The recent decision by the Central Bank of The Bahamas to lift restrictions on lending was welcomed news, according to Minister of State for Finance James Smith, who also warned that over-expansion of credit could be bad news for the Bahamian economy.
The decision by the Bank came just over two months after Prime Minister Perry Christie softly suggested that regulators move in that direction.
Government officials expect that a growth in credit would help fuel stronger economic activity in the final half of the year.
ﾓWe were watching the growth in reserves, we were watching the economic activity generally and we thought that the time had come to revisit the lending caps and presumably the Central Bank was of a similar view and it moved to lift the restrictions,ﾒ Minister Smith told the Bahama Journal recently.
ﾓIn so doing, I would imagine that it would permit more credit expansion, but hopefully, not very rapid credit expansion and if itﾴs directed in productive areas such as construction and new entrepreneurial areas then it should have a very positive impact on the economy.ﾒ
The Minister noted, however, that spending on the wrong types of things could have a reverse impact.
ﾓWe would have to be very careful and Iﾴm sure the Central Bank would be watching this to ensure that it doesnﾴt result in an over-expansion of consumer credit,ﾒ he said.
Minister Smith said any over-expansion of consumer credit could have an adverse impact on foreign reserves. Those reserves are important because they represent the money the country has on hand to pay for its imports and they help ensure the continued strength of the Bahamian dollar.
ﾓThe Bank is quite competent in handling these things and I support their move in that direction,ﾒ he said.
Central Bank officials noted in an official press statement earlier this month that they paid particular attention to better projections for tourism and foreign investments, which are expected to provide stronger support for domestic consumption and imports.
ﾓThe Central Bank will continue to monitor domestic economic trends, to ensure that credit expansion is consistent with economic growth,ﾒ the release said. ﾓIn the future, the Bank will place greater emphasis on achieving minimum levels of external reserves relative to the deposit liabilities of the banking system, and adjust its credit polices as appropriate to accomplish this.ﾒ
When the Bank imposed the restrictions in September 2001, Governor Francis noted that the measures were necessary to help prevent the foreign reserves from being depleted.
In May, the prime minister pointed out that the external reserves stood at around $600 million, the highest level they have ever been.
A recent report from the Central Bank indicated that the reserves now stand at more than $651 million.
Governor Julian Francis agreed recently that 2004 appeared to be a better year to lift restrictions than 2003 was.
ﾓOne of the most important things which has happened is that last year we thought the U.S. economy was recovering, but we werenﾴt absolutely certain,ﾒ he said. ﾓWeﾴve had a yearﾴs experience since then and now we know pretty much what the U.S. position is and that is one of the important considerations for us.ﾒ
The Bahama Journal
