By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A “cash buffer framework” has been developed to ease the Government’s cash flow and liquidity pressures during the weaker first half of its fiscal year, it has been revealed, amid plans to refinance near-$3.4bn in total public debt during the 2026-2027 Budget period.

The Davis administration, in unveiling its annual borrowing plan for the new fiscal year, disclosed that the Government has worked jointly with the Central Bank to develop a mechanism to relieve any pressures that may result from the traditionally-lower revenue inflows during the six months to end-December plus investors’ aversion to 10 and 20-year bonds.

“Given the concentration of revenue receipts in the second half of the fiscal year, along with investor concentration at the short end of the yield curve, the Central Bank and the Ministry of Finance have jointly developed a cash buffer framework to manage in-year gross financing needs,” the Plan reveals.

“This arrangement helps reduce liquidity risks associated with government securities auctions, provides greater scope to manage borrowing costs and, together with the active use of Treasury Bills, strengthens co-ordination between cash and debt management.”

No other details were provided on “the buffer”, especially what it involves and how it will work. However, financial sources consulted by Tribune Business suggested the likeliest explanation is that the Government will rely heavily on Central Bank advances to plug any revenue gaps, and make up funding shortfalls, during the fiscal year’s first-half and then pay these down during the tax and fee-rich six months to end-June.

Several sources, though, yesterday challenged how this will work when set against recently-enacted reforms to the Central Bank Act that tightened the conditions surrounding the regulator’s lending to the Government. These cut the lending limits “from 30 percent to 15.5 percent of the average revenue of the Government or the estimated ordinary revenue of the Government, whichever is less”, although Treasury bills and other securities are excluded from this calculation.

The Central Bank’s last two annual reports, for 2024 and 2025, as well as the International Monetary Fund’s (IMF) Article IV consultation, disclose that the Davis administration effectively ‘maxed out’ these short-term advances during the fiscal year’s first half. It increased these from $192.046m at the start of 2024 to $332.811m at year-end, representing a $140m or 72 percent jump.

The Government’s borrowing plan, released in the 2026-2027 Budget’s aftermath to ensure compliance with the Public Debt Management Act’s legal requirements, asserts that the proceeds generated by the year’s forecast $223.1m surplus - the sum earned by revenues exceeding total public spending - will provide a further “buffer” for its cash and financing needs.

Given the surplus projection, the Davis administration is predicting it will not need to undertake any new borrowings that will add to the Government’s $12.466bn direct debt as at end-June 30. Instead, it is forecasting that it will only borrow to refinance $1.024bn in existing debts, while plans to also rollover a “combined $2.372bn” in outstanding Treasury Bills are excluded from these calculations.

While the report signals that the Government should have no difficulty in meeting its 2026-2027 gross financing needs, a slightly deeper look reveals some ongoing challenges with managing The Bahamas’ public finances - especially the continued heavy reliance on short-term debt, much of which matures and comes due for repayment in one year.

The annual borrowing plans acknowledges the “refinancing risk” this presents should one major institutional investor, such as a commercial bank, decline to rollover and, instead of refinancing by accepting new securities, instead demands its money back. “Rollover pressure from the large pool of Treasury Bill holdings requires ongoing monitoring,” the report concedes.

And, while no update was given on whether the Government met its 2025-2026 fiscal year goals, the annual borrowing plan admits that many target indicators were missed and there is work to be done to hit the Ministry of Finance’s medium-term debt management strategy targets, too. The report also concedes that Bahamian investors have little appetite for, and are shying away from, the Government’s 10 and 20-year bonds - hurting efforts to extend and smooth out its debt maturities.

“Market absorption was broadly supportive across the two-year to seven-year tenors and the 30-year tranche,” the plan said, implying that there is little appetite for the 10 to 20-year variety, which was seemingly a factor behind the development of the Central Bank “cash buffer”.

As for key 2025-2026 indicators, the annual borrowing plan reveals that more than half of the Government’s debt - some 52.6 percent - must be “refixed within one year”. This means that this portion will be subject to a new interest rate, or debt servicing cost, and the percentage is much higher than the 29.4 percent and 37.4 percent, respectively, that were targeted by the Government for both 2025-2026 and over the medium-term.

