THE Bahamas has received $178.7 million in Special Drawing Rights (SDRs) from the International Monetary Fund (IMF) that can be used to bolster the Central Bank's foreign exchange reserves if needed, it was revealed yesterday.

Although not a bailout, although that is how it will be perceived by some, the Bahamas can convert either all or a portion of these SDRs into foreign currency by selling them to another country that has a surplus of SDRs.

The $178.7 million allocated to the Bahamas was part of the IMF's $250 billion SDR allocation to its 186 member countries implemented on August 28, 2009, "as a key part of its initiative to increase central banks' external reserves in the face of the global financial crisis.

"Under this arrangement, the Bahamas was allocated 96.6 million in SRDs ($151 million), with a further 17.6 million SDR allocation ($27.7 million) occurring on September 9."

SDRs, while not a currency themselves, are an interest-bearing international reserve asset created by the IMF and based on a basket of currencies. They can be sold to a country that has an SDR surplus in exchange for currency, and can be counted in a nation's foreign exchange reserves even if they have not been drawn down.

That helps to explain why the Bahamas' foreign exchange reserves increased by $90.21 million in August to end the month at $803.64 million, compared to $684.38 million the year before. In addition, excess liquidity in the commercial banking system stood at $522.63 million at end-August 2009, compared to $335.34 million the year before.

Bolstering the Bahamas' foreign exchange reserves, and ensuring banking sector liquidity remains strong, are among the fundamental tenets of the Government's strategy for guiding the Bahamas through these tough economic times.

The Central Bank of the Bahamas, in its monthly economic and financial developments report for 2009, revealed that consumer credit had actually contracted by $27.51 million for the first eight months of 2009, a sign that banks are shying away from risky consumer loans and that credit has dried up.

For the first seven months in 2009, Bahamian consumers were repaying more than they were borrowing when it came to consumer loans, a sign that they are attempting to deleverage and reduce debts.

There were $20.7 million in credit card net repayments; $17.9 million in net car loan repayments; $8.7 million in travel loan repayments; and $5.6 million in net home improvement loan repayments. The only consumer lending category showing growth was, again, debt consolidation loans, which expanded by $43.6 million - a slower pace than in 2008.

In comparison, mortgage lending for the year to August 2009 grew by $82.96 million, a sharp drop from the $143.19 million expansion that took place during the first eight months of 2008.

On the fiscal front, the Government's fiscal deficit narrowed by $8.9 million to $20.6 million for the first month of its 2009-2010 Budget year. Total spending was 7.3 per cent or $9.5 million lower at $120.1 million, due to lower outlays on infrastructure projects.

Revenues fell only marginally by $0.6 million to $99.5 million, due to a two-thirds drop in Stamp Tax received from property transactions.

With tourism output contracting due to weak stopover performance, the Central Bank warned that "the prospects for the Bahamian economy will remain subdued for the balance of 2009 and into first half 2010", with the fiscal deficit and government debt-to-GDP ratios projected to further widen.