The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bank profit repatriations tripled year-over-year to $120 million in 2013, the Central Bank’s governor revealed yesterday, adding that it was “not unusual” for the Government to help ease external reserves challenges.

Responding via e-mail to Tribune Business’s questions, Wendy Craigg said the Bahamas’ foreign currency reserves came under pressure last year from a combination of weak stopover tourism performance and a “constrained” impact from foreign direct investment (FDI).

“In 2013, bank profit repatriations, which were in excess of $120 million, and more than three times 2012’s level, also were an additional call on external reserves,” Mrs Craigg told Tribune Business, citing another factor identified in the International Monetary Fund’s (IMF) recent Article IV report on the Bahamas.

The Fund also noted that the Central Bank had asked the Government to undertake its deficit financing in foreign currency borrowing, in a bid to “bolster the reserves” and ease a decline which saw them total $685 million at end-October 2013.

Emphasising that such a request was not out of the ordinary, Mrs Craigg said: “It is not unusual for governments to undertake foreign currency borrowing to assist in smoothing out what are considered to be temporary challenges in the performance of the foreign exchange earning sectors........

“Clearly, one of the issues which emerged relatively early in 2013 was the observed weakness in the tourism sector, due to a number of factors, including the slow recovery momentum in the global economy.”

Mrs Craigg said the Central Bank had identified the consequences, a “below-average seasonal rebuilding in external reserves, especially during the peak winter season”, in its regular monthly reports.

“Although private sector demand did not exert any undue pressure on the external reserves, we still had the burden of a very large oil import bill, along with the need to finance routine imports of other goods and services, and then last year there were above average bank profit remittances,” the Governor added.

“From the Central Bank’s perspective, it was important for the country to be able to facilitate these demands and, at the same time, ensure that the external reserve buffer continued to support confidence in our monetary and economic arrangements.”

Mrs Craigg emphasised that the Government’s foreign currency borrowing was also part of its debt management strategy, “given its desire to take advantage of the relatively low global interest rate environment and favourable terms available internationally for countries with investment grade debt.

“The reported high level of bids for the country’s US$300 million bond issue is evidence of the sustained demand for sovereign debt from economies, such as ours, with relatively low risks,” the Governor added.

The IMF report had described the Bahamas’ external reserve adequacy as “mixed”, based on various benchmarks, but Mrs Craigg said it and the Central Bank were “in general agreement” that they were at acceptable levels when measured against all relevant benchmarks.

These included measures such as average external reserves to non-oil imports (3.9 months); total merchandise imports (2.8 months); and external reserves to demand liabilities (85 per cent).

Mrs Craigg said other cross-country comparisons used by the IMF were less relevant to the Bahamas, and added: “In our context, we do not allow for unfettered movement of domestic assets outside of the country, which affords protection to the external reserves.

“So when one makes comparisons on these measures, the Bahamas may have comparatively lower levels of reserve buffers.

“Having said this, as a country with a fixed exchange rate regime, we acknowledge the importance of having an adequate level of reserves to back the issuance of our currency, defend the fixed exchange rate regime, ensure that we remain resilient to external shocks and to support confidence in our domestic policies.”

Mrs Craigg told Tribune Business that, supported by the Government’s foreign currency borrowings, the external reserves closed 2013 at $741 million, a sum equivalent to about 3.9 months of non-oil imports.

“External reserves currently stand at approximately $927.8 million, which would be in excess of three months of total imports. We expect reserves to remain at comfortable levels over the near-term,” the Central Bank governor reaffirmed.

Further explaining the decline in early 2013, Mrs Craigg said the fall in stopover visitors, “which have the greater spend in terms of the visitor pie, dampened the level of our foreign currency earnings and, by extension, the growth in external reserves.

“While FDIs have been providing some contribution to external reserves, the extent has also been constrained due to the high import content and the lower incidence of domestic resource utilisation in the construction phase.

“The outlook for 2014, however, is for an improvement in tourism performance, given the steady growth in the US economy, and we are seeing a number of encouraging new foreign investment projects.”