Obbligazioni societarie HIGH YIELD e oltre, verso frontiere inesplorate - Vol. 2 (13 lettori)

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Bahamas must repay $2bn in eight months

The Bahamas has to repay more than $2bn to its creditors within the next eight months, it was revealed last night, with the nation’s total debt stock now standing at $11.429bn.
www.tribune242.com


The Bahamas has to repay more than $2bn to its creditors within the next eight months, it was revealed last night, with the nation’s total debt stock now standing at $11.429bn.

#The Ministry of Finance’s debt management office, unveiling The Bahamas’ first ever Public Debt Statistical Bulletin, provided a grim and sobering assessment of the extent to which the economic devastation inflicted by Hurricane Dorian and COVID-19 has accelerated the country’s fiscal woes to crisis levels.

#However, of the $2.078bn in debt principal due to mature over the next eight months between now and end-June 2022, the vast majority - some $1.908bn - is held by domestic investors such as banks, pension funds, insurance companies, mutual funds and other institutional investors.

#This will make it easier for the Government to refinance or rollover the existing debt with new bond issuances, given that $1.516bn or just under 75 percent of that $2.078bn is held in local securities. Just under 10 percent of the Government’s total debt stock, some 9.5 percent, is due to mature within the next year.

#The Davis administration may also seek to offer extended maturities on any new debt issues in a bid to spread out repayments, although investors are shying away from long-term paper because of the perceived greater risk associated with investing in government securities. Appetite is also thought to be low because many are at their regulatory or prudential limits on such holdings.

#Still, the Government argued that the principal “redemption profile” of debt maturing between now and 2032 was “well distributed... although there is a spike in domestic debt in 2023, and in external repayments in 2024, and again between 2027 and 2032 in line with the maturity of various international bond issues. The Government intends to smooth out these through appropriate liability management initiatives.

#A further $560m in domestic debt is due to mature in 2023, while some $541m in external debt held by overseas investors will need to be repaid in 2024. Another $399m in foreign currency debt is set to mature in 2030.

#The report pegged the total debt owed by the Government, its agencies and state-owned enterprises (SOEs) at $11.429bn at end-September 2021 - a figure that is significantly higher than the $10.356bn national debt calculated by the Central Bank just three months earlier at end-June.

#And the extent of the Government’s indebtedness could be even greater yet, as it is unclear whether the $11.429bn includes the Government’s unfunded civil service pension liabilities. Previous research by the KPMG accounting firm projected that these unfunded liabilities will likely be around $2bn by now, which would take the total debt stock to well over $13bn if added to it.

#Pia Glover-Rolle, minister of state for the public service, recently conceded that the Government will have to look at introducing a contributory pension scheme for public officials, especially any new hires, but successive prior administrations have lacked the political will to do this.

#“The civil servants’ pension system is unsustainable,” the IMF warned three years’ ago. “Government employees draw pensions at retirement without contributing to the system while employed. Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages.”

#The IMF called for reforms that involve “moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term”. This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 percent by the taxpayer through the budget - as is done currently.

#And a presentation delivered by KPMG in 2013, the early years of the last Christie administration, estimated the unfunded, “pay-as-you-go”, civil service pension liabilities at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms were enacted - and this is still yet to happen.

#Elsewhere, the Government’s report revealed that some 60 percent of the outstanding $11.429bn debt stock carries a fixed interest coupon while the remainder has a variable rate attached.

#“At end-September 2021, the fixed and variable rate shares for external obligations were relatively stable from the previous quarter, at 62.5 percent and 37.5 percent, respectively,” the report said.

#“The general firming in the fixed rate debt observed since September 2021, and the corresponding decline in the variable rate component, was primarily influenced by the central Government’s fixed rate international bonds.

#“The domestic debt interest rate profile showed fixed rate liabilities accounting for 58.2 percent of the total at end-September 2021, trending progressively higher since December 2020, amid the Government’s strategy to manage interest rate risk in the domestic bond market,” it added/

#“Correspondingly, the variable interest rate component constituted 41.8 percent of the outstanding debt at end-September 2021, positioning below the comparable 46.8 percent at end-September 2020.”
 
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Minister pledges: No $10bn debt default

The Bahamas will not default on its $10.356bn national debt or have to seek IMF assistance, a Cabinet minister asserted yesterday, amid mounting public concern over the nation’s fiscal woes.
www.tribune242.com


By NEIL HARTNELL

#Tribune Business Editor

#[email protected]

#The Bahamas will not default on its $10.356bn national debt or have to seek IMF assistance, a Cabinet minister asserted yesterday, amid mounting public concern over the nation’s fiscal woes.

#Michael Halkitis, delivering a rallying cry at the Accountants Week seminar series, said reducing the national debt’s “rate of growth” and associated borrowing costs were “high on the priority agenda” for the newly-elected Davis administration given growing fears that this has already reached unsustainable levels.

#Speaking to Bahamas Institute of Chartered Accountants (BICA) members, the minister of economic affairs said the ‘no debt default’ pledge had in recent weeks been made to both the country’s local and international lenders/creditors; the credit rating agencies (Moody’s and Standard & Poor’s); and the likes of the International Monetary Fund (IMF), World Bank and Inter-American Development Bank (IDB).

