By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The International Monetary Fund (IMF) has urged the Government to stop borrowing in international currency simply to boost the external reserves, which at $839 million at end-March were “low” and below the ‘three months’ worth of imports’ benchmark.
The Fund, in its Article IV report, said the Government should desist from foreign borrowing simply to boost the reserves because it increases the Bahamas’ external debt servicing burden and leaves the public finances more vulnerable to external shocks.
Both the Christie administration, and its FNM predecessor, raised $300 million on the international capital markets via bond issues that were widely perceived, at least in part, to have been intended to increase the external reserves.
The IMF, though, warned that foreign currency debt accounted for 30 per cent of the total by the end of the 2014 fiscal year, and further increases would impose a rising drain on the external reserves to service the interest payments.
“The practice of borrowing to build reserves should be discouraged given that it increases the country’s external debt service burden and leaves Government’s balance sheet more vulnerable to external shocks,” the IMF warned.
“As a share of total public debt, foreign currency denominated debt rose by 7.6 percentage points to 30 per cent in 2013-2014.
“The composition of public debt remains very favourable - a large proportion of the debt is held in local currency, and only about 13 per cent is short term. The projected strengthening of the current account in the medium term is expected to reduce the need for large external financing.”
The Fund added: “External reserves remain low. Reserves totalled $839 million at end-March 2015, equivalent to 2.3 months of next year’s projected imports of goods and services.
“However, this reflects, in part, a net purchase of US$175 million from the government following an external bond placement early last year.”
Comments
Well_mudda_take_sic 8 years, 8 months ago
And we need to hear this from the IMF only because our Governor of The Central Bank of The Bahamas, namely Wendy Craigg, refuses to uphold the independence of her office and speak out against the recklessness of the Christie-led PLP government. Never in the history of our country have we had such a weak and ineffective individual as Wendy Craigg in charge of our monetary policy. She would rather talk about the establishment of a credit bureau than the really important matters threatening the financial stability of our country today. She is truly pathetic and should not be entitled to a pension upon her retirement!
banker 8 years, 8 months ago
Co-sign -- totally agree.
Mark my words, this is the thin edge of the wedge to devaluation of the Bahamian dollar. The entire fiscal and monetary policy is not sustainable. The crash is coming, and coming soon. Baha Mar is just a distraction. And God help us if the Chinese want to step in to save us -- except that they are having economic problems of their own at this time.
asiseeit 8 years, 8 months ago
What choice will the government have? FDI is going to dry up after the Baha Mar fiasco, Cuba is going to eat a large chunk of our tourist dollar, and cruise ship will start to divert to greener pastures. Where will we get the U.S. dollars to afford our 3 billion dollar a year import bill. We import almost EVERYTHING, good luck with that, the snowball has just started rolling downhill. The Bahamas is going to switch places with Cuba, watch!
Well_mudda_take_sic 8 years, 8 months ago
True indigenous Bahamians (3rd generation or more) are by their very nature a loving, docile and passive people. This is why we have such a serious illegal immigration problem and a corrupt Christie-led PLP government that could not care two hoots about the Bahamian people; Christie has only ever looked after his select group of political friends and business cronies!
Reality_Check 8 years, 8 months ago
My friend, I would have agreed with you 30+ years ago, but the Haitian and Jamaican gene pools have been very successfully and pervasively inter-woven into the fabric of our community, creating a whole new creed of much more aggressive and violent "Bahamian citizen", one who will ensure retribution of the fiercest kind is exacted from our crooked politicians without prior warning.
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