22nd September 2023
The Government of The Bahamas has recorded stronger than expected economic performance in 2023 Q2, beating many analysts’ projections.
In its Quarterly Economic Review for June 2023, the Central Bank of The Bahamas (CBOB) reported that the domestic economy continued its positive growth trend in the second quarter, indicating a transition back to pre-pandemic conditions.
“Tourism output continued to record robust growth, supported by healthy gains in both the high value-added air segment and sea traffic, as the demand for travel in major source markets persisted,” said the report.
Foreign arrivals increased by 45.2% to 2.4mn compared to the same period in 2022. Sea arrivals expanded by 55.3% to 1.9mn passengers and high-value-added stopover tourism strengthened by 15.7% to 0.5mn visitors.
New Providence and the Family Islands both experienced significant increases in tourist arrivals. Traffic in Q2 to New Providence surged by 37.7% to 1.1mn visitors compared to the 0.8mn passengers in the same period in 2022.
“The dominant sea component expanded by 54.4%, while air traffic increased by 13.4%. Likewise, visitor arrivals to the Family Islands advanced by 52.7% to 1.2mn, surpassing the 0.8mn gain in the corresponding period of 2022, on account of advances in sea passengers, by 56.6%; and air passengers, by 22.4%” highlighted the CBOB, adding that Grand Bahama saw a 46.4% growth in tourists.
This robust tourism performance has buoyed the overall economy, leading the Davis Administration to project that the government will come close to its revenue and tax forecasts for the 2022/2023 fiscal year ended June 2023, despite challenges with value-added tax (VAT) collection.
Total revenues and total tax revenues are at 91.4% and 90.7% of their annual targets, respectively, with just one month of the fiscal year to be reported. For the 11 months ended May 2023, total revenue was US$2.613bn, US$244.5mn below the budgeted US$2.857bn, while tax revenue fell US$237.3mn short of the US$2.537bn budget target.
“I think we will come very close on the revenue side… There’s still some postings to be done, but we will come very close,” said Financial Secretary Simon Wilson.
He however acknowledged that issues related to real estate transactions and payment delays are likely to see VAT revenue for the full fiscal year fall as much as US$164mn below the target of US$1.411bn, adding that steps are being taken to improve revenue processing efficiency going forward.
The report also noted that The Bahamas’ national debt increased by US$306.2mn during the period, primarily due to net borrowing activities.
“Proceeds of borrowings during the period totalled US$468mn via US$108mn in Bahamas Registered Stock, US$100mn in Central Bank advances and US$260mn in drawings from international development agencies… Repayments totalled US$161.8mn owing to repayments of US$100mn for Central Bank advances, US$58mn for Bahamas Registered Stock and US$3.8mn for domestic bank loans,” said the report.
The Financial Secretary defended the government’s decision to borrow the US$260mn from multilateral lending agencies like the Inter-American Development Bank (IDB) to repay loans from other foreign debt calling it “good cash flow management” since multilateral loans come at a rate of 4% to 5% interest compared to the current going rate of 10.5% to 11% on the country’s present bond market yield curve.
In recent months, the approved 2023/2024 national budget has come under scrutiny due to what analysts say are overly optimistic revenue estimates. For example, 2023/2024 VAT revenue has been projected to reach US$1.591bn, nearly US$180mn more than last year’s US$1.411bn estimate. Mr Wilson has countered by insisting that the compliance and enforcement efforts of tax authorities make the new projection attainable.
He stressed the importance of the 2023/2024 fiscal year to rebuilding market confidence in The Bahamas. The impending cruise passenger tax hikes are critical to the government reaching the lower US$131.1mn deficit target by the end of June 2024 to lay the foundation for a projected US$109.2mn surplus in 2024/2025.
The cruise tax hikes (US$5 increase for passengers leaving via Nassau and Freeport and US$7 for those leaving private islands), which take effect from January 2024 are expected to nearly triple revenue from US$50.642mn to US$145mn. The government is betting on revenue increases like this to improve the country’s credit rating which has been hit with several downgrades, taking it into ‘junk’ status.
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