The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Central Bank's governor yesterday rejected as "bureaucratically inefficient" suggestions that The Bahamas impose restrictions on non-essential imports to protect the foreign currency reserves.

John Rolle, addressing a webinar organised by the Chartered Financial Analyst (CFA) Society of The Bahamas, argued that this nation needed to switch to using “macro tools” to ensure certain economic outcomes rather than measures he described as draconian, short-term and small level policy responses.

He added that The Bahamas' foreign currency reserves remain relatively stable thanks to the Government's foreign currency borrowing activities, including its recent $600m sovereign bond issue as well as $200m loaned by the Inter-American Development Bank (IDB) and a further $50m from the Caribbean Development Bank (CDB), plus the receipt of Hurricane Dorian reinsurance inflows.

The Central Bank's report on October 2020's monthly economic developments, released yesterday, disclosed that the external reserves expanded by almost $208m that month to hit $2.314bn - despite the near-total absence of any tourism-related inflows - due to the receipt of net proceeds from the $600m bond.

“We've seen over the first half of the year growth in bank liquidity, and really it is because inflows from the Government's borrowing activities have accumulated on the balance sheets of banks," Mr Rolle said.

"Once it is converted into Bahamian dollars, some of those inflows have contributed to the build-up of liquidity within an environment where credit or lending to the private sector is still very, very flat and negative on net." Dorian-related reinsurance settlements, he added, had also served to bolster the foreign reserves during the initial weeks of the COVID-19 pandemic.

Asked how long the foreign reserves, which are critical to underpinning the one:one currency peg with the US dollar, can hold up without significant tourism earnings, Mr Rolle said: “In the case of The Bahamas, we have to always have 50 percent equivalent value in hard currency reserves to supply the Central Bank liabilities.

"What people should understand is our liabilities also shrink during some periods of downturn in the economy, and they expand during the upturn. When you break the link between the growth in your liabilities and your currency and your foreign reserves, is when you start to print money - literally, when you print money to lend to the Government.

"That is where The Bahamas is moving more in the direction of shackling its hands in the sense that there are now comprehensive limits on how much the Central Bank can lend to the Government and that is a tremendous discipline enhancer," he added.

“So, from my point of view, that gives some flexibility in managing. But similarly, when we look at how we protect our foreign reserves and our exchange rate, medium and long-term, there will also continue to be a role for the fiscal policy, because to the extent that you're properly financing the fiscal needs, and you're managing the deficit financing needs of the government, you will also be managing the pressures that fiscal policy might exert on your foreign exchange market if it is happening in ways that are not sustainable. But it's not a concern.”

When it came to the amount of import coverage provided by the foreign reserves at present, Mr Rolle added: "In terms of months of goods' import coverage, the reserves coverage have been improving since about the end of 2017.”