The Tribune

Bahamian commercial banks had more than $2bn in funds they were unable to find qualified borrowers for at end-April 2018, it was revealed yesterday.

The Central Bank of The Bahamas' monthly report for the month, published yesterday, disclosed that excess commercial banking system liquidity - representing surplus assets available for lending - stood at $2.005bn at month's end.

James Smith, former minister of state for finance, told Tribune Business that the record excess liquidity level was one of the "problems" created by the government's decision to repay short-term Bahamian dollar loans with the proceeds from last year's $750m foreign currency bond.

Amid the banking sector's "conservative stance" on lending, Mr Smith said the inability to find qualified borrowers meant banks were sitting on an ever-growing pile of surplus cash that continues to drive down deposit rates and penalises savers.

He added that the bond proceeds, which had to be converted into local currency by the Central Bank, had effectively been a "balance of payments support" as banks were not using the proceeds for productive, investment purposes to "grease the economy" and fuel growth.

Elsewhere, the Central Bank found that the Government's deficit for the first nine months of the 2017-2018 fiscal year fell by 31.6 per cent or $88.4 million to $191.6 million, largely due to cuts in capital spending as revenue growth remained anemic.

"This reflected an $80.3 million (4.6 per cent) decline in total expenditure to $1.657 billion, coupled with an $8.1 million (0.6 per cent) increase in total revenue to $1.466 billion," the Central Bank said.

"The contraction in total expenditure was underpinned by a $114.3 million (50.3 per cent) decline in capital spending to $113.1 million, as infrastructure outlays fell sharply by $85.4 million to $95.9 million, following the hurricane rebuilding-related expansion in the prior year. Further, asset acquisitions decreased by $28.9 million (62.6 per cent) to $17.3 million.

"In contrast, current expenditure grew by $34.2 million (2.3 per cent) to $1.544 billion, primarily backed by a $40.3 million (5.2 per cent) gain in consumption spending. A breakdown of the components showed that both personal emoluments and purchases of goods and services firmed, by $19.8 million (3.8 per cent and $20.5 million (7.8 per cent), respectively."

On the revenue front, the Central Bank said: "The gain in aggregate receipts reflected an $11.9 million (0.9 per cent) increase in tax collections to $1.32 billion. Specifically, value added taxes (VAT) firmed by $12 million (2.6 per cent), and selective taxes on services rose by $5.7 million (26.2 per cent)."

Turning to the Bahamas' growth prospects (pre-VAT hike at least), it added: "Expectations are that the modest pace of economic expansion should be maintained over the near-term, buoyed by sustained growth in the high value-added stopover segment of the tourism sector, while a number of foreign investment projects should continue to support construction sector activity.

"Given the prevailing domestic and international economic conditions, the Central Bank's current monetary policy stance remains prudent, as net foreign currency demand continues to be sustainable. No near-term adjustment in interest rate or credit measures is therefore warranted.

"This decision reflects several important factors, namely the record levels of external reserves needed to support the fixed exchange rate regime; increasing positive signs in the main stopover visitor segment of the tourism sector, due in part to the growth in high-end room capacity in the capital; and contained private sector credit demand.

"As the economy improves, capacity for credit accommodation will increase. However, tools to manage credit risk, such as the eventual start-up of the Credit Bureau, will also have to provide accommodating support."