The Government has decided not to complete the Bank of Bahamas’ rescue by injecting $167Mn in cash to replace a “promissory note” after efforts to recover the latter’s toxic commercial loans proved “trickier” than anticipated.
The Bahamas International Securities Exchange (BISX) listed institution’s 2022 full-year financial statements, released last week, revealed that the Government has instead agreed to a three-year roll-over or extension to the maturity of the note that had been due for repayment at end-August 2022.
Simon Wilson, the Ministry of Finance’s financial secretary, explained that it had proven “much more complex” than thought for the Bahamas Resolve to realise and sell the assets that were pledged as collateral to secure the Bank of the Bahamas’ previous delinquent commercial loans.
The Bahamas Resolve is the special purpose vehicle (SPV), created in 2014, to which the Bank of Bahamas’ toxic commercial credit was transferred to prevent the latter’s collapse and thus facilitate its rescue. To fill the gap created by the transfer, two promissory notes were injected into the bank’s balance sheet, worth $100Mn and $167Mn, respectively, in 2014 and 2018.
The latter was due for redemption or payout by the Government at end-August, which would have required the promissory note’s replacement with liquid cash provided by the Bahamian taxpayer - the final step in the bail-out. However, the Bank of Bahamas’ annual financial revealed: “The promissory note with a maturity date of August 31, 2022, was extended by three years to August 31, 2025, at 4% fixed interest rate with quarterly interest payments.”
The maturity extension will give Bahamas Resolve, in particular, as well as the Government extra time and breathing room to realise more funds from selling off the loan collateral. Previous projections have suggested that Bahamas Resolve could realise up to $67Mn from these secured assets, which would substantially reduce the Government and taxpayer’s liability to the Bank of Bahamas down to around $100Mn.
As part of the Government’s efforts to alleviate the impact of external shocks on the Grenadian population, Cabinet has approved the adjustment of freight in the calculation of duties and taxes on imported goods to reflect 2019 freight costs.
The freight cap will be applied to the importation of all goods landed in Grenada during the period 1 October 2022 to 31 March 2023. The implementation of the cap will see only minor changes in the current processes of Customs Brokers and Importers, who will follow existing processes in preparing the customs declaration.
For commercial imports, there will be a requirement to identify freight actually paid on the Valuation Note of the Customs Declaration.
In the case of non-commercial imports, agents will input actual freight paid in the preparation of the Simplified Administrative Document (SAD). The Customs Computerised System, ASYCUDA World, will make the necessary adjustments and apply the reduced freight for the calculation of duties and taxes. All other clearance processes remain the same.
There are growing fears of a housing market crash in the U.K., after a swathe of tax cuts announced by the government sent interest rate expectations soaring, driving up lending rates for homebuyers.
Finance Minister Kwasi Kwarteng’s so-called mini-budget on Sept. 23 spooked markets with £45Bn ($50.5Bn) of debt-funded tax cuts, triggering a massive spike in government bond yields. These are used by mortgage providers to price fixed-rate mortgages.
The Bank of England responded to the market mayhem with a temporary purchase program of long-dated bonds, which brought some fragile stability to the market. However, Oxford Economics Chief U.K. Economist Andrew Goodwin suggested that there could be more pain ahead — particularly when it comes to the housing market.
Oxford Economics estimates that if interest rates remain at the levels currently being offered, house prices are approximately “30% overvalued based on the affordability of mortgage payments.”
A number of banks suspended mortgage deals for new customers, and many have now returned to the market with significantly higher rates.
Looking ahead, whether the fixed rates on mortgages remain elevated or begin to moderate will depend on the trajectory of interest rate expectations. These have come off previous highs of over 6% after the government U-turned on its plan to scrap the top rate of income tax, but analysts do not expect this to quell the market’s skittishness.
Canadian economists are scrambling for a reliable measure to track underlying inflation as large and frequent revisions have dented the credibility of a key Bank of Canada yardstick, even as the central bank said it was sticking with its core measures.
Canada's central bank has three preferred measures of core inflation - CPI-common, CPI-median and CPI-trim. CPI-common once touted as the best gauge of the economy's performance has been subject to repeated revisions since the start of this year.
Those same revisions show that price moves originally identified as transitory turned out not to be transitory at all, highlighting the measure's ineffectiveness when prices rise rapidly and calling into question its value, said analysts.
With CPI-common's usefulness now in question, and the odds of a recession rising, the central bank should be taking a hard look at how it tracks core inflation, said analysts.
"The Bank's challenge is walking the extremely fine line between tightening enough to get inflation back to target while not tightening so much that it causes a major recession," said Stephen Brown, senior Canada economist at Capital Economics.
Some analysts say the Bank of Canada should return to CPIX or simply track how many index components are rising more quickly than the 2% target.
The Bank of Jamaica (BOJ) continues its series of policy rate hikes by increasing its policy rate to 6.50% from 6.00% as at September 29, 2022, which represents the 10th consecutive rate hike since a similar period last year.
At its meetings on September 27th and 28th, the Monetary Policy Committee (MPC) noted that, while the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path.
This higher rate will filter through to make credit more expensive, which should temper investments and consumer demand. Further, the MPC noted that the pace of monetary tightening among Jamaica’s main trading partners such as the US has accelerated. This more aggressive stance by the US in particular could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars.
This could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the Bank’s efforts to manage inflation. Therefore, to mitigate these risks and to facilitate a return of inflation to the target range in the shortest possible time, the MPC unanimously agreed to further increase the policy rate to 6.50%.
