Prime Minister Philip Davis announced yesterday a number of initiatives for the strategic expansion of the local capital market, including the rollout of competitive bidding for primary market Bahamas registered stock issuances, and the removal of tax on businesses’ interest income from holding government securities.
During his 2023/2024 budget communication in the House of Assembly, the prime minister addressed recent concerns in the insurance sector following an advisory from the Insurance Commission of The Bahamas seeking industry input on a minimum holding of government securities.
Davis explained that a technical team from the International Monetary Fund (IMF) recently conducted an assessment of the local capital market, aiming to find ways to improve it.
“In our view, The Bahamas has the potential to expand the domestic government securities market, and reduce its dependence on external borrowing. This shift towards higher domestic financing could provide a more sustainable and stable source of funding for the country’s needs. In order to assist with the development of the government securities market in The Bahamas, a team from the International Monetary Fund conducted a technical assistance mission in March 2023,” he told Parliament.
“During their visit, they evaluated the current state of the country’s sovereign debt market and provided suggestions for improvement. These recommendations were focused on three main areas: the primary market, cash management, and investor relations management. The IMF team suggested implementing a more structured approach to these areas, in order to facilitate growth and success in the local currency government bond market.”
The advisory resulted in varied discourse nationwide, with the opposition accusing the government of overreaching if such a policy were to be implemented.
Davis said yesterday that his administration is focused on reforming and incentivizing the policies surrounding the issuance and holding of government securities, as it seeks to finance more and more of its borrowing needs domestically.
“The rollout of the Bahamas Government Securities Depository (BGSD) in January 2023 was the first and most fundamental milestone in this process. Building on this modern infrastructure, the Central Bank and the Bahamas International Securities Exchange finalized the direct connection between the trading system and the BGSD in May 2023. The direct and automated settlement of government securities strengthens the efficiency of the secondary market. Looking ahead, the BGSD will roll out competitive bidding for primary market Bahamas registered stock issuances early in the fiscal year, thereby allowing the market to price government bond issues. This initiative will enhance price transparency, allow for the development of a true domestic yield curve, while at the same time strengthening the local bond market,” he said.
“In terms of policy reform, a significant step forward will be to promote and encourage an increase in the level of government securities held by regulated and unregulated businesses. Therefore, in this budget, the government is removing any tax on the interest income that a business would otherwise incur by holding any type of government securities. In addition, there will be the formulation of a master repurchase agreement for government securities. This initiative will add agility to the local bond market and bolster Central Bank monetary policy operations. In the long term, the government will seek to implement buy-backs and switches to standardize and increase the depth of securities trading across the secondary market.”
