Quarterly Economic and Financial Developments Report September 2017 Prepared by the Research Department 1
Global Economic Forecasts In the latest update, the IMF forecasts 3.6% global growth in 2017, up slightly from 3.5% in April Supported by the recovery in investment, industrial production and trade; & % 12.0 10.0 8.0 Real GDP Growth Strengthening business and consumer confidence 6.0 4.0 2017 GDP projections were revised upward for: The Bahamas (by 40 basis points to 1.8%) The euro area (by 40 basis point to 2.1%) Japan (by 30 basis points to 1.5%) China (by 20 basis points to 6.8%) 2.0 0.0-2.0-4.0-6.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* World United States United Kingdom Euro Area China Bahamas Source: IMF World Economic Outlook October 2017 *Projection 2
Overview of Domestic Economic Developments REAL SECTOR TOURISM: Output in this sector was constrained due to the passing of Hurricane Irma which caused airport and seaport closures. PRICES: Inflation increased for the 12 months to August, owing mainly to gains in the housing, water, gas, electricity and other fuels and transport prices. FISCAL SECTOR Final data for the FY2016/17 are not yet available. However, GDP revisions have resulted in lower baseline estimates of the various debt to GDP ratios MONETARY SECTOR Liquidity & External Reserves: remained elevated, buoyed by net receipts from Government s external borrowing Private Sector Credit: contracted sharply, reflecting the result of non-performing loan (NPL) purchase transaction with Bahamas Resolve. 3
GDP REVISIONS According to the Department of Statistics, various changes were introduced to major data sources for the years 2012 to 2016. Due to these changes, the level of GDP has since been revised upwards. These significant developments include: The implementation of the UN s System of National Accounts (SNA) 2008. A shift to using the Double Inflation Methodology in the constant price series. The inclusion of new major or updated data sources, including value added tax (VAT) reports, the 2012 Household Expenditure Survey (HES), the expanded Business Establishment Surveys results and revisions to data series such as the Balance of Payments and Real Sector. The implementation of the Supply and Use Tables (SUT) 2012, that detail where the inputs used in production are sourced and where the output from production is disposed of or consumed. 4
GDP REVISIONS Cont d GDP Level $Million 12,000 10,000 8,000 6,000 4,000 2,000 GDP Level $Million 12,000 10,000 8,000 6,000 4,000 2,000 0 0 Prior Nominal GDP vs Revised Nominal GDP 2012-2016 -0.4% 1.6% Source: The Department of Statistics, 2017 3.7% 0.2% 2013 2014 2015 2016 Prior Nominal GDP Prior Nominal GDP Growth Rate REVISED Nominal GDP REVISED Nominal GDP Growth Rate Prior Real GDP vs Revised Real GDP 2012-2016 -0.2% -1.6% -3.1% 2013 2014 2015 2016 0.2% GDP Growth % 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% GDP Growth % Prior Real GDP REVISED Real GDP Prior Real GDP Growth Rate REVISED Real GDP Growth Rate 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% On average, revisions increased nom. GDP level by 19.9% and real GDP level by 25.0%. In 2016, real GDP grew marginally by 0.2%, supported by: gains in construction (24%), wholesale/retail trade (7%) business & professional services (6%). On an expenditure basis, household consumption and government consumption contributed significantly to GDP, increasing by 1.9% and 5.2% respectively. 5
TOURISM SECTOR
Tourism Sector Performance Indications are that tourism output remained soft during the review period, with Hurricane Irma impacting travel(september Itineraries 2017) in the first week of September. Data from the Nassau Airport Development Company (NAD) showed: Passenger traffic from the nation s largest airport net of domestic departures declined by 22.7% in Sept., relative to a 1.7% rise in the prior year. Departures to U.S fell by 23.2%, vis-à-vis a 2.1% increase in 2016. Departures to the non-u.s. international sector contracted by 20.5%, compared to a 0.8% reduction a year earlier. Over the first eight months of 2017, visitor arrivals fell by 2.8%, reversing the year earlier 4.0% growth: Air arrivals: down 6.3%, (up 3.2% last year) Sea segment: down 1.6%, (up 4.3% in 2016) New Providence Air arrivals: down 5.7%, (up 3.7% last year) Sea arrivals: up 9.3%, (up 11.1% last year) Grand Bahama (developments reflect reduced capacity) Air arrivals: down 48.1% (down 12.6% last year) Sea arrivals: down 25.7%, (up 0.3% last year) Family Islands Air arrivals strengthened by 13.3%, following the 11.9% growth in 2016 Sea component weakened by 5.8%, extending the year earlier 2.8% contraction Source: The Nassau Airport Company Ltd (NAD) and The Ministry of Tourism
Grand Bahama Tourism Update 800000 700000 600000 500000 400000 300000 200000 100000 0 Grand Bahama Arrivals by Type* 2016 2017 Total Sea Air Source: Ministry of Tourism Chart reflects the outturn for the first 8 months of each year The Government announced on October 18 th 2017, that an offer had made to the owners of the Grand Lucayan Resort to purchase the property, in an effort to keep the resort open and to ensure the present jobs are maintained. There was a notable decline in arrivals to Grand Bahama during the 8 months of 2017, relative to the same period last year, amid sharp decreases in both air & sea passengers. The decline in air arrivals was in part due to the reduced room capacity on the island resulting from hotel closures in the aftermath of the October 2016 hurricane (Matthew). In addition, extensive damage was done to key tourism infrastructure such as the market place in Port Lucaya.
