chart 6 : distribution of fatf effectiveness ratings frequency low moderate substantial high immediate outcome rating why are aml sovereign ratings important? because, singly and in aggregate they often form a material input into the risk considerations of correspondent banks and others who deal with the bahamas. the effect is similar to debt ratings agencies : if moody ’ s and standard & poor ’ s lists a country as subinvestment grade, it becomes much harder and more expensive to raise funds. if the aml ratings agencies list a country as high aml risk, it becomes harder for that country and its institutions to operate effectively in the global financial markets. financial inclusion now, let ’ s talk about financial inclusion. “ financial inclusion ” is something of a buzz phrase globally, but that hardly detracts from its importance. it is easy to conclude that bahamian financial inclusion is not nearly as complete as it needs to be. our populace is still not fully banked on either the deposit / transaction or the credit side of the balance sheet. our insurance penetration, investments, and pension participation are a long way from what might be optimal. our capital markets are neither large nor liquid in global terms. then there is the geographic issue that inclusion in the family islands is in some cases markedly less than in new providence. neither the central bank nor any other agency can fix this on their own, but collectively we can do quite a lot to create a more inclusive bahamian financial system. we look forward to providing advice to the government on this point. financial inclusion is not mainly about aml, but it does generate two distinct aml advantages. the first is that cash intensity in the economy will drop, in favor of electronic transactions. this makes our society and economy safer and more efficient, and it makes large and possibly suspect cash transactions easier to identify. the second advantage flows indirectly from the increased data intensity of the financial system. it will become harder for financial criminals to hide in the undocumented recesses of a non - inclusive system. the central bank and other agencies are already progressing a number of financial inclusion initiatives. in our case, these include joining the alliance for financial inclusion, or afi, and adopting that body ’ s maya declaration. the afi has already helpfully created a number of national inclusion benchmarks which we can adapt for bahamian use. the afi also provides many case studies, research reports, and other information, which will help us generate ideas for bahamian financial inclusion. the central bank ’ s digital

##gned finances were viewed as having a credible chance of being remedied. the monetary authority is also part of the fiscal picture. failed public finance dynamics can show up in unchecked borrowing from the central bank and in growing gaps between local currency liabilities of the monetary authority and foreign reserves, which are held to support the currency. central bank lending to the government can also be a source of accumulated bank liquidity, of the sort that might seek to flee the jurisdiction, if they are allowed to become mobile. the confidence boost that a financial system would need, before opening itself unchecked to short - term financial flows would be, in a case where deficits and debts are a concern, to quiet such concerns. deficits or debt burden need not disappear at the outset, but there has to be an anchored belief that such reduction would occur within a comfortable time frame. at the central bank, we are focused on gradually reducing the amount of outstanding credit provided to the government. it will also achieve, as a side benefit, some important reduction in surplus liquidity within the banking system. over the medium - term it is also expected that a new central bank act would put stronger governance arrangements in place to continue to reduce lending to government. at the same time the public finances will have to support some of the liquidity reduction in the medium - term through direct slowdown and eventual reduction in the debt burden. 7 aside from exchange control, liberalisation also has to be considered in the context of the national investment policy. if certain sectors are constrained from foreign participation, then bahamians operating in those sectors would also be constrained in how they a costly option that many countries have taken is to have the central bank issue its own securities to soak up liquidity. however, if done aggressively the institution could incur losses. 7 | page collateralise access to foreign currency financing. if majority ownership in a venture must be bahamian, then the majority financing source, unless it is domestic would not be permissible in foreign currency. 8 also, to the extent that restrictions apply to how nonresidents acquire real estate in the bahamas, use of such assets as security for mortgages would be subject to a layer of processing and approval that is independent of any ec rules. figure 2 : central bank financing to government as the government debt burden increased, reliance on central bank financing, especially over the last decade, has also increased …. the balance sheet impact for the central bank has been that the