The Central Bank of The Bahamas’ (CBOB)foreign reserves have grown to $2.75 billion, supported by the International Monetary Fund’s (IMF) allocation of special drawing rights (SDR), which the bank stated it would take advantage of in August.
The Bahamas was allocated 174.8 SDRs – which converts to about US$247.5 million – at a 0.05 percent interest rate.
In its monthly economic report, CBOB revealed that it has used $140.2 million to bolster reserves.
“The Central Bank’s net purchase from the public sector slowed to $193.4 million, from $225.6 million in the previous year. Meanwhile, the bank’s net sale to commercial banks tapered to $57 million from $86.6 million in 2020. Further, commercial banks’ net sale to their customers decreased to $65.7 million from $95 million a year earlier,” the bank stated in its Monthly Economic and Financial Developments (MEFD) report for August 2021.
Nonetheless, domestic foreign currency credit continued to shrink in August, contracting by $24 million, which is a drastic increase from the nearly $4 million decline recorded during the same period in 2020.
“Specifically, the decrease in private sector credit deepened to $10.9 million from $2.5 million in 2020, as mortgages reduced by $7.6 million, extending the $0.3 million falloff a year earlier, while commercial credit fell further by $3.3 million, surpassing the $2.1 million downturn in 2020,” the CBOB report states.
“Conversely, net claims on the government grew by $2.4 million, although a moderation from the $39.5 million expansion a year earlier. Further, credit to the public corporations reduced by $15.5 million, a slowdown from the $40.8 million retrenchment last year.”
The move to shore up reserves comes ahead of the final quarter of the year, which typically places a heavier strain on foreign reserves.
The Bahamas gets the bulk of its foreign currency from tourism, which has seen steady improvement month over month since the start of the year, but remains significantly lower than pre-pandemic levels.
“Although private sector net foreign currency drawdowns are forecasted, due to a falloff in inflows related to lackluster tourism sector activity and higher imports to aid reconstruction work, external reserve balances are anticipated to end the year at a higher level than in 2020, underpinned by the government’s external borrowing activities,” CBOB stated.
“In this context, external balances are expected to remain more than adequate to sustain the Bahamian dollar currency peg.”
The IMF general SDR allocation was equivalent to about $650 million and made available to all 190 of its member countries to address the long-term global need for reserves and to particularly help vulnerable countries struggling to cope with the impact of the COVID-19 crisis.
This general SDR allocation, which was approved by the board of governors of the IMF, and is the largest allocation in the history of the fund, was approved on August 2 to boost global liquidity.
The newly-created SDRs were credited to IMF member countries in proportion to their existing quotas in the fund.