0.4%) in 2016, after a 1.9% gain in 2015. Fuel prices at the pump down slightly M-O-M, but higher Y-O-Y For the first 7 months of FY16/17 the deficit rose, amid increased expenditure and a softening in revenue. MONETARY SECTOR Liquidity: firmed during the quarter, buoyed by Central Bank financing to Government and net foreign currency inflows; growth was significantly less than in 2016. Growth in external reserves slowed relative to last year, when balances benefited from Government s external loan proceeds. 3
TOURISM SECTOR
Tourism Sector Performance (Jan. Mar. 2017) Indications are that tourism sector performance weakened in the first quarter of 2017. Data from the Nassau Airport Development Company (NAD) showed: Passenger traffic at Lynden Pindling International Airport contracted by 6.5% net of domestic departures that during the three months to March 2017, compared to a 4.0% gain in the prior year. Easter season was later than in 2016, and was a factor. By major port United of States entry U.S returning passengers narrowed by 7.0% (firmed by 5.5% in Q1 2016). Other International Departing traffic down 3.9% (fell by 3.4% in Q1 2016)
FOREIGN INVESTMENT
Baha Mar Developments Update: Government officially handed over Certificate of Occupancy to CTFE in March 2017. Soft Opening: The resort began its phased opening on April 21, 2017, and is expected to be fully operational by March 2018. First phase includes the casino hotel, the casino, the convention centre, 200 rooms at the Grand Hyatt, 20 restaurants, and the golf course. Reservations to public are set to begin on May 29, 2017 Still to come: Remaining 1,600 rooms at Grand Hyatt 300-room SLS Resort 200-room Rosewood
Baha Mar Developments Projected Contributions Baha Mar has injected an estimated $101.5 million into Bahamian economy so far, through the payment of employees and unsecured creditors. Once fully opened, Baha Mar projects that the resort will generate: Over $700 million in direct annual economic output $1.1 billion in indirect and induced output Over $45 million in taxes, annually from resort operations and national insurance contributions Approximately 315,000 additional air passenger guests, accounting for a 19.0% boost in arrivals on a full year basis
Other Major FDI Projects Project Name The Pointe Development New Providence Carnival Cruise Port East Grand Bahama Children s Bay Cay and Williams Cay Exuma Recent Developments Ground-breaking for phase II took place on March 11, 2017, inclusive of a 100-room 8-storey condominium, slated to be completed by September 2018. $200 million investment over approx. 2 years Located 2.5 miles west of Stat Oil in East Grand Bahama Heads of Agreement completed after receiving approval from National Economic Council $200 million eco-friendly ultra luxury resort Includes 50-room five-star resort on Children s Bay Cay and a private resort and 18-hole Tom Fazio golf course on Williams Cay Mediterranean Shipping Company (MSC) Ocean Cay Expected $200 million investment Transformation of Ocean Cay to include cruise port, boutique hotel, marine park and Bahamian cultural and entertainment hub Broke ground on January 16, 2017 Over the next 2 years, 1,100 construction jobs will be available 220 Bahamians will be employed on cruise ships 9
INFLATION
Inflation Supporting the decline in the price level during 2016 was a reduction in accretions in the average cost of restaurants & hotels and food & nonalcoholic beverages to 1.3% and 0.9% from 5.9% and 5.9%, respectively. VAT Implementation % 2.0 US $ per bbl 120.00 1.5 1.0 0.5 Oil Prices Mar. 2017 $55.60/b (right axis) 100.00 80.00 60.00 40.00 0.0-0.5 Dec '13 Mar '14 Jun '14 Sept'14 Dec '14 Mar '15 Apr '15 May '15 Jun '15 Jul '15 Aug '15 Sep '15 Dec '15 Mar '16 Jun '16 Sep '16 Dec'16 March '17 20.00 0.00 11 Source: Department of Statistics and Bloomberg Inflation 12 mths to December -0.35% (left axis)
Global oil prices rose slightly in 2016, but remained lower than pre-june 2014 highs. This has resulted in a slight upward trend in domestic energy costs. Fuel prices at the pump increased: cost of diesel rose by 15.7% over the quarter to $3.84 per gallon, while gasoline prices firmed by 14.5% to $4.23 per gallon. DOMESTIC IMPLICATIONS OF LOWER GLOBAL OIL PRICES $BSD 6 5 4 3 2 1 0 B$M 300 250 2013 Mar Jun Sep Dec 2014 Mar Prices at the Pump Jun Sep Dec 2015 Mar Diesel Jun Sep Dec 2016 Mar Gasoline Value and Volume of Oil Imports Jun Sep Dec 2017 Mar '000 Barrels 2500 2000 While the volume of imports oscillated within a narrow band during 2016, there was a notable decline in the value of oil imports in the latter part of 2016. 200 150 100 50 0 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1500 1000 500 0 12 Oil Imports Value Oil Imports Volume (Right Axis) SOURCE: The Central Bank of The Bahamas
FISCAL SECTOR
Fiscal Indicators Fiscal deficit widened by $86.4 milion (41.4%) to $295.3 million during the first 7 months of FY2016/17, compared to the previous year. Expenditure: Up by $82.7 million (6.6%). Revenue: Down by $3.7 million (0.4%). B$M 2500 2000 1500 1000 500 Central Government s Fiscal Deficit o Net VAT receipts totaled $373.8 million (down 1.5% compared to the prior year). 0-500 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17* -1000 Revenue Expenditure Surplus/Deficit SOURCE: The Central Bank of The * 7 months of FY2016/2017 14
