The government’s deficit in the first nine months of fiscal year 2004/05 expanded to $117 million from $77 million in the same period of fiscal year 2003/2004, the Central Bank of The Bahamas said in a new report released on Tuesday.
The report, titled, “Monthly Economic and Financial Developments March 2005” said that when the adjustment is made for the refund of the money used to purchase the Clifton Property, the shortfall is $103.1 million.
The government intends to issue bonds to reimburse the public treasury for the purchase of the land.
The report said, “Revenue trends, while strengthening, still reflected the weakness encountered during the hurricane season, and are expected to provide more support for fiscal consolidation during FY2005/2006.
“The positive outlook for tourism and foreign investments is expected to underpin firmer output growth in 2005 and, alongside domestic credit stimulus, support a gradual improvement in the fiscal situation. Trends in the US and other external economies remain supportive of this outlook.”
The Bank said in its report that indications are that during the first three months of 2005, domestic economic activity strengthened in comparison to 2004.
It said however that heightened domestic expenditure, stemming partly from accelerated credit expansion, contrasted with less marked increases in private sector inflows from tourism and foreign investments.
The build-up in external reserves consequently narrowed from the previous year, and liquidity gains moderated significantly, the report added, saying that expansion in domestic credit during the first quarter was confined to Bahamian dollar claims on government and the private sector.
During March, excess reserves of the banking system fell by $26.1 million to $261.5 million, reversing 2004’s build-up to $18.7 million, according to the Bank.
It also reported that the Bank’s excess liquid assets also decreased by $18.2 million to $253.8 million, in contrast to last year’s increase to $22.8 million.
Bahamian dollar credit expansion, meanwhile, doubled to $31.8 million, while Bahamian dollar deposit growth strengthened incrementally to $48.2 million.
“As regard tourism’s influence, the most recent data through February 2005 indicate that although there was a modest increase in arrivals owing to firming in visitor traffic for New Providence and approximately recovered trends in the Family Islands, a significant output gap remained in Grand Bahama,” it said.
The Bank said domestic economic growth is expected to strengthen during 2005, anchored in higher projected inflows from tourism, foreign investments, domestic construction expenditure and increased credit stimulus, according to the Central Bank.
“The tourism outlook is supported by favourable economic conditions in the United States, and the continued relative attractiveness of the product brought on by the weak dollar,” the report said.
“However, rising oil prices continue to exert some drag, affecting travel costs in the tourist sector, and is expected to cause higher inflation during 2005. The fiscal sector stands to benefit from the improving economic climate.
“With the expected enhancement of households’ loan servicing ability, assets quality measures in the banking system should also improve. Nevertheless, the accelerated increase in domestic demand is expected to dampen the pace of external reserves growth and correspondingly, lead to some reduction in bank liquidity.”
From The Bahama Journal
