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Central Bank: Tourism stabilized in June

The Central Bank of The Bahamas (CBOB) provided a bittersweet economic outlook across key sectors of the economy for the first 11 months of the 2015/2016 fiscal year.

According to the CBOB’s Monthly Economic and Financial Developments (MEFD) June 2016 report, expectations for the domestic economy would remain on a “mildly positive growth path over the near-term”, which would be supported by gains in tourism sector output and medium to small-scale foreign investment-related construction activity.

CBOB said that based on anecdotal evidence in the report, tourism sector activity stabilized in June as the hosting of regional sporting events, along with an increase in airlift capacity from a major market, supported high value added stopover arrivals.

However, the regulator warned that extensive depreciation of the European currency against the U.S. dollar could reduce The Bahamas’ relative tourism competitiveness. The Bahamas’ key tourism markets for visitor arrivals are the United States, Canada and Europe.

Among other key notices, the regulator reported that, despite value-added (VAT) tax-led receipts of $600.3 million – more than triple the amount of the same period in the previous year – the fiscal deficit was, for the first 11 months of 2015/16 fiscal year, increased to $291.5 million.

 

Non-performing loans

In addition, the bank said there was a seven percent reduction in non-performing loans (NPLs) for the first half of the year.

The bank noted that the outlook for the fiscal sector would continue to depend on the success of the government’s measures to strengthen revenue collections and restrain expenditure growth.

“In this environment, labor market conditions are projected to gradually improve over the long-term, while inflationary pressures are poised to remain well contained, although further recovery in oil prices is forecast over the remainder of the year,” the bank said.

 

Liquidity

The regulator addressed the concern of high liquidity within the banking system.

“Liquidity in the banking system is expected to remain elevated, reflecting the sustained weakness in private sector credit and banks’ conservative stance, as the high level of loan delinquencies unwind slowly,” CBOB said.

From January to June 2016, monetary developments resulted in an increase in bank liquidity because of the government’s external financing and net foreign currency inflows from real sector activity.

“Nevertheless, banks are poised to remain well capitalized, thereby mitigating any financial stability concerns. The outturn for foreign reserves, which have grown robustly since the start of the year, will be influenced by the performance of the main foreign exchange-earning sectors and the traditional increase in demand in the latter half of the year to facilitate holiday-related spending,” CBOB said.

 

Developments

The bank said that the net impact of the Brexit vote is not expected to overturn the base-line trends.

“Such effects, if they materialize, are likely to be more evident over the medium-term, in line with the U.S. economy’s reaction.”

“Since the June vote, the accumulated responses in U.S. financial market indicators have been very muted, while the Federal Reserve’s latest assessment was tilted more in favor of strengthening of the U.S. economy over the medium-term.”

“As a counterweight to developments inside the US, any protracted depreciation of European currencies against the dollar could reduce The Bahamas’ relative tourism competitiveness,” CBOB said.

 

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