By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has to repay more than $2bn to its creditors within the next eight months, it was revealed last night, with the nation’s total debt stock now standing at $11.429bn.

The Ministry of Finance’s debt management office, unveiling The Bahamas’ first ever Public Debt Statistical Bulletin, provided a grim and sobering assessment of the extent to which the economic devastation inflicted by Hurricane Dorian and COVID-19 has accelerated the country’s fiscal woes to crisis levels.

However, of the $2.078bn in debt principal due to mature over the next eight months between now and end-June 2022, the vast majority - some $1.908bn - is held by domestic investors such as banks, pension funds, insurance companies, mutual funds and other institutional investors.

This will make it easier for the Government to refinance or rollover the existing debt with new bond issuances, given that $1.516bn or just under 75 percent of that $2.078bn is held in local securities. Just under 10 percent of the Government’s total debt stock, some 9.5 percent, is due to mature within the next year.

The Davis administration may also seek to offer extended maturities on any new debt issues in a bid to spread out repayments, although investors are shying away from long-term paper because of the perceived greater risk associated with investing in government securities. Appetite is also thought to be low because many are at their regulatory or prudential limits on such holdings.

Still, the Government argued that the principal “redemption profile” of debt maturing between now and 2032 was “well distributed... although there is a spike in domestic debt in 2023, and in external repayments in 2024, and again between 2027 and 2032 in line with the maturity of various international bond issues. The Government intends to smooth out these through appropriate liability management initiatives.

A further $560m in domestic debt is due to mature in 2023, while some $541m in external debt held by overseas investors will need to be repaid in 2024. Another $399m in foreign currency debt is set to mature in 2030.

The report pegged the total debt owed by the Government, its agencies and state-owned enterprises (SOEs) at $11.429bn at end-September 2021 - a figure that is significantly higher than the $10.356bn national debt calculated by the Central Bank just three months earlier at end-June.

And the extent of the Government’s indebtedness could be even greater yet, as it is unclear whether the $11.429bn includes the Government’s unfunded civil service pension liabilities. Previous research by the KPMG accounting firm projected that these unfunded liabilities will likely be around $2bn by now, which would take the total debt stock to well over $13bn if added to it.

Pia Glover-Rolle, minister of state for the public service, recently conceded that the Government will have to look at introducing a contributory pension scheme for public officials, especially any new hires, but successive prior administrations have lacked the political will to do this.

“The civil servants’ pension system is unsustainable,” the IMF warned three years’ ago. “Government employees draw pensions at retirement without contributing to the system while employed. Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages.”

The IMF called for reforms that involve “moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term”. This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 percent by the taxpayer through the budget - as is done currently.

And a presentation delivered by KPMG in 2013, the early years of the last Christie administration, estimated the unfunded, “pay-as-you-go”, civil service pension liabilities at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms were enacted - and this is still yet to happen.

Elsewhere, the Government’s report revealed that some 60 percent of the outstanding $11.429bn debt stock carries a fixed interest coupon while the remainder has a variable rate attached.

“At end-September 2021, the fixed and variable rate shares for external obligations were relatively stable from the previous quarter, at 62.5 percent and 37.5 percent, respectively,” the report said.

“The general firming in the fixed rate debt observed since September 2021, and the corresponding decline in the variable rate component, was primarily influenced by the central Government’s fixed rate international bonds.

“The domestic debt interest rate profile showed fixed rate liabilities accounting for 58.2 percent of the total at end-September 2021, trending progressively higher since December 2020, amid the Government’s strategy to manage interest rate risk in the domestic bond market,” it added/

“Correspondingly, the variable interest rate component constituted 41.8 percent of the outstanding debt at end-September 2021, positioning below the comparable 46.8 percent at end-September 2020.”