IMF tells Bahamas central bank to reduce government bond holdings
Central bank increased holdings after Hurricane Matthew negatively impacted growth last year
The International Monetary Fund has advised the Central Bank of the Bahamas to reduce its holdings of government bonds to “strengthen the credibility” of its currency peg.
In its latest Article IV consultation, the fund says the central bank “breached statutory limits” when it increased its holdings of long-term government bonds to BH$200 million.
The central bank increased its holdings in the wake of Hurricane Matthew, which hit the Caribbean region in 2016.
Following the hurricane, the central government’s fiscal deficit rose to 3.2% of GDP. It is expected to continue to rise to 5.7% at the end of the current fiscal year.
Despite changes in the central bank’s holdings, IMF staff acknowledge the central bank continued to meet its main target – to maintain a level of reserves equal to at least 50% of the monetary base – albeit with smaller margins than in the past.
The Bahamian dollar is pegged 1:1 to the US dollar.
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