Similarly, more than one-quarter of the Government’s outstanding debt - some 27.4 percent - is still due to mature, and repay investor principal, within one year. This. too, remains higher than the 23.1 percent medium-term target. The weighted average interest rate on the Government’s total debt, plus average time to maturity and refixing, were all below their medium-term targets at year-end, while fixed rate debt - a 69.4 percent of the total - is still short of the 83.1 percent goal.

“At end-June 2026, the average time to maturity (ATM) stood at six years compared with the 7.4 years annual target and the 6.8 years medium-term target, while the average time to refixing (ATR) was estimated at 4.5 years - less than both the annual and the medium-term targets,” the annual borrowing plan said.

“The percentage of debt maturing within one year, at 27.4 percent of the total, significantly exceeded the annual target, with efforts continued towards lengthening the maturity profile where market conditions permitted. Foreign currency debt accounted for 45.3 percent of the portfolio, marginally above the annual target, while fixed-rate debt represented 69.4 percent of total debt, reflecting ongoing progress toward reducing interest rate exposure over the medium term.”

The Government, again reaffirming its ambition to broaden the base supporting Bahamian public debt issues, unveiled plans to capitalise on the recent savings bond launch by enticing more retail, or individual, investors to purchase government securities. And it pledged that efforts to modernise the secondary market, where investors can buy and sell government debt among themselves, will be introduced in the 2026 fourth quarter through techniques such as bond swaps or switches.

The goals include “finalising a liability management framework encompassing call options, bond switches and buy back operations to enhance secondary market liquidity and provide additional tools for managing refinancing risk as it falls due”.

“Technical and system enhancements to support repo (repurchase) arrangements were recently completed and are undergoing final legal review, with a projected implementation date of the closing quarter of 2026,” the annual borrowing plan said, along with “scaling up promotion of the recently-launched savings bond to broaden participation of retail investors”.

“The Government recognises the importance of broadening the domestic investor base beyond institutional participants, and in fiscal year 2026-2027 concerted efforts will be extended to deepen the pool of retail investors in government paper,” it added.

“This will include a comprehensive and targeted educational campaign to raise public awareness of the range of instruments available, and exploration of digital and community-based distribution channels to expand access.”

Acknowledging that its borrowing plans could change depending on market conditions and other factors, the Government said much of its domestic foreign currency operations involve the annual rollover of the $230m-plus in International Monetary Fund (IMF) special drawing rights (SDRs) extended to it by the Central Bank.

“Approximately 49.8 percent of the $648.4m in scheduled domestic amortisation is in the form of Bahamian dollar denominated bonds. Internal foreign currency obligations, at 40.8 percent, are dominated by the SDR liability to the Central Bank, and local currency loans from financial institutions represent a smaller 9.4 percent of the tota,” the plan forecasts.

“External loan repayments of $375.6m are apportioned across commercial banks (57.1 percent), international financial institutions (28.9 percent) and private capital markets (14 percent).” With the Government seeking to avoid the international bond markets, it is seeking some $100m in new loans - and to draw down on $80.5m in existing loans - from concessional lenders such as the Inter-American Development Bank (IDB).

“Drawings will be made in accordance with project agreements and subject to satisfaction of applicable conditions. The largest share, 62.1 percent, relates to a health infrastructure project financed by the Chinese Export Import Bank, with the balance drawn from the IDB (29.8 percent) and the Caribbean Development Bank (8.1 percent) for various other priority projects,” the annual borrowing plan said.

Some $54m is projected to be drawn on the Chinese-financed project, the second New Providence hospital, while the Government “also plans to pursue policy-linked partial credit guarantees to help secure commercial loan facilities of up to $200m”.

As for Bahamian dollar raising and refinancings, the annual borrowing plan said: “The Government envisages bond issuance totaling $387.2m comprising the refinancing of $323m in maturing bonds and an additional $64.2m in new offerings.”