#“The first thing I told all of them is that The Bahamas has never defaulted on any of its obligations, never missed a payment, we have never undergone any debt restructuring, and never been a part of any IMF programme. We do not intend to start now,” Mr Halkitis reassured. “The Government of The Bahamas is capable and willing to meet its obligations.”

#The Davis administration will now have to quickly convert those words into actions that prove it means what it says, given that the present 100.4 percent debt-to-GDP ratio shows the national debt is already bigger than the economy’s size or output.

#Acknowledging this, Mr Halkitis said: “I am sure all of you know the debt, and the level of debt and the rate of growth of the public debt, is on the minds of many Bahamians and it’s a matter of considerable concern.

#“This is a high on the priority agenda of the new administration. Our aim is to contain and reduce the rate of growth of the national debt, and reduce the cost of borrowing.” Debt service (interest) payments on that $10.356bn debt are pegged at just over $512m in the current 2021-2022 fiscal year, making it the largest line item in the Budget.

#The Davis administration, and its predecessor, are both predicting that the annual fiscal deficits - which measure by how much the Government’s spending exceeds its revenue income in any given year, and fuel the national debt’s growth - will narrow significantly as the economy re-opens and reflates post-COVID-19.

#Following deficits of $799m and $1.348bn in 2019-2020 and 2020-2021, respectively, and a projected deficit of $859m for the current fiscal year, the amount of ‘red ink’ incurred in 2022-2023 and 2023-2024 is predicted to fall to $351m and $149m. While that will slow the national debt’s growth rate, it will still push beyond the $11bn mark in 2022-2023 fiscal year.

#Mr Halkitis noted that the national debt is forecast to increase by more than $3bn in the three years since mid-2019, reflecting the devastating impact that Hurricane Dorian and COVID-19 have inflicted upon the public finances.

#Nevertheless, with the Government now projecting that 2021-2022’s revenues will beat initial targets by $92.3m, the Public Treasury’s revised total income of $2.337bn for the current fiscal year is forecast to be 96.3 percent of what it earned in the last pre-Dorian and COVID year. Revenues are now projected to be just $90m, or 3.7 percent less, that the 2018-2019 total.

#Mr Halkitis, meanwhile, said the $56m decline in capital spending in the Davis administration’s supplemental Budget compared to its predecessor’s May Budget is “not a permanent fall”. He added of the cut to $318.2m: “You will see a reduction in the capital budget to reflect what we expect to be the amount of funds expended in this fiscal year.

#“Our intent going forward is to have capital spending in the region of 3.5 percent to 4 percent [of GDP] to provide ongoing stimulus to the economy. We intend to average 3.5 percent to 4 percent going forward.”

#This, though, contradicts the supplemental Budget estimates which peg capital spending at 2.7 percent of GDP this fiscal year, and at 2 percent and 2.1 percent, respectively, in 2022-2023 and 2023-2024.

#To bolster The Bahamas’ fiscal reform effort, Mr Halkitis said there was much work ahead to bring the Public Financial Management Act into full effect. He added: “We have brought into force the public financial management legislation, whose stated objective is improving how public funds are allocated, dispersed and how do we manage the effectiveness of public expenditure.

#“Now the legislation has been passed, but that is not the end of the story. Passing the legislation does not guarantee the reform. This is a very long and involved process; we need to upgrade our systems. Manuals have to be written, staff have to be recruited and trained and this requires a massive investment.”

#The minister also said the Ministry of Finance’s Revenue Enhancement Unit (REU) was being “reconstituted” in line with the model left by the last Christie administration. “They have already begun,” Mr Halkitis said.

#“Their remit is to reconstitute the processes and structures that enabled the Government to collect outstanding taxes, to find and close loopholes, to conduct audits and to organise the staff and the department to be efficient and effective in their work. In their previous engagement, we saw a significant improvement not only in one-off collections but by bringing taxpayers on to the tax roll.”

#This, Mr Halkitis added, had broadened the tax base and the Davis administration was looking forward to a repeat. A consultant, who he did not name, has been hired on a “performance-based basis” to assist with the Revenue Enhancement Unit’s (REU) set-up and others will be engaged moving forward.

#As for the Public Procurement Act, which became law on September 1, the minister said: “We are currently looking at ways to improve the Act so it achieves the objectives, yes, of transparency and best practices, but we don’t want to cause undue complications, bureaucracy and delay, that affect the Government, so the process of developing regulations is ongoing.”

#Besides improving the ease of doing business, and ensuring the Government can source the goods and services it needs, the Davis administration wants to achieve taxpayer “value for money” and accountability at the same time via the Act.

#Turning to investment, Mr Halkitis said the National Economic Council (NEC), which is really the Cabinet or a Cabinet sub-committee, is being reformed. “We are changing the way it operates, and are looking forward to having more meetings so we can clear out any backlog that exists in terms of investment approvals,” he added. “We are making that process more nimble.”

#A Cabinet sub-committee will vet all such applications until they are ready to go before the full Cabinet. “We expect that will lead to a more efficient process and more speedy consideration of applications,” Mr Halkitis said.

#Referring to the challenges imposed by COVID-19, he added: “It also brings more urgency to many reforms we all know we needed to do a long time ago, but we kept pushing or kicking the can down the road, and these challenges have made them even more urgent.”
 
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