Preliminary Data on Inland VAT Collections for 2016 Key Observations: Top VAT generating sectors: Accommodation Retail trade Financial services activities 11% 4% 1% 2% 1% 2016 1% New Providence Grand Bahama Abaco Eleuthera Exuma Major VAT generating islands: New Providence (80.0%) Grand Bahama (11.0%) Abaco (4.0%) The remaining Islands make up the balance 80% Bimini NOTE: Preliminary findings from the Dept. of Inland Revenue, does not include VAT charged by Customs Dept. 15
MONETARY SECTOR
Money & Banking: Liquidity Conditions Liquidity rose modestly in 2017 By end-march, excess liquid assets stood at $1.5 billion, a gain of $38.6 million over the three-month period, relative to a $156.0 million upturn in 2016 (external loan boosted 2016 liquidity). In addition, excess reserves grew by $10.8 million to $734.6 million, vis-à-vis a $144.5 million expansion in 2016. B$ M 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 Banks Holdings of Cash and Gov t Debt Securities Cash & Other T-Bills Govt. Securities 17 Source: The Central Bank of The Bahamas
Money & Credit Trends % 14 12 Weighted Average Interest Rates Reduction in Prime Rate by 75 bps Reduction in Prime Rate by 50 bps 10 8 6 4 2 0 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 SOURCE: The Central Bank of The Bahamas Weighted Average Loan Rate Weighted Average Deposit Rate 18
Lending Conditions During the first quarter 2017, total Bahamian dollar domestic credit rose by $14.1 million, vis-à-vis a $48.2 million decline last year. Net claims on the Government advanced by $13.1 million, compared to a $29.3 million contraction in 2016. Credit to public corps. fell by $1.6 million, after a $0.7 million increase in the prior period. Private sector credit firmed slightly by $2.5 million, after a $19.6 million decrease in 2016. mortgages commercial consumer $13.0 million $26.6 million $11.1 million 19
Bahamas Government Mortgage Relief Programme Update Since the inception of the MRP, banks have been active in contacting and enrolling potentially qualified borrowers Ongoing total enrollment in the Relief Programme rose sharply in the first five months of the programme, and has since remained stable. As at March 2017, of total potential borrowers: Approximately [1,478] or 88.4% of eligible home owners have been contacted [479] homeowners or 28.6% of eligible borrowers have been enrolled in the programme. 600 500 400 300 200 100 0 Total borrowers enrolled in MRP to date Total borrowers enrolled in MRP to date 20
External Reserves External reserves firmed by $23.5 million to $925.5 million at end-march, a substantial slowdown from the $171.1 million expansion in 2016 (US$100 million Gov. loan). At end-march, reserves were equivalent to an estimated 4.0 months of total merchandise imports, unchanged from a year earlier. External reserves represented 70.5% of demand liabilities, compared to 83.4% at end Mar. 2016. 6 5 4 3 2 1 0 B$M 1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 - External Reserves to Demand Liabilities Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2012 2013 2014 2015 2016 2017 Reserves Demand Liabilities Ratio (right axis) SOURCE: The Central Bank of The Bahamas Import Cover Ratio (Months) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2012 2013 2014 2015 2016 2017 Non-Oil Total 120% 100% 80% 60% 40% 20% 0% 21
OUTLOOK
The domestic economy is expected to grow at a modest pace over the near-term, with greater acceleration during the following year. Real Sector Outlook Modest growth in tourism sector will be supported by the phased opening of the Baha Mar resort, as well as sustained improvement in key source markets. FDI projects including Baha Mar, as well as hurricane rebuilding activity, will continue to drive construction sector output. Growth in employment levels remains contingent on the performance of tourism and construction sectors. Although international oil prices have seen a slight increase recently, inflationary pressures are anticipated to be well contained over the near-term. Fiscal Sector While the performance of VAT is expected to continue to positively impact the fiscal position, expenditure pressures are elevated from the hurricane rebuilding. Medium-term consolidation prospects remain contingent on sustained expenditure controls. 23
Outlook Monetary Bank liquidity is forecasted to remain elevated over the near-term, although there is expected to be a modest pickup in private sector demand, due to the implemented fiscal and monetary measures. However, this effect could be muted by additional sales of non-performing mortgages Arrears and NPLs are anticipated to continue their downward trajectory, assisted in part by the mortgage relief plan and potentially more NPL sales by banks. Commercial banks are projected to stay well capitalized, thereby mitigating any threats to financial sector stability. External reserves outturn will depend heavily on: Performance of foreign exchange earning sectors, notably the impact of the additional capacity in the hotel sector International crude oil developments Government financing activities 24
Risks to Forecasts Upside Potential for acceleration in US Real GDP growth in near-term from potential fiscal stimulus measures and lower tax rates. Downside Negative effect on US economic growth as Federal Reserve raises interest rates and potential for disruptions in international trade flows. Prolonged period of recovery from Hurricane Matthew. Surprise results from European elections, which could negatively affect financial markets
The End 26