‘Room for improvement’ in monetary policy transparency, notes IDB bulletin

There is “room for improvement” in regards to The Bahamas’ monetary policy, the Inter-American Development Bank (IDB) noted in its Caribbean Quarterly Bulletin, explaining that the lack of limitations on The Central Bank of The Bahamas’ (CBOB) ability to lend to the government continues to weigh negatively.

“To enhance the independence of The Central Bank of The Bahamas, it would be advisable to include restrictions on the number of government entities that can borrow from it and to prohibit the central bank from buying government debt in the primary market,” the bulletin states.

And while the IDB contends there remains room for improvement in monetary policy transparency, the bank stressed that The Bahamas is doing better than its regional peers.

“The central bank publishes monthly, quarterly and annual reports on its website, including information on the real sector, balance of payments, national accounts and the financial sector. In addition, it issues quarterly economic briefings that provide details about the Monetary Policy Committee’s assessments.

“Although the central bank’s political transparency score is high, some further steps regarding other dimensions of transparency should be considered, such as reinforcing forecasts (which are currently formulated only in general terms) and promoting greater disclosure on discussions about policy steps taken.”

The bulletin adds that financial sector growth continues to be hindered by certain challenges associated with the ease of doing business.

“First, enforcing contracts takes about 345 days, which has implications for the cost of these processes; and registering property is mostly a paper-based process,” the bulletin explains.

“Second, regulatory and judicial systems could stand to provide both creditors and debtors with greater confidence in terms of property rights and contract enforcement, as well as case management and court automatization (though existing alternative dispute resolution frameworks can mitigate this last point).

“Finally, the lack of credit institutions poses information asymmetries that can often result in higher collateral requirements and hinder financial access and inclusion. Measures such as the development of a centralized credit registry and bureau, digitization of services and other mechanisms for the gathering and sharing of information on risk would support improved counterparty credit risk assessment and management.”

It added that banks in The Bahamas are less profitable than their Caribbean and global counterparts. 

“The Bahamas has one of the largest financial sectors among Caribbean countries,” the IDB document states.

“The country has a combination of onshore and offshore banking sectors. The financial system is dominated by commercial banks, of which 75 percent are foreign-owned. Although The Bahamas’ banking sector is exposed to greater levels of external competition owing to its status as an offshore financial services sector, its banks are less profitable than global and regional averages, with sector returns on equity of 3.6 percent.”

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