By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government used some $161.5m set aside to meet future foreign currency bond repayments to instead cover its current “debt obligations” during the 2024 calendar year’s final quarter, it was revealed yesterday.

The Ministry of Finance’s report on fiscal activities for the 2024-2025 budget year’s first half and second quarter, unveiled yesterday, disclosed that just $100.3m remains in the so-called ‘sinking funds’ that were established as vehicles for the Government to accumulate foreign currency assets that would finance repayment of external bond issues when they mature.

“For the review quarter, drawings on the sinking funds totaled $161.5m,” the report said of the three months to end-December 2024. “On a cumulative basis, the four sinking fund arrangements earmarked for scheduled retirement of external bonds, along with the Goldman Sachs repurchase agreement, held a value of $100.3m, of which $92.3m is subject to the repurchase agreement....

“In financing activities, the balance under the net acquisition of financial assets was a negative $161.5m as the Government utilised sinking fund proceeds to assist with meeting debt obligations. Additionally, net borrowing stood at $451.1m [for the 2024-2025 half-year] compared with a year-earlier $33.7m net repayment position.”

Previous Ministry of Finance reports revealed that, at end-June 2023, the same four ‘sinking funds’ held a total $378.6m in total assets, of which some $141.3m were covered by the February 2022 repurchase agreement with the Goldman Sachs. That saw the Government pledge more than $200m worth of assets as collateral security for a foreign currency cash advance from the investment bank.

Based on those figures, the Davis administration has over an 18 month period employed a net $278.3m, representing 73.5 percent or almost three-quarters of ‘sinking fund’ assets at end-June 2023, to cover its fiscal deficits and meet current - rather than future - debt obligations. In effect, it has been using assets held for future benefit to meet current needs, and not necessarily for the purpose for which they were accumulated.

The issue has drawn Opposition attention and criticism before as section 56 of the Public Finance Management Act states that the minister of finance shall disclose in the annual Budget the government securities and loans to be redeemed from the sinking funds.

This means that it must be disclosed before the funds are used out of the sinking funds. And section 51 of the Public Debt Management Act 2021, dealing with the creation of ‘sinking funds’, states: “The minister shall, as part of the annual Budget, disclose the particulars of government securities and loans to be redeemed from the sinking funds.” 

This does not appear to have been done, and several sources yesterday questioned whether the use of ‘sinking fund’ assets to meet existing debt obligations was disclosed in - and compliant with - the Government’s annual borrowing plan for fiscal year 2024-2025.

The Ministry of Finance, meanwhile, detailing the fiscal outcome for the 2024-2025 first half, said: “Operations to meet budgetary financing requirements and settle maturing debt resulted in a net increase in government‘s Bahamian Dollar liabilities of $421.3m, primarily in the form of government securities and Central Bank advances.

“Foreign currency debt also grew by $29.8m as commercial facilities offset scheduled repayments. Of the total $1.705bn in debt repayment, $960.2m (56.3 percent) was in domestic currency. Based on the net borrowing position, the direct charge on the Government - including exchange rate adjustments of $16.2m - increased by $451.1m to $11.749bn. This equated to an estimated 79.2 percent of GDP, as against 77.7 percent at end-June 2024.”

With the Government’s debt position inching slightly higher, as a percentage of Bahamian economic output, the Ministry of Finance report added: “In the first six months of fiscal year 2024-2025, the Government’s financing activities comprised a $161.5m decrease in the acquisition of financial assets alongside a $451.1m boost in liabilities.

“The $421.3m net increase in Bahamian Dollar liabilities included net borrowing of domestic securities amounting to $209.4m, alongside bank loans of $42.9m. A net of $169m was obtained by way of Central Bank advances.

“Foreign currency transactions resulted in a net borrowing of $29.8m. Net drawings on bank loans totalled $315.8m, net redemption of international bonds was $218.2m, and scheduled net redemptions to international development agencies of $67.8m. Approximately 81.1 percent of the latter was earmarked to reduce liabilities to the IMF, 8.2 percent to the CDB, 9.2 percent to the IDB and the balance to the Chinese Export-Import Bank.”

Turning to the Government’s income and deficit position, the Ministry of Finance report said: “Tax revenue improved by $122.1m (10.4 percent) to $1.292bn, strengthened by gains in international trade and transactions ($78.8m to $412.3m), VAT collections ($17.1m to $663.1m), and taxes on use and permission to use goods ($15.3m to $63m).

“Additionally, non-tax revenue increased by $16.7m (12.6 percent) to $149.4m. Receipts of property income were higher by $6.9m to $21.8m, and for sales of goods and services, by $10.4m at $123.3m. Total expenditure expanded by $278.3m (17.8percent) to $1.839bn.”

Breaking this down, the Ministry of Finance said: “Recurrent expenditure increased by $192.3m to $1.619bn, with nearly 50 percent of the upturn attributed to higher outlays for the use of goods and services, alongside gains for payments of public debt interest (17.9 percent) and other payments (16.9 percent).

“Capital expenditure advanced by $86m (64.1percent) to $220.1m. COVID-19 related spending amounted to $0.7m for an aggregate $473.9m since inception. Based on the revenue and expenditure performance, the deficit in the Government’s overall operations was higher by $139.3m (53.9 percent) at $398.1m.”