Quarterly Economic and Financial Developments Report March 2018 Prepared by the Research Department 1
Overview of Domestic Economic Developments REAL SECTOR Indications are that the domestic economy expanded at a modest pace over the first quarter. Growth in the tourism sector reflected sustained global growth, increased activity at Baha Mar, the addition of new airline routes and the early Easter holiday. Construction sector activity was supported by foreign investment projects in the capital and the Family Islands. Prices: Retail price index increased in 2017, owing to gains in the housing, transport and restaurant & hotel prices. FISCAL SECTOR The fiscal deficit narrowed over the first eight months of FY2017/2018, reflecting a capital expenditure-led reduction in spending and an increase in revenue. MONETARY SECTOR Bank Liquidity and External Reserves increased, due largely to net foreign currency inflows from real sector activities and Gov t. borrowing activities. 2
Global Economic Context In its April 2018 update, the IMF maintained its forecast for global growth in 2018 at 3.9%, a slight increase over 2017 s 3.7% expansion % 12 10 Real GDP Growth Due to gains in global trade and investment Strengthening global financial conditions and consumer sentiment U.S. tax policy changes 8 6 4 2 2018 GDP projection changes from Jan. 2018 forecasts are as follows: 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 *2017 *2018 The U.S. (+ 20 basis points to 2.9%) -2 The euro area (+20 basis points to 2.2%) The U.K. ( +10 basis points to 1.6%) China s growth projections stabilized at 6.6% Canada (- 20 basis points to 2.1%) -4-6 World United States United Kingdom Euro Area China Source: IMF World Economic Outlook April 2018 *Projection 3
TOURISM SECTOR 4
Tourism Sector Performance (Jan. 2018) Indications are that the tourism sector s performance strengthened in the first quarter of 2018. Official data from the Ministry of Tourism revealed that in January the most recent data available total visitor arrivals firmed by 5.0%, reversing the year earlier 4.7% reduction. Air arrivals expanded by 7.0%, a turnaround from a 1.6% decrease last year. Sea component expanded by 4.6%, vis-à-vis a 5.3% contraction in 2017 5 Source: The Ministry of Tourism
Tourism Sector Performance (Jan. 2018) A breakdown of the major markets showed that the most significant gains occurred in the Capital, due in part to the increase in hotel inventory at Baha Mar. New Providence January s air arrivals firmed by 7.9%, a turnaround from a 0.6% softening in the prior year. In contrast, the sea component fell by 0.3%, vis-à-vis a 5.5% gain in 2017. Grand Bahama January s air arrivals decreased by 18.2%, a slowdown from the 41.9% reduction in the previous year. In a modest offset, the sea segment expanded by 52.4%, overturning the 25.6% decrease last year. Due mainly to the resumption of service by Carnival Cruises and Royal Caribbean International after several years of travelling to other markets. Family Islands Air arrivals firmed by 11.8%, following a 23.8% expansion in 2017 Sea component weakened by 3.1%, extending the year earlier 12.8% contraction. 6
Tourism Sector Performance Q1 March NAD Indications are that tourism sector performance was relatively positive during Q1. PASSENGER Data from NAD, showed that passenger departures from LPIA increased by 13.8% net of domestic departures during the quarter, compared to a 6.5% fall a year earlier. DEPARTURES U.S passengers were up by 13.2% (narrowed by 7.0% in Q1 2017). Non-US International traffic rose by 17.1% (contracted by 3.9% in Q1 2017). The timing of the Easter Holidays, which fell at end-march, also contributed to the quarter s gains, compared to prior year when it occurred in mid-april. 7 Source: The Nassau Airport Company Ltd. (NAD)
Tourism Sector Performance: Current Departures Vs. 2008 Recession An observation of long-term trends in first quarter, showed that departure traffic from LPIA was the highest it has been since 2008, when the economy entered into a recession. Quarter 1 Departure Trends (Ratio to 2008 Departures) 1.2 1 0.8 0.6 0.4 0.2 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total 2008 8
Airbnb Snapshot for The Bahamas As at April, there were 845 active rentals Mostly entire homes with 1-2 bedrooms Average Daily Rate (ADR): $194 Occupancy rate: approximately 67.0% 449 Active hosts in Nassau Most hosts are professional, multi-listings hosts (62%), while 38% have single listings 9 Source: www.airdna.com retrieved April 18, 2018
