The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Government is borrowing an astonishing $669.205 million to cover its financing needs for the 2012-2013 fiscal year, with debt servicing (interest) costs now the single largest line item in the Budget.

Further details on the Christie administration's public finance plans for the upcoming fiscal year, which begins on July 1, reveal that the Treasury will have to borrow $512.205 million to cover the huge financial in the Government's accounts - a 132 per cent or $291.569 million increase on the previous year.

While not surprising, given the projected $550 million GFS fiscal deficit for the 2012-2013 fiscal year, the only year when the Government's borrowing comes close to this amount is the 2009-2010 fiscal year - the height of the recession - when the Ingraham administration borrowed $524.724 million.

All this means that the Government will likely tap commercial banks and the Bahamian bond market heavily over the coming year, via bank loans, Treasury Bills and Bahamas Government Registered Stock (BGRS) issues. It is unclear at present whether they will go to the international capital markets with a bond issue, although this seems unlikely as the Bahamas will probably have to pay a higher interest rate than previously.

The balance of the more than $669 million in borrowing is accounted for by $157 million in loans coming from organisations such as the Inter-American Development Bank (IDB) for projects already in the pipeline. The largest share of this sum some $77 million, is related to the New Providence Road Improvement Project.

The debt pile up is already acting as a drag on the Budget, limiting what the Government can allocate to other areas of the public sector. Some $206.833 million is scheduled to be spent on debt servicing, or interest payment, costs in the 2012-2013 fiscal year, making this the largest Budget line item, ahead of the $201.77 million allocated to Education and the $199.093 million going to the Public Hospitals Authority (PHA).

And, with some $120.726 million going to the redemption of principal on the Government's debt, the Christie administration is being forced to spend more than $327 million - some 18 per cent of the Budget's recurrent spending - dealing with the Bahamas' IOUs.

This, of course, means that a sum approaching close to $1 out of every $5 spent by the Government is going towards debt servicing and redemption.

Tribune Business reported last week that the Bahamas' national debt will breach the $5 billion mark before the end of the upcoming 2012-2013 fiscal year, with the debt-to-gross domestic product (GDP) ratio also surpassing the 60 per cent threshold.

Prime Minister Perry Christie last week unveiled a projected $550 million GFS deficit for the 2012-2013 fiscal year, a sum equivalent to 6.5 per cent of Bahamian GDP.

Together with the projected $504 million deficit for the 2011-2012 fiscal year, which is set to close on June 30, this means the Government will have to borrow more than $1 billion in just two years to cover both its recurrent and capital deficits.

And the $1.054 billion financing gap does not include debt principal redemption, which is set to total $66 million and $121 million, respectively, for the fiscal years 2011-2012 and 2012-2013. Together, that adds a further $187 million to the fiscal deficits, taking the gap between revenues and spending over the two years to $1.241 billion.

The Government's own projections show its direct debt standing at 50.6 per cent of GDP, or $4.057 billion, as at end-June 2012, then increasing to $4.607 billion, or 54.5 per cent of GDP, by the close of the 2012-2013 fiscal year.

Yet this masks the extent of the overall problem, because it does not factor in the $551 million worth of debt the Government has guaranteed on behalf of state-owned Corporations and agencies.

That sum was equivalent to 7 per cent of GDP at year-end 2011. Placed on top of the Government's direct charge, that takes the Bahamas' total national debt to $4.608 billion, or 57.6 per cent of GDP, at June 30, 2012.

And, when added to the projected $4.607 billion direct charge on government at the end of the 2012-2013 fiscal year, the Bahamas' total national debt will hit $5.158 billion - a sum equivalent to 61.5 per cent of national GDP.

And, if the Government's medium-term Budget projections are correct, GFS deficits of $357 million and $272 million in 2013-2014 and 2014-2015, respectively, will take the direct charge to $5.215 billion at the end of the latter period.

Assuming the $551 million in government guaranteed debt remains relatively unchanged, the total Bahamas' national debt will hit $5.766 billion by June 30, 2015, a sum equivalent to 63.3 per cent of GDP.