Relaxation of Exchange Controls to Expand Access of Domestic Businesses to Foreign Currency Financing

Mr. Speaker,

I wish to announce that the Government has approved the relaxation of certain Exchange Control measures to provide access by certain categories of Bahamian owned businesses to investment financing in foreign currency. The Government has also agreed to allow international banks present in our jurisdiction to have more flexibility in providing financing for residential real estate investments for non-Bahamians.

Over time, these measures are expected to have gradual positive impacts on small and medium-sized ventures; support the strengthening of linkages between tourism and other economic sectors; and provide additional stimulus to the upper end of the real estate market. The Central Bank of the Bahamas is preparing to implement the reforms within the coming days, and will communicate further with the public on the details of the administrative framework.

Honourable Members should recall that it is the Minister of Finance has direct responsibility for Exchange Control approvals for foreign currency denominated investments or capital account transactions. Where Bahamian ownership is potentially exposed, either because of secured borrowing or equity ventures, the Minister of Finance must sanction these transactions. The Minister either relies on due diligence done by Central Bank or by the Bahamas Investment Authority and the consensus of
the National Economic Counsel or NEC. In all cases approvals are subject to the National Investment Policy, having regard to activities which are reserved for Bahamian participation and control. Parts of this framework will now be delegated to the Central Bank.

The Central Bank already has delegated authority under Exchange Controls to vet applications to borrow in foreign currency from commercial banks. Some of the protocols around such approvals are also being relaxed.

The relaxations, Mr. Speaker are in respect of both resident owned businesses and non-resident controlled ventures. They will have access to both debt and equity financing, and be subject to periodic financing limits which I will outline below.

Where local commercial banks are able to provide credit funding, the commercial banks will have increased delegated authority to do so, against Central Bank issued guidelines, requiring no prior case-by-case approval from the Central Bank. All other financing sources would require prior approval from the Central Bank.

Eligible Sectors

I should now like to list the sectors or categories of businesses that would eligible for consideration. As mentioned, the targeted sectors are in either line with promoting favourable impact on net foreign exchange earnings (including conservation of foreign exchange outflows); or they are targeted to have medium to long-term support for our national development goals.

Mr. Speaker these are as follows:

(1) Agriculture & fisheries;
(2) Manufacturing;
(3) Transportation (that is land, sea and air);
(4) Tourism (including hotels & restaurants);
(5) Construction and real estate targeting residential tourism;
(6) Energy & energy conservation activities;
(7) Education;
(8) Health sector activities;
(9) Telecommunications;
(10) Information and communications technology or ICT ;and
(11) Infrastructure

Funding from Commercial Banks or from Private Sources Outside The Bahamas

The categories of businesses above, when owned by Bahamians would be permitted to obtain funding of up to $5 million every 5 years as follows.

  • If they obtain these resources from local commercial banks in the form of loans
    then no other condition would be imposed.
  • If the funding is unsecured and from non-resident sources, again no other
    condition would apply.
  • In the case of a sector or activity that is reserved exclusively for Bahamians,
    funding from non-residents or non-commercial bank sources through, either
    through secured debt or through equity participation would not be allowed to
    exceed 40 percent of the exposed capital of the business. Otherwise, the venture
    would have to revert to the NEC for approval.
  • Also with the $5 million ceiling, secured funding would not be subject to any
    other restriction if the activity is not in a reserved sector of the economy.

Funding from International Banks located inside The Bahamas

Next, Mr. Speaker, in giving consideration to financing obtained from international banks that are licensed to operate from inside The Bahamas, only non-residents would be permitted to use this option, and only for resort or residential developments. Where such lending is not for commercial purposes, however, the borrowers would be expected to service their obligations from resources obtained from outside The Bahamas.

Funding from Multilateral Lending Agencies

The other category of lending which the Government wishes facilitate, is resources channeled through the private sector lending arms of multilateral agencies like the IDB and the World Bank. The Government will impose no restriction on the amounts of such of lending to resident entities. This in recognition of the fact that these lenders apply rigorous due diligence in their lending decisions and they are essentially development focused in their activities.

Administrative Details

The Central Bank will provide the public with more details on how Exchange Control approvals would be processed in each of the cases that I have just mentioned. I should point again though that where commercial banks are involved, businesses will have the option of having all of the due diligence and vetting done by the commercial banks, with the Central Bank receiving the notification on the back end.

Except for non-residents who finance upscale housing investments, the eligibility to borrow in foreign currency or to joint venture with foreign partners will also allow the eligible businesses to obtain foreign currency at the official rate to service their obligations. I should clarify that these relaxations are only in respect of access to financing. Business should continue to expect current rules to apply as concerns restriction on to hold foreign foreign currency deposit account.

Impact Assessment

The net effect of these reforms is that given the sectors targeted, the economy’s to earn foreign exchange would be enhanced over time.

Mr. Speaker being able to benefit from these opportunities will still require that the business ideas being put forth are viable and can withstand the scrutiny of potential lenders and investors. The Central Bank will closely monitor inflow activities related to the relaxation measures, and will make recommendations on adjustments in the framework from time to ensure that it is always sustainable. For now this gradual, selective approach is sound, given the prudent fashion in which we are always advised to proceed, in the advice of the IMF other respected authorities, given that we are a small, and still very vulnerable economy.

Given the strong interests that have been expressed by the business around the ease of access to funding, I am confident that private sector innovation will take hold and that both new and expanded ventures will be launched. I am sure that honourable members would agree that for small and medium-sized enterprises in The Bahamians, the $5 million periodic ceiling on financing amounts, would for the most part not be a binding constraint.

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