The Central Bank of the Bahamas (CBB) says preliminary economic indicators suggest that the growth momentum in the domestic economy persisted during the month of January, continuing to recover from the adverse impact of the coronavirus (COVID-19) pandemic.
In its monthly Economic and Financial Developments (MEFD) report, the CBB said the tourism sector output further strengthened, underpinned by gains in the high value added air segment and the rebound in sea traffic, reflective of the relaxed pandemic restrictions and pent-up demand for travel in key source markets.
It said in price developments, the domestic inflation rate rose in 2022, against the backdrop of higher international oil prices.
“Monetary sector developments were marked by moderated gains in banking sector liquidity, even though the contraction in the deposit base outpaced the reduction in domestic credit. Nevertheless, external reserves declined, attributed to net foreign currency outflows through the public sector,” the CBB noted.
The central bank is predicting that the domestic economy will maintain its growth momentum in 2023, undergirded by further recovery in the tourism sector.
“Nevertheless, risks to the industry persist, related mostly to exogenous factors, such as further mutations in the COVID-19 virus, which could potentially undermine the progress made on the international health front and disrupt travel sector activity.
“In addition, the rise in global fuel prices could constrain the travel industry’s competitiveness, while the major central banks’ counter-inflation policies could curtail the travel spending capacity of key source market consumers.”
But the CBB said nonetheless, new and ongoing foreign investment-led projects are anticipated to provide support to the construction sector, and by extension contribute to economic growth.
“In the labour markets, the unemployment rate is projected to remain above pre-pandemic levels, with any job gains concentrated mainly in the construction sector and net rehiring of tourism sector employees.
“With regard to prices, inflation is forecasted to remain elevated, on account of higher international oil prices, increased costs for other imported goods and supply chain shortages, associated with geopolitical tensions in Eastern Europe.”
On the fiscal front, the CBB said the government’s net financing gap is anticipated to stay elevated, although trending downwards.
“Specifically, the government’s fiscal position will be mainly impacted by ongoing disbursements for the required health and social welfare related to COVID-19, and spending still associated with the restoration of key infrastructure following the major hurricane in 2019”.
The central bank said the recovery in revenue is expected to be significantly connected to tourism-led improvement in taxable economic activities.
The estimated budgetary gap is projected to require a blend of domestic and external borrowings, but with an increased proportion of the total funding from domestic sources, the CBB said, adding that monetary sector developments should continue to feature high levels of banking sector liquidity, as commercial banks sustain their conservative lending posture.
It said further, external reserve balances are anticipated to remain buoyant in 2023, remaining above international benchmarks, underpinned by expected foreign currency inflows from the tourism sector and other net private sector receipts.
“As a result, external balances should remain more than adequate to maintain the Bahamian dollar currency peg.
“Based on the prevailing outlook, the Central Bank will retain its accommodative stance for private sector credit and continue to pursue policies that ensure a favorable out-turn for external reserves, and mitigate financial sector disruptions. In addition, the Bank will continue to monitor developments within the foreign exchange market, and if necessary, adopt appropriate measures to support a positive outcome for foreign reserves.”
According to the CBB, tourism monthly data revealed that the tourism sector sustained its robust growth trajectory in January, with output exceeding pre-pandemic levels, amid relaxed COVID-19 conditions and pent-up demand for travel in key source markets.
Official data provided by the Ministry of Tourism (MOT) showed that total passenger arrivals expanded to 0.9 million in December, from 0.5 million visitors in the corresponding period of 2021.
Specifically, the dominant sea segment almost doubled to 0.7 million, vis-à-vis 0.4 million visitors in the previous year. In addition, air traffic grew to 0.2 million from 0.1 million a year earlier, surpassing pre-pandemic levels; representing 112.9 per cent of air arrivals recorded in 2019.
The CBB said monetary developments for the month of January were marked by moderated build-up in banking sector liquidity, even though the reduction in the deposit base surpassed the decline in domestic credit.
Specifically, excess reserves—a narrow measure of liquidity—grew by US$14.1 million to US$1,942.2 million, a slowdown from the US$48.3 million expansion in the preceding year. Similarly, excess liquid assets—a broad measure of liquidity—increased by US$26.4 million to US$2,799.2 million, exceeding the prior year’s gain of US$8.5 million.
During the review month, external reserves reduced by US$30.0 million to US$2,564.7 million, albeit lower than the previous year’s decline of US$44.1 million,” the CBB said, adding that contributing this outturn, the Central Bank’s net purchases from commercial banks moderated to US$7.1 million from US$48.2 million in the preceding year.
“Further, commercial banks’ transactions with customers shifted to a net sale of US$0.7 million from a net intake of US$73.7 million a year earlier. Meanwhile, the Central Bank’s net sales to the public sector narrowed to US$47.8 million from US$91.5 million in 2022.”