The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas’ debt-to-GDP ratio had breached the so-called 70 per cent ‘danger threshold’ at year-end 2014, the Central Bank has revealed.

The regulator, in its 2014 annual report, reveals that the $6.248 billion national debt was equivalent to 73.4 per cent of Bahamian gross domestic product (GDP) at December 31.

This puts the Bahamas’ national debt above the 70 per cent benchmark, which the International Monetary Fund (IMF) has previously described as the threshold where countries are in increasing danger of losing control of their financial affairs and sovereignty.

It is also a point where increasing amounts of government revenue are sucked away from public services to pay debt servicing costs, potentially trapping countries into a debt spiral.

The Bahamas has now entered this dangerous territory, but the Central Bank predicts it will not be here for long.

Its 2014 annual report, drawing on Treasury accounts and other sources, projects that this nation’s debt-to-GDP ratio has now peaked. It is forecasting that both the debt and ratio will fall during 2015, hitting $6.056 billion and 68.1 per cent by year-end respectively.

Still, warning that the Bahamas is at the precipice, the Central Bank said: “At end-December, the national debt stood at an estimated 73.4 per cent of GDP, a gain of 7.2 percentage points over 2013.

“Budgetary financing for calendar year 2014 included domestic debt issues of various maturities, aggregating to $636 million, and a US$300 million bond.

“As a consequence of these developments, the national debt - inclusive of contingent liabilities - rose by 7.2 percentage points to approximately 73.4 per cent of GDP at end-December 2014.”

The Government’s own statistics frequently show the debt-to-GDP ratio as much lower, largely because they only refer to the ‘direct charge’ owed by it. This stood at $5.599 billion or 65.8 per cent of GDP at year-end 2014, but does not include the ‘contingent liabilities’ representing the borrowings it has guaranteed on behalf of government corporations and agencies.

The Central Bank said the ‘direct charge’ on government increased by $616.2 million or 12.4 per cent in 2014, compared to a $583.6 million or 13.3 per cent rise the year before.

This data means that the national debt has increased by almost $1.2 billion during the past two years of the Christie administration, with the ‘direct debt’ owed by the Government growing by a further 6.7 percentage points in 2014.

The ‘contingent liabilities’, meanwhile, grew by $53 million or 7.8 per cent to hit $648.3 million by year-end 2014.

Bahamian dollar-denominated debt, accounting for 71.6 per cent of the ‘direct charge’, rose by $339 million or 9.2 per cent to breach the $4 billion barrier. Foreign currency debt was up by $277.2 million or 21.1 per cent at $1.59 billion.

The Central Bank is projecting that the Government’s total foreign currency debt will fall slightly in 2015, dropping from $2.421 billion or 28.5 per cent of GDP to $2.352 billion or 26.4 per cent.

Its annual report also confirmed that last January’s US$300 million bond issue was a “contingency arrangement” designed to boost the Bahamas’ foreign currency reserves.

This again suggests that tourism and foreign direct investment (FDI) were not generating the earnings necessary to replenish, and grow, the external reserves in 2013 and early 2014.

And the Central Bank also indicated that the impact of the US$300 bond issue on its key external reserve indicators was only temporary.

While the bond immediately lifted the ratio of external reserves to base money to 97.1 per cent, in the middle of its target 90-100 per cent benchmark range, this dropped during the 2014 second half as foreign currency demand enjoyed its seasonal increase.

The ratio fell to 86.3 per cent in August, and closed the year at 80.1 per cent - both times well outside the Central Bank’s target range.

As for import coverage adequacy, the external reserves increased from giving 14.7 weeks’ cover in early 2014 to 15.2 weeks during the three months to end-April, before falling to 11.6 weeks at year-end.

“At end-2014, external reserves stood at $787.7 million, some $46.1 million above the 2013 level, as significant net inflows from tourism in the closing month of the year offset the typical robust foreign demand,” the Central Bank said.

“This negated the need for recourse to contingency arrangements, in contrast to the prior year’s debt-financed support.”