• Regulator’s ‘lending limits’ cut by half to 15.5%

• Bill ‘prohibits’ it from Gov’t debt securities IPOs

• Central Bank ‘terminates’ new downtown HQ

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will not have “any extra headroom to borrow from the Central Bank” once legal reforms are passed to slash its lending limits by almost half, the latter’s governor revealed yesterday.

John Rolle told Tribune Business that additional changes to the Central Bank of The Bahamas Act, tabled in the House of Assembly on Wednesday, will also prohibit the monetary policy regulator from acquiring any central government debt securities - or those it has guaranteed or have been issued by a public corporation - at their initial public offering (IPO) stage.

While the Central Bank will still be permitted to buy and sell such debt securities via secondary market trading, as part of its normal operations and to ensure there is sufficient system liquidity, he added that the Government will “not be able to raise any new money” from the regulator via these instruments once the reforms become law.

Mr Rolle, in written replies to Tribune Business questions on these changes, which are due to be debated by the House of Assembly this coming Wednesday, explained that they will limit all future borrowing by the Government from the Central Bank to loan advances only. He added that the amendments will introduce greater “transparency” and bring The Bahamas “more in line internationally with other central banking practices”.

The revised Central Bank of The Bahamas (Amendment) Bill 2020 reduces the regulator’s “lending limits” to 15.5 percent of the Government’s “average” or “estimated” ordinary revenue, decreasing it by almost half or 50 percent in percentage terms from the current 30 percent threshold.

“The reform is neutral to the Government’s existing access to borrowing from the Central Bank, but with more transparency,” Mr Rolle told this newspaper via e-mail. “It would confine all future direct borrowing from the Central Bank to [loan] advances. The current amount of advances outstanding equates to approximately 15.5 percent of average revenues. So the Government would not be privileged to any extra headroom to borrow from the bank.”

The “objects and reasons” section of the revised Bill, the second such version to be tabled in Parliament, said the changes are designed “to decrease Central Bank lending limits to the Government to 15.5 percent of the average ordinary revenue of the Government, or 15.5 percent of the estimated ordinary revenue of the Government, whichever is less”.

Mr Rolle, meanwhile, said the prohibition on future Central Bank participation in government debt securities IPOs means that the Davis administration - and its successors - would have to look to private institutional and retail investors to finance the Government’s needs.

“The Government would not be able to raise any new money from the Central Bank via such instruments. Only the domestic investor categories, other than the Central Bank, would be allowed buy any such new debt issued by the Government,” the Governor explained, while pointing out that the regulator will still participate in the secondary markets.

“The Central Bank is important to preserving liquidity in secondary market trading of government debt instruments, and it needs to maintain access to secondary markets for planned improvements to its monetary policy framework. Hence, the Central Bank would continue to hold its existing instruments, and for monetary policy and other objectives be able to buy or sell instruments which already exist in the secondary markets.”

As to the overall impact of the reforms, Mr Rolle said: “This puts The Bahamas more in line internationally with other central banking practices, although it still leaves open the question of what is a desirable limit to place on the advances in the future.”

The new Bill’s “objects and reasons” added that the reforms are intended “to prohibit the Central Bank’s purchase of, or subscription to, Treasury Bills and securities issued or guaranteed by the Government or any public corporation from the primary markets”. However, the regulator will be able to buy and sell these securities in secondary market operations “for the purpose of implementing monetary policy, maintaining financial system stability or to support the work of the clearing and settlement systems”.

Prime Minister Philip Davis KC, speaking in the House of Assembly on Wednesday, said these specific reforms had been sought by the Central Bank although he did not explain why. They join amendments - already tabled in the House of Assembly - which have aroused controversy amid Opposition claims that they seek to retroactively legitimise, and make legal, the Government’s borrowing of $232.3m IMF special drawing rights (SDRs) from the Central Bank.

