By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank yesterday raised its year-end forecast for The Bahamas’ external reserves holdings after they started May above $3bn following a $523m expansion during the first three months of 2022.

John Rolle, its governor, giving the first quarter economic briefing, said the monetary policy regulator now expected the foreign currency reserves - which are key to supporting The Bahamas’ fixed one:one exchange rate peg with the US dollar - to close 2022 ahead of year before levels.

The external reserves closed 2021 at $2.459bn, and Mr Rolle yesterday said the 2022 first quarter increase had been driven by a combination of the Central Bank’s net foreign currency purchases from the commercial banks and the proceeds of government borrowings.

“In the first quarter, the seasonal pattern of private sector net contribution to gains in the Central Bank’s external reserves was also re-established, as commercial banks made a net sizable sale of foreign exchange to the Central Bank,” the governor explained. “This, added to proceeds from the Government’s foreign currency borrowing, boosted the reserves by $523m over the quarter.

“Taking net private sector receipts for April into account, the reserves as of the beginning of May were just above $3bn. The Central Bank expects further seasonal accumulation in the external reserves over the remainder of the peak tourism months, before some reduction sets in over the second half of 2022.

“Nevertheless, we believe that conditions have improved enough such that, by the end of 2022, some net gains will remain in the reserves compared to the end of 2021. This is an upward revision to the forecast for the reserves.... The strength of the reserves and improved tourism outlook continue to support a more accommodating monetary policy position for credit expansion,” Mr Rolle added.

“Nevertheless, private sector credit conditions have remained contractionary during the first quarter of 2022, with a further net repayment on mortgages and consumer loans, although there was a modest increase in outstanding credit for other purposes, including business activities. It should be noted that the domestic lending environment is still characterised by elevated risks, and a constrained pool of eligible borrowers, which even predated the pandemic.”

Asked about the possibility of further exchange control liberalisation, especially when it came to facilitating investments by Bahamians in digital assets and cryptocurrencies, Mr Rolle said this depended on implementing reforms to the economy’s underlying fundamentals such that further loosening did not “destabilise” it.

He also warned that “we don’t want to get ahead of ourselves” and reach a position where Bahamians were seeking to invest in external assets, digital or traditional, for “speculative” purposes because there was “fear and panic” that the economy was in trouble.

Asserting that “building confidence” in the domestic economy is key, Mr Rolle explained: “I want the public to understand we have done a lot in a gradual way to increase Bahamians’ access to foreign exchange for investment purposes. When we look abroad, that approach of how we reform the system to provide access is going to continue to be guided by how ready and prepared our economy is to do so in a stable and non-destabilising fashion.

“We need to understand that our aspirations are not disconnected from the kind of reforms we have to continue to make in this economy so that when Bahamians look abroad to invest, whether it’s crypto or other traditional portfolio investments, they so as part of the process of diversifying their mix of investments.

“We don’t want to get ahead of ourselves and have a situation where persons are looking to get outside because they’re speculating it’s not safe to be in The Bahamas for whatever reason, and therefore may have fear and panic as their motivation to get out,” the governor added.

“We want to do it so we build confidence that Bahamians have in the domestic system, and so the desire is not driven by fear or the need to hedge against things going wrong in our economy.” Mr Rolle said fixing the Government’s fiscal health was also critical in this area.

He added that the performance of the Government’s domestic debt offerings had also improved during recent issues. “The Government bond market, the performance has varied,” the governor conceded. “However, in the very recent period we’ve seen significant improvement in the amount of funds being put forward for investment in government instruments.

“Over the course of the year, for the most part, there have been over-subscriptions of government debt issues. We see the Government’s net and total borrowing needs beginning to moderate over the medium term. They were elevated at the height of the pandemic.”