The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government must "rapidly bring its fiscal house into line" to facilitate greater exchange control liberalisation, a well-known accountant warned yesterday.

Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the Minnis administration needed to both 'stay in its lane' and "take hold" of what it is responsible for if this nation is to enjoy a more relaxed exchange control regime. He added that the Central Bank could no longer be such a significant lender to the Government if it wanted to establish its policy credibility as an "independent, autonomous" monetary manager - something that will be critical to maintaining investor confidence and preventing capital flight in a liberalised environment.

"Fiscal management and responsibility must accompany liberalisation," Mr Bowe told this newspaper, following the Central Bank's half-day liberalisation seminar on Monday.

"The Central Bank has been a lender of significant resources to the Government... We can't have the Central Bank overly exposed to the Government when it's trying to be independent, autonomous and manage monetary policy." Central Bank data shows its share of the Government's direct debt reached almost 12 per cent in 2016, although this has levelled off slightly since. As a percentage of GDP, this is almost 7 per cent.

John Rolle, the Central Bank governor, in his Monday seminar presentation warned that placing the Bahamas' public finances "on a sound path" was a policy imperative if exchange control liberalisation is to continue and succeed.

"Fiscal policies have to inspire confidence against exchange rate speculation," he said. "Government reliance on Central Bank financing should be kept in check.

"Unchecked, the potential for capital flight is inferred from the rising gap in the uncovered liabilities of the Central Bank over the last decade, as public debt rose and the relative dependence by the Government on Central Bank financing increased."

Mr Rolle effectively warned that irresponsible fiscal and economic policies would cause increasingly mobile capital to flee the Bahamas in an environment where exchange control restrictions on such outflows have been removed. This implies that the Bahamas must eliminate its $300 million-plus annual deficits and lower the $7.5 billion national debt.

"If the political mantra is we're pushing for liberalisation, that comes with obligations to bring the fiscal house rapidly in line with what liberalisation needs," Mr Bowe told Tribune Business.

"For the political directorate, they need to keep to their path and leave the Central Bank to effect it. The Government has to be careful not to overstep the boundaries in terms of what it's responsible for, and take hold of what it's responsible for; fiscal policy."

Mr Bowe also expressed hope that Monday's seminar was "the start" of a more regular, intense dialogue between the Central Bank and private sector over the former's monetary policy targets and methods for achieving them.

He compared the previous lack of dialogue to the US Federal Reserve, Bank of England and European Central Bank (ECB), all of which published 'minutes' of their discussions on interest rates and other monetary indicators to show the markets "what they're trying to achieve" and why.

The BICA president said the Bahamas' main monetary goal was maintenance of the one:one peg with the US dollar, but there was little to "no understanding of what exchange control is meant to achieve and whether we're achieving it".

"This was probably one of the first times we had the Central Bank lead a discussion on monetary policy," Mr Bowe said. "It wasn't as in-depth as in the US, but at least it's a start. I'm hoping the Central Bank will see this as a start, where we're talking about monetary policy, exchange controls, interest rates and how we control inflows and outflows.

"At least that's the type of dialogue the business community appreciates, and the average person, even if they disagree, has a greater appreciation for the regime. Monday should be the first step. It should be included in quarterly newsletters and other things to be very clear, not left to next year."