CENTRAL BANK OF THE BAHAMAS (AMENDMENT) BILL, 2023
HON. PHILIP DAVIS, KC, MP
PRIME MINISTER OF THE COMMONWEALTH OF THE BAHAMAS
MONDAY, 24 APRIL 2023
Today, we will debate the Central Bank of The Bahamas (Amendment) Bill, 2023. I would like to address head on the concerns raised by the Opposition Leader, Mr. Michael Pintard, regarding our 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.
First and foremost, let me clarify that the SDR allocation is not a loan, as mistakenly assumed by the Opposition. 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.
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.
I must emphasize that our government has been transparent and accountable throughout this process. The Governor of the Central Bank, Mr. John Rolle, has confirmed our government’s commitment to amending the Central Bank Act, thus allowing the utilization of the IMF SDRs held as part of the external reserves. Furthermore, the Central Bank has worked closely with our government in concluding arrangements to access these much-needed funds, ensuring that we continue to serve our people and address the challenges presented by the ongoing pandemic.
We understand the importance of fiscal responsibility and adherence to the law. However, we must not lose sight of our primary goal – to support and uplift our nation during these unprecedented times.
Two weeks ago, we tabled an amendment to the Central Bank Act to limit the amount government can borrow from the Central Bank by approximately 50% – from 30% to 15.5% 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. I applaud the Central Bank leadership, including Governor John Rolle, for working with us to ensure that these steps are rolled out efficiently. There are very few institutions as important to our continued national success as the Central Bank of The Bahamas.
The International Monetary Fund is an organization that has 190 member nations, and The Bahamas is one of those nations.
Special Drawing Rights were created by the IMF in 1969 and there have been three prior general allocations, the most recent of which was during the global financial crisis of 2009; that allocation was considered an important contributor to stabilizing international financial conditions.
In August of 2021, in recognition that the pandemic was an enormous shock to the global economy, the IMF allocated $650 billion worth of Special Drawing Rights. This was the largest debt-free form of support for low and middle income countries during the pandemic, and the intention was to help countries whose economies were dealt devastating blows by shutdowns, in recognition that all member countries would benefit from – in the IMF’s words – a major effort to “foster the resilience and stability of the global economy”.
The value of the assets allocated is proportionate to a nation’s IMF quota shares, which is a reflection of a country’s position within the global economy.
Essentially, Special Drawing Rights are the units by which a country’s IMF share is measured. These assets can be held in their current form or converted: Countries are free to hold Special rawing Rights as part of their foreign exchange reserve or to use them to bolster government’s finances or to service debt.
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.
As mentioned earlier, I want to make that last point clear: 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.
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. Of course, it is not free money. The interest rate associated with the Special Drawing Rights is 0.05%, far below market rates. We have discretion as an IMF member state to utilize these assets for our national benefit. Today, this amendment ensures that our laws align with our national priorities and needs as a government.
This is not only the opinion of the Government of The Bahamas. The IMF itself has supported the assertion that Special Drawing Rights are intended to be accessed by governments and are not solely owned by Central Banks.
During the pandemic, global economies had shut down and these Special Drawing Rights were intended to provide the necessary boost to keep the global economy afloat.
Initially, our primary need was to maintain our levels of foreign reserves. It was in August of 2021 that the Central Bank of The Bahamas gained access to the Special Drawing Rights valued at $247.5 million held as international reserves. The funds served their immediate purpose. But over time, as this administration oversaw the nation’s economic recovery, our needs as a government changed.
You see, Madam Speaker, when tourism is at an all-time high and the economy is recovering at a record pace, money is coming into the country and foreign reserves can be maintained in a way that was not possible during the pandemic. This is why the role of the Special Drawing Rights in boosting our foreign reserves was so critical when the economy was locked down.
Now that the economic situation has changed, our needs have changed. The Bill before us today allows us to adapt the use of these resources to reflect our evolving national priorities. In this instance, we are specifically addressing foreign currency debts.
In amending the Central Bank Act to allow the government to access its Special Drawing Rights, we are preserving the intended function of these resources as designated by the IMF with full anticipation that governments would have access to these funds and be able to use them based on country-specific needs.
I know that there are members opposite who have been exhibiting their usual confusion. I am an optimistic man, so I am ever hopeful, Madam Speaker, that the member for Marco City and his colleagues will one day choose to access research and expertise and facts before mischaracterizing important matters such as these. Just because it hasn’t happened yet doesn’t mean it can never happen. That’s why I am repeating the explanation, for his benefit, that these resources were always intended to be used by governments to cushion the shocks and aftershocks from the pandemic. Surely he recalls the extensive lockdowns and curfews his government subjected our country to. I remember well that despite all that pain, the country’s COVID cases during their reign were no better than regional countries who had less draconian shutdowns.
I want to caution the honourable member, too, from this terrible instinct he has, to run our country down, to reflexively oppose without thinking. It’s irresponsible, and it’s unnecessary. This should be uncontroversial, one tool among many to fuel our recovery. It’s tiresome to see every amendment dragged down by ignorance and the desperation to score political points.
I know that the opposition party is experiencing internal strife, and that these problems may cause the member from Marco City tremendous stress. That is no excuse though, for choosing to aggressively misinform the Bahamian people. There are much healthier and more productive ways to address stress – I suggest exercise, or quiet reflection, perhaps – those would be beneficial.
Sadly, the rhetoric and tactics coming from the current opposition leader feel strangely familiar. He seems to have taken a page from the playbook of his former leader – a man who never missed an opportunity to paint a negative picture of our nation on the international stage. When it comes to the IMF Special Drawing Rights, what is so nonsensical about the opposition’s position is that the IMF clearly supports the use of these funds for debt purposes, and so does the Central Bank. The Central Bank of The Bahamas has gone on record to state they are cooperating with the government on this amendment. I urge the member from Marco City to refrain from questioning a policy in any way that calls into question the objectivity and expertise of this crucial institution. Some things should never be politicized.
The government is using these reserve assets provided by the IMF in accordance with the guidelines outlined by the IMF.
We have worked hand-in-hand with the Central Bank to develop the legal mechanisms to properly govern our use of the assets, as well as the repayment terms. These are favourable terms that could only be achieved through the use of the Special Drawing Rights.
Ultimately, it simply makes sense to use the resources on hand to service foreign debt obligations rather than to incur additional debt.
Based on the commentary from the members opposite, you would think that what we are doing is unheard of. Their previous comments make it out to be some unprecedented exercise of government authority when, in fact, what we are doing is quite common.
Within the past two years, 98 countries have used Special Drawing Rights in response to the economic downturn associated with the pandemic. Of these 98 countries, 55 have used Special Drawing Rights for IMF debt relief and 69 have used these resources for fiscal purposes. 69 countries have done this, Madam Speaker. There is no controversy here – just a government doing what governments are supposed to do, taking advantage of an important resource. I am confident that we have acted in the best interest of the Bahamian people and the fiscal health of this nation.
I fully support the Central Bank of The Bahamas (Amendment) Bill, 2023 as an important step toward the strategic use of IMF Special Drawing Rights to improve the fiscal health of the nation.