By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government last night confirmed that The Bahamas’ national debt had breached the $10bn mark due to the borrowing blow-out inflicted by the combination of COVID-19 and Hurricane Dorian.

The Ministry of Finance, in its 2020-2021 full-year and fourth quarter “fiscal snapshot”, revealed Central Bank of The Bahamas data showing that the combination of the Government’s $9.909bn direct debt - together with loans it has guaranteed on behalf of various state-owned enterprises (SOEs) - had taken the national debt to $10.356bn at end-June 2021.

It also confirmed the substantial increase in The Bahamas’ debt-to-GDP ratio, which rose from 66 percent of the latter at end-June 2020 to 86.3 percent some 12 months later. This resulted from the collapse in revenues due to the COVID-related contraction in economic activity as well as increased spending on business and social support measures to prevent families and wider society from imploding.

While the Government had little choice but to respond to COVID and its devastating fall-out in the way that it did, and save the businesses and households that it could, the latest “snapshot” - issued just ten days before the upcoming general election - shows the scale of the economic and fiscal crisis confronting the next administration.

“The direct charge, exclusive of exchange rate adjustments, increased by $718.1m to $9.909bn or 86.3 percent of GDP at end-June 2021, as compared to 66 percent of GDP at end-June 2020. Ninety-two percent or $1.571bn of the net borrowing was facilitated in foreign currency,” the report said.

The Government’s gross borrowings during the 12 months to end-June 2021 also breached the $3bn mark, although a significant portion - just under 50 percent, at $1.358bn - represented existing debt that was repaid. Some observers will likely voice concern that The Bahamas is borrowing to pay off existing debt, which included a number of short-term loan facilities that were repaid from longer term borrowings.

“Gross borrowings required to supplement government spending totaled $3.076bn for the fiscal year, a $1.535bn increase on gross borrowings in the previous year,” the fiscal “snapshot” report added. “Domestic bonds totalled $559.5m, of which $462.5m was used to refinance maturing bonds.

“International bond placements totalled $825m - $600m in October and $225m in December. New foreign bond issuances aggregated $1.115bn and drawings on existing loans summed to $32.1m. Short-term financing comprised $49.1m in Treasury Bills and $494.9m in Central Bank advances.

“As a result of net borrowing activities, the direct charge on the Government - exclusive of interest rate adjustments - increased by $1.718bn to $9.909bn or 86.3 percent of GDP at end-June 2021, as compared to 66 percent of GDP at end-June 2020.”

With the fiscal deficit, representing new debt, widening to $1.348bn, the Government reduced its contribution to sinking funds set up to finance future debt repayments during the 2020-2021 fiscal year. 

“Owing to prevailing fiscal conditions, the Government reduced contributions to the discretionary sinking funds for future debt amortisation to $13.8m compared with the budgeted $46.5m,” the report added.

“However, the reinvestment of realised capital gains of $13.7m, arising from the government’s sale of a segment of the sinking fund investments to take advantage of the positive trading fundamentals for US Treasuries, resulted in a net increase in the sinking funds of $27.6m.

“At end-June 2021, the three arrangements earmarked for scheduled retirement of external bonds held a cumulative value of $209.4m, while the funds set aside for the two local arrangements stood at $13.3m.”

Foreign currency debt increased by $1.571bn during the 12 months to end-June, as the authorities moved to boost the foreign exchange reserves via the Government’s borrowing activities, while Bahamian dollar debt rose by a mere net $146.7m in comparison.

As for debt repayment, the fiscal “snapshot” said: “The government repaid the $248m bridge financing out of the proceeds from $600 million bond transaction in October). As scheduled, an aggregate $153m and $7.6m was repaid in foreign currency and Bahamian dollar loans, respectively.

“Bahamian dollar repayments included reductions in Central Bank advances ($349.8m); bonds ($462.5m) and Treasury note redemptions and conversions ($136.9m).”

Besides its foreign currency bond issue, the Government received multiple foreign currency loans from multilateral lenders such as the Inter-American Development Bank (IDB), World Bank and Caribbean Development Bank (CDB) during the 2020-2021 fiscal year.