The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank has been criticised by an International Monetary Fund (IMF) paper over the quality of its Financial Stability Report, which was ranked fourth-bottom out of 20 Latin American and Caribbean nations.

The IMF paper, which assessed the countries’ Reports for transparency, content and quality, said the Bahamas ranked below the region’s average score of 2.23 out of 4.

“The top group includes the six best reports (Brazil, Chile, Colombia, Jamaica, Mexico (CB) and Trinidad and Tobago), with overall scores between 2.5 and 3,” the IMF paper said.

“The middle group includes seven reports (Argentina, Barbados, Bolivia, Honduras, Mexico-CESF, Paraguay and Peru) that obtained an overall score between 2 and 2.5.

“The bottom group includes seven reports (Ecuador, El Salvador, Guatemala, Nicaragua, Panama, the Bahamas and Uruguay) that obtained an overall score below 2 (but higher than 1.5).”

The Financial Stability Reports were ranked for their overall assessment; coverage of issues; use of data and tools; and structure.

Explaining why the Bahamas and its two ‘offshore’ counterparts, Panama and Barbados, had not fared well, the IMF report said: “Reports issued by the three offshore centres or dollarised economies do not score as well.

“There are several possible explanations for this. For one, although in offshore centres the size of the financial sector is large relative to the domestic economy, most of it is ‘ring-fenced’ and has little impact on the domestic financial system.

“In dollarised economies, the Central Bank has no independent monetary policy responsibility, and tends to become a think-tank that is less involved in day-to-day surveillance, which could adversely affect its capacity to analyse potential risks, especially if the relationship with the supervisor is not strong.”

John Rolle, the Central Bank of the Bahamas’ governor, declined to comment on the IMF paper’s rankings and findings in an e-mailed reply to Tribune Business’s questions.

However, the IMF paper described Financial Stability Reports as a key tool for greater financial transparency, given their ability to alert investors, analysts and the general public to “potential and emerging risks”.

It added that these Reports also enabled Central Banks to be held accountable for their policy responses and actions, and said: “By anticipating systemic risk and promoting a public debate about policies, Financial Stability Reports would encourage more prudent behaviours and prompt the authorities to take actions that enhance financial system stability.”

The IMF paper added that the timing of its quality analysis was especially important, explaining: “The Latin American and Caribbean region is undergoing significant financial deepening and development, and banks are becoming increasingly integrated across borders through financial conglomerate structures.

“With the region coping with slower growth and volatile capital flows, it is important for central banks and regulatory authorities to closely monitor financial trends and emerging risks, and to develop a better understanding of the underlying structure of domestic and global financial markets.”

The paper showed the Bahamas as having the highest GDP per capita out of the 20 countries, at more than $20,000 per annum, while its financial services sector was the region’s sixth largest in proportion to domestic GDP.

The Bahamian financial services industry, due to the so-called ‘offshore’ sector, has assets equivalent to between 150-200 per cent of GDP.

This nation was also said to have a higher ratio of bank branches to population that in many other Latin American and Caribbean countries.