The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A “key” external reserve benchmark was below its target threshold for the final 10 months of 2013, the Central Bank of the Bahamas has revealed, dropping more than 10 percentage points below minimum in the Christmas run-up.

Wendy Craigg, the Central Bank governor, confirmed to Tribune Business yesterday that the foreign currency reserve levels were now back in line with benchmark targets, thanks largely to the Government’s $300 million US dollar bond issue late last year.

This, though, is an artificial boost, and the data contained in the Central Bank annual report, released yesterday, again highlights just why the monetary policy regulator was urging the Government to finance its deficit via foreign currency borrowing - as revealed by Tribune Business yesterday.

Above all, the revelation that the external reserves to base money (local currency) ratio was up to 10 percentage points off target highlights the relatively weak performance of tourism, the Bahamas’ major foreign currency earner.

With foreign direct investment (FDI) inflows also muted in 2013, this weakness was compounded by the $100 million-plus profit remittances by the major Canadian-owned banks and the seasonal foreign currency drawdown as firms built up inventories for Christmas.

“In terms of the key external reserve performance indicator, namely, the ratio of external reserves to base money, the [Monetary Policy] Committee observed that it remained within the 90 per cent to 100 per cent threshold during the first two months of the year, boosted by the earlier receipt of a US$180 million loan in December, 2012,” the Central Bank report said.

“Thereafter, the combination of diminished levels of foreign currency inflows during the peak tourism season, sustained import demand and bank profit remittances, resulted in the ratio falling steadily to below the minimum 90 per cent threshold for the balance of the year.

“Some improvement, however, was achieved in December, following the receipt of proceeds from the Government’s US$75 million short-term loan.”

James Smith, a former Central Bank governor and finance minister, yesterday told Tribune Business that the Government’s foreign currency borrowing support could be justified in this case, even though it amounted to “a balance of payments support loan”.

“Even that is frowned upon if you get dependent on it,” he added. “In this case, you can make a case for it, as you are funding foreign commitments until the Baha Mar project comes on stream, generating additional foreign earnings.

“Reserves are really your ability to meet foreign commitments, not just the Government in debt servicing, but the private sector in building up inventory. It’s not been an easy ride, and we’re still travelling it.”

Mr Smith said the metric referred to by the Central Bank annual report, measuring local money supply in relation to the reserves, was “a derivative of the larger and more concerning” one - the latter’s ability to cover imports and debt servicing costs.

The Bahamas’ foreign reserves ended 2013 at $741.6 million, compared to $810.2 million at year-end 2012.

Elsewhere, the Central Bank annual report said the Bahamas Automated Clearing House (BACH) “processed a total of 1.66 million direct debit transactions, valued at $1.132 billion, representing increases of 11.4 per cent and 19.5 per cent, respectively”,in 2013. Most of these were payroll payments.

“Following an average annual decline of 23.2 per cent over the three years to 2013, the volume of cheques processed by BACH fell further by 2.6 per cent to 2,891,743, although the value was higher by 1.2 per cent at $6.3 billion, year-on-year,” the Central Bank report added.

“Both the volume and value of ATM transactions grew in 2013, by 14.8 per cent and 53.4 per cent to 12.2 million and $7.8 billion, respectively. Transactions processed across point-of-sale (POS) terminals, which numbered 5,377 at end-2013, were valued at $257.6 million.”

The banking system’s Real Time Gross Settlement (RTGS) system, which handles transactions involving major sums, saw a 1.4 per cent increase in volume to 56,000, with the corresponding value slightly lower at $13 million.