FOREIGN INVESTMENT
FDI Projects Project Name The Pointe Development Great Exuma Adventure Resort, Exuma Pharma Chem. Grand Bahama Oban Energies, Grand Bahama Recent Developments 200-room Hard Rock restaurant 143-key condo hotel Residences, garage, retail & entertainment complex, performing arts centre & marina Number of workers on-site expected to increase in 2017 $70 million capital expenditure (2016-18) $300 million capital expenditure (2018-22) 115-unit condo-hotel 45-unit bonefish lodge marina, adventure theme park, spa, farm, equestrian centre, restaurant & retails stores 250 construction jobs 155 operational jobs following completion $120 million expansion project Construction of a multi-product manufacturing plant to support Gilead Sciences expanding product lines Expected to be completed in 2019 100 construction jobs 130 operational jobs following completion $1.5 billion investment Expected completion in 2021 Construction of a 20-million barrel capacity, multi-purpose, liquid bulk storage facility Construction of a 250,000 barrel per day capacity oil refinery 10
EMPLOYMENT
Unemployment Indicators Based on DOS data, the unemployment rate fell by 1.7 ppt to 9.9% at end-may 2017, vis-à-vis the prior six-month period, marking the first time the rate has been below 10.0% following the financial crisis. 25 20 % UNEMPLOYMENT RATE When compared to the same period in 2016, the rate fell by 2.8 percentage points. 15 Most job gains occurred in the community, social & personal service, hotel & restaurant, and construction industries. Over the six months to May: NP rate fell by 2.8 ppt to 10.4% GB rate decreased by 2.3 ppt to 12.4% Abaco rate down by 2.3 ppt to 7.8% 10 5 0 Number of Discouraged workers down from 2,470 during six-months to May 2016 to 1,925 over the six-months to May 2017 No. of discouraged workers fell by 8.8% over November 2016, to 1,925 Youth Unemployment fell by 1.0 ppt to 24.1% Total New Providence Grand Bahama Abaco SOURCE: The Central Bank of The Bahamas 12
INFLATION
Oil Price Trends Oil prices remained relatively low, edging-down slightly in Sept. due to new shale drilling in the U.S. According to the Energy Information Administration (EIA), shale oil productivity for Oct. is expected to be 79,000 barrels per day, marking the first forecast below 100,000 barrels in seven months. The revision comes against the backdrop of disruptions in a drilling region in Texas, affected by Hurricane Harvey. USD$/barrel 120 Brent Crude Oil Prices 000 barrels 9,400 9,200 U.S Shale Oil Production 100 9,000 8,800 80 8,600 60 8,400 8,200 40 8,000 20 7,800 7,600 0 7,400 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 SOURCE: Bloomberg SOURCE: Bloomberg 14
Domestic Prices Inflation edged-up to 0.99% for the 12 months to August, from 0.15% in the comparable period of last year Gain was due mainly to growth in average prices in housing, water, gas, electricity and other fuels the most heavily weighted item on the index and transportation. Inflation rate % 2.0 1.5 VAT Implementation Inflation 12mths August 0.99% 1.0 0.5 0.0-0.5 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 SOURCE: Department of Statistics. 15
FISCAL SECTOR
Revised Debt Indicators National Debt/GDP and Direct Charge/GDP declined on average by 14.7 and 13.1 percentage points, respectively, due to GDP revisions. Public Sector Debt & Debt Service Indicators % of GDP External Debt Direct Charge National Debt Old Revised Change Old Revised Change Old Revised Change 2012p 12.4 9.7-2.7 52.4 41.0-11.4 59.6 46.7-12.9 Reduction seen in all debt indicators. 2013p 14.0 11.1-2.9 58.5 46.7-11.8 65.6 52.4-13.2 2014p 18.2 14.5-3.7 64.8 51.5-13.3 72.9 58.0-14.9 2015p 18.6 14.6-4.0 66.8 52.5-14.3 75.3 59.3-16.0 2016p 19.6 15.5-4.1 70.8 56.1-14.7 78.9 62.6-16.3 Source: Central Bank of The Bahamas, 2017 17
MONETARY SECTOR
