The Tribune

By NEIL HARTNELL

Tribune Business Editor

and NATARIO McKENZIE

Tribune Business Reporter

The Government will receive proposals for further exchange control liberalisation targeted at the private sector next month, in a bid to boost an “underperforming” economy that contributed to the Bahamas’ ‘junk’ downgrade.

John Rolle, the Central Bank governor, yesterday said improvement in the Bahamas’ sovereign credit rating hinged on this nation overcoming long-standing structural problems to achieve faster GDP growth rates.

“A major challenge for our country is achieving stronger growth,” he told Royal Fidelity’s Business Economic Outlook.

“Underperformance is a critical factor constraining the sovereign credit rating of the Bahamas. It is a structural challenge that can be surmounted most, through planning and execution, such as has been proposed in the National Development Plan (NDP).”

Mr Rolle again defended the rationale for the Central Bank’s pre-Christmas decision to cut its Discount rate by 50 basis points to 4 per cent on the grounds that Baha Mar’s opening and improved tourism prospects would generate increased foreign currency inflows to support the exchange rate peg.

“Currently, the outlook for the Bahamas is for improved economic performance over this year and the medium-term,” he explained.

“Included in this is essential expansion in foreign exchange earnings capacity in the tourism sector, prospects for tourism growth tied to US markets in particular, and discounted oil prices from the relative highs of the last half decade.

“These all point to the prospects for stronger net foreign exchange inflows. This is why the Central Bank undertook to lower interest rates at the close of 2016. The economy has the capacity for a gradual increase in domestic demand which can be accommodated without a drawdown in external reserves.”

Mr Rolle said economic prospects would become even healthier in 2018 with a full year of Baha Mar, adding that the Bahamas’ foreign currency reserves had ended 2016 at a relatively healthy $902 million.

Pointing out that this was equivalent to 3.9 months’ worth of imports, and well above the three-month minimum international benchmark, Mr Rolle said it also equated to 70 per cent of the Central Bank’s potential currency liabilities.

He explained that these were what was left of the over $5 billion in foreign exchange that flows through the Bahamian banking system annually, but conceded that the Central Bank wanted to see further improvement in the external reserve ratios.

Mr Rolle said this would come from greater economic growth, either in the foreign currency-earning sectors or those they could better conserve such earnings, leading into the exchange control reform debate.

“These will consider increased access to foreign currency credit financing for local firms in targeted sectors that would strengthen the net foreign exchange earnings potential of the Bahamas,” Mr Rolle said of the latest proposed reforms.

“The Government will receive these proposals for consideration in February.”

Mr Rolle also reiterated plans to “strengthen the governance around the Bank’s lending to government” via legislative reforms, an initiative already agreed by both sides, and for which consultation will begin later in 2017.

“It will complement work already began to introduce a market-based framework for pricing new [government] debt, and provide more flexible tools to manage bank,” the Governor added.

He also pointed to the reduction in non-performing commercial bank loans, which had fallen to 12.3 per cent of total outstanding credit at year-end 2016, compared to 15.1 per cent in 2015 and a mid-2014 peak of over 16 per cent.

Mr Rolle, though, acknowledged that much of the improvement had come from banks selling $130 million in non-performing mortgages to specialist recovery companies.

Linking financial inclusion and consumer protection to the Central Bank’s efforts to prevent further loss of correspondent banking relationships, Mr Rolle added: “The strategy involves promoting a sustained reduction in the use of cash in local transactions over the medium-term, and increasing the ease of access of all persons to accounts in the banking system.

“Regulations will soon be issued to facilitate licensing of non-bank providers of e-payments solutions, with enhancements following that would position the local economy to adopt or participate more broadly in FinTech solutions.

“These initiatives will also bring public education and non-price based regulations, which promote consumer protection, more to the forefront.”

Mr Rolle added that legislation to create a Credit Bureau will make its way to Parliament following the Homeowners Protection Bill, noting that this is key to promoting healthier credit markets in the medium and long term.

He said: “A key reform that will help promote healthier credit markets in the medium and longer term is the passage of the already drafted Credit Bureau legislation. We expect that the legislation will be considered soon, that is after Parliament takes up the Mortgage Relief or Homeowners Protection Bill.”

Prime Minister Perry Christie last week said the long-promised Home Owners Protection Bill could be introduced to Parliament before the general election. The commercial banking industry previously expressed numerous concerns over the Bill, arguing that it would make institutions even more reluctant to lend, due to the increased difficulties associated with realising collateral security in the event of default.