The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) last night “stressed” to the Bahamas the need to increase its foreign exchange reserves, while effectively calling for no change in interest rates.

Wendell Samuel, who headed the IMF team that visited Nassau for the annual Article IV consultation, called for this nation to “rebuild the foreign exchange reserves buffers”, even though the impending end of construction on the $3. 5 billion Baha Mar project would improve the current account deficit.

In a statement on the Fund’s Match 9-20 visit, Mr Samuel said: “The mission stressed that the Bahamas needs to rebuild its foreign exchange reserve buffers.

“Although reduced imports and significantly increased tourism exports from 2015 onward are expected to contribute to a substantial decline in the current account deficit, the current account deficit is still expected to be sizeable over the medium term, given continued expected challenges to external competitiveness.

“This underscores the need for close adherence to launched fiscal adjustment, and to measures in train aimed at further diversifying tourism and the economy more generally, and strengthening structural competitiveness.”

Mr Samuel also signalled the IMF’s backing for the Central Bank of the Bahamas’ position that it should leave the Discount Rate (and hence, Bahamian Prime) at its current level of 4.5 per cent.

In a statement that will be greeted with some relief by Bahamian borrowers, the IMF mission chief said: “The mission also concurs with the authorities’ view that the current monetary policy stance remains appropriate.

“Given the fixed exchange rate, modest reserves, relatively slow growth and contained ‘core’ inflation (excluding the effects of VAT and energy prices), neither loosening or tightening would be appropriate in the current circumstances.”

Elsewhere, the IMF also backed the moves to establish a Bahamian credit bureau, although it warned this could initially “suppress” the ability of companies and households to borrow.

“It [the IMF] concurs with the authorities that the knowledge of the true level of household indebtedness could suppress credit at its inception, but stresses that greater transparency will improve financial intermediation and growth in the long-run,” Mr Samuel said.

“The Bahamian financial sector remains well capitalised and liquid, and the authorities continue to improve its regulatory framework. Banks are profitable, though non-performing loans remain elevated in the aftermath of the global crisis and credit growth is weak.”