The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition yesterday demanded the Government “come clean” over its $232.3m IMF special drawing rights (SDRs) borrowing after reforms were tabled in Parliament to retroactively make the transaction lawful.

Kwasi Thompson, the FNM’s finance spokesman, questioned “what was the urgent need” for the Government to obtain the advance prior to changing the Central Bank of The Bahamas Act. The Bill tabled yesterday contains language stating it “shall be deemed to have come into force on December 1, 2022”, thus making its implementation and legal effect retroactive to when the $232.3m was advanced to the Government.

The east Grand Bahama MP argued that the Bill’s emergence following the mid-year Budget presentation was “proof” the Opposition had been correct to accuse the Government of “breaking the law” as there was previously no provision in the Central Bank Act allowing it to borrow, or access, the SDRs allocated to The Bahamas by the International Monetary Fund (IMF).

That will now be permitted by the new legislation, which states in its ‘objects and reasons’ section: “The Central Bank of The Bahamas (Amendment) Bill 2023 seeks to make provision.... of a new section 17A to empower the minister to access, utilise or convert special drawing rights allocated by the IMF for the purpose of reducing its foreign currency debt obligations and to manage its foreign currency debt operations.”

Significantly, the Bill says section 21 in the existing Central Bank Act will not apply to the Government’s “use or conversion” of SDRs or the proceeds. Section 21 sets limits on how much the monetary policy regulator can lend or advance to the Government. It currently can only make temporary loans that mature within 91 days and have “market-based” interest rates attached, while the amount involved is also capped.

Combined with total issued Treasury Bills, and securities issued or guaranteed by the Government and its corporations, total outstanding loans to the former by the Central Bank cannot exceed 30 percent of the Government’s “average” or “estimated” revenue - a sum around $800m-$900m.

Mr Thompson, meanwhile, queried why the Government had been in such a hurry to gain access to the SDRs without “first coming to Parliament” to make the necessary legal changes. He effectively accused the Davis administration of a backwards process, where it borrowed first and then obtained the necessary legal authority after the event.

“It is no surprise that the Government has tabled the amendment to the Central Bank Act,” he told this newspaper. “It is proof that the Opposition was in the right in pointing out that the Government was in breach of the law. They are now seeking to change the law to correct the breach that was made previously.

“We now see through their reports, and we now see through the tabling of this legislation, that the Government did in fact breach the Central Bank Act, and they did in fact have a loan or advance from the Central Bank that was contrary to the law. They are now seeking to remedy that law.

“We are calling for someone to be held accountable for the breach of the law. It cannot be right that any government can simply break the law and come to Parliament and seek to correct their mistake. The Government also owes the public an explanation as to what was the urgent circumstances that took place that caused them to take the advance without coming to Parliament,” Mr Thompson continued.

“They have failed to come clean with the Bahamian public. Even in today’s presentation the Prime Minister made it appear we are heading in the right direction, and that everything is going well, but the evidence is to the contrary. What was the urgent need for you to break the law without first coming to Parliament? That means there was a serious situation that the Government found itself in which caused them to disregard the law.”

John Rolle, the Central Bank’s governor, revealed to Tribune Business in early January that the Memorandum of Understanding (MoU) between the monetary policy regulator and Ministry of Finance stipulated the Davis administration must change the Central Bank Act to facilitate the SDR transaction.

The Opposition has seized on the $232.3m advance since it was first disclosed at year-end 2022 in the Central Bank’s November economic update, but the Davis administration will likely argue that its rivals are making much ado about nothing since the transaction gave it access to low-cost foreign currency borrowing that will save Bahamian taxpayers millions in interest (debt servicing) costs.

Simon Wilson, the Ministry of Finance’s financial secretary, previously said the MoU would provide the Government with access to financing that was an estimated 700 basis points below prevailing market rates. He argued that this seven percentage point differential could generate close to $20m in annual interest savings for hard-pressed Bahamian taxpayers compared to the likely rates if the Government had to borrow in the international capital markets.

Mr Wilson also argued that the Government’s SDR borrowing was aligned with the IMF’s stated reason for issuing them, which was their use for “fiscal purposes”. It emerged in the Government’s December 2022 fiscal report that the full $232.3m had been drawn down by the Davis administration that month, classifying this as “bank loans” or part of some $250m in “foreign currency loans”.

The Ministry of Finance’s financial secretary confirmed that the $232.3m was used to repay $180m in foreign currency borrowings, leaving $52.3m unused. He also indicated that the SDRs were encashed and monetised. However, Michael Pintard, the Opposition’s leader, argued that the Bill tabled yesterday - and its contents - were “proof positive” that the FNM’s concerns were on target.

Asserting that the Government had placed the Central Bank “in a horrible position” over the SDRs, Mr Pintard said: “They have refused to lay the MoU on the table as we asked for, and have not explained what the interest rate is. They have done everything possible to hide this transaction, and this piece of legislation confirms it.

“Had the Central Bank governor not done his fiduciary duty of publishing the liability of the Government, and insisting on the MoU, I don’t think any of this would have seen the light of day. The Prime Minister has to give an accounting for breaking the law.”