The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s deputy yesterday pledged to probe the “very worrisome” increase in the Central Bank’s financial support for the Government, which had to meet more than $100 million in one-off demands on top of its $86 million first quarter deficit.

K P Turnquest told Tribune Business that it was “reasonable” to ask why the Central Bank had increased its holdings of government debt securities (bonds and Treasury Bills) during the three months to end-September 2016.

He, and others, are querying whether the Central Bank’s increased financial support for the Government is a sign that the latter has exhausted its borrowing capacity with the private sector and other sources, forcing it to turn to the regulator as ‘lender of last resort’.

However, John Rolle, the Central Bank’s governor, told Tribune Business yesterday that too much was being read into this, and that there was no cause for concern or speculation.

He added that any financial support it provided to the Government was typically replaced quickly by the placement of Bahamas Government Registered Stock (BGRS) issues, two of which are designed to raise a collective $30 million by next week.

The Government’s increased reliance on the Central Bank was revealed yesterday in the latter’s monthly economic developments report for October, which said: “On the monetary front, an increase in Central Bank financing to the Government supported the growth in bank liquidity, while external reserves contracted, on account of the season uptick in foreign currency demand.”

The Central Bank’s increased holdings of government debt securities were said to have produced a $62 million increase in excess commercial bank liquid assets, which totalled $1.494 billion at end-October 2016.

Meanwhile, the Government’s financing needs for the first quarter of its 2016-2017 fiscal year, the three months to end-September, “outpaced the deficit” it incurred over the same period.

“In addition to the operating shortfall, resources totalling just over $100 million were utilised to fund a capital injection into the Bank of the Bahamas, and the Government’s temporary majority equity stake in the new cellular communications company,” the Central Bank said.

This refers to the $40 million spent on taking up the “entire” Bank of the Bahamas’ rights issue in early September, plus the Government’s temporary assumption of ownership of HoldingCo.

The latter owns the majority 51.75 per cent stake in NewCo 2015, operating parent of Aliv, the new mobile provider. The Government is planning to divest itself of all HoldingCo’s equity capital via a private placement, which is expected to occur before the fiscal year-end on June 30, 2017.

The Central Bank acknowledged that the Government had financed HoldingCo’s share of NewCo’s $130 million in start-up capital by reinvesting the $62.5 million in spectrum fees received from Cable Bahamas, its partner in the venture, as part of the licence award. Once the private placement is completed, the Government will effectively get its money back.

“The value of the investment approximated the fees received for issuing the license to the entity,” the Central Bank said of the NewCo/Alive transaction.

“Expectations are that the Government will divest itself of this ownership in the new company before the end of the fiscal period.”

Still, the increased Central Bank financing provided to the Government has generated considerable interest - and concern - among fiscal and capital markets observers.

One financial analyst, speaking on condition of anonymity, told Tribune Business: “Maybe that’s a suggestion that the Government did not have any capacity to borrow, and is using the Central Bank to help bail out Bank of the Bahamas and take up its shares in NewCo.

“That’s what it sounds like. They’re really going to have to get the show on the road with funding from the private sector for NewCo and get that money back.”

Mr Turnquest, meanwhile, said the FNM would “clearly be looking into” the increased Central Bank financing for the Government.

“That is very worrisome on a number of levels,” he told Tribune Business. “It’s interesting that the Government is relying on loans from the Central Bank. That says a lot about the lending position, and where we are in terms of revenue’s inability to match expenditure.

“It’s a reasonable question to ask: Why is it that the Central Bank is taking all this government paper? Is it because they have not been able to place these securities on the open market?”

Mr Rolle, though, suggested there was no cause for alarm, and that any concerns were overblown.

He explained that the Central Bank’s provision of short-term funding to the Government typically increased during the run-up to Christmas, as business and consumer demands typically drew down on commercial bank credit.

The Governor added that any ‘bridging’ credit provided by the Central Bank to the Government was also replaced by the placement of securities with investors, as it had done in two recent offerings seeking to raise a combined $30 million.

“Around this time of the year, the rollover process for Treasury bills (which are very short-term in maturity) always shifts some holdings from commercial banks to the Central Bank, as commercial banks accommodate the spike in demand for holiday credit,” Mr Rolle told Tribune Business.

“Some of the funding provided by the Central Bank is also often connected with bridging support that is subsequently sold in the secondary market.

“Over the two recent transactions (the last of which will close next week), the Central Bank offered $30 million in registered stocks to the public in the secondary market.”

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, yesterday said that whenever the Central Bank provided funding to the Government, its foreign exchange reserves normally declined.