By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian banker last night said there is “nothing exotic” about the Government seeking to refinance 59 percent of its $632.5m Bahamian dollar bonds due to mature this year as Treasury Bills.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that the Davis administration’s plans to convert $372.8m worth of one-year government bonds into Treasury Bills with the same maturity duration was designed to align The Bahamas with global standards.

Acknowledging that the one-year bond had been developed out of “necessity”, due to the lack of investor appetite for the Government’s longer-term debt paper, he added that the “conversion” to Treasury Bills will not change repayment or rollover (refinancing) risks for the market.

The conversion was revealed in the Ministry of Finance’s just released annual borrowing plan for the 2025-2026 fiscal year, but Mr Bowe told this newspaper that the refinancing of maturing one-year Bahamas Government Registered Stock (BGRS) bonds via the issuance of Treasury Bills has been underway from the start of 2025.

“They commenced doing that from six months ago,” he said. “From the beginning of the year, all of their one-year government registered securities were not being renewed and they were issuing 365-day Treasury Bills. That’s been happening for six months.”

Mr Bowe said the benefit to the Government is “more the flexibility in the instrument” that is Treasury Bills rather than any reduction in the interest payments to investors. He added that “it gives them the ability to have greater upfront cash value” via the discount to face value at which Treasury Bills are sold, while the interest due to their holders accretes over the period to maturity.

“It gives them a little bit of a longer term with the funding,” he added. “They [the Government] effectively get the same cash flow but more flexibility and the delay the interest accretion.” Ultimately, the Government is aligning The Bahamas with international norms where all its paper due to mature in one year or less is classified as Treasury Bills or notes and bonds are to be held for a longer term.

Asked if the conversion strategy changes the risk equation for investors, Mr Bowe replied: “If it walks like a duck, quacks like a duck but you hang a horse around it’s neck, it’s still a short-term security. Do whether it’s a Bahamas Treasury Bill for one-year or a Bahamas Government Registered Stock for one year, it’s still short-term.

“It has the same repayment risk and same rollover risk as before. The one-year bond was created out of necessity because of lack of investor appetite for longer-term paper. There is nothing exotic or interesting here. It hasn’t changed the risk appetite or risk calculation in any form.”

The Ministry of Finance, in its annual borrowing plan, stated: “Domestic bond issuance remains integral to the Government’s financing strategy, with the $632.5m in maturing bonds expected to be refinanced ($259.7m) and reduced via planned conversions to Treasury Bills ($372.8m).

“The Central Bank, in its capacity as fiscal agent of the Government, will conduct auctions for fixed rate bonds with tenors of three, five, seven, ten, 20, and 30 years under the benchmark programme.” The Plan added that the Treasury Bill conversion will “complement the liquidity management tools of the banking sector and options for the Government”.

The Davis administration added that, despite the $372.8m bond conversion and need to refinance another $1.839bn in existing Treasury Bills over the 12 months to end-June 2026, it expects the outstanding debt represented by this instrument to be reduced by $61.4m. In total, some $2.217bn worth of Treasury Bills will be rolled over in 2025-2026.

“Treasury Bill auctions and Treasury note rollovers will remain a central component of the annual borrowing plan funding operations,” the Ministry of Finance said.”Instruments on offer will include 30 days, 91 days, 182 days and 364 day tenors...

“During fiscal year 2025-2026, the intent is to rollover the combined $1.839bn in outstanding bills and notes at end-June 2025, together with the conversion of $372.8m in one-year bonds to 364-day Treasury Bills. Intra-year, Treasury Bill issuances will be utilised to smooth out short-term cash flow requirements. On balance, the outstanding amount is expected to be reduced by $61.4m.”

The annual borrowing plan said the Government aims to “re-engage with the IMF” in a bid to this year complete “the framework to facilitate liability management strategies using call options, bond switches and buyback operations to enhance market liquidity and mitigate refinancing risk”.

Based on the Government achieving its forecast $75.5m Budget surplus for the 2025-2026 fiscal year, its gross financing needs - meaning the amount of maturing existing debt that it must refinance - has been pegged at $1.116bn or the equivalent of 6.8 percent of Bahamian gross domestic product (GDP).

Of this sum, some $308.6m or 27.7 percent will be raised by external borrowings. This is broken down into $265m worth of new loans from multilateral development agencies, with the $43.6m balance coming from the drawdown on existing credit facilities with the same lenders;

The majority of the Government’s financing needs, some $807.4m or 72.3 percent, will come from Bahamian dollar sources. This includes the refinancing of the $259.7m in maturing bonds, a further $319.7m in Treasury Bills and $228m in foreign currency loans.

The latter $228m is almost certainly the rollover of the International Monetary Fund (IMF) special drawings rights (SDRs) that were loaned to the Government by the Central Bank. This advance, which the Davis administration vehemently denied was a loan for so long, is now classified as such by the annual borrowing plan.

Under the heading ‘loans’, the annual borrowing plan states: “The Government contemplates a further rollover of the promissory note arrangement with the Central Bank for the fiscal year 2022-2023 SDR facility.”

As for the external foreign currency loans, several observers have challenged whether the Government can use facilities from the likes of the Inter-American Development Bank (IDB) to refinance or rollover existing debt as it seemingly plans to do in 2025-2026. The $100m national energy policy loan from the Development Bank of Latin America and the Caribbean is also included in the plan.

“Government plans to fully draw down two approved policy-based loans from the international financial institutions aggregating $260m,” the Ministry of Finance said.

“Of this total, $160m represents the second component of the Inter-American Development Bank (IDB) programmatic loan intended to support governance improvements related to disaster risk management covering the general framework, risk identification and reduction, disaster preparedness, recovery planning and financial protection.

“A $100m policy-based loan from the CAF, which is the development bank of Latin America and the Caribbean, is to support the implementation of key aspects of the National Energy Policy, which encompasses strengthening the regulatory framework, modernising infrastructure, promoting renewable energy and improving energy efficiency,” it added.

“Smaller disbursements, estimated at a combined $5m, are expected to be drawn in fiscal year 2025-2026 on two pipeline investment facilities: a $80m loan from the IDB for climate resilient transport infrastructure and a $60m loan for the blue economy. The balance is to be disbursed in subsequent years based on project implementation milestones.”

To round out the proposed external financing, the annual borrowing plan added: “Drawings under existing investment loans from multilateral creditors are estimated at $43.6m. Of this total, approximately $38.9m (89.2 percent) is associated with various IDB investment and budget support projects, and with the balance representing the education and water supply infrastructure projects financed by the Caribbean Development Bank.”