With foreign reserves currently hovering at just above $2 billion and expected to be depleted to the $800 million to $1 billion range by the end of 2020, Central Bank of The Bahamas (CBOB) Governor John Rolle said yesterday that the bank has taken four steps toward protecting and increasing those reserves, including requesting that the National Insurance Board (NIB) offload some of its foreign investments.
Rolle said that along with immediately halting resident access to foreign exchange for international capital market investments, the suspension of dividend payments for local commercial banks and a relaxation in how banks are able to trade foreign currency should provide in excess of a $300 million buffer.
“First, until a recovery is entrenched, resident access to foreign exchange for international capital market investments through Bahamas depository receipts and the Investment Currency Market has been suspended. That is, Bahamians are still urged to maintain their investment behavior and to take advantage of local opportunities until external access is restored,” Rolle said during the Central Bank’s quarterly economic briefing video conference yesterday.
“Second, the Central Bank has suspended approval of dividend payments for commercial banks. This has the dual effect of keeping buffers in place for an expected increase in credit losses and halting remittances abroad. Third, commercial banks have been given a more relaxed margin within which to sell foreign exchange to the public, before they are able to draw on the Central Bank’s foreign reserves to make sales to the public.
“Fourth, in keeping with the principle of viewing the National Insurance Board’s foreign investments as an extended support for the foreign reserves, the Central Bank has requested the NIB to liquidate some of its external investments and bring the proceeds back onshore.”
That $300 million buffer, Rolle added, assumes that foreign exchange is not being diverted and used along with other consumptions within the economy.
“So when we do our overall outlook of the reserves, we assume that all of these measures have been in place and contributing to the usage of foreign exchange in the economy. But collectively between the four sets of measures that I’ve mentioned, we’re looking at in excess of $300 million in buffers provided for foreign exchange,” he said.
And while he insisted the reserves remain at healthy levels, Rolle said he anticipates that as businesses start to operate again, the reserves will begin to see some reduction.
However, he said there is no immediate concern about the level of the reserves.
“But that is qualified by saying that we look at the level relative to the tools that we have to manage the use of foreign exchange and therefore we are confident that The Bahamas has the tools needed to preserve the reserves within a comfortable level, so there should be no concern,” he said.
“But we should expect that if the contracted nature of the slowdown in the economy endures for very long, the measures would have to become more and more restrictive to keep the reserves at comfortable levels.”
The Central Bank stated it has also emphasized to government’s various advisory bodies the importance of accelerating other interim access to foreign exchange earnings, such as foreign direct investment; and positioning the economy to recover as safely and swiftly as possible when tourism starts to rebound.