Central Bank of the Bahamas.
By NEIL HARTNELL
Tribune Business Editor
The Central Bank's restrictions on outflows through the Investment Currency Market (ICM) will likely save The Bahamas around $50m in foreign reserves, data released yesterday revealed.
The monetary authority's 2019 annual report revealed that Bahamians made overseas capital investments worth some $49.5m in 2019, a 17 percent increase on the prior year. This, though, has now been choked off by the imposition of measures preventing any further securities and real estate investments by citizens and residents until the country's foreign reserves stabilise in the aftermath of COVID-19.
"Residents increased outward capital investments via the ICM, amounting to approximately $49.5m in 2019, compared to $42.3m in 2018," the Central Bank said of 2019. "The premium bid and offer rates for investment currency remained at five percent and 2.5 percent respectively."
The restrictions, unveiled by Central Bank governor John Rolle earlier this week, also suspend Bahamian investments in US-dollar denominated investment funds that have been created by local broker/dealers as vehicles for their clients to access potentially higher returns in overseas equities markets.
However, the regulator's annual report said just one broker/dealer drew down on their Bahamian Depository Receipts (BDRs) allocation in 2019. "The BISX-listed Bahamas Depository Receipt (BDR) programme, which facilitates pooled investments in foreign securities, continued to have modest participation," the Central Bank added.
"In 2019, of the $35m annual allocation, only one sponsoring broker-dealer participated in the programme, utilising $8.7m. This decreased from $13.7m in the previous year, when four licensed broker/dealers participated."
Together, the 2019 figures for the BDR initiative and ICM market indicate that the Central Bank's measures have choked off around $60m in foreign exchange outflows, thus saving this sum for The Bahamas' balance of payments and import needs during the pandemic.
Signalling the Central Bank's determination to maintain The Bahamas' one:one fixed exchange rate with the US dollar earlier this week, Mr Rolle warned that the regulator was prepared to act swiftly in imposing even harsher restrictions if the need arises, which would "target domestic import capacity" in a bid to conserve foreign currency resources that are set to experience a major reduction in 2020.
While the suspension of economic activity for the past six weeks due to the national lockdown has kept the country's foreign reserves at near-$2bn for the moment, Mr Rolle said the Central Bank is projecting a reduction "potentially exceeding $1bn" which would leave them somewhere between $800m and $1bn at year-end.
And, although this level will still offer "adequate support in place to uphold the value of the Bahamian dollar fixed exchange rate", the governor said it was essential for The Bahamas to "maintain currency stability in the interim" - and prevent any possibility of a devaluation - while the economy attempted to recover from the COVID-19 pandemic.
The Central Bank's annual report showed that almost $600m worth of foreign currency was consumed in 2019 by The Bahamas' need for oil imports alone, with overseas travel (now also halted) taking up one-third of a billion dollars last year.
"In terms of foreign currency approvals for current account payments, amounts authorised for non-oil merchandise and credit/debit cards totalled a combined $2.6bn, and outflows for service payments (including transportation, royalty and franchise fees) accounted for $1.6bn," the Central Bank added.
"Payments for oil imports reached $587m, while travel (including for medical reasons) accounted for just under $334m. Dividends and profit remittances were $295m; insurance services remittances and remittances for interest payments, $129.2m and $130m, respectively. Further, residents remitted in excess of $135m as gifts to non-residents, while loan repayments totalled $171.4m."