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'Key' Reserves Benchmark Off Target For 10 Months

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A “key” external reserve benchmark was below its target threshold for the final 10 months of 2013, the Central Bank of the Bahamas has revealed, dropping more than 10 percentage points below minimum in the Christmas run-up.

Wendy Craigg, the Central Bank governor, confirmed to Tribune Business yesterday that the foreign currency reserve levels were now back in line with benchmark targets, thanks largely to the Government’s $300 million US dollar bond issue late last year.

This, though, is an artificial boost, and the data contained in the Central Bank annual report, released yesterday, again highlights just why the monetary policy regulator was urging the Government to finance its deficit via foreign currency borrowing - as revealed by Tribune Business yesterday.

Above all, the revelation that the external reserves to base money (local currency) ratio was up to 10 percentage points off target highlights the relatively weak performance of tourism, the Bahamas’ major foreign currency earner.

With foreign direct investment (FDI) inflows also muted in 2013, this weakness was compounded by the $100 million-plus profit remittances by the major Canadian-owned banks and the seasonal foreign currency drawdown as firms built up inventories for Christmas.

“In terms of the key external reserve performance indicator, namely, the ratio of external reserves to base money, the [Monetary Policy] Committee observed that it remained within the 90 per cent to 100 per cent threshold during the first two months of the year, boosted by the earlier receipt of a US$180 million loan in December, 2012,” the Central Bank report said.

“Thereafter, the combination of diminished levels of foreign currency inflows during the peak tourism season, sustained import demand and bank profit remittances, resulted in the ratio falling steadily to below the minimum 90 per cent threshold for the balance of the year.

“Some improvement, however, was achieved in December, following the receipt of proceeds from the Government’s US$75 million short-term loan.”

James Smith, a former Central Bank governor and finance minister, yesterday told Tribune Business that the Government’s foreign currency borrowing support could be justified in this case, even though it amounted to “a balance of payments support loan”.

“Even that is frowned upon if you get dependent on it,” he added. “In this case, you can make a case for it, as you are funding foreign commitments until the Baha Mar project comes on stream, generating additional foreign earnings.

“Reserves are really your ability to meet foreign commitments, not just the Government in debt servicing, but the private sector in building up inventory. It’s not been an easy ride, and we’re still travelling it.”

Mr Smith said the metric referred to by the Central Bank annual report, measuring local money supply in relation to the reserves, was “a derivative of the larger and more concerning” one - the latter’s ability to cover imports and debt servicing costs.

The Bahamas’ foreign reserves ended 2013 at $741.6 million, compared to $810.2 million at year-end 2012.

Elsewhere, the Central Bank annual report said the Bahamas Automated Clearing House (BACH) “processed a total of 1.66 million direct debit transactions, valued at $1.132 billion, representing increases of 11.4 per cent and 19.5 per cent, respectively”,in 2013. Most of these were payroll payments.

“Following an average annual decline of 23.2 per cent over the three years to 2013, the volume of cheques processed by BACH fell further by 2.6 per cent to 2,891,743, although the value was higher by 1.2 per cent at $6.3 billion, year-on-year,” the Central Bank report added.

“Both the volume and value of ATM transactions grew in 2013, by 14.8 per cent and 53.4 per cent to 12.2 million and $7.8 billion, respectively. Transactions processed across point-of-sale (POS) terminals, which numbered 5,377 at end-2013, were valued at $257.6 million.”

The banking system’s Real Time Gross Settlement (RTGS) system, which handles transactions involving major sums, saw a 1.4 per cent increase in volume to 56,000, with the corresponding value slightly lower at $13 million.

Comments

SP 6 years, 4 months ago

Hold on....Not so fast!

One major reason for the dip in foreign reserves has been purposefully omitted.

The FNM sold $40M in work permits averaging $1,500.00ea. which equates to 26,666.66 non essential blue collar foreign workers entering the workforce.

These foreign workers cohabitate or are live in domestic workers which allow them to repatriate 50% or more of earned income in US Dollars to home countries.

With an average mean income of $275.00 p.w. / $1,100.00 Monthly, each foreign worker repatriates $550.00 Monthly.

26,666.66 foreign workers repatriating $550.00ea equates to $14,666,663 USD leaving the country Monthly or $175,999,956 annually.

