By YOURI KEMP
Tribune Business Reporter
The deputy prime minister has reassured that the Government and Central Bank have further “tools” they can deploy to prevent a Bahamian dollar devaluation.
K Peter Turnquest said the Bahamas’ foreign currency reserves, which closed June 2020 just below $2bn, remain strong enough to underpin the one:one peg with the US dollar.
He added that Dr Hubert Minnis, in his House of Assembly address last Wednesday, had been focusing on the potential long-term threat to the US dollar currency peg if the tourism industry did not rebound in sufficient time and strength to produce ample foreign currency inflows.
“Certainly from a government perspective we do not anticipate any difficulties with us being able to meet our foreign exchange requirements,” Mr Turnquest said.
“I think that the point that the Prime Minister was making was that the tourism market is a very significant component of our overall economy, and to the extent that they remain closed, our access to natural foreign exchange, or foreign currency, will obviously be impacted. As a result of that we have to be careful that we pay attention to the level of expenditure that we engage in, particularly from a discretionary point of view.”
Dr Minnis had last week highlighted the potential Bahamian dollar devaluation risk if the country was unable to earn enough foreign currency inflows to support the peg, but Mr Turnquest explained: “We at the Ministry of Finance have some tools that we can deploy in the event that we foreshadow that we are running into any challenges.
“The Central Bank governor can speak more clearly to the management tools and the level of reserves that we have, and why we have relative comfort that we’re not in any danger at the moment of getting into that kind of territory, but the Prime Minister was speaking to the long-term if we continue with an idle tourism product.”
John Rolle, the Central Bank’s governor, added: “The point that I would make is that the foreign reserves are adequate. We will use more of them this year than in an ordinary year, but we have also begun this year with higher inflow levels than in the past.
“Countries actively manage their foreign reserves and exchange rate systems, and a part of that active management is anticipating, strategically, how the Government’s role features in that process.
“The challenges that we face come across in terms of the deficit that the Government encounters, and the fact that the Government needs to finance that deficit. It also provides the opportunity to identify foreign exchange that will support the expenditures in the economy,” he said.
“So, therefore, the debt management strategy of the Government features very prominently in making certain that we have the supplementary foreign reserves given our intention to provide stabilisation and stimulus to the economy.”
Mr Rolle said The Bahamas’ balance of payments and foreign exchange flows, were to some extent, self-regulating. “Self-regulating unfortunately means that persons who do not have incomes will not be able to spend unless the Government steps in and provides that support,” he said.
“In providing such support throughout the economy, the Government is also ensuring that there is foreign exchange for the expenditure outlet, so that’s very important in terms of managing the reserves and we’re comfortable. We are also comfortable that The Bahamas has the tools to manage if things become more challenging.”