Preliminary indicators for the first quarter of 2001 suggested more moderate expansion in the economy, paced by healthy but less robust gains in tourism and construction output, and marked by an above average performance for Grand Bahama, which commenced its recovery at a later stage than the rest of the country. Price developments remained favourable and further progress was achieved in the area of fiscal consolidation as revenue gains were reinforced by expenditure restraint, resulting in an overall budgetary surplus. In the financial sector, tourism led inflows underpinned stronger growth in the deposit base vis-à-vis domestic credit, thereby facilitating a reduction in the system’s net foreign liabilities. However, although bank liquidity was seasonally improved, deposit rates trended upward slightly, resulting in a narrowing in interest rate spreads. On the external account, the widening in the current account deficit was linked primarily to an expansion in the merchandise trade deficit, while net capital and financial in-flows were considerably reduced.

In monetary developments, excess reserves of the banking system increased by 48.9% to $61.9 million, which was below the year-earlier level of $96.6 million and represented 1.8% of banks’ Bahamian dollar deposit liabilities. Similarly, banks’ secondary liquidity––as measured by surplus liquid assets––rose by 40.8% to $56.5 million. As liquidity still paced below the average 2000 levels, the weighted average deposit rate at commercial banks rose 15 basis points higher to 4.16%, whereas the weighted average lending rate was virtually unchanged at 11.87%, obscuring notable declines in average rates on commercial mortgages and overdrafts. The average rate on 90-day Treasury Bills rose by 54 basis points to 1.42%, whereas benchmark rates—the Central Bank’s Discount Rate and commercial banks’ Prime Rate—were stable at 5.75% and 6.00%, respectively.

Growth in the monetary aggregates, although slowed, was supported by net foreign currency inflows and featured an accelerated 3.6% hike in fixed deposits, which constituted some 58.6% of the overall money supply. Moderating influences however, were exerted from reduced gains in savings and foreign currency deposits at 2.6% and 16.6% respectively, and contractions in currency and demand deposits of 2.2% and 0.5%, respectively. Consequently, the advance in the overall measure of money (M3) slackened to 2.7% from the year-earlier pace of 3.2%, albeit exceeding the expansion in total domestic credit.

Domestic credit growth firmed to 2.1% from the 2000 increase of 1.9%, corresponding to an incremental 0.8% rebound in net lending to the public sector following a 3.8% decline in the previous year. Meanwhile, the rate of increase in private sector credit abated to 2.3% from 3.2% a year earlier, stemming largely from a net repayment in the tourism and construction sectors. However, a positive and stronger impulse continued to emanate from personal housing and mortgage lending, which off-set smaller increases in credit for consumer durables. Among other private credit categories, lending to private financial institutions also recorded notable growth.

On the fiscal side, preliminary estimates for the third quarter of FY2000/01 indicated an overall budget surplus of $8.8 million which contrasted with the year-earlier deficit of $17.3 million. The 6.2% hike in Government revenue to $240.8 million was largely associated with gains in administrative income, whereas total expenditure was reduced by 4.9% to $232.0 million as capital outlays were nearly halved following the completion of major public works projects, and budgetary assistance to public corporations was reduced by a third. Recurrent expenditure was moderately expansionary, increasing by 2.4% for a 90.6% share of total spending. Government’s debt stock continued to decline, with the Direct Charge contracting by 0.5% to $1,514.3 million and debt guaranteed for public corporations contracting by 1.0%. Consequently, the National Debt fell by 0.6% to $1,868.8 million, some 0.7% below the level at end-March 2000.

Preliminary data signaled some slowing in otherwise healthy tourism expenditure growth during the first quarter. Less robust gains were achieved for both hotel sector pricing and visitor nights, but the sector also benefited from an increasing number of upscale visitors, evidenced from convention and other group bookings at major resorts. As regard visitor volumes, air arrivals staged a 6.4% recovery following last year’s 2.2% contraction. However, a near halving of growth in sea arrivals to 8.5% curtailed the advance in total arrivals to 7.8% from 8.6% in 2000, for a visitor count of 0.78 million. Indicative of expenditure growth, the increase in room revenues leveled off to 7.9% as against 19.6% a year earlier. In particular, the appreciation in the average nightly room rate tapered off to 6.3% vis-à-vis 15.0%, for an average $180.59, which occurred along-side a more moderate 1.5% increase in occupied room nights. However, as available room nights rose further by 6.5%, average hotel occupancy was consequently lower at 67.6% from 70.9% in 2000.

Construction activity was underpinned by low mortgage interest rates, and featured strong and broadly based growth in Grand Bahama which offset mixed activity in New Providence. The value of building starts increased by 1.4% to $49.9 million, with new commercial and residential activity on Grand Bahama modestly off-setting a general decline in New Providence starts. The value of building completions registered a 32.5% increase to $57.4 million, primarily reflecting a 44.9% firming in residential investments in New Providence to $32.0 million and a near doubling in Grand Bahama to $9.0 million. The outlook for future activity, based on permits granted, was mixed. The 79.4% boost in valuations to $278.2 million was based on a significant increase in planned commercial and residential projects in Grand Bahama, as comparative estimates for New Providence fell by more than a third.

Regarding price developments, the quarterly increase in the average Retail Price Index firmed to 0.7% from 0.4% in the comparative 2000 period. Higher fuel costs influenced an uptrend in the rate of increase in average transport and communication costs, to 1.0% from 0.4%, and there was a 3.9% hike in prices of ‘other goods and services’. On a twelve-month basis, average consumer price inflation also rose incrementally to 1.5% from 1.4%, led by a 1.8% rebound in transportation and communication costs. Accelerated increases were also noted for food and beverages, furniture and household operations and medical care and health, although moderation stemmed from a less substantial rise in education, clothing and footwear and housing costs.

In the external sector, the estimated current account deficit for the first quarter of 2001 widened to a preliminary $47.2 million from $0.3 million in the corresponding 2000 period. In particular, the trade deficit rose by 38.2% to $335.2 million, broadly countering a 11.0% advance in net invisible receipts to $305.2 million which included an estimated 8.9% hike in net travel inflows. Nevertheless, some offset to the trade deficit was provided from a 31.3% decline in net factor income outflows to $22.5 million, particularly vis-à-vis the banking sector.

The recorded surplus on the capital and financial account contracted to an estimated $19.9 million from $145.5 million in 2000, when net foreign direct investments were significantly greater. Net private equity and loan inflows decreased to $23.6 million from $91.1 million in 2000, while net real estate transactions switched to a small outflow of $1.3 million from a net inflow of $22.8 million last year. In addition, the public sector recorded a net external debt repayment of $4.0 million as opposed to a net borrowing of $7.1 million in 2000.