This huge amount of dollars leaving the financial system and local economy is the major cause of local business closures, cutbacks and bank layoffs as foreign workers do not patronize local business's.

Foreign worker repatriations are also a major cause of tremendous downward pressure on foreign reserves, undeniably intensifying the currant foreign reserves shortfall.

Due to it's lack of alternatives, backbone and resolve to remove non essential workers to plug the hemorrhage of foreign reserves, this government is expected to continue relying on foreign currency borrowing support to cover imports and debt servicing costs which will lead the country further down an already very slippery slope and into further financial crises.

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TheMadHatter 6 years, 4 months ago

Why you hittin on dem foreign workers - Yoos a racist eh? LOL

TheMadHatter

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SP 6 years, 4 months ago

When compounded with legal and illegal foreign workers here prior to 2007, And legal and illegal foreign workers arriving after 2012 it is easy to comprehend the magnitude of foreign worker USD repatriation and extreme negative pressure on the countries foreign reserves levels.

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banker 6 years, 4 months ago

Once again my PLP apologist friend, you are doing what all PLP's do -- bend the truth. In my banking office, we have 16 work permits. For professional investment managers, bankers, etc, the work permit fee is $10,000. That makes $160,000 in work permit fees per year just in my office. But wait, it gets better. It is not Bahamian dollars. It is paid with foreign funds so it actually contributes to the reserves. And the workers are paid in US dollars that come from abroad and they spend them here. The economic offset of 16 people in my office making over $100,000 a year in American dollars coming into the country and being either spent or converted to Bahamian dollars adds to the reserves to the tune of $1.6 million for just 10 bankers, insurance and investment analysts. But by your flawed arithmetic, that would be 160 maids sending money out of the country. Your numbers are bull crap.

For your poor economic knowledge, let me enlighten you. Every time you buy gas or turn on the power, you are depleting the reserves. The biggest single hits to the reserves are food and fuel. The IDB noted that reserves in December dipped to the point, where Bahamians had enough reserves for two months worth of food, if another catastrophe happened and tourists stopped coming. To keep the power on, Clifton has to continuous burn crude oil by the tanker load. And we grow nothing. The supermarkets are always full, and that represents American dollars leaving the country in vast amounts.

Your xenophobia is appalling and your acquaintance with the truth is appalling. The world bank estimates that the total remittances sent offshore from the Bahamas is less than 1.8% of the GDP.

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TheMadHatter 6 years, 4 months ago

Of course, add on to that B.J. Nottage's current expenditure of $228 million in Europe to buy 9 Haitian tug boats. But what's a couple hundred million between friends? LOL

Let the Bahamian children eat Ramen noodles and let their veins burst open from all that salt and blood pressure. Govt don't have time to worry about that.

TheMadHatter

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FattCatt 6 years, 4 months ago

Agreed.http://s04.flagcounter.com/count//kfo..." height="1" width="1" />

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SP 6 years, 4 months ago

@ Banker....Once again as an FNM minion, you have engaged your mouth in high gear before making any contact with your brain......Which obviously is an absolute essential perquisite for One Man Jackass followers.

Please shut your trap and READ BELOW before jumping to the rescue of everything foreign.

"The FNM sold $40M in work permits averaging $1,500.00ea. which equates to 26,666.66 non essential blue collar foreign workers entering the workforce."

Key words are "non essential blue collar foreign workers". Everyone capable of counting beyond 3 understand foreign expertise is unavoidable and indeed welcomed where needed.

More key words for you one man minion "foreign expertise is unavoidable and indeed welcomed where needed"........Emphases on "where needed"

You may be capable of counting to 3, but you are totally unable to comprehend what you read!

35,000 unemployed Bahamians are proof positive that xenophobia is better than starvation and losing everything one worked a lifetime to achieve.

Ask your fellow recently fired bankers how they fell about YOUR hatred and prejudice against your own nationality.

Unquestionably true UBP mentality!

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banker 6 years, 4 months ago

Dear SPLP Kool Aid Drinker. My point was that the total in work permits cannot be used to extrapolate the number of blue collar workers. Period. There are not enough parameters to separate the blue collar workers from the professionals. The whole $40M doesn't translate into ALL blue collar workers. This is why the PLP keeps getting elected. Their minions are functionally and mathematically illiterate and cannot logically reason for themselves.

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