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Central Bank Chokes Off $50m Investment Currency Outflows

Central Bank of the Bahamas.

Central Bank of the Bahamas.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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."

Comments

DDK 4 months, 2 weeks ago

Scary times. Virus have far reaching tentacles😮 .Hope Central Bank can pull it off. Our very survival is at stake. Think now maybe, just maybe, our corrupt spenders will rein themselves in?

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John 4 months, 2 weeks ago

So what you are saying is with all these fantabulous investment opportunities in oil, in the airline industry, in cruise business, in hotels and food , just to name a few, the Bahamian investment funds will be on lock and they miss out on these probably once in a lifetime opportunities? Y’all ain’t serious!

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thps 4 months, 2 weeks ago

Can't wn for losing. No good answers.

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thps 4 months, 2 weeks ago

What about students who will be going off to school? What about Credit/Debit card swipes. Does the works minister want 500m in capital spending? Much of that will be imported materials. Will the Pointe, Bahamar, Goldwynn resume building? Do they use their foreign entities to buy goods in FX and then send them in? Or will they order them in B$ and take the FX hit? Similarly, NCP will soon start building. They are raising millions in USD, so maybe that will be for imported material?

The Elephant in the room is that you can only cut so much with few inflows. So do they start targeting normal purchases?

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banker 4 months, 2 weeks ago

When you have a GDP economy of $13 billion USD, and you have to shut down a $50 million outflow, it shows that the country is in more trouble than the Central Bank is letting on.

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thps 4 months, 2 weeks ago

this concerns me.

"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."

so then add oil purchases.

Can the current FX reserves support that? Is the solution to borrow in USD? If you do, the price you'd have to pay on the market would be high and is only for temporary spending.

I hope we're wrong and Rolle has rabbits in his hat.

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