There is a lot of interaction between The Central Bank of The Bahamas (CBOB) and the Ministry of Finance on the government’s borrowing strategy to help mitigate the economic downfall caused by the COVID-19 pandemic, CBOB Governor John Rolle said yesterday.
When the prime minister closed the economy following the first case of COVID-19 in March, Deputy Prime Minister and Minister of Finance Peter Turnquest said the government had no intention of seeking additional financing to float the country through the economic crisis associated with the pandemic.
Turnquest has recently backed off from that hard stance.
“You have to interpret that as meaning that the government has completed its borrowing plans for the current fiscal year,” Rolle said when asked about the government’s initial hard stance against borrowing.
“There is only a little bit more than two months remaining in the present fiscal year and while their borrowing plans can also have been articulated for the upcoming year, in addition, there would have been borrowing plans already in place being executed notwithstanding the experiences we’ve had in February and March. So, some of those are still working through the process of being secured.”
Domestic credit is forecasted to expand as the government moves to finance the fiscal deficit, which currently stands at $251.5 million.
Rolle said the deficit and associated government spending will ultimately lead to spending on imports.
“We do know that there will be a higher than normal amount of financing needed by the government, so the focus is really on ensuring that they borrow the appropriate amount in foreign currency versus local currency, because there will be some borrowing that they can do in local currency,” he said.
“But the balance has to be considerate on how those funds will be used to finance spending on imports, et cetera. So, there will be those kinds of discussions going on behind the scenes at the ministry of finance and I believe that we will get more insight into those as the government completes its budget preparations.”
Asked the margins for borrowing on which he has advised government, Rolle said, “It really comes down to how much can you ultimately access in the external markets and that is really going to determine the ultimate constraint on the government in the first round, in terms of what their financing needs look like because there will still be domestic-side constraints that has to respect how our foreign reserves move.”
The government has already borrowed approximately $936.5 million since the start of the fiscal year to fund its budgetary obligations, according to the most recent fiscal snapshot.