The Tribune

* Top Finance official 'foresees no challenges'

* Over 40% of Govt principal matures in 5 years

* Bahamians told: High unemployment prolonged

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance's top official yesterday said he "foresees no challenge" over the Government meeting almost $1.5bn in debt principal repayments coming due within the next 12 months.

Marlon Johnson, the acting financial secretary, told Tribune Business there would "be no issues" when it came to The Bahamas meeting its sovereign obligations even though almost 18 percent of the Government's outstanding debt principal is to be redeemed over the next year.

The details were laid out in the 2020 Fiscal Strategy Report, tabled in the House of Assembly, which revealed that a substantial chunk of the Government's borrowings - $3.318bn or some 40.5 percent of the total $8.191bn - is due for repayment over the next five years.

The report revealed that much principal repayment is front-loaded at a time when the Government's revenues are down by as much as 50 percent due to COVID-19's devastating impact on tourism and the Bahamian economy, thus severely impacting its cash flow.

A graph showing "forecasted redemptions" of the Government's medium and long-term debt revealed that principal worth $880.6m, $682m, $405.9m, and $774.5m is due for repayment in 2021, 2022, 2023 and 2024 respectively.

This collectively totals $2.743bn, and the Fiscal Strategy Report makes clear these figures do not include $736.8m worth of short-term Treasury Bills, which typically carry between 91 and 182-day maturities, as well as $208.2m in "notes" that mature in 30, 90 and 180-terms.

But despite the seemingly grim near-term debt repayment horizon, Mr Johnson yesterday voiced confidence that the Government will still meet all its obligations despite the dramatic COVID-19 and Dorian-induced cuts to its income.

He argued that The Bahamas' status as "a good payer", never having missed a repayment in its history, would stand it in good stead with creditors and investors should it need to refinance or extend existing debt issues.

Mr Johnson said the Ministry of Finance's planned Debt Management Unit, which is aims to have operational by year-end 2021, will be tasked with optimising the Government's debt structure to prevent the build-up of large principal repayments in any one year and "term" these out over a longer period of time.

"We don't foresee any challenges with that at all," he told Tribune Business of the near-$1.5bn coming due over the next 12 months. "We had substantial redemptions this year on top of our borrowing.

"Refinancing existing debt is relatively straightforward if the country is a good payer. For right now we don't foresee any issues at all. As has been signalled several times, the Ministry is working on activating and developing a debt management unit that will look at these things - options for reorganising and repaying debt, and terming it out.

"The Ministry will be much more actively engaged in liability management so we term out debt in a way that is suitable. That is going to be part of the remit of the Debt Management Unit. That will be set up over the next year, and by the time we get to the end of next year we will have the unit set up and running."

One factor working in the Government's near-term favour is that $1.384bn, or 92 percent, of the almost-$1.5bn coming due within the next 12 months represents Treasury bills and bonds held by Bahamas-domiciled domestic investors such as banks, pension funds, insurance companies and high net worth individuals.

"The share of debt maturing in one year is 17.9 percent - of which 92 percent is attributable to the dominance of domestic Treasuries and bonds," the Fiscal Strategy Report said. "To limit the refinance risk inherent in Treasuries, the Government has embarked on a strategic annual exercise to convert, over time, a segment of these into bonds.

"The share of the debt maturing in the one to five years band was 22.6 percent, with the largest share of 59.5 percent in the over five years maturity bucket. The distribution of forecasted redemptions between 2021 and 2040 indicated the dominance of the local bonds in the portfolio mix."

Noting that this was to the Government's advantage, the report added: "These are held mostly by commercial banks, the public corporations, and institutional investors, who tend to refinance issues given the lack of alternative investment instruments in the domestic space.

"The projected spike in external loans in 2022 is explained by the maturity of the previous [$246m] BEC loan assumed by the Government, with external bond redemptions commencing in 2024 through 2033."

The Fiscal Strategy Report, which gives a clear insight into the scale of the fiscal and economic crisis caused by the combination of Hurricane Dorian and COVID-19, and the extent of the adjustments that The Bahamas must now make, said some $61m of $80m in Treasury Bills "budgeted for conversion" into longer-term debt underwent this process in the 2018-2019 fiscal year.

The document indicates that the Government is relying heavily, as it often does, on economic growth to lift The Bahamas out of a post-COVID depression as well as keep its debt ratios and other fiscal indicators in check.

Using International Monetary Fund (IMF) data, the Fiscal Strategy Report projects that following this year's 16.2 percent contraction in real gross domestic product (GDP) and a modest 2 percent pick-up in 2021, economic activity will rebound by 8.5 percent in 2022 in anticipation of a worldwide COVID-19 vaccine roll-out that ends the pandemic.

This is to be followed by projected real GDP growth of 4 percent in 2023, and 3.7 percent in 2024. Defending these forecasts against assertions that they were too optimistic and aggressive, Mr Johnson argued: "The growth numbers are taking us back to pre-pandemic. It's not from March; it's from a baseline of the economy being down 16.2 percent.

"Unless we have some other catastrophic event, the pace of recovery will pick up slowly but once we get a full vaccine rolled out it won't be completely catching up, but we will eventually. It [the GDP projections] get us back to pre-COVID.

"We took a very conservative stance that allows the economy to get back to pre-pandemic levels over the next three years. It's a steep climb, but a climb that will get us back to normality."

However, again drawing on IMF figures, the Fiscal Strategy Report delivered a stark warning that high unemployment levels will persist through 2023 with almost one in six Bahamians looking for work unable to find it.

"The restoration in employment conditions is expected to lag the pace anticipated for economic growth. The IMF’s latest projections show the unemployment rate remaining elevated in the near-term, gradually levelling-off from its COVID-19 peak estimate of 25.4 percent for 2020, to 16.1 percent by 2023, but not attaining the pre-crisis rate within the medium-term forecast period," the report said.

"This trajectory is partially explained by the phased reopening of the large hotel properties, the likely longer recovery horizon for smaller businesses from the financial fragility caused by the COVID-19 shock, and the delay in the return of cruise ship activity until the first half of 2021, which will limit the rebound in the employment numbers over the near term."

Many Bahamians will likely argue that the 25.4 percent unemployment rate cited by the IMF in its latest Article IV visit could be about half the true level of joblessness.

The Ministry of Finance subsequently pointed to data showing the unemployment rate progressively reducing from 24 percent next year to 12.5 percent in 2025, but the latter is still in excess of the 10.7 percent rate cited by the Department of Statistics in late 2019.