NASSAU, Bahamas, CMC – Bahamas Prime Minister Phillip Davis says last year the country experienced a robust economic rebound, primarily fueled by significant tourism inflows, leading to an estimated gross domestic product (GDP) growth of 4.3 percent.
“This growth, while lower than the previous year’s remarkable 14.4 percent, produced an unemployment rate below nine percent. Inflation peaked in mid-2022. The current account deficit also narrowed to 6.2 percent of GDP, showcasing a positive trend in external balances,” Prime Minister Davis said in his mid-year review of fiscal performance for the fiscal year 2023/24,
He told legislators that preliminary indications suggest that the domestic economy maintained its growth trajectory in the latter half of 2023 at a gentler pace as economic conditions continued to normalize.
Prime Minister Davis said strong tourism performance was supported by increased air traffic and sea arrivals, reflecting continued demand for travel in the country’s key source markets.
“As consumer activity expanded, so did inflationary pressures, albeit in a more subdued manner, compared to recent experience, as measured by changes in the average Consumer Price Index. At the end of November, the Index rose two percent compared to the prior year – largely owing to increased health prices and domestic adjustments to the rise in global commodity prices. However, transportation prices had a noteworthy decline, reflecting a moderation in the rate of increase in global oil prices compared to the previous year.”
Davis said looking ahead to 2024, the economic outlook remains favorable, with continued growth anticipated, especially in the tourism sector.
He said the Government remains aware of its risks as a developing small island state (SIDS), including the possibility of economic slowdowns in tourism source markets or costly natural disasters.
Prime Minister Davis says the Government is taking multiple steps to address these risks and bolster our economic resilience, including measures to build fiscal buffers and explore investments in renewable energy infrastructure.
He told legislators that during the first half of the 2023/24 fiscal year, preliminary total revenue collections are assessed at US$1.30 billion, representing a US$43.8 million increase over the prior year.
Davis said that revenue collections accounted for 39.2 percent of the annual budget target.
He said more robust collections are expected in the second half of this fiscal year, reflecting the cyclical nature of the fiscal year.
“In addition, the revenue yield in the second half of the fiscal year will benefit from new measures such as the increase of the cruise departure tax and the new Business Licence Act.”
Prime Minister Davis said this Act introduces new fees for international business companies (IBCs) for the first time, adding, “We have not forecasted any major uplift as IBCs by their very nature are mobile”.
He said the tax revenue collections improved by US$72.9 million and stood at US$1.2 billion for the first six months of the fiscal year, representing 40.1 percent of the budget target.
“This administration implemented a structural reform in the VAT regime, effective January 2022, which reduced the rate from 12 percent to 10 percent. Value-added tax collections accounted for 55.2 percent of tax revenues and totaled US$646 million at the half-year mark.”
Prime Minister Davis said this represented growth of US$47.2 million relative to the same period in the previous year, equating to 40.6 percent of the annual budget target. He said that compared to FY2021/2022, before the VAT rate reform, the six-month VAT collections this year have increased by 18.6 percent or $101.4 million.
“ We reduced the rate of VAT, but the strength of our growing economy, along with significant improvements to our enforcement efforts, has increased VAT revenues.”
The Government said that excise tax during the period improved to US$15.4 million, a US$14.3 million increase compared to the previous year. At the half-year mark, it added that excise tax surpassed the budget target by 540.9 percent or by US$13 million.
Prime Minister Davis said that with the sustained improvement in the tourism sector, departure tax collections totaled US$84.8 million and improved by US$13.3 million relative to the previous year.
“At the half-year mark, departure tax accounted for 42.5 percent of the budget target. With the introduction of departure tax adjustments for cruise passengers, we expect a further and significant increase in this revenue component for the remaining six months of the fiscal year.
“In the non-tax revenue component, collections were mainly higher for fees and service charges related to customs fees, which increased by US$5.4 million to US$27.6 million, equating to 50.3 percent of the budget target. ”
Prime Minister Davis said that for the first six months of the year, preliminary aggregate expenditure was US$1.56 billion, representing an increase of $24.7 million over the previous year.
He said that total expenditure represents 45.2 percent of the annual budget target.
“Preliminary evaluations of recurrent spending for the period made up 46.2 percent of the budget target amounting to US$1.43 billion. Recurrent spending increased by US$8.5 million year-over-year.”
He said vital spending components included an increase in compensation of employees by US$18.2 million to US$417.6 million, representing 48.8 percent of the budget target. He said higher employment costs explain the increased spending in this component because of planned promotions and other staff and salary adjustments during the period.
The public debt interest payments increased by US$20.2 million to US$301.1 million, equating to 49.1 percent of the budget forecast.
Spending on goods and services decreased by US$23.2 million to US$251.7 million, accounting for 40.0 percent of the annual budget target.
Prime Minister Davis said direct COVID-related spending significantly eased to one million US dollars, a contraction of 78.2 percent relative to the same period in the previous year.
On the other hand, he said social assistance spending rose by 44.3 percent, reflecting the Government’s broader objective of providing enhanced assistance to households.
Capital expenditure for the first half of the fiscal year totaled US$134.1 million, a US$16.2 million increase over the same period in the previous year. Capital expenditure accounted for 36.8 percent of the annual budget target.
“It is expected that there will be increased levels of capital expenditure in the latter half of the year, as several important projects are currently being carried out. These projects primarily focus on repairing education facilities, improving family island airports and road infrastructure, and undertaking various other initiatives that will contribute to the growth and development of our nation,” Davis told legislators.
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