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External Reserves Off $100m From End-2012

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ external reserves are down almost $100 million from year-end 2012, indicating that foreign currency inflows are not occurring at a fast-enough rate to replenish them.

Wendy Craigg, the Central Bank of the Bahamas governor, told Tribune Business that the current $711 million external reserves level was “not in the red”, meaning they were not dangerously low.

However, she added that the Central Bank was watching the external reserves “very closely” to ensure they remained adequate and within International Monetary Fund (IMF) guidance that they cover at least four weeks’ worth of imports.

Current foreign currency reserve levels are down almost $100 million from the $810 million held at year-end December 2012, Mrs Craigg confirmed, and some $35 million off the $746 million achieved at the same point last year.

“It’s still comfortable,” she said of the foreign reserves, “even though it’s down from where we were at the end of last year. I think it’s a little over $100 million from where we were then.”

Given that the peak tourism season, which occurs between February-April, has already passed, this indicates that foreign currency earnings inflows from the Bahamas’ largest industry, plus foreign direct investment (FDI) activities, have not kept pace with outflows.

Mrs Craigg separated FDI projects from foreign currency inflows, saying that while the former were adding much to “the capital stock of the country” they may not be injecting much in terms of monetary payments at this time.

A healthy level of foreign reserves is vital to the Bahamian monetary system and wider economy. Given that this nation imports virtually everything it consumes, foreign currency access is vital to the purchase of goods and services abroad.

And, in turn, strong foreign currency reserves also support the Bahamas’ key monetary policy target: The balance of payments and one:one peg between the Bahamian and US dollars.

“We always want to ensure we have adequate growth in external reserves,” Mrs Craigg confirmed to Tribune Business. “It’s something we continue to watch very closely. We’re not in the red.”

She added that the Bahamas’ external reserves had been boosted to over $1 billion in 2011 by one-off extraordinary inflows, stemming from a combination of the Government’s foreign currency borrowings; special International Monetary Fund (IMF) drawing rights; and proceeds fromm the likes of the Bahamas Telecommunications Company (BTC) privatisation and BORCO sale.

The implication being that the foreign currency reserves are settling at more normal levels.

Meanwhile, Mrs Craigg also confirmed that the Central Bank had yet to see a”broadening” of economic activity that would translate into a sustained economic recovery and, most important of all, a reduction in the 13.7 per cent Bahamian unemployment rate.

“From what we’ve seen in tourism, and I’m sure you’ve seen the figures, performance is very soft,” she told Tribune Business. “We’ve not seen the broadening of economic activity at this point in time.

‘”It’s slow in coming in terms of the broadening, and until we see that we maintain there will not be that impact in terms of the unemployment situation. It’s impacting the rate at which we are experiencing growth in recovery.”

Expanding on this theme, the Governor added: “The level of economic activity is continuing, but we’re not seeing jobs being added at a rate at which it would create a major impact on the unemployment situation.

“It’s not a situation that is going to change overnight. We all acknowledged that from the beginning. It’s going to take some time to achieve the level of transition in economic conditions that we would all like to benefit from.

“It hasn’t broadened in terms of seeing the trickle down effects of activity that is currently happening, but the overall picture is stable.”

Mrs Craigg said the Bahamas was in “an enviable situation”, with a “favourable outlook” compared to many Caribbean neighbours because none could boast investment projects such as Baha Mar and Albany.

“We’re certainly looking for the conclusion of the Baha Mar project to add a considerable number of jobs and change the dynamics,” she added of the $2.6 billion Cable Beach development, which is promising up to 5,000 full-time posts for Bahamians.

Elsewhere, Mrs Craigg said the commercial banking industry’s non-performing loans, which average close to 20 per cent of total outstanding credit, had “bottomed out”.

“The banks are trying to manage the situation as best they can given the environment,” she added. “There’s no further deterioration in the overall level. It’s bottomed out.”

The Governor added that inflation remained at relatively modest levels, even as the Government’s new and increased taxes start to filter through the supply chain to produce price rises at every level - including for consumers.

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