MEFD December 2021

Release Date: 31st January, 2022

Monthly Economic and Financial Developments

December 2021

In an effort to provide the public with more frequent information on its economic surveillance activities, the Central Bank has decided to release monthly reports on economic and financial sector developments in The Bahamas. The Bank monitors these conditions as part of its monetary policy mandate, to assess whether money and credit trends are sustainable relative to levels of external reserves required to protect the value of the Bahamian dollar and, if not, the degree to which credit policies ought to be adjusted. The main data source for this surveillance is financial institutions' daily reports on foreign exchange transactions and weekly balance sheet statements. Therefore, monthly approximations may not coincide with calendar estimates reported in the Central Bank's quarterly reports. The Central Bank will release its "Monthly Economic and Financial Developments" report on the Monday following its monthly Monetary Policy Committee Meeting.

Future Release Dates:

2022: February 28; April 4; May 2; May 30; July 4; August 1; August 29; October 3; October 31; November 28; December 27

DECEMBER 2021 SUMMARY

MONTHLY ECONOMIC AND FINANCIAL DEVELOPMENTS

Overall Economic Activity

The gradual pace of recovery in the domestic economy was sustained during the review month, despite new strains of the COVID-19 pandemic. Tourism output further strengthened, undergirded by seasonal gains in the high value-added air segment and the modest uptick in sea traffic. Further, ongoing foreign investment-ledprojects, combined with post-hurricanereconstruction work, continued to providestimulus to the construction sector.

Inflation & Unemployment

Though remaining somewhat contained, inflationary pressures are anticipated to firm, as a result of the uptick in international oil prices and rising costs in the imported goods from the United States. In terms of the labour market, the unemployment rate is projected to remain elevated over the near-term, with any job gains concentrated largely in the construction sector and the limited re-employment of tourism sector employees.

Monetary Policy

In monetary developments, the growth in bank liquidity moderated, still attributed to the expansion in the deposit base that outweighed the increase in domestic credit. Meanwhile, external reserves declined during the review month, reflective of seasonal net foreign currency outflows through the public sector.

Global Activity

During the month of December, global economic performance varied, underpinned by the ongoing spread of the COVID-19 pandemic, and the highly infectious omicron variant. Accordingly, the major central banks sustained their highly accommodative monetary policy stances, in an effort to maintain financial stabilityand encourage economic growth.

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Sources: Ministry of Tourism, Nassau Airport Development Co. & AirDNA

Monthly Economic and Financial Developments (MEFD)

December 2021

1. Domestic Economic Developments Overview

The graudal pace of recovery in the domestic economy was sustained during the review month, despite the growing presence of the highly transmissable omicron strain of COVID-19. Tourism output further strengthened underpinned by seasonal gains in the high value-added air segment and the modest uptick in sea traffic, as vaccination efforts progressed in the major source markets. Monetary developments reflected a moderation in the growth in liquidity, though attibuted to an expansion in the deposit base, which outpaced the rise in domestic credit. However, external reserves decreased during the review month, owing primarily to seasonal net foreign currency outflows through the public sector.

Real Sector

Tourism

Preliminary	evidence	suggested	that		Chart 1: Tourism Indicators at a Glance
monthly	tourism		output	indicators		• Total arrivals down 9.7%
maintained their positive trajectory, despite
	• Air up 97.8%
ongoing globally imposed travel restrictions,
Arrivals	• Sea down 40.1%
related to the COVID-19 pandemic.		YTD
						November
The most recent data provided by the
Ministry of Tourism (MOT) showed that total		• Departures up 80.0%
visitor arrivals by first port of entry expanded		• United States up 99.2%
Departures YTD	• Non-US International down 13.7%
to 383,706 in November, from 13,381 in the
December
corresponding period of 2020. Leading this
development, air arrivals rose to 90,228,
from 11,272 in	the	previous	year-		• Room nights sold up by 62.8%
constituting	85.8%	of	the air	passengers		• ADR for hotel comparable up by 12.8%
Short-term	• ADR for entire place listings up by 16.2%
registered in the comparative 2019 period.
Rentals YTD
Further, as the cruise industry continued to	December

revive, sea traffic recovered to 293,478 passengers, compared to a volume of just

2,109 in the prior year, when voyages were suspended. Disaggregated by major market,

total arrivals to New Providence strengthened to 184,204 in November from a mere 5,684 in the corresponding period last year. Contributing to this outturn, the air and sea segments amounted to 68,826 and 115,378 passengers, respectively. Likewise, foreign arrivals to Grand Bahama increased to 11,396, from 900 a year earlier, as air and sea arrivals measured 2,039 and 9,357, respectively. Further, the Family Islands attracted 188,106 visitors in November, vis-à-vis 6,797 in the prior year, owing to improvements in the air and sea segments to 19,363 and 168,743 arrivals, respectively.

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Source: AirDNA

On a year-to-date basis, total arrivals still fell by 9.7%, but was notably lower than the 73.1% decline registered in the same 11 months of 2020. Leading this outturn, air arrivals grew by 97.8%, a reversal from the 74.5% falloff recorded in the previous year, as all major markets registered gains during the review period. However, the cruise segment accumulated a 40.1% decline in sea traffic- due to a later onset of resumed business than for onshore resorts. This was still moderated from the 72.6% contraction in 2020 (see Table 1).