Internet Search Trends (continued) Data suggests that the highest volume of searches occurred during Jan. 2017 and Jan. 2018. September/early Autumn is the lowest period for searches. Canadians top the list for persons searching for Bahamian vacations, followed by Americans. 120 Google Search Trends: Bahamas Vacations (Worldwide) 100 80 60 40 20 0 10
Internet Search Trends (continued) Google Search Trends: Bahamas Vacations (USA) 120 100 80 60 40 20 0 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 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Top US States for Bahamas Vacations Search (Standardized Search Results) 120 100 80 60 40 20 0 100 91 85 80 67 65 54 44 21 11 Source: https://trends.google.com/trends/explore?date=2016-01-01%202018-01-16&geo=us&q=bahamas%20vacations
FOREIGN INVESTMENT PROJECTS 12
New Providence: Baha Mar Development Baha Mar: Rosewood is expected to open memorial day weekend. (May 26-27) Approx. 350 managerial and supporting staff should be in place by the opening. 13 Source: Baha Mar
Grand Bahama: Oban Energies Deal Oban Energies Company Profile Private company founded in 2006 The company's line of business includes: performing geophysical, geological, and other exploration services for oil and gas. Commitments to The Bahamas: $4.0 billion investment Phase 1: requires $1.5 billion investment, construction and start-up operations. 80% of jobs reserved for locals. Project to provide storage tankage for crude oil, middle and light distillates, specialty vegetable oils and heavy oils. Launch initial capacity of four million barrels. $150,000 to an accredited research institute for the area of research. $100,000 per annum for community projects. 14 Source: Bahamasweekly.com and Bloomberg
Other FDI Projects Project Name Sterling Hurricane Hole Limited, New Providence Recent Developments Projected $250 million development that is expected to provide 600 construction job opportunities beginning in 2019. Marina, residences, retail restaurants, office space and yachting services. Projected to involve repairs to the existing property and construction of mixed residential properties and commercial facilities. 4M Harbour Island Ltd, Harbour Island The Pointe Development $45 million Harbor island resort and Marina Developments. Redevelopment of Harbor Island Marina into a worldclass tourism facility. Hotel will include a waterfront restaurant and bar, 28- guest rooms, 10 villas and a swimming pool. $250 million six acre development (Margaritaville at the Pointe). Expected phase opening in mid-2019. 150-room Margarita Beach Resort, 150-luxury oceanfront residences, marina, water park, spa and entertainment center. Expectations are that labor will increase in 2018 to 2019. 15
INFLATION 16
Domestic Prices The Retail Price Index rose by 1.5%, compared to a fall of 0.4% in prior year, due mainly to increases in average costs for housing related items, transport, and restaurant & hotels % VAT introduction 2 1.5 Inflation 12mths December 1.5% 120 100 1 0.5 80 60 40 0-0.5 20 0 17 SOURCE: The Central Bank of The Bahamas Inflation rate(left axis) Oil Prices (right axis)
FISCAL SECTOR 18
Fiscal Indicators For the first eight months of FY2017/18, Gov t s operations showed a deficit of $224.7 million, a 27.2% reduction from the $308.8 million deficit recorded over the same period of FY2016/17. 3000 2500 2000 Central Government s Fiscal Deficit Revenue firmed by $13.3 million (1.1%) to $1,228.6 million o VAT receipts rose by $13.2 million (3.2%) to $430.7 million Expenditure declined by $70.8 mil (4.6%) to $1,453.3 million. 1500 1000 500 0-500 -1000 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Revenue Expenditure Surplus/Deficit Budgeted SOURCE: The Central Bank of The Bahamas 2017-18* 19 *First 8 months of FY2017-18
MONETARY SECTOR 20
Money & Banking: Liquidity Conditions Growth in liquidity reflected net foreign currency inflows from real sector activities and Gov t. external borrowings. During the first quarter of 2018, excess liquid assets grew by $97.0 million to $1.9 billion, relative to a $38.6 million upturn in 2017. B$ M 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 Total Liquidity In addition, excess reserves stood at $968.0 million, registering gains of $110.5 million, vis-àvis a $10.8 million expansion last year. 1,000.0 500.0 0.0 Cash & Other T-Bills Govt. Securities 21 Source: The Central Bank of The Bahamas
