Laing ‘stunned’ by AG’s dollar devaluation claim

Former Minister of State of Finance Zhivargo Laing said he was “stunned” by Attorney General Carl Bethel’s claim that the Bahamas dollar was at risk of being devalued if the government did not extensively borrow US currency.

Laing, who is the host of Guardian Radio talk show “Z Live”, said it would be big news that the country’s dollar peg was at threat and The Central Bank of The Bahamas, or any other international financial monitoring agency, didn’t make note of it.

Last week in the Senate, Bethel claimed that the government “had to make the tough choices” to borrow more than $400 million in US dollars last year to avoid the “peril of devaluation”.

Bethel said the government had to choose between borrowing in US dollars in order to support the currency peg, or allow the Bahamian dollar to devalue.

Laing, who served as minister of state for finance under the last Ingraham administration, said he doesn’t believe that is true.

“When I read that, I was shocked. I was stunned, I really was, because firstly, that The Bahamas’ currency was at risk of devaluation is big news to me and I suspect to every single other person who was out there carefully watching these other things. Big news. That The Bahamas could be so close to currency devaluation and it would be picked up by the Central Bank and not be mentioned, instead you hear commentary from the governor that all is well, that the IMF doesn’t pick it up, that the IDB doesn’t pick it up, no economic observer picks it up, news to me,” he said.

“I have said on this show before that The Bahamas’ dollar value was at no risk of devaluation and the only way that I saw that happening was if the turndown of our economy that happened over the last year persisted into another year or so, I could see some possibility of that happening. But we are not going in that direction, we are actually turning things up… We’re not where we need to be, but certainly not where we used to be… So I’m stunned to hear that, that our currency was at risk of devaluation. I’m stunned because I don’t believe that, I really don’t.”

While he said he doesn’t believe the dollar peg was ever under threat, Laing said he does agree with the government’s decision to borrow in mostly foreign currency during this economic crisis spurred on by the COVID-19 pandemic.

He said it makes good sense that the government would harmonize its borrowing with the support of the international reserves.

“You can argue the extent of that borrowing and there are some who would argue it. But in an environment such that we have less foreign currency earnings than you would have, that the government should take some part of the borrowing it does in foreign US dollars, that makes good sense to me,” he said.

“But here what is true and here’s what is missing from the argument from the attorney general… When Bahamians have money in their pocket they spend more at home or abroad. When they spend more, they need more foreign dollars to spend, because most of what they spend on is imported and largely from the United States of America.

“So therefore, if Bahamians are doing well they need more US dollars and that actually puts a drain on our international reserves and can put the currency’s value at risk if they aren’t earning those dollars because they are doing well. So in actuality, our foreign reserves and our dollar parity stand to be more at risk in terms of the drain on the reserve when we are doing well. When we are not doing well we cannot spend as much.”

The government has borrowed $2.1 billion since the start of the 2020/2021 fiscal year. More than $880 million of that is in the form of foreign currency.

Local financial experts have criticized the government for not seeking to raise much of the capital required to meet its budgetary needs in the local markets.

Central Bank Governor John Rolle has said that the Bahamian dollar is not at threat of losing its one-on-one peg with the US dollar and that external reserves remain adequate.