The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has suffered two consecutive years of $40 million-plus net real estate outflows due partly to the exit of foreign buyers, the Central Bank’s governor confirmed yesterday, with inward investment flows falling to $163.2 million in 2016.

John Rolle, expanding on a Monday presentation he gave to the Young President’s Organisation (YPO), told Tribune Business that net property purchases by foreign buyers fell into the negative for both 2015 and 2016.

“Net property purchases/sales were -$42.2 million and -$49.9 million in 2015 and 2016, respectively,” the Central Bank governor said in e-mailed replies to Tribune Business’s questions.

“This represents a combination of net property sales by non-residents to residents (divestments), and property purchases by residents abroad.”

Mr Rolle downplayed the significance of the negative net inflows (outflows) associated with foreign real estate buyer divestments, suggesting that the Central Bank’s data was “still plagued by incomplete coverage of foreign residential construction”.

He said yesterday: “There is a suspected underreporting of real estate purchases by non-residents from residents, because low-value transactions do not require prior approval from Exchange Control. These only require registration after the fact, with such registration often occurring with considerable lag.

“The Central Bank is looking at ways to improve the overall monitoring framework for lower-value real estate transactions by non-residents, [which] can still have important cumulative effects on the numbers.”

Nevertheless, the net outflows associated with foreign real estate buyers/owners will cause concern given that overall foreign direct investment (FDI) in the Bahamas has been relatively depressed for the past two years.

Mr Rolle said the Central Bank’s data captured both loan, as well as equity capital, investments by foreign developers and investors. The numbers show that foreign investment inflows fell from $1.201 billion in 2014, the year of peak Baha Mar construction, to $250.3 million in 2015, which was followed by a further 34.8 per cent drop to $163.3 million last year.

However, Mr Rolle said the Bahamas’ external balances and foreign currency reserves “still benefited from net inflows from real sector activities, such as tourism and foreign investments” in 2016.

“Towards the end of the year, the net effect of the reinsurance inflows [related to Hurricane Matthew] also started to be felt, as well as some of the settlement of residual debts on the Baha Mar project,” he added.

Mr Rolle said the Government undertook just “one significant external borrowing” in 2016 in the shape of a $100 million loan.

Pointing out that the Government also undertook other foreign currency transactions, such as debt service payments and the acquisition of goods and services, he added: “On a net basis the Central Bank sold the Government and public corporations about $200 million in foreign exchange in 2016, compared to a net sale in the region of $260 million in 2015.

“So, just looking at the borrowing element of debt operations can be misleading, relative to overall impact of debt operations on the Central Bank’s foreign reserves position.”

Addressing concerns from K P Turnquest, the FNM’s deputy leader, over the $97 million increase in the Central Bank’s Treasury Bill holdings in 2016, Mr Rolle said the “overall value” of outstanding debt under this instrument declined in 2016.

“The increase in the Central Bank’s holdings of T-bills represented a shift in the market by the commercial banks from the very short-term Government paper to longer-term instruments, which have a better interest rates,” he added, implying that the Central Bank had stepped into the void created.

Looking forward, Mr Rolle’s YPO presentation said the creation of 5,000-7,000 jobs at Baha Mar would inject between $167-$196 million into the Bahamian economy alone through the property’s annual wage bill.

As to the Government’s finances, Mr Rolle said “the health of the economy or pace of growth” will be pivotal in turning around the $7 billion national debt, and $300 million-plus deficits, together with the administration’s own policies.

The Central Bank governor also suggested that interest rate spreads, or the gap between Bahamian bank loan and deposit rates, which has been increasing since 2008, may narrow now that non-performing loans were being reduced.

“Interest rate trends reflect structural conditions on bank balance sheet. One of these has been the persistent high and rising non-performing loans experienced in this period,” Mr Rolle said. “Non-performing loan rates are now beginning to ease gradually.”

The Bahamas also saw some mild deflation in 2016, with the general weighted average of prices declining by 0.35 per cent, compared to a 1.78 per cent increase the year before.

The Central Bank attributed this to completion of the “pass through” effect from Value-Added Tax’s (VAT) implementation the year before, with prices now beginning to “normalise lower”.

“The decline in prices recorded in 2016 in not viewed as a cause for concern nor a trend,” Mr Rolle told Tribune Business. “It is also not exclusively a post-VAT price adjustment, as the decrease was mainly a reflection of the sharp reduction in global oil prices in 2015, which have impacted several categories of the retail price index over time.

“We anticipate that this effect will persist for potentially a few more months and, as international oil prices begin to rise following the announced production cuts by OPEC, inflation will return to its mild long-term trend.”