The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday said it had already taken action to reverse the slippage in its "independence" cited by a newly-released Inter-American Development Bank (IDB) report.

The study, titled Nurturing Institutions for a Resilient Caribbean, argued that The Bahamas "lagged all comparators [rivals] by 2012" when it came to Central Bank independence as a result of standing still while others enacted reforms to bypass it.

The finding, detailed in a section written by Bahamas-based IDB economist, Allan Wright, said a 2014 study had ranked the Central Bank of The Bahamas "relatively low at 73 of 89 countries worldwide" when it came to independence. A 2016 report, broader in scope, placed this nation at 117 out of 179 states.

"This recent relatively disadvantaged position in terms of independence, however, has not been the historical norm for the Central Bank of The Bahamas," the IDB report said.

"The Central Bank of The Bahamas showed greater independence than all other country groups in 1973, but its level of independence has remained constant over time. By contrast, all other country groups have witnessed continuous improvements over time and, consequently, The Bahamas lagged all comparators by 2012."

The independence of Central Banks is widely regarded as a key factor in determining their credibility, and that of a nation's monetary policy, in the eyes of investors and the capital markets. Institutions perceived as having a high degree of independence are viewed as less susceptible to political pressures and other arbitrary influences, boosting their standing and that of their economies.

The IDB study emphasised: "Independence and transparency of central banks influence their credibility and effectiveness in controlling inflation, thereby providing a proper environment for economic growth and prosperity. It is therefore highly relevant to ensure technical independence as well as transparency mechanisms for the Central Bank of The Bahamas."

John Rolle, the Central Bank's governor, yesterday told Tribune Business that the Central Bank had already acted to address the issues identified by the IDB report through reforms to the legislation that underpins its existence.

He pointed to proposed changes to the Central Bank of The Bahamas Act, which were released for public consultation this summer, although it is unclear whether there have been any further amendments as a result of feedback received or when the Bill will be ready for Parliament.

"The Bill proposes a modernised framework that is closer aligned with international best practices," Mr Rolle told this newspaper via e-mail yesterday. The consultation paper on the proposed changes describes them as enhancing the Central Bank's governance and operational framework, increasing accountability and flexibility without any additional risk.

"The purpose of the Bill is to consolidate and modernise the law governing the Central Bank, and to provide for the continuance of the Central Bank, its functions, powers and duties," the consultation paper states.

"Aside from a few key changes over the years, which were substantially to address challenges facing the Central Bank in its role as a financial services sector regulator, most of the provisions in the Act have been in place since the 1970s and are not reflective of evolved developments in central banking practices and governance.......

"The provisions in the Bill are aligned with international best practices for central banking legislation, and the Bill will, once enacted, enhance the corporate governance provisions in the Act, provide needed operational flexibility without compromising the safety principle or introducing new risks, and improve the readability of the legislation."

The planned reforms include sections designed to "strengthen the personal autonomy" of senior Central Bank officials, with "staggered appointments" for Board members to ensure continuity in knowledge and decision-making. The process for appointing Board members, and dismissing senior executives, will also be further clarified.

Another heading focuses on "financial autonomy" and the extension of credit to the Government by the Central Bank, either via loans or the purchase of debt securities such as Bahamas Government Registered Stock (BGRS) and Treasury Bills.

The changes to the Central Bank of The Bahamas Act envisage bringing clarity to the legal framework for establishing, and using, reserves other than the institution's general and revaluation reserves.

"Section 7 of the Act allows the Central Bank to retain all of its distributable earnings until the amount of the General Reserve exceeds the greater amount of twice the authorised capital of the Bank or 15 percent of the bank's demand liabilities," the consultation paper said of the current legislation.

"However, the Minister of Finance may determine the distribution in a way not prescribed in the Act, and there is currently no statutory limitation on the usage of the General Reserve and the procedures to establish other reserves are not clear."

To remedy this, the consultation paper adds: "Clause 7 of the Bill will clarify the legal framework for establishing and using reserves, and mandate the Central Bank to establish a General Reserve for the sole purpose of covering losses sustained by the Central Bank, and that other reserves may be built by retaining excess distributable earnings which otherwise would be distributed to the Government.

The reforms also aim to "strengthen statutory safeguards on short-term lending" to the Government by bringing them into line with international best practice, restricting them to same-day credits and loans up to three months' duration.

There are also no legal limits currently on the Government securities that the Central Bank requires, so the Bill seeks to establish a ceiling equal to "the lesser of 15 percent of the Government's average ordinary revenue or 15 percent of its estimated ordinary revenue.

"This would represent a change to the requirement of the Act that the securities issued or guaranteed by the Government must be greater than 20 years to maturity, and that the value is limited to 20 percent of demand liabilities, as most central banks link lending to the Government to some measure of revenues," the consultation paper added.