Economic Survey of the Caribbean 2007-2008

The survey provides an overview of the economic performance of countries of the Caribbean Development and Cooperation Committee (CDCC) for the year 2007 and their outlook for 2008. The last chapter presents country briefs with the main macroeconomic developments in 2007 and the outlook for 2008.

Despite sound macroeconomic management over the last years, economic growth in the Bahamas slowed in 2007 but nevertheless remained solid. Real output grew by 2.8%, compared to a 4.6% increase in 200644. A slowing in construction activity and reduced growth in credit expansion partly offset the impetus from improved tourism. Reflecting higher costs of furniture and household goods and the strong pass-through of international fuel and food prices, December-on-December inflation picked up to 2.9%, remaining at a moderate level but surpassing the 2.3% registered in 2006.
Government finances weakened during fiscal year 2006/07, as the overall fiscal deficit doubled to 1.6% of GDP. Fiscal performance was undermined by the slowdown in economic activity, which led to sluggish growth in revenue, which was outpaced by the rise in spending.

PERFORMANCE OF 2006

Main Sources:2006/07 Budget Communication,Monthly Economic and Financial Developments February 2007, Quarterly Economic Review as of September 2006, and Quarterly Overview of Domestic Developments September 2006

Link:Central Bank of Bahamas Recent Publications

Tourism stood out as a major debilitation to Bahamas economic performance in 2006. In spite of this, most sectors such as, construction, banking and finance, and fiscal operations performed stronger than usual, as high consumer demand (due to low interest rates) led to increases in housing investments. Real GDP growth is estimated at a moderate rate of 4%, as the country’s most contributable sector (tourism and tourism-driven construction) to GDP registered an 8.5% downturn in visitor arrivals.

Tourism

With reference to the article “Impact of Tourism Development on the Economy and Health of Third World Nations", the disposition of tourism dependency among Caribbean countries is clear. International popularity of tourism grew after the 1960’s, where the Third World’s market share of international tourist spending was estimated at 29.1%. The Bahamas, in retrospect, developed their economy by creating tourism (and tourism associated) by-products through liaising among most of the economy’s real sectors. The Hon. Prime Minister Hubert A. Ingraham maintained in theBahamian Manifesto '97, that because of tourism revitalization, Bahamas implemented policies to create linkages between their tourism industry and manufacturing, agricultural and fisheries sector. These tourism by-products produced by these sectors led to an expansion in Bahamian-produced foods, Bahamian-made products and Bahamian services in hotels and resorts throughout the country.

Cementing tourism and other services by-product as Bahamas’s main GDP contributor [services: 90% (2001 est.)], where increases are recorded in employment and other social spheres, there are still major repercussions involved from facilitating for the sole purpose of tourism.

Numerous detailed accounts of environmental degradation resulting from tourism development exist. Below is a comprehensive list of most tourism related environmental problems compiled by Green and Hunter:*’Changes in floral and fauna species composition (disruption, desertion, destruction, death) Pollution (air, water, land, noise) Erosion Depletion of natural resources (food, water, land, fossil fuels) Visual impact (buildings, car parks, litter).

Loss of culture has often been described as an inevitable cost of tourism and can include loss of language, exploitation of traditional disruption of native political and economic balance.

Often overlooked, Third World economies suffer from vast repatriation of tourist revenue. Hotels and Resorts and other services provided to the tourist industry are owned by North America and Western Europe. Transitional corporations tendency of importing a great deal of personnel and products, which widens the gap between profits attained by developing and developed countries. [Source:“Impact of Tourism Development on the Economy and Health of Third World Nations",]

Fiscal Operations and Current Account

With a combination of growth in imports combined with significant stamp tax receipts, the Bahamian government registered an overall fiscal surplus of $3.7 million compared to last year’s deficit of $20.3. Import duties was Bahamas’s main source of revenue (composing of 36% of all 2006’s fiscal revenue) increasing from $104.4 million in 2005 to $118.5 million 2006. Recurrent Outlays accounted for 87.6% of total spending and grew by 8.6% in 2006. Capital expenditure and government consumption were highly attributable to the increase in total expenditure, registering 14.6% and 11.5% respectively.

According to The quarterly overview of domestic economic developments, the current account deficit widened by $160.8 million due to the collapse of tourism receipts combined with the outflow of other services. Merchandise trade also recorded 8.5% deterioration in merchandise trade deficit.

Inflation

The rate of inflation softened to 1.6% in 2006 compared to 2.1% in 2005, however unemployment remained stabled at 10.6%.[Source:The World Factbook