• Foreign securities, real estate buys ‘tied’ to inflow returns

• Governor: ‘So much has to happen favourably’ on recovery

• Warns more restrictions may be needed for COVID battle

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank will “be able to provide a clear signal” by the 2021 third quarter on when it will ease restrictions preventing Bahamians from making up to $100m per year in overseas investments.

John Rolle, its governor, told Tribune Business that ending the 11-month Investment Currency Market (ICM) closure, which is stopping locals and residents from investing in international securities and real estate, remains “tied to the signs we see” on the return of critical foreign currency inflows into The Bahamas.

Disclosing that these inflows do not need to return fully to pre-COVID-19 levels for the Central Bank to relax its grip, Mr Rolle said that while the Central Bank will complete its “review” of existing restrictions by the July-September quarter this does not necessarily mean there will be an immediate easing in that period.

And he warned that “so much has to happen favourably on a consistent basis” for The Bahamas to meet projections that its economy will have fully recovered from the pandemic by late 2022/early 2023.

The Central Bank governor said it was “critical” that this nation bring its third COVID-19 infection wave under control as rapidly as possible if the tourism rebound is to be sustained and accelerated, and indicated that The Bahamas may have to make short-term sacrifices for longer term gain by reimposing more restrictive measures to bring the latest outbreak under control.

Revealing that there will be no immediate lifting of overseas investment restrictions, Mr Rolle told this newspaper: “We’re committed to reviewing the policy later this year. It remains tied to the signs we see in terms of the return of [foreign currency] inflow activity on the foreign exchange side - not a full return, but the trend we’d expect to see in terms of improvement.

“We anticipate we’d be able to complete that review as we move into the middle of this year and the third quarter, and by the third quarter we’d have completed that review. It’s not to say that in the third quarter the position is relaxed, but at least we’ll be able to provide a clear signal as to where we are and other timing.

“It’s really beginning to have the clarity around the outlook and seeing how the outlook is shaping up. That will provide us with the backdrop for our determination.” Overseas securities portfolio and property investments, via the ICM, were a growing and popular means pre-pandemic for Bahamians to diversify and seek greater returns potentially available in foreign markets.

However, this avenue - which also facilitated Bahamian Depository Receipt (BDR) offerings by local broker/dealers in investment funds - was closed off on May 4, 2020, in a bid to conserve the external reserves that support the one:one fixed exchange rate peg with the US dollar amid the drying up of replenishing inflows amid the tourism industry shutdown.

The move was one of several measures imposed by the Central Bank to save an estimated $300m worth of external reserves, with the others including a bar on dividend repatriations by the Canadian-owned commercial banks; a relaxation on bank foreign exchange sales to the public; and the National Insurance Board (NIB) liquidating its overseas investment holdings.

“Before the pandemic we saw the ICM steadily strengthening,” Mr Rolle told Tribune Business. “I believe we were on track to very easily be at $100m or more a year in activity. When one wants to look at allowing the market to regain its footing, we want to be able to accelerate the growth that was evident.

“I think portfolio investment will become dominant..... The growth was driven by increased investment in financial savings activity.” The Central Bank’s 2019 annual report revealed slightly less, but still growing activity, than that estimated by Mr Rolle. Bahamians made overseas capital investments worth some $49.5m in 2019, a 17 percent increase on the prior year’s $42.3m.

Confirming that The Bahamas’ foreign currency reserves remain “buoyant” and are “holding up better than expected” at above $2bn, aided by the Government’s mammoth foreign currency borrowing over the past year, Mr Rolle added that the Central Bank still expects a drawdown when citizens and residents resume travelling this summer.

“They’re holding up quite buoyantly. The reserves are still above $2bn. Up to this point they are holding up and it is better than expected,” he said. “Spending demand remains very much driven by income earned in the economy. Until the income situation of persons strengthens we will not see the same level of demand strengthening for foreign exchange.”

While the calendar year’s first quarter traditionally sees a lower level of foreign exchange demand, Mr Rolle said this normally increases towards mid-year as Bahamians head abroad on vacation. That spending was absent in 2020, but with the present easing of travel restrictions he acknowledged “there is expectation that there will be some reduction in reserve levels”.

Turning to The Bahamas’ economic recovery prospects, the Central Bank chief added: “The critical point is we believe we’re going to have to get beyond this present period of challenges with how we manage COVID-19, and once beyond this the level of confidence should increase faster.

“We’re still in a period of expected gradual recovery, and we will not be fully recovered until we get into next year and the overlap with 2023. So much has to happen favourably on a consistent basis over that period so we can line up with these expectations....

“Recognising the progress the US is making with vaccinations, we are also going to have to be an attractive destination for tourists, so managing The Bahamas’ side of the pandemic becomes even more important as confidence in the US economy increases,” Mr Rolle said.

“We certainly have to be mindful that government travel advisories do have an impact. The US and European countries are looking at what the COVID-19 situation is like in countries and destinations for travel. We have the pressure on ourselves to manage the situation, and at the same time we have challenges of access to the vaccines, which makes it more difficult in terms of the near-term outlook.

“I think we have to manage it very carefully. I think it’s still within our grasp to manage, and to be tighter in terms of how we address the situation if we need to, and to recognise there may need to be some trade-off in the short-term to focus on how we position the country for moving forward.... Given the timing, we do have the opportunity to manage things to our advantage if we choose strategically.”