By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor has slammed as “flawed” concerns raised by a noted Caribbean economist that The Bahamas’ external reserves are “more than 100 percent borrowed” because they are lower than this nation’s foreign currency debt.

John Rolle, in a written response to Tribune Business inquiries, pushed back at an analysis by Marla Dukharan, the former head Caribbean economist for Royal Bank of Canada (RBC), who in her September 2025 monthly economic report implied that external debts which exceed a country’s foreign currency reserves are unsustainable.

“The Bahamas, Barbados, Suriname and Trinidad & Tobago all have external debt levels that surpass the level of foreign exchange reserves, meaning that more than100 percent of their reserves are borrowed,” Ms Dukharan, who now runs her own consultancy business, wrote.

Referring specifically to The Bahamas, she added: “Total and usable reserves were both down 1.5 percent year-on-year in July 2025 to $3bn and $1.4 bn, or around 2.4 months of imports, and these reserves are more than 100 percent borrowed!

“The Central Bank flipped from a net foreign exchange purchase of $53.5m in July 2024 to a net foreign exchange sale of $16.2m in July 2025.” Mr Rolle, though, denied that this was any cause for concern or that there was any threat posed to The Bahamas’ external reserves or debt sustainability.

The Bahamas’ external reserves, which were down year-over-year by a modest $12.1m at $2.963bn for the seven months to end-July, are the most critical element in this nation’s monetary policy because they underwrite the fixed exchange rate regime and this nation’s one:one peg with the US dollar. They received a recent boost from the Government’s recent $1.067bn foreign currency bond placement.

As at end-June 2025, The Bahamas’ foreign currency debt stood at 47.2 percent of the total $11.769bn, pegging it at $5.555bn. This exceeds the external reserves by more than $2.555bn, and Ms Dukharan herself noted that external debt is 44.7 percent of the total with 50 percent of the latter held by private creditors.

But Mr Rolle argued that The Bahamas is earning sufficient returns from the activities funded by its foreign currency borrowing to repay these debts.

As for the concerns over debt sustainability, the Central Bank governor argued that the maturities – or timing of foreign currency bond principal and other borrowing repayments – is spread out over a decade with prospects for any refinancings improving due to The Bahamas’ recent sovereign credit upgrade by Standard & Poor’s (S&P).

And, noting that foreign currency inflows from private sector investments have helped boost The Bahamas’ foreign currency reserves, Mr Rolle said the latter’s “more than net doubling” over the past decade was due to this rather than Government or public sector borrowing.

“The analysis is flawed,” the Governor said of Ms Dukharan’s concerns. “There are many reliable and consistent measures of the debt burden and reserves adequacy that can be used.  

“Debt sustainability is grounded in assessments of an economy’s ability to earn sufficient returns from the investments funded by the borrowings to repay the debt. It is also a function of the maturity profile of the debt, which is manageable for The Bahamas, as the repayment for The Bahamas, at least, is spread over more than a decade with continued favourable prospects for refinancing maturing portions of the debt if needed.

“Ability to refinance when needed is improving, and grounded in strengthening access to international capital markets,” he added. “Moreover the accumulated net inflows which impact the external reserves have resulted for The Bahamas from both public and private sector activities, including private sector investments.  

“It is valid to consider both the public and private sectors’ profile of assets and liabilities when looking at the adequacy or vulnerability implied from the stock of external reserves. That is a profile in which liabilities have largely funded investments, with returns that will pay interest on the debt and eventually repay principal.

“Beyond debt, the investment inflows are also substantially in private ownership, which when required are also being sustainably satisfied from dividend payments,” Mr Rolle asserted.

“A final point, which we must stress is that as a residual, the accumulation in the stock of external reserves over the last decade - when it has more than doubled - was on net due to a greater net retention of private sector inflows than net public sector borrowing.”

Ms Dukharan, meanwhile, noted that it is forecast that The Bahamas’ annual gross domestic product (GDP) or economic growth is converging to its long-run average. “The IMF expects 1.7 percent growth in 2025, falling below 1.6 percent through 2029, with an estimated long run growth potential of 1.5 percent. Central Bank also anticipates growth below 2 percent in 2025,” she wrote.

S&P, in its just-published annual country analysis of The Bahamas, added: “We forecast the external debt of the public and financial sectors, net of usable reserves and financial sector external assets, will be about 42.3 percent of current account receipts in 2025. These figures include the Government's $2.64bn in external bonds.

“Based on the large external liabilities of the country's banking sector, the gross external financing needs of the public and financial sectors will average 193.6 percent of current account receipts in 2025- 2028, down from about 519 percent in 2020. The current account deficit may widen in the short term due to higher imports associated with investments undertaken because of the energy reform, offsetting some gains in tourism receipts, and as the financial sector's rollover needs remain high. Over the long term, the reforms could contribute to smaller current account deficits by reducing fuel imports.

“However, we consider the financial sector's external assets to be highly liquid, diminishing liquidity risk,” S&P said. “Errors and omissions have historically been high and tend to fluctuate, contributing to the weak external profile.

“The Bahamas has limited monetary and exchange rate flexibility. The Bahamian dollar is fixed at par with the US dollar. Lower demand for foreign exchange and the Government's external borrowing have bolstered foreign exchange reserves, which remain slightly under $3bn. We expect the Central Bank will continue to rely on interest rates, moral suasion and macroprudential tools to influence domestic credit growth.”