Money & Banking: Liquidity Conditions Liquidity growth continued in 2017, supported by Gov t external borrowing and CBOB financing By end-sept., excess liquid assets (vault cash, central bank balances and government securities) stood at $1.7 billion, a gain of $260.3 million over the 9- month period, relative to a $117.6 million upturn in 2016 B$ M 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 Liquidity Composition In addition, excess reserves (vault cash and balances) grew by $195.0 million to $918.7 million, vis-à-vis a $257.0 million expansion in 2016. 0.0 Cash & Other T-Bills Govt. Securities Source: The Central Bank of The Bahamas 19
External Reserves External reserves firmed by $162.8 mil. to $1,064.9 million at end-sept., (buoyed by Government loans of approximately US $100 million in Aug. and US $250 million in Sept.), vis-à-vis the $104.3 million expansion in 2016 6 5 4 3 2 1 Import Cover Ratio* (Months) At end-sept., reserves were equivalent to an estimated 4.0 months of total merchandise imports, compared to 3.8 months, a year earlier. External reserves rep. 70.5% of Demand Liabilities, compared to 70.8% at end- Sept. 2016. 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014 2015 2016 2017 Non-Oil General Reserves to Demand Liabilities Total SOURCE: B$M The Central Bank of The Bahamas *Q3 calculated using Q2 imports over Q3 reserves 1,600.00 1,400.00 1,200.00 1,000.00 800.00 600.00 400.00 200.00 - Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 120% 100% 80% 60% 40% 20% 0% 2012 2013 2014 2015 2016 2017 Reserves Demand Liabilities Ratio (Right Axis) SOURCE: The Central Bank of The Bahamas 20
Lending Conditions During the first nine months of 2017, total Bahamian dollar domestic credit rose by $4.7 million, compared to a $113.5 million expansion last year. Net claims on the Government advanced by $145.8 million, following the $116.0 million rise in 2016. Credit to public corps. fell by $6.4 million, after a $27.9 million increase in 2016. Private sector credit contracted by $134.7 million (BOB Resolve transaction), following a $30.4 million decline in 2016. Consumer Mortgages Commercial $30.5 million $62.8 million $41.5 million 21
Banks Credit Quality Indicators Significant improvement in arrears and NPLs in Aug. and Sept. BOB sold $161.8 million of its NPLs to Bahamas Resolve in two tranches: $97.0 million in August; $64.0 million in September. Resolve also liquidated $50.0 million of its bonds held by BOB to-date. B$ Millions 2600 2400 2200 2000 1800 1600 1400 1200 1000 800 600 400 200 0 BOB s Resolve Corporation Transaction Banks mortgage sales 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 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 Jun-17 Sep-17 Total Arrears Arrears/Total Loans NPLs NPL/Total Loans (Right Axis) SOURCE: The Central Bank of The Bahamas 22
OUTLOOK
Outlook Real Sector Growth is expected to remain mild over the near-term. Tourism sector activity will get some support from the phased opening of the Baha Mar Resort, potential near-term resolution of hotel room capacity related issues in Grand Bahama, and the likely temporary shift in tourists from several regional markets affected by hurricanes. FDI projects in the capital and the Family Islands, coupled with hurricane rebuilding efforts in the south-eastern Bahamas, will continue to drive construction sector output. Improvements in employment levels remain dependent on the performance of the tourism and construction sectors. With the recent decline in international oil prices, inflationary pressures are expected to be well contained over the near-term. Fiscal Sector The Government s fiscal austerity measures are likely to continue to drive the reduction in expenditure; although pressures from hurricane recovery spending could persist in the nearterm. Revenue strengthening measures could help to mitigate budgetary pressures. 24
