NASSAU, Bahamas, CMC—The Central Bank of the Bahamas (CBB) said indications are that the local economy expanded at a more moderated pace in the first quarter of 2024 compared to the same period last year.
CBB Governor John Rolle said this signaled the completion of the recoveries from the coronavirus (COVID-19) pandemic and Hurricane Dorian, which devastated the archipelago in 2019.
“The performance follows the pattern of moderate, but still healthy, gains in tourism and sustained foreign investment inflows supporting construction activity. These trends support continued employment gains and revenue-driven government deficit reduction.”
The Central Bank Governor predicts that the economy will continue to expand in 2024, “but more eased, in line with its true medium-term potential, as the post-pandemic stage of recovery is over.
“Nevertheless, it also speaks to robust, fully recovered foreign exchange markets and, therefore, continued healthy evolution of the external reserves. The outlook will also generate continued employment creation, especially in tourism and construction-related foreign investments, and further fiscal consolidation from uplift to government revenues.”
Rolle said the CBB’s monetary policy posture would continue to be accommodative of faster credit expansion but with caution remaining downside economic risks.
“The lingering risks to the outlook are most concentrated around the ongoing conflicts in the Middle East and Ukraine, which, if they constrain international trade and escalate the cost of oil, could stall tourism demand.
“Tourism performance could also be hampered if central bank interest rates are forced to be kept high longer than expected to bring inflation further under control. The higher interest rate environment would also continue to impose more costs on the public sector’s external debt and add to the cost of financing for private foreign investments,” Rolle warned.
Rolle said the economy is also experiencing more restrained inflation and is gradually improving domestic credit conditions.
He said growth is projected to continue in the medium term but is more in line with the potential, slightly under two percent per annum. However, downside risks remain from a combination of external factors that could impede tourism, leave the cost of public debt elevated, and extend the funding cost of private foreign investments.
The CBB said that in the tourism sector, indications are that earnings growth tempered during the first quarter. It said this was expected as visitor arrivals regained and surpassed pre-pandemic levels.
“Although hotel room capacity was more constrained in the stopover sector, healthy average pricing increases were still evident for accommodations, helping to support the inflow boost. “Over the quarter, projected vacation rental returns also expanded due to improved pricing and increased sales volumes that were almost in step with increased room listings.
The CBB said capacity limits had hindered cruise visitor growth less, although the pace of gains was, as expected, more tempered. A capacity boost is expected to benefit cruise and stopover visitor volumes in the medium-term outlook.
Rolle said that regarding the foreign exchange markets, the evidence of moderation was also evident. Over the first quarter of the year, commercial banks’ total foreign currency purchases from the private sector rose by 5.4 percent year-over-year, slowing from the 9.2 percent pace of expansion estimated during the first quarter of 2023.
He said the demand for private-sector foreign currency contracted slightly, mainly due to a lower volume of portfolio investments and decreased payments for imported goods. On a net basis, the private sector provided a more considerable seasonal boost to external reserves than in 2023.
The Central Bank Governor said that the public sector’s debt operations were also a seasonal net contributor to the external reserves in the first quarter of 2024, compared to the net drawdown on the external balances in 2023.
“This was because some foreign currency borrowing over the first quarter helped reduce short-term domestic debt accumulated in the first half of the fiscal year,” he said, noting that “over the first quarter of 2024, the external reserves accumulated at a significantly stronger pace, of just over US500 million, compared to less than US$100 million in the same period in 2023.
“Through the end of April, this seasonal build-up was further extended, leaving balances near $2.9 billion. The Central Bank still expects the reserves to contract over the remainder of the year to be less than they were at the end of 2023.”
Rolle said this would absorb accelerated growth in private sector credit, which the Central Bank encourages while leaving external balances at comfortable levels to support the Bahamian dollar fixed exchange rate.
“The restored, healthy state of foreign exchange flows and comfortable outlook for the external reserves continue to frame very gradual exchange control liberalization policies.”
Rolle said last month that this included further delegating authority to commercial banks to approve a broader range of transactions involving foreign currency purchases by the public without needing the prior approval of the Central Bank.
“One of the essential categories is investment currency to fund portfolio transactions outside The Bahamas. Once the reporting framework is established to track usage, commercial banks will begin approving these transactions in June.
“This means that once Bahamians have established investment accounts abroad, either through local or international financial institutions, they will be able to fund these accounts up to US$100,000 annually, without having to obtain direct approvals from the Central Bank.”
Rolle said that when the individual demand exceeds this limit, the applications must be made directly to the Central Bank. Such approvals could be subject to phased access to investment currency.
Rolle said the credit conditions are improving incrementally, with the Central Bank expecting more strengthening this year.
“The latest lending conditions survey for the second half of 2023 documents that banks received and approved a greater volume of credit applications. However, the gains were only noticed for consumer credit and commercial loans, with a comparative falloff in mortgage applications compared to the same period in 2023.
“So far in 2024, the private sector lending expansion was largely concentrated in commercial credit. However, both consumer loans and mortgages were leaning slightly towards growth overall, as opposed to both being in a contracted state last year.”
Rolle said that, in the meantime, the average delinquency rate on loans three months or more in arrears continued to decline to 6.3 percent in March, which was more than a percentage point lower than one year ago.
He said the Central Bank believes it is important for the delinquency rate to continue falling and for the credit bureau to be relied upon to help improve the quality of future lending. “Our near-term objective is to see all important non-bank providers of credit join the credit bureau, both reporting data and making use of the information aggregated by the bureau. This would include all public utility providers and lenders licensed by other Bahamian regulators.”
The government has already indicated that it will soon bring finalized draft legislation for the Collateral Assets Registry to Parliament for enactment and Rolle said this would clear the way to implement the registry, under the ambit of the Registrar General Department, alongside other complementary reforms being actively targeted for the Registrar.
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