The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government “has not begun repayment” of the $232.3m in IMF special drawing rights (SDRs) it controversially accessed via the Central Bank as the outstanding “loan” balance grew by $6.18m over 2023.

The Central Bank’s 2023 audited financial statements, released yesterday, showed that just over $5m in “interest accrual” was chiefly responsible for increasing the sum due on the SDR loan from $232.973m at year-end 2022 to $239.157m some 12 months later.

“During November 2022, the Government and Central Bank agreed a Memorandum of Understanding (MOU) that allowed the Government to access SDRs totalling 174.8m,” the financials recalled. “The SDRs are convertible into US dollars and, at year-end, the loan totalled $234.153m” compared to $232.661m at year-end 2022.

The Central Bank’s audited financial statements said the SDR-related loan carries a variable interest rates that fluctuates on a monthly basis, ranging from 2.92 percent to 4.2 percent. “The interest shall be repaid at such frequency, and on such dates, as may be set by the IMF, which is normally on a quarterly basis,” the statements added.

“To-date, the Government has not commenced repayment of the loan. The MoU further stipulates all obligations related to the SDRs, including all costs, charges and payment of interest will be the responsibility of the Government without a financial burden to the bank.”

John Rolle, the Central Bank’s governor, told Tribune Business yesterday that the $5m “interest accrual” in the Central Bank’s financial statements relating to the SDRs likely reflected timing differences, with funds building up ahead of a repayment deadline, as opposed to the Government failing to pay.

“Interest can accrue between the [repayment] dates,” he said. “The accrual is noted in between the dates.... Interest is paid on an accrual basis. There is a frequency, and whatever the frequency is there’ll be a pass through to the Government. The Government pays that.”

The MoU makes the Government responsible for servicing all obligations due to the IMF on the SDRs, including interest payments, “without a financial burden to the Central Bank”. The SDRs have to be “reconstituted”, or repaid, no later than when the US dollar liabilities they have financed mature. No date was given, but the MoU remains in effect until January 4, 2038.

Mr Rolle also explained that the difference between the $234.153m year-end 2023 loan balance, and the $232.661m noted 12 months’ prior, likely “reflects” the fact that the SDRs have to be revalued annually against market price. “We would have refinanced the loan, which would have been in line with the expectation,” the Governor added. “We refinanced the loan at the rollover date.”

Simon Wilson, the Ministry of Finance’s financial secretary, could not be reached for comment before press time but he had previously told this newspaper that there had already been an agreement for the SRD transaction to be rolled over beyond its initial one-year maturity.

However, several observers questioned whether the term “interest accrual” suggested that the Government’s unpaid interest was being capitalised. They pointed to the Central Bank’s balance sheet, which listed the “SDR loan to the Government” as a “domestic asset” that has increased in value year-over-year from $232.972m to $239.157m.

Yet, in “external assets”, the Central Bank’s SDR “holdings” were shown as having declined in value year-over-year from $167.336m to $161.19m - a reduction of identical magnitude to the increase in the domestic SDR valuation.

The original SDR transaction in November 2022, which was designed to give the Government access to relatively cheaper foreign currency financing, aroused controversy with the Opposition asserting that the Central Bank Act had to be retroactively amended to make the move legal and give it statutory effect.

The MoU itself detailed concerns that the deal created a liability now due from the Government to the Central Bank that could place the latter outside its legal lending limits and violate the law.

“Based on the advice of external legal counsel, the [Central] Bank is of the view that using the 2021 SDR allocation for the purpose would create a liability from the Government to the Bank notwithstanding section 4(6) of the Act, and a position could be taken that the Government would have exceeded the authorised borrowing limits set forth in section 21 of the Central Bank of The Bahamas Act 2020,” the MoU stipulates.

“Out of an abundance of caution, the [Central] Bank has requested, and the Government has agreed, to table an amendment to the Central Bank Act on the terms more specifically set forth below.” The reforms were supposed to have been “debated and gazzetted” no later than the mid-year Budget debate, which took place more than two months before the changes were passed in late April/early May 2023.

Elsewhere, the Central Bank’s audited financial statements revealed that at year-end 2023 it was back in compliance with legal requirements on its temporary lending to the Government that had been breached by $2.3m the previous year.

“The bank may provide temporary loans to the Government where the amount of the loans, which may be outstanding at any one time, taken together with the Treasury bills or securities issued or guaranteed by the Government or a public corporation, shall not exceed, in aggregate, 30 percent of the average ordinary revenue of the Government or 30 percent of the estimated ordinary revenue of the Government- whichever is less, “ the financials stated.

“There was an amendment of Section 21 [of the Central Bank Act] which reduced the temporary loan limits from 30 percent to 15.5 percent of the average revenue of the Government or the estimated ordinary revenue of the Government, whichever is the less, and excluded the Treasury bills or securities in the calculation.

“At the year-end date, advances to the Government were within the Bank’s temporary loan limits to the Government.” Repayments by the Government of $1.44bn over the course of 2023 exceeded $1.297bn in new Central Bank advances, resulting in a net $147m reduction in the total outstanding sum borrowed that took it to $193.49m at year-end 2023 as opposed to $336.511m at end-2022.