Lending Conditions In Q1, total Bahamian dollar domestic credit contracted by $91.3 million, in contrast to 2017 s $14.1 million expansion. Net claims on the Government fell by $37.1 million, a turnaround from the $13.1 million increase a year earlier. Credit to public corps. decreased by $0.5 million, relative to a $1.6 million, fall in the prior period. Private sector credit contracted by $53.7 million, a reversal from the $2.5 million increase in 2017. Mortgages by $12.3 million Consumer credit Commercial credit by $41.4 million marginally by $0.02 million 22
Credit Quality Indicators At end-march 2018, arrears and NPL rates stood at 15.1% and 9.9%, respectively. This is higher than the 7.8% and 4.1% recorded in the pre-recessionary period of March 2007, but significantly below the 21.5% and 16.0% at end-march 2014 (when rates were near their peaks). B$Millions 2600 25.00% 2400 2200 2000 20.00% 1800 1600 1400 15.00% 1200 1000 10.00% 800 600 400 5.00% 200 0 0.00% Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 NPLs (left axis) Total Arrears (left axis) Arrears/Total Loans (right axis) NPL/Total Loans (right axis) 23 SOURCE: The Central Bank of The Bahamas
External Reserves Buoyed by tourism sector receipts and Gov t. borrowing: CHF 50 million loan in Jan. 2018. External reserves rose by $189.1 million to $1,597.4 million at end-march, outpacing the $23.4 million expansion in 2017. At end-march, reserves were equivalent to approx. 6.4 months of total merchandise imports, compared to 3.7 months in 2017 (benchmark 3.0 months). Reserves also represented 100.6% of Demand Liabilities (DL), compared to 70.5% at end-march 2017 (benchmark 90% - 100%). 8 6 4 2 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012 2013 2014 2015 2016 2017 2018 SOURCE: The Central Bank of The Bahamas Import Cover Ratio (Months) Non-Oil *1 st quarter ratio estimated using Q1 reserves over 2017 imports. B$M 1,500.00 1,300.00 1,100.00 900.00 700.00 500.00 300.00 100.00 (100.00) Q3 Q4 Q1 Total Q2 Q3 Q4 General 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 2013 2014 2015 2016 2017 2018 SOURCE: The Central Bank of The Bahamas Q1 Q2 Reserves Demand Liabilities Ratio Q3 Q4 Q1* 120% 100% 80% 60% 40% 20% 0% 24
OUTLOOK 25
Outlook The domestic economy is expected to grow at a modest pace in 2018 of approx. 2.5% 1. Real Sector Modest growth in tourism sector, backed by sustained improvement in key source markets and the completion of Baha Mar. Construction activity is poised to be supported by on-going FDI projects, and to a lesser extent, Gov t initiatives to increase home ownership. Labour market conditions expected to improve further. Over the near-term, inflationary pressures should remain subdued; however, the supply-constrained increase in oil prices, will continue to affect domestic fuel costs. Fiscal Sector Efforts to reduce the deficit and improve the debt indicators, will depend heavily on the success of measures to enhance revenue administration and slow expenditure growth. Adverse shocks, such as a severe hurricanes remain a threat to Gov t finances. 26 1 IMF Estimate, April 2018
Monetary Sector : Outlook Monetary Sector Liquidity should remain elevated over the near-term, reflecting both banks conservative lending practises and their clients on-going efforts to deleverage. Arrears and NPLs are anticipated to continue their downward trajectory, amid banks asset sales and sustained debt restructuring measures. Banks are projected to stay highly capitalized, thereby mitigating any threats to financial sector stability. External reserve outturn will depend heavily on: Performance of foreign exchange earning sectors International crude oil developments Government financing activities 27
Risks to the Outlook Global Potential for trade dispute between US and China to become a trade war. Tourism Sector Delays in either the opening of new properties or the sale of existing resorts that are closed. US Potential for central bank interest rate increases to slow economic growth. Fiscal Structural rigidities and external shocks, leading to Bahamas Gov t. being unable to meet deficit targets. Inflation Sustained oil production supply cuts, leading to rapid increases in global oil prices. External Reserves Higher than anticipated demand for foreign exchange in holiday season, leading to significant drawdown in Bahamas reserves. 28
The End 29