The International Monetary Fund (IMF) predicts that with the rapid pace of oil production in the Stabroek Block, Guyana is expected to grow by 57.8% in 2022. In light of the extent to which oil accounts for this, the financial institution urged that there be greater efforts towards addressing institutional weaknesses and the diversification of the economy.
The IMF Directors noted that the country’s oil production has increased significantly and Gross Domestic Product (GDP) for oil is expected to grow over 100% in 2022 (with just two ships in operation), and about 30% on average per year during 2023-26.
It was also noted that Guyana’s commercially recoverable petroleum reserves are expected to reach over 11Bn barrels, one of the highest levels per capita in the world. That said, the magnitude of the oil wealth could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs.
Nevertheless, considering the potential challenges related to volatility in global oil prices and effective management of natural resources, the Agency highlighted the need for continued prudent policies and structural reforms to avoid the build-up of macroeconomic vulnerabilities.
On September 28, the International Monetary Fund agreed on providing approximately $293Mn in new financing for Barbados, including $183Mn via a new trust fund created to help vulnerable middle-income and island countries.
The staff-level agreement is the first under the Resilience and Sustainability Trust (RST) approved by the IMF board in April. The Fund also said it reached an agreement with Barbados on a new, 36-month Extended Fund Facility (EFF) loan of about $110Mn.
Van Selm, who announced the agreements in Barbados with Prime Minister Mia Mottley, said the Caribbean nation was ideally suited to be the first country to use the new trust given its successful execution of an earlier IMF program, its location in a region exposed to climate change, and Mottley's leadership.
In 2018, the IMF institution approved a US$290Mn Extended Arrangement under the EFF for Barbados, noting then that the program was aimed at helping the island restore debt sustainability, strengthen the external position, and improve growth prospects.
Despite the sovereign not being able to complete all the reforms intended during its previous four-year EFF program due to the COVID-19 pandemic, it sought a follow-on program to complete those efforts. This included the reduction of its debt levels and the commencement of a series of financial stress tests incorporating climate risks in the coming years.
The new trust expands access to low-interest loans to about 140 countries, double the number that could tap such resources under the IMF's Poverty Reduction and Growth Trust. This will in turn assist middle-income countries, such as those Caribbean countries that experienced a virtual halt in tourism during the pandemic and are highly vulnerable to climate change.
The combined RST (approx. US$110Mn) and EFF (approx.US$183Mn) program aim to strike a balance between enhancing resilience to climate change while also focusing on Barbados’ continued efforts to reduce public debt and facilitate capital expenditure to boost growth.
The new economic measures laid out by the U.K. government “will likely increase inequality,” the International Monetary Fund said in a rare statement.
While the fiscal package — which included hefty tax cuts for Britain’s highest earners — aims to help families and businesses handle the energy shock, the IMF does not recommend large and untargeted fiscal packages at this juncture.
The so-called “mini-budget” on September 23, 2022, was not accompanied by a forecast from Britain’s independent Office for Budget Responsibility, which typically analyses the impact big financial moves such as this, would likely have on the economy.
Markets were strongly affected by the new measures, with U.K. bonds sinking and the British pound plummeting to a record low on Monday. The IMF also looked ahead to the next full budget announcement, set to be laid out by Finance Minister Kwasi Kwarteng on Nov. 23, saying it gives the U.K. government “an early opportunity to consider ways to provide the support that is more targeted and re-evaluate the tax measures, especially those that benefit high-income earners.”
The Bank of England launched a historic intervention to stabilize the U.K. economy, announcing a two-week purchase program for long-dated bonds and delaying its planned gilt sales until the end of October.
The move came after a massive sell-off in U.K. government bonds — known as “gilts” — following the new government’s fiscal policy announcements on September 23. The policies included large swathes of unfunded tax cuts that have drawn global criticism, and also saw the pound fall to an all-time low against the dollar ($1.035) on Monday, September 26.
The decision was taken by the bank’s Financial Policy Committee (FPC), which is chiefly responsible for ensuring financial stability, rather than its Monetary Policy Committee.
To prevent an “unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” the FPC said it would purchase gilts on “whatever scale is necessary” for a limited time.
Central to the bank’s extraordinary announcement was panic among pension funds, with some of the bonds held within them losing around half their value in a matter of days. The plunge in some cases was so sharp that pension funds began receiving margin calls — a demand from brokers to increase equity in an account when its value falls below the broker’s required amount.
Long-dated bonds represent around two-thirds of Britain’s roughly £1.5Trn ($1.6Trn) so-called liability-driven investment funds, which are largely leveraged and often use gilts as collateral to raise cash. In its emergency purchase of long-dated gilts, the Bank of England is setting out to support gilt prices and allow LDIs to manage the sale of these assets and the repricing of gilts in a more orderly fashion, to avoid a market capitulation.
Cabinet has approved the development of a National Employment Policy by the Office of the Prime Minister (OPM) to facilitate several modalities of worker engagement.
Speaking during a recent Post-Cabinet Press Briefing, Minister without Portfolio in the OPM with Responsibility for Information, Hon. Robert Morgan, said the policy “will also target youth who are not academically qualified but still trainable”.
The Cabinet decision comes against the background of the cost associated with working individuals travelling long distances daily to get to urban centres such as the Kingston Metropolitan Area (KMA), where their jobs are located, which is often deemed unfeasible. It is also made in light of increased informal settlements in the KMA and other areas, due to migration.
Consequent on these factors, it is anticipated that the policy will improve the employment rate in communities and curb increased engagement in informal industries.
