The Tribune

• Funds allocated from SDRs

• Foreign reserves stand at $2.26 billion

• COVID-19’s lingering impact on tourism precipitated this decision

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

THE International Monetary Fund (IMF) has given the central bank $247m from special drawing rights (SDR) to bolster external reserves.

A release from the bank revealed: “The Bahamas received an allocation of SDR174.8m, which add approximately US$247m to the international reserves of the central bank.”

SDRs are supplementary foreign exchange reserve assets defined and maintained by the IMF. SDRs are units of account for the IMF and not a currency per se. They represent a claim to currency held by IMF member countries for which they may be exchanged.

So the bank has not borrowed money from the IMF, however it has access to this $247m.

“The SDR allocations count as official international reserves of IMF member countries. If there is no further need for their use, they can be retained with the IMF in their allocated composition. Alternatively, they can be converted into other currencies that make up the composition of the respective countries’ international reserves and used directly to meet economic needs. In particular, countries can decide whether policy buffers would be used to increase the flexibility of fiscal and monetary policies, including for pandemic-related deficit financing, debt management operations, promoting external debt sustainability, financial stability or balance of payments needs,” the release added.

John Rolle, governor of the central bank said earlier in the year that foreign reserves stood at $2.26 billion at the end of March. He added at a press conference on the bank’s Q2 briefing earlier in August that the restrictions on bank capital imposed last year had provided at least a $200m cushion for the external reserves.

However, the bank further explained in the release that the lingering impact of COVID-19 on the tourism industry is what precipitated this move on IMF SDR funds. “In terms of The Bahamas, the spread of COVID-19 adversely impacted tourism, which provides the bulk of foreign currency earnings. With the sector remaining largely offline for approximately one year, the Central Bank introduced foreign exchange conservation measures to maintain external stability and protect the external reserves, and by extension, the exchange rate peg.

“These measures included the suspended dividend approvals for all foreign-owned commercial banks, and suspension of access to foreign exchange for investment currency purchases and financing of Bahamas Depository Receipts (BDRs), both being categories of external portfolio investments. For balance of payments sustainability, the Central Bank also endorsed a strategy that increased the Government’s reliance on foreign currency borrowing to finance the larger deficits.”

The bank also said: “The Central Bank intends to use the SDR allocations for foreign reserve management operations, in particular holding them available for any increase in foreign exchange needs expressed through the private and public sectors. Any amounts converted to US dollars would attract costs to the Central Bank at the prevailing interest rate on SDRs, which is currently 0.05 percent. This is a weighted average of the short-term interest rates on Government debt of the countries and regions represented in the basket of currencies that make up the SDR.

This SDR is “not earmarked” for government lending and in no way adds to the government’s overall debt or the bank’s liability to the central government.

The bank also said, “These allocations improve space for the Central Bank to relax the remaining foreign currency conservation measures, which suspended access to foreign exchange for external investments by Bahamian residents.”