The issue again surfaced during Opposition questions on Wednesday, as Adrian White, the FNM MP for St Ann’s, requested that the Government publish the Memorandum of Understanding (MoU) between the Ministry of Finance and Central Bank that underpins the SDR transaction. He also called on it to confirm how much of the $232.3m has been drawn down, and explain what the proceeds will be used for.

Mr Davis, in reply, confirmed that the “full amount was drawn” but gave no details on how the proceeds are being used other than to say it was in accordance with the SDR principles established by the IMF. As for the MoU, Mr Davis said it had been provided to the House of Assembly clerk, David Forbes, “several weeks ago” to be passed on to the Opposition.

“The MoU asked for will be provided to the clerk for transmission to the Opposition. The clerk was sent it several weeks ago. It should have been passed on to you,” the Prime Minister said. This produced surprise from the Opposition, whose leader, Michael Pintard, said: “We have not received it to-date. We have not seen it.”

The FNM leader later told Tribune Business he found it “quite remarkable” that Mr Davis would seek to provide the MoU in that manner, especially given that neither Mr Forbes, his assistant nor the House speaker, Patricia Deveaux, appeared to have seen or received it.

“I would find that quite remarkable if the Prime Minister had sent that, and the clerk nor his assistant nor the Speaker has any knowledge of that MoU,” Mr Pintard said. “The clerk said he did not see it, nor did his assistant and nor did the speaker. I wrote to him [Mr Davis] concerning it, and wrote to the Central Bank concerning it, and the Prime Minister said it would be sent out in a few weeks.”

He also questioned why Mr Davis did not simply lay the MoU on the House of Assembly floor, and suggested that the Government was simply employing delaying tactics while it “gets all their ducks in a row” on a $232.3m transaction that the Opposition believes had no basis in law - hence the need to make the Central Bank Act reforms retroactive to December 1, 2022.

“We’re wondering what the reason is,” Mr Pintard said of the revised Bill. “This is now the second time they’ve changed it. One of the things we raised earlier is that we believe the Government took out this loan illegally and they exerted undue pressure on the Central Bank. They were not planning to disclose this if the Central Bank had not disclosed it.”

Noting that the SDR transaction was not included in the Government’s annual borrowing plan, he added: ““They never foreshadowed they would be drawing down on borrowing this money. They never signalled they would be doing this. They refused to be transparent until they were forced to because it was included in the Central Bank’s report.... I believe the amount of time they’re taking is to find a way to fix the situation. The more they look at making it retroactive is not sufficient.”

Mr Davis, though, voiced hope that next week’s debate will result in the Opposition changing its stance. “We’ll talk about what the SDRs really mean, and I trust the members opposite will have a change of heart when they see what” the IMF’s mandate is. The chances of that, though, appear slim.

These reforms are set to move through Parliament just as the Central Bank yesterday announced it has “terminated” plans to construct its new headquarters building on the Royal Victoria Gardens site in downtown Nassau, and is now in the process of transferring the property’s ownership back to the Government.

No explanation was given for why the new Central Bank project, which has been planned since 2017, has been abandoned although Tribune Business sources suggested months ago that the Government was expressing the view that it should not proceed. The development was designed to be an “iconic structure” and a “one-of-a-kind building” that was to play a central role in the overall revival of downtown Nassau.

“The Central Bank of The Bahamas wishes to advise the public that it has terminated its project to construct a new headquarters building on the Royal Victoria Gardens site in downtown Nassau,” the Central Bank said last night. “Accordingly, the Central Bank has started the process to transfer ownership of the property back to the Government so that alternative use can be made of the site.

“In 2017, the Government agreed to transfer the Royal Victoria Gardens to the Central Bank for development of its new headquarters building. The transfer was approved by Parliament in 2019 and executed in 2022. In 2018, the Central Bank hosted a competition and selected a conceptual building design from Architecton Design Studios. The firm was subsequently contracted to provide the architectural services for the project.

“The Central Bank will explore alternative arrangements to meet its long-term accommodations needs.”