By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government’s gross borrowings leapt four-fold year-over-year to more than $2bn during the six months to end-2020, it was revealed yesterday, exceeding what was projected for the full fiscal year.

The so-called “fiscal snapshot” and report for the 2020-2021 first half, which covers the six months from July 1 last year, disclosed that the Minnis administration borrowed a total $2.12bn compared to just $530.9m during the same period in the prior fiscal year.

And that $2.12bn exceeded the $2.024bn in gross borrowings that the government had projected it would need to raise for the entire 2020-2021 fiscal year, with the former figure equivalent to 104.8 percent of that sum. This means that it has borrowed more, in gross terms, during the first six months of the year than it had originally forecast it would need for the entire 12-month span.

However, Marlon Johnson, the Ministry of Finance’s acting financial secretary, told Tribune Business there was nothing to be alarmed about. He argued that while the gross borrowing figures had been released for “public consumption”, the critical number from the government’s perspective was its net borrowing.

This measures the actual increase in its liabilities, or debt, because it strips out the the gross borrowing proceeds that are used to pay down its existing bills. The “fiscal snapshot” shows the government as repaying more debt in the first six months of the 2020-2021 fiscal year than it had planned to in the entire 12-month period.

Some $921.3m worth of debt principal was repaid from its $2.12m gross borrowing proceeds in the period to end-December, with the former figure equivalent to 132.3 percent of the $696.6m it was forecast to repay for the full year.

Mr Johnson did not comment on whether the government is repaying debt principal faster than originally planned, but the effect of stripping out these payments leaves a net borrowing increase - as measured by the rise in the Public Treasury’s liabilities - of $1.199bn - a sum equivalent to 90.3 percent of the $1.327bn fiscal deficit that is projected for the year to end-June 2021.

When challenged about the discrepancy between the $736.1m fiscal deficit shown for the 2020-2021 half-year, and the $1.199bn increase in the Government’s debts, Mr Johnson said this related to timing differences caused by drawing down on borrowed funds ahead of repaying short-term advances such as those received from the Central Bank.

Another factor, he added, was the decision to refinance the Bahamas Electricity Corporation’s (BEC) legacy $246m debt with a bridging loan, which transformed this from a contingent liability to a direct debt even though the electricity utility is making the interest payments until this is refinanced via its planned Rate Reduction Bond (RRB).

Mr Johnson also told Tribune Business that the Government had little choice, as a result of COVID-19’s brutal impact on its finances, but to suspend payments to the so-called “sinking funds” that have been created to fund repayment of specific bond and debt issues.

“You do that when the Government has surplus cash with which to make the payments, and everybody understands the last half of the year we had,” he said. “We hope to do so [make payments] in the second half, but cash flow didn’t allow us to set aside any in the sinking fund.”

The Government’s report for the second quarter and first half of the 2020-2021 fiscal year said: “During the first half of the fiscal year 2020-2021, no contributions were made to the sinking fund established to retire future debt obligations given the increasing requirements posed by the COVID-19 pandemic on the fiscal performance.

“At end-December 2020, the three arrangements earmarked for scheduled retirement of external bonds held a cumulative value of $195.4m, while the funds set aside for the two local arrangement stood at $13.3m.”

A breakdown of the Government’s borrowings and repayments over the fiscal 2020-2021 first half showed it had actually repaid more Bahamian dollars than it borrowed. It repaid $564.1m, and repaid $530.3m, as $244.9m and $54.8m, respectively, were used to repay short-term Central Bank advances and Treasury Bill paper.

However, the Government’s foreign currency borrowings exceeded its repayments by some $1.233bn largely due to the $825m worth of bonds it placed on the international capital markets in late 2020. While this bolstered the external reserves to a record $2.3bn, protecting the US dollar exchange rate regime against COVID’s short-term ravages, some will be concerned over the potential long-term pressures.

“In meeting its operational requirements, the Government incurred a net increase in liabilities over the period of $1.199bn,” the report confirmed. “Budgetary financing requirements were met through borrowings totaling $2.12bn, compared with $530.9m for the same period of the prior fiscal year.

“Debt amortisation payments were boosted to $921.3m from the year-earlier $325.7m, and included the repayment of the $248m bridge financing and $244.9m in Central Bank advances.

“As of result of net borrowing activities, the direct charge on the Government - exclusive of exchange rate adjustments - increased by $1.199bn to $9.39bn or an estimated 78.8 percent of GDP at end-December 2020, as compared to 66 percent of GDP at end-June 2020.”