The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Government is preparing to launch a mammoth $200 million Bahamas Government Registered Stock (BGRS) issue next month, financial industry sources have confirmed to Tribune Business, as it bids to cover its projected $550 million GFS deficit for the upcoming 2012-2013 fiscal year.

"They'll be coming to market next month for a couple hundred million, which will be a huge amount for this market," one industry source told Tribune Business, citing officials in government. "Most BGRS deals are for $100 million, but the Government needs to fund its deficit."

Another banking executive added: "I understand there is something coming out. It's expected in July."

Michael Halkitis, minister of state for finance, could not be reached for comment yesterday as he was in Cabinet, but the timing and size of the BGRS issue come as little surprise, and the market has already been primed for it to happen.

The National Insurance Board (NIB), together with banks, insurance companies and other institutional investors, typically buy the lion's share of these BGRS or bond issues, as they are seen as 'safe' investments providing a decent rate of return that do not have to be discounted for solvency/asset ranking calculation purposes.

With commercial banking system liquidity more than $900 million, it seems likely that there will be enough surplus assets looking for a home to scoop this issue up.

"There's been oversubscription on them in the past, but I don't know whether there's $200 million capacity," one source said. They added that retail investors were also likely to be interested, given the low returns on bank deposits currently available.

Tribune Business previously revealed that 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, disclosed 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.

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.

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 earlier unveiled a projected $550 million GFS deficit for the 2012-2013 fiscal year, a sum equivalent to 6.5 per cent of Bahamian GDP.