Major Impact on Caribbean Tourism from 2017 Hurricanes Market Hotels Affected Room Capacity Dominica 27 of the 73 hotel properties in the country were either damaged extensively or destroyed. 467 rooms damaged (51.4% of total room stock). Cuba 23 hotels affected, mainly in Cayo Coco, Cayo Guillermo, and Varadero (the country s main tourist destination) 5,411 rooms damaged with 374 repaired as at end-sept. in Varadero. Reports indicate that all hotels in affected area of Cuba expected to be operational by mid- November. British Virgin Islands 17 hotels damaged across the various territories So far only one hotel has reopened. U.S. Virgin Islands 12 hotels damaged across the three Virgin Islands St. Croix, St. John & St. Thomas. 5 hotels now operational, with the remainder anticipated to be opened by the end of 2018. Antigua & Barbuda 4 hotels on Antigua damaged, while the remaining 7 were operational soon after the hurricane All hotel rooms on Barbuda were destroyed (less than 100). For Antigua, close to 2,000 rooms of total stock will be operational in by end-oct. Puerto Rico 6 hotels closed until further notice. 30 hotels temporarily closed and should resume taking customers by Nov., 2017 Sources: islands.com and onecaribbean.org
Outlook Monetary Liquidity is expected to remain elevated, reflecting banks conservative lending stance and Gov t external borrowing activities Banks are projected to stay well capitalized, thereby mitigating any threats to financial sector stability. External reserve outturn will depend heavily on: Performance of foreign exchange earning sectors By extension, the seasonal hike in foreign currency demand in the latter part of the year International crude oil developments Government s financing activities 26
Bahamas Forecasts Actuals IMF Forecast (WEO Oct. 17 & Article IV July 17) Indicators 2016 2017 2018 Real GDP (% Change) 0.2% 1.8% 2.5% Inflation rate -0.4% 2.4% 2.2% Deficit/GDP -5.5% -5.7% -3.7% Current Account Deficit/GDP Credit to Private Sector (% Change) -10.5% -17.8% -14.0% -2.0% -1.0% 0.3%
Risks to the Forecasts Significant downside risks to the economy remain, reflecting: Negative effect on US economic growth, as Federal Reserve continues to raise interest rates. Slower than expected growth in the global economy, resulting in lower tourism demand. A surge in oil prices, arising from geopolitical uncertainty (e.g. North Korean standoff) and the adverse impact of storms on restored US oil production. This could also have a negative impact on the current account deficit (foreign exchange outflows) and inflation. Worsening in the Government s fiscal position due to:- A slower than expected recovery in the economy Delayed implementation of expenditure restraint measures Further hurricane-related destruction Impact of any adverse credit ratings adjustment on the cost of Government debt financing 28
Moody s Sovereign Peer Group Comparison On Aug. 25 th, Moody s confirmed Bahamas Baa3 bond rating after an almost two-month review based on: Prospects for debt stabilisation Low gov t liquidity risk Credit metrics which were inline with peers Over the past three years, The Bahamas has performed fairly well compared to the other countries in its credit rating peer group, albeit amidst low growth. For 2016, compared to other countries in the Baa3 peer group, The Bahamas maintained one of the lowest rates of inflation; however, it also showed the lowest growth rate and the third highest Government debt-to-gdp ratio. Country GDP Inflation Debt-to- GDP Bahamas 0.2% -0.4% 56.1% Hungary 2.0% 0.4% 74.1% India 7.1% 4.5% 68.5% Indonesia 5.0% 6.4% 30.3%* Kazakhstan 1.1% 14.6% 19.3%* Romania 4.8% -1.6% 37.6% South Africa 0.3% 6.3% 51.7% Sources: Bahamas Department of Statistics, IMF, and World Bank *2015
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