The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank of the Bahamas’ governor last night refuted suggestions this nation’s foreign reserve import coverage had reached “critical” levels, saying that at almost $705 million they were ahead of international benchmarks.

Wendy Craigg, in an e-mailed response to Tribune Business’s inquiries, said that while there had been “very little rebuilding” of this nation’s foreign currency reserves during 2013 due to the weak economy, they still covered 14.2 weeks’ worth of imports - ahead of the 12-week international standard.

She was responding to a presentation given by Marla Dukaran, Royal Bank of Canada’s (RBC) group economist for the Caribbean region, who said the Bahamas had the “lowest level” of foreign reserve import coverage in the Caribbean at just seven weeks.

Mrs Craigg, though, suggested that the way the data had been interpreted by Ms Dukharan was incorrect, implying that the RBC economist just looked at the Bahamas’ import bill and did not account for what was funded by foreign capital (Foreign Direct Investment) transactions. This is captured in the capital account.

Emphasising that the Central Bank monitored the foreign reserve import coverage ratio on an “ongoing basis”, along with other reserve adequacy indicators, the Central Bank governor said that while she was unaware of how Ms Dukharan calculated her figures, “one has to be very careful about the use of the import data in the Balance of Payments statistics to calculate this indicator of reserve adequacy”.

Mrs Craigg explained: “It cannot be ignored that whenever there is significant foreign direct investment activity in the Bahamas, this is accompanied by a corresponding boost in imports utilised in the completion of these projects.

“A current case in point is the Baha Mar project, which has sizeable imports of both good and services, and which are clearly not funded by the country’s external reserves but by foreign resources which are captured in the capital account.

“As such, one cannot simply take the import figure and use it to calculate the import cover ratio - a point which was acknowledged by the IMF in the Bahamas’ 2012 Article IV report. When imports were adjusted for these FDI-related transactions, the import reserve cover stood at approximately 4 months (16 weeks) at end-2012, and we know that projects such as Baha Mar continue to have a major impact on imports throughout 2013.”

Mrs Craigg admitted that the weak tourism performance and “modest foreign currency impact of the Baha Mar project, where the domestic benefits are expected to come at the back-end” had inhibited the rebuilding of the Bahamas’ foreign currency reserves in 2013.

She added: “From our observations of domestic economic trends, we are currently experiencing the normal seasonal dip in external reserves, as inventories are being replenished, although conditions are being tempered due to the ongoing anemic level of private sector demand.

“Reserves currently stand at $704.8 million or approximately 14.2 weeks of import cover, and we expect to maintain a comfortable level through the end of the year.”

And the Governor further said: “Clearly, these continue to be very challenging times for small economies like the Bahamas, as is also the case for many large economies, where growth conditions remain tepid.

“Just recently, we had this outlook confirmed by the IMF, which lowered its forecast for a number of economies, the Bahamas included. Despite the dimmer prospects, however, we remain in the positive, although mild, growth zone, which compares favourably with many of our regional counterparts.”

Focusing on the Bahamas’ external reserves situation in her presentation to the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), Ms Dukaran had said this nation had “seven weeks of import cover, which is the lowest level in the Caribbean”.

This, she explained, meant that if foreign currency inflows were cut off tomorrow, the Bahamas would have enough reserves to afford to purchase less then two months’ worth of its normal import bill.

Ms Dukaran said normal foreign reserves coverage in the Caribbean was for 12-15 weeks, with the ‘international prudential’ benchmark closer to the smaller of those two figures at three months’ worth.

“Seven weeks is critical,” she added of the Bahamas’ situation.