NASSAU, BAHAMAS — The government and the Opposition remained firmly at odds yesterday over the Central Bank of The Bahamas (Amendment) Bill 2023, with the latter asserting that the legislation was merely an attempt to legitimize an unlawful act.
Prime Minister Philip, while kicking off the debate on the legislation, described it as an important step toward the strategic use of IMF Special Drawing Rights to improve the fiscal health of the nation.
Addressing concerns raised previously by the Opposition Leader Michael Pintard regarding the government’s access to $232 million of the International Monetary Fund’s Special Drawing Rights (SDR) allocation and the subsequent amendment to the Central Bank Act, Davis asserted that the SDR allocation is not a loan as the Opposition has claimed.
“The IMF has explicitly outlined that the SDRs are an interest-bearing reserve asset allocated to participants to provide unconditional liquidity during challenging times. This allocation was given to countries, including ours, to alleviate funding concerns caused by the devastating COVID-19 pandemic,” Davis said.
“As responsible leaders, we are committed to utilizing these funds for their legitimate and intended purpose, as prescribed by the IMF in its guidance notes. To remove any doubt, we have taken a proactive measure to amend the act, addressing the ungrounded concerns raised by the Opposition.”
The Central Bank of The Bahamas (Amendment) Bill, 2023 makes changes to section 17 with the insertion of a new section – 17 A – “to empower the minister of finance to access, utilize or convert SDRs for the purpose of reducing its foreign currency debt obligations and to manage its foreign currency debt obligations”.
Davis noted that two weeks ago, the government tabled an amendment to the Central Bank Act to limit the amount government can borrow from the Central Bank by approximately 50 percent – from 30 percent to 15.5 percent of asset values.
“We are also prohibiting Central Bank purchases of government debt securities related to the initial public offerings of public corporations. With these measures, we are creating more transparent processes and we are ensuring the Central Bank continues to be in line with the highest international standards,” said Davis.
The Prime Minister further noted that the goal of SDRs is to provide a liquidity boost without raising debt burdens.
“These assets are not loans. Access to these assets is facilitated through a voluntary arrangement between the IMF and member countries during times of global financial and economic difficulty. This is not an IMF loan. It is an automatically allocated reserve that does not generate debt, does not require repayment to the IMF, and does not come with the conditions associated with IMF loan facilities.
Davis continued: “Although we have, fortunately, put the worst of the pandemic in the rearview mirror, the economic harm caused by the shutdowns and the loss of tourism revenue continue to reverberate. Opening up the economy quickly, and ending curfews, was crucial. But recovery is a big job, and utilizing SDRs is another tool for rebuilding and strengthening our fiscal position.
The Prime Minister said that the allocation is not “free money as the interest rate associated with it is 0.05 percent, far below market rates.”
Opposition leader Michael Pintard maintained that the government broke the law when it accessed the SDR, in contravention of the Central Bank Act, a violation he said the government seeks to remedy through the legislation.
“We would not be here debating this amendment had it not been for the fact that the Prime Minister and his colleagues made the decision to draw down on $232 million drawing rights when they had no lawful authority to do so. The Davis administration is engaging in a pattern of behavior that is potentially detrimental to the long-term financial management of our national economy,” said Pintard, noting that the SDR is a government liability.
