The Tribune

• Proceeds 'not used' to repay maturing $300m bond

• But Governor details 'major US dollar debt rollover'

• Top official: Bond paid before loan monies gained

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance's top official last night denied that a recent $500m loan was used to pay-off a maturing government bond as the Opposition raised renewed concerns over the financing.

Simon Wilson, the financial secretary, told Tribune Business he "can say without fear of contradiction" that proceeds from a facility partially-guaranteed by the Inter-American Development Bank (IDB) were not employed to refinance a $300m US dollar bond due to mature just days later on January 16.

This confidence, he explained, came from the fact that the $300m bond's investors were repaid prior to the Government receiving the monies from the half-a-billion dollar loan, which meant the latter could not have been employed for refinancing this existing debt.

Mr Wilson spoke out after the Opposition seized on comments by John Rolle, the Central Bank's governor, who yesterday seemingly contradicted the position taken by both Mr Wilson and the Ministry of Finance by telling the regulator's latest quarterly economic briefing that the Government had undertaken "refinancing operations" early in the New Year to "rollover significant US dollar debt".

Referring to a slight improvement in the country's foreign currency reserves during the first weeks of 2024, Mr Rolle said: "Through the end of 2024, the most recent period, the external reserve balances showed a modest rebound from the end of 2023 to close at about $2.75bn.

"This was mainly due to the timing in the Government's recent US dollar refinancing operations since December, which paid off some overdraft balances with local lenders and which helped to rollover significant US dollar debt."

Mr Rolle did not identify the nature of the "US dollar refinancing" he was referring to but the only such "operation" that has been made public was the $500m, ten-year loan that is partially backed by the IDB's policy-based loan guarantee. Thus the Opposition immediately challenged whether the Governor has contradicted the Ministry of Finance over how the loan proceeds have been used.

Kwasi Thompson, the Opposition's finance spokesman, in a statement said: "The Opposition notes the assessment today by the governor of the Central Bank regarding the Bahamian economic, monetary and fiscal performance for 2023, and his comments regarding government debt financing for the month of January 2024.

"The Governor indicated that the foreign reserves for the month of January have been buoyed through what he described as the Government's US dollar financing operations (borrowings), which were used to pay off bank overdrafts and to help 'rollover significant US dollar debt'.

"As far as the Opposition is aware, and the Government has publicly disclosed, the only major foreign currency financing done by the Government in January was the $500m IDB-supported loan. However, we recall that the financial secretary emphasised in a Tribune Business story of January 18 that the funds 'could not be used' for refinancing or to roll over debt," Mr Thompson added.

"Was there any other major external financing obtained by the Government this month? If not, how were the funds used to roll over debt when it was stated that these funds could not be used this way?

"The Opposition has previously called on the Government, and the leader of the Opposition, Michael Pintard, has written to the Prime Minister to request the terms and conditions of this $500m loan including the interest rates, the limitations on the use of funds and the policy conditions that the Government agreed to in order to obtain the IDB support."

Mr Wilson, though, last night stuck to his and the Ministry of Finance's position that it was impossible for the $500m loan proceeds to be used to repay the $300m bond as the latter had already matured prior to receiving the monies from the new ten-year facility.

"Let me put it this way. The proceeds were not used to refinance debt," Mr Wilson told Tribune Business. "We paid the debt [the $300m bond] prior to receiving the loan proceeds. That was paid out prior to receiving the proceeds of the loan. I can say that without any fear of contradiction. It wasn't used to repay that debt."

Asked how the Government repaid bond investors, the financial secretary added: "We had funds available. We had set aside funds to retire the bond, partly from our sinking funds and we had other lines of credit we could pull down."

The Ministry of Finance issued its release on the $500m loan, up to 40 percent of which is "initially" covered by the IDB's policy-based guarantee for both principal and interest payments, on Friday, January 12. The Government's $300m US dollar bond was due to mature just four days later, and the timing has likely raised suspicions that one is to refinance the other.

Mr Pintard, the Opposition's leader, also yesterday returned to the attack by demanding that the Government provide full disclosure on the $500m loan's terms and costs, including the attached interest rates, as well as the policy actions that The Bahamas has agreed to implement in return for the IDB guarantee.

"We understand that this facility is a ten-year loan that is underwritten by one or more private banks supported by a partial guarantee from the IDB through a policy-based guarantee," Mr Pintard wrote in a January 29, 2024, letter to Prime Minister Philip Davis that he shared with the media.

"In your press release, and in subsequent follow up queries by the press, you and your ministry failed to provide the full terms of the loan. We do not know the interest rates and costs. We also do not know what policy measures the Government was required to fulfill or commit to as a condition of IDB support.

"We remind you that you are committing the Bahamian people to pay the interest and principal on a half a billion dollars worth of loans. The Bahamian people must know the terms." And Mr Pintard also called for the Government to provide clear details on how the $500m loan proceeds will be used.

"We also require full disclosure on the use of these proceeds. The financial secretary has insisted in the press that none of these funds can be and will be used for debt financing or debt rollover," the Free National Movement (FNM) leader said. "Yet the press release from the Ministry of Finance pointed to the facility being used to extend loan maturities and improve financing costs.

"The release also mentioned that these proceeds represented over half of the external financing requirements. A review of your administration’s annual borrowing plan shows that more than 85 percent of all external financing for the fiscal year is solely to roll over existing debts. These statements and obligations suggest that these IDB-supported loan funds were intended to be used in rolling over existing debts.

"Thus, given the apparent contradictory positions offered by the Ministry of Finance, we do require that the ministry provide clarification on the full use of the loan proceeds as well as how the ministry intends to obtain funding to roll over the $800m-plus in external debt that comes due this fiscal year beginning this month."

The Ministry of Finance's reference to "extending loan maturities and improving financing costs" could mean the impact of the $500m loan, rather than a refinancing of existing debt. The same release, issued on January 12, also pledged that the proceeds would be used "to fund eligible budgetary expenses, such as infrastructure, education and social welfare projects".

This suggests the monies represent net new debt, and both Mr Wilson and the Ministry of Finance have stuck to this position subsequently. This, too, is consistent with typical IDB loan covenant requirements in that policy-based guarantees are not used to support refinancings or debt rollovers.

"This is a policy-based loan," one source, speaking on condition of anonymity, said of the IDB-backed financing. What are the policy commitments that the Government has pledged to to gain access to the funding? We have to meet the policy commitments. Did we, for example, have to pass the Ombudsman Bill? That's an open question. We still don't know the terms."