NASSAU, BAHAMAS — The Bahamas remains significantly under-mobilized in domestic private-sector investment, according to Central Bank Governor John Rolle, who also noted that this nation has robust monetary policy safeguards and ample economic capacity to address any needed corrections in public finances.
During his address at the CFA Society (Bahamas) Investment dinner, Governor Rolle noted that The Bahamas remains a strong investment prospect.
“I believe that we are significantly under-mobilized in domestic private sector investments, particularly given the potential to extract and retain more returns from various input activities in the tourism industry. Significant private capital also exists that can fund the transfer of more investments and assets off the public sector’s balance sheet—subject, of course, to the policy preferences that the government might have regarding privatization and public-private partnerships, Governor Rolle said.
He further noted that increased direct investments in public debt are a viable prospect.
“Public sector borrowing requirements are significantly receding from the pandemic highs, which means that investors should be thinking more actively about how they can reduce reinvestment risk rather than what is often a misplaced assumption of being over-exposed to Bahamian sovereign risk. From a domestic versus external rebalancing perspective, the system cannot shift all of its unused liquidity into foreign-currency-denominated assets. Even the levels of exchange control liberalization that the Central Bank has already undertaken only represent a gradual around-the-edges approach to relaxing capital controls that will not fully absorb potentially displaced liquidity. When the opportunity arises, the Central Bank will also sell off more of its holdings of government debt to absorb private sector liquidity, but this is unlikely to close off all of the medium-term overhangs. Channeling more of these resources into the private sector is, therefore, critical from both a liquidity management perspective and as a means for supporting growth and development,” Governor Rolle noted.
The pandemic did scar the public finances but it also underscored that there are very important safeguards built into our monetary policy regime. Though it is not often spoken of—even this evening—please be assured that the economy also has a tremendous capacity to fund any strenuous correction in the public finances if those triggers ever need to be pulled.
Governor Rolle noted that the regulator expects a very moderate uptick in commercial bank lending to the private sector this year, partly in line with some of the accommodating monetary policies that the Central Bank has introduced, including less rigid down payment requirements now for both mortgages and consumer lending.
Regarding the country’s economic outlook Governor Rolle noted that growth is expected to continue in 2024, but at a pace that is more moderated and closer to the average rate at which the economy can expand over the medium term.
“Potential real growth, barring negative or positive shocks, is still under two percent for The Bahamas. That still translates into more than $0.5 billion in net value added each year, factoring replacement capital easily, more than $1.0 billion in gross new activity each year. He further noted that based on the domestic credit trend, external reserves are likely to contract further in 2024, which is not a significant concern for the Central Bank, given the levels that currently exist in the system.
Governor Rolle concluded by reiterating that there is still an untapped potential to increase the productive use of private capital in The Bahamas.
“As well, there is still sound space to invest in public sector instruments, mindful that fiscal consolidation could reduce the relative absorptive capacity for such funds in the future. The pandemic did scar the public finances but it also underscored that there are very important safeguards built into our monetary policy regime. Though it is not often spoken of—even this evening—please be assured that the economy also has a tremendous capacity to fund any strenuous correction in the public finances if those triggers ever needed to be pulled,” he noted.
