By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The post-COVID decline in The Bahamas’ debt-to-GDP ratio was reversed during the three months to end-September 2024 due to a sharp $342.5m increase in the Government’s borrowing liabilities.

The Ministry of Finance, unveiling its debt report for the 2024-2025 Budget year’s first quarter, revealed that the central government’s direct liabilities actually increased in comparison to the size of the Bahamian economy and its output by rising from 77.6 percent at end-June 2024 to 79.1 percent at September’s close.

“Outstanding debt of the central government was estimated at $11.656bn at end-September 2024, equating to a quarterly increase of $342.5m or 3 percent. This represented a slightly higher estimated debt-to-GDP ratio of 79.1 percent compared with 77.6 percent at end-June 2024,” the report said.

It remains to be seen whether this reversal, and increase rather than decrease in the debt-to-GDP ratio, becomes a trend or is merely a temporary blip given the Government’s target of slashing it to 50 percent by 2031.

However, the decline from 100 percent debt-to-GDP, when the Government’s liabilities matched the size of the economy and its output, has frequently been touted as one of the Davis administration’s major achievements. The Prime Minister last week said Bahamians “want to see improved fiscal responsibility like we’ve seen in the past three years when the debt-to-GDP ratio dropped from over 100 percent to 82 percent”.

The $342.5m increase in the central government’s debt during the 2024-2025 first quarter also represents a sharp reversal from the prior year’s performance, when the central government’s debt actually declined by $45.5m over the same three months during the prior fiscal year.

Neither Simon Wilson, the Ministry of Finance’s financial secretary, nor Michael Halkitis, minister of economic affairs, responded to Tribune Business calls and messages seeking comment before press time last night.

However, the latest Ministry of Finance report, said total public sector debt - which includes that incurred by government agencies and/or guaranteed on their behalf, as well as the Government’s direct debt - had risen by a similar amount over the three months to end-September compared with the level achieved at June 2024’s close.

“At end-September 2024, public sector debt outstanding was estimated at $13.027bn for respective gains of $338.7m (2.7 percent) and $394.9m (3.1 percent) relative to end-June 2024 and the comparative period in the prior year,” the report said.

“Quarterly variations in the debt stock continued to be primarily explained by the increased net financing activities of the central Government in contrast to the net repayment positions for agencies and GBEs (government business enterprises).”

The Ministry of Finance report disclosed that, during the 2024-2025 first quarter, the Government received an additional $216.2m foreign currency “enhancement” on an existing credit line with Deutsche Bank. And, on the Bahamian dollar side, it accessed a $100m loan from Royal Bank of Canada (RBC).

There was also a sharp $158.9m in borrowings from the Central Bank during the 2024-2025 first quarter. “Among domestic creditors, liabilities to the Central Bank advanced by $118.6m (13.6 percent) for a dominant 1.4 percentage point boost in share to 15.3 percent,” the report said. 

“Correspondingly, although the exposure to commercial banks increased by $60.9m the proportion eased by 0.4 percentage points to 38.8 percent. Similarly, the $43m rise in the private sector’s claims on the government equated to a 0.7 percentage points reduction in share to 39.6 percent, and the $8.3m decline in outstanding liabilities to the public corporations lowered their proportion to 6.2 percent.”

Based on Tribune Business calculations, the $118.6m increase in Central Bank advances to the Government took the total to $872.05m. This could threaten the 2023 reforms which limited Central Bank advances to 15.5 percent of the Government’s average ordinary revenues. Total projected revenues for 2024-2025 are $3.357bn, which place Central Bank advances at 24.7 percent of this total.

And the Government’s rollover risk continues to rise, with some $3.152bn in short-term debt due to mature in less than one year and needing to be refinanced between October 2024 and June 2025. Of this sum, the vast bulk - some $2.776bn - is domestic debt denominated in Bahamian dollars.

“Since end-June, 2024, the average time to maturity (ATM) eased to 6.13 years from 6.41 years,” the Ministry of Finance said of its rollover risk. “By end-September 2024, 27.5 percent of the debt portfolio was due to mature in one year compared with 25.9 percent in the prior quarter.

“The proportion of external debt maturing within one year was slightly higher at 8.11 years, while increases in short-term domestic debt elevated the internal component to 43 percent from 40.4 percent in June 2024.” This means that more than $1 out of every $4 in government debt is due to mature within the next year.

However, Gowon Bowe, the Clearing Banks Association’s (CBA) chairman, said this elevated rollover risk is not necessarily all bad as it has imposed greater fiscal “discipline” on the Davis administration, forcing it to be more transparent and accountable, while also benefiting taxpayers and the wider economy through reducing its borrowing costs.

He told Tribune Business earlier this year that the need to refinance such a large portion of its domestic debt in the short-term has imposed “guard rails”, which prevent the Government from engaging in reckless spending or other irresponsible financial actions, because doing so will undermine local investor confidence and potentially cause such rollovers to fail.

And, with Bahamian banks, insurance companies, pension funds and other Government bond buyers increasingly showing appetite for paper with maturities of five years or less, Mr Bowe told this newspaper that such trends are benefiting taxpayers because shorter-term debt typically attracts a lower interest coupon than the 20 and 30-year variety. As a result, borrowing costs and the debt service burden for taxpayers are reduced.

The Ministry of Finance report revealed that the Government’s external foreign currency debt obligations stood at $5.194bn at end-September 2024, accounting for 44.6 percent of the debt stock. This sum increased by $128.3m or 2.5 percent during the 2024-2025 first quarter.

“Development in the external creditor profile featured a $162.2m (14 percent) gain in the exposure to financial institutions, with a 2.6 percent elevation in share to 25.5 percent. Conversely, multilateral debt was reduced by $32.4m (2.5 percent) and the corresponding proportion by 1.3 percent to 24.4 percent, while bilateral debt, which declined by $1.5m (3.5 percent), maintained a stable 0.8 percent share,” the report said.

“On an institutional basis, the $1.269bn in multilateral debt represented share gains for the Inter-American Development Bank (IDB) of 1.5 percentage points to 65.5 percent, and 0.2 percentage points each for the Caribbean Development Bank (CDB) (19.3 percent) and the World Bank (7.9 percent).

“Ongoing repayments of the International Monetary Fund (IMF) Rapid Financing Instrument facility obtained by The Bahamas in 2021 reduced the IMF’s share by 1.9 percentage points to 7.3 percent.”