The most recent data provided by the Nassau Airport Development Company Limited (NAD) revealed that total departures-net of domestic passengers-rose to 98,305 in December, from 21,040 in the corresponding month of 2020. In particular, U.S. departures increased to 83,115 from 16,009 in the prior year, while non-U.S. departures advanced to 15,190 from 5,031 a year earlier. On a year- to-date basis, total outward bound traffic moved higher by 80.0%, following a decline of 74.2% in 2020. Underlying this outcome, U.S. departures grew by 99.2%, after a 75.2% falloff in the previous year. Further, the decline in non-U.S. departures slowed to 13.7% from 64.4% in the previous year.

Table 1: Total Visitor Arrivals January - November 2021

		New			Grand	Family
		Providence		Bahama	Islands
		(% Change)		(% Change)	(% Change)
Arrivals		2020		2021		2020	2021	2020	2021
Air	-74.3		83.6		-79.0	67.0	-74.6	162.0
			-45.0		-77.2	-45.0	-65.6	-35.1
Sea		-77.3
Total	-76.3		-1.1		-77.4	-34.5	-66.7	-16.1

Source: Ministry of Tourism

	Graph 1: ADR and Occupancy Rates
		12 months to December 2021
Occupancy							$600
						ADR
50.0%							$400
40.0%
						$300
30.0%
						$200
20.0%
						$100
10.0%
0.0%	Jan	Feb	Mar	Apr May	June July Aug	Sep Oct Nov	$-
Dec	Dec
2020				2021
Occupancy Rates EP		Occupancy Rates HC
ADR EP				ADR HC

Positive trends were also mirrored in the vacation rental market, as the demand for

short-term rentals accelerated. The latest data from AirDNA revealed that, in December total room nights sold rose more than two-fold to 124,096, from 50,692 in the comparative 2020 period. Reflective of this outcome, both entire place and hotel comparable listings increased to 52.4% and 49.3%, respectively, from 31.9% and 31.0% in the corresponding period last year. As depicted in Graph 1, price indicators strengthened year-over-year, as the average daily rate (ADR) for hotel comparable listings firmed by 11.6% to $181.14 and for entire place listings, by 7.2% to $508.33.

On a year-to-date basis, vacation rental room nights sold grew by 62.8%, occasioned by respective gains in bookings for entire place and hotel comparable listings, by 64.8% and by 47.4%. Further, ADR for hotel comparable and entire place listings increased by 12.8% and by 16.2%, respectively.

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2. Monetary Trends

December 2021 vs. 2020

Liquidity

The growth in bank liquidity moderated sharply during the month of December, but was still due to the expansion in the deposit base outpacing the rise in domestic credit. Stronger gains in 2020 were due to a wider gap between credit contraction relative to deposit base reduction. Notably, in December, excess reserves-a narrow measure of liquidity-increased by $2.4 million to $1,437.4 million, albeit a deceleration from last year's $77.6 million buildup. In contrast, excess liquid assets-the broad measure of liquidity- declined by $23.0 million to $2,330.8 million, a reversal from the $49.1 million gain recorded in 2020.

On a year-to-date basis, the expansion in excess liquid assets tapered to $101.1 million from $264.4 million in the previous year. Meanwhile, excess reserves rose by only $1.1 million, relative to the $330.0 million accumulation a year earlier.

External Reserves

During December, external reserves reduced by $16.2 million to $2,459.2 million, a turnaround from the $166.9 million expansion in the comparable period of 2020. In the underlying transactions, the Central Bank recorded net foreign currency sales of $30.3 million to the public sector, following debt financing related net purchases of $245.4 million in the previous year. Providing some offset, the Central Bank's transactions with commercial banks shifted to a net purchase of $13.3 million, from a net sale of $78.9 million in the preceding year. In addition, commercial banks net outflows to their customers tapered to $10.0 million from $68.4 million in the prior year.

On an annual basis, the IMF's allocation of SDRs and reduced net outflow through the private sector outweighed the compressed net proceeds from Government's external borrowing, to sustain growth in external reserves of $78.6 million. This however was a considerable slowdown from the $622.4 million growth in the prior year. Contributing to this outturn, the Central Bank's transactions with the public sector reversed to a net sale of $49.4 million, vis-à-vis a net purchase of $913.2 million in 2020. Meanwhile, the net sale to commercial banks tapered to $130.5 million from $376.6 million in the prior year. In tandem, commercial banks' net sale to their customers, mainly in the private sector, moderated sharply to $95.0 million from $459.5 million last year.

Exchange Control Data

Preliminary data on foreign currency sales for current account transactions showed that monthly outflows increased by $106.9 million to $510.2 million in December, relative to the same period last year. Reflective of a rise in payments for services and credit cards, "other" current items grew by $47.1 million, while factor income remittances and oil imports rose by $39.5 million and by $29.1 million, respectively. Further, outflows for travel related transactions increased by $2.9 million. In contrast, decreases were posted for non-oil imports ($7.0 million) and transfer payments ($4.7 million).

On a year-to-date basis, foreign currency sales for current account transactions expanded by $677.7 million to $5,833.1 million, in comparison to 2020. Underpinning this outturn, increases were posted for credit card supported "other" current items ($239.2 million), non-oil imports ($170.3 million), factor income payments ($141.3 million), oil imports ($86.1 million) and travel related transactions ($40.8 million).

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