The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government's newly-announced $100 million borrowing to facilitate the Bank of the Bahamas bail-out will not add to this year's deficit, a top official said yesterday.

Marlon Johnson, the Ministry of Finance's acting financial secretary, told Tribune Business that international accounting standards required the borrowing to be treated as a financial investment and "purchase of an asset".

"It doesn't factor into the deficit because they are investments in assets," he said of the funds. "It doesn't count against the deficit and deficit number."

Mr Johnson was speaking after the Government yesterday tabled a Parliamentary resolution to borrow an extra $100 million beyond the amount approved in last May's Budget, which led many observers to believe it would increase the projected $323 million deficit.

The $100 million, which will be raised from local investors in the Bahamian capital markets, will be invested by the Government in Bahamas Resolve, the special purpose vehicle (SPV) that facilitated the Bank of the Bahamas rescue by accepting two tranches of its 'toxic loans'.

The first 'bail-out', in October 2014, saw the Government inject $100 million in promissory notes (bonds) into the stricken BISX-listed institution's balance sheet to fill the 'hole' created by the removal of those loans.

The Government has now agreed to pay-out those bonds and replace them with cash, having financed some $69 million worth of redemptions to-date from its own resources. The $100 million borrowing will thus replace the monies it has spent to-date through Bahamas Resolve, and finance redemption of the remaining $31 million before the end-June fiscal close. "In the first half of this fiscal year, some $69 million was expended from current Government resources as part of the $100 million that the Government is to invest in Resolve," K P Turnquest, the Deputy Prime Minister, said in the mid-year Budget address yesterday.

"As I foreshadowed in my statement to Parliament on Resolve in September of last year, and as was disclosed at the time of our recent international bond issuance, the Government committed to facilitate Resolve retiring the original $100 million promissory note issued to the Bank of the Bahamas in respect of the initial tranche of toxic loan transfers, in accordance with an agreed schedule.

"After exploring funding options, the Government is of the view that it would be best to access the domestic market, given the ample levels of excess liquidity. In line with this commitment, new corresponding borrowing authority will be sought from Parliament today to cover this sum."

Another $167 million worth of promissory notes was injected into Bank of the Bahamas as a result of the second 'bail out' deal last summer, which resulted in more 'toxic loans' being transferred to Bahamas Resolve.

The two 'bail outs' mean that the liabilities associated with the 'toxic loans' have been switched from Bank of the Bahamas and its shareholders to the Bahamian taxpayer through Bahamas Resolve.

With the time and difficulties involved in realising the collateral for these loans, many have questioned Bahamas Resolve's ability to pay the interest due to Bank of the Bahamas on the promissory notes through collection activities. There are fears that the taxpayer, too, may be saddled with the interest payment burden.