A Central Bank report released late Tuesday said that due to economic constraints and elevated spending requirements there was a “marked widening” in the estimated budget deficit during the second quarter of fiscal year 2003-2004.
The report on the domestic economic developments for the fourth quarter of 2003 said the estimated deficit for the second quarter of fiscal year 2003-2004 widened to $36.2 million from $5 million in the same period in fiscal year 2002-2003, with weakness in revenue collections occurring alongside increased expenditure obligations.
Constrained by economic conditions, total revenues fell by 6 percent, with decreases in import duties and tourism related taxes causing a 5.8 percent decline in tax receipts to $206.9 million; and non-tax revenue decreased by 8 percent to $21.7 million.
However, total expenditures rose by 6.6 percent to $264.8 million, including a 7.4 percent hike in current spending partly linked to retroactive salary increases.
This, and slightly elevated net lending to public enterprises, outweighed the 7.2 percent falloff in capital investments.
Budgetary financing during the period featured new borrowings of $34.4 million, mainly in the form of local currency advances from the Central Bank, alongside debt repayment – predominantly domestic currency – of $24.5 million.
As a result, the Direct Charge on Government increased by $9.8 million (0.5 percent) to $1,939.6 million.
After a $27.8 million (7 percent) rise in Government’s guaranteed borrowings to $426.5 million, the National Debt rose by 1.6 percent to $2,366.0 million, culminating in a 7.1 percent increase in the stock for 2003.
The report also said that in the financial sector, stronger public sector led expansion in credit, relative to monetary growth, underpinned a seasonal abatement in bank liquidity, which otherwise remained buoyant, and an increase in the system’s net foreign liabilities.
“In this context and amid the Central Bank’s continued restriction on increases in financial institutions’ Bahamian dollar loans, there was some narrowing in average interests spreads,” the report said.
While inflation estimates for the December quarter indicated some softening in consumer price pressures during the fourth quarter, firming in the annual inflation rate continued, linked to a combination of domestic and external pressures, it added.
On the external side, increased net imports and reduced net service inflows caused some widening in the estimated current account deficit, while the capital and financial surplus declined, owing to abated net private sector foreign investment inflows.
The report also said that preliminary indicators suggest mild strengthening in the Bahamian economy during the fourth quarter of 2003, in comparison to the same period in 2002 and the comparative weakening which occurred in the same quarter.
Increased cruise visitor volumes and appreciated stopover pricing underpinned healthy tourism expenditure growth, the report said.
It also said that the performance, while positively linked to the sustained expansion in the United States’ economy, remained constrained by the slowed pace of improvement in US labour markets, where productivity gains, as opposed to increased payrolls, continued to allow firms to accommodate output expansion needs.
As US employment conditions strengthen and the households’ financial position improve, expenditures on recreation and travel are also expected to firm, with favourable consequences for The Bahamas’ tourism sector in 2004.
Forward looking indicators for construction also underscored stronger prospects for 2004, mainly backed by proposed foreign investments in the hotel sector, the report said.
However, fourth quarter investments were weaker than in 2002 owing to reduced growth in residential mortgages.
The Bahama Journal
