The Tribune

• PM warns: ‘The day of reckoning is here’

• ‘Never repaid debt since Independence’

• Gov’t urged to ‘be bold, work feverishly’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is due to repay $3.65bn in debt principal by the time the next general election is due in 2026, Moody’s has revealed, leading to calls yesterday for “feverish” government action.

The credit rating agency, in its just-published full country analysis on The Bahamas, revealed that this nation is scheduled to make significant principal repayments beyond the $900m that is coming due this year.

Close to another $700m is set to mature in 2022, followed by $400m the following year. Basing its graph and figures on data supplied by the Central Bank, Moody’s added that a further $750m - including a $300m foreign currency bond - is due for redemption in 2024.

This will be followed by principal maturities of $400m and $500m, respectively, in 2025 and 2026, the latter year being when the Davis administration’s term in office will likely end. The total $3.65bn coming due for maturity in that time period thus represents 35.2 percent of the total debt stock.

Branville McCartney, the ex-Democratic National Alliance (DNA) leader, told Tribune Business that the data published by Moody’s merely “adds to the concerns” surrounding the economic and fiscal crisis.

“I will tell you: Let’s watch the grey on Brave Davis’ head because that’s not a good position to be in for any leader,” Mr McCartney said. “I think it’s incumbent on this administration to work feverishly and start immediately, whether they’re successful or not, to try and diversify this economy.

“It’s going to take time but we need to start. They’re going to have to be bold in their approach in doing things to generate income for the country.” The figures pulled together by Moody’s show the extent of the task facing the Government to turn the public finances around, as John Rolle, the Central Bank governor, yesterday became the latest senior official to refute fears of a debt default.

Mr Davis, though, indicated he is fully aware of the challenge confronting his government during yesterday’s formal opening of Parliament. Asserting that the general election results showed Bahamians wanted new solutions to their problems, he said: “And there’s no time to waste. The day of reckoning is here. Problems that were postponed too long must now be confronted.

“Many of the choices which lie ahead will not be easy ones. But if we have the best interests and the dignity of the Bahamian people as our north star, we will rise to the moment.”

He added: “Even as we move to stabilize the nation’s finances, we need to invest in new health care capacity, and to get our children back into classrooms that are safe for everyone.

“We need to build an economy that is dynamic and exciting enough to answer the doubts of any young Bahamians who wonder if their futures can be built here. We have a moral imperative to transform opportunities in education and employment and ownership. We have to build for the future even as we confront the present.”

That present, as illustrated by a World Bank report released yesterday, shows The Bahamas as having the lowest COVID-19 bounce back growth of all countries in the Latin American and Caribbean region at 2 percent for 2021. Only Haiti, Suriname and St Vincent and the Grenadines were shown as having lower growth due to combination of political woes and natural disasters.

The report, entitled Recovering Growth, with a focus on post-COVID rebuilding amid ongoing fiscal constraints, also showed that The Bahamas’ 100.4 percent debt-to-GDP ratio is the sixth highest in the region behind Barbados, Suriname, Belize, Dominica, Jamaica and St Vincent and the Grenadines.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that The Bahamas has “not actually repaid any debt since Independence” but, instead, merely rolled over or refinanced existing borrowings with new fundraisings to replace older ones as they come due for repayment.

That is highlighted by the former Minnis administration’s $1.851bn gross borrowing plan for the 2021-2022 fiscal year, of which some $951.8m will cover the projected fiscal deficit and represent ‘new’ debt taken on. The remaining $899.7m will be used to refinance and pay off debt principal as it matures.

Asserting that the data released by Moody’s was “not surprising”, Mr Bowe added that it was more critical than ever that the Government develop - and publish - a debt management strategy to give lenders, bondholders and creditors confidence that the principal sum they have advanced is secured and will be repaid.

He called for The Bahamas to adopt a mixture of refinancings and actual return of principal to investors, moving beyond just interest payments to give “actual cash back”. The former Minnis administration moved to achieve the latter by creating so-called “sinking funds”, which at end-June 2021 held a collective $209.4 million to finance three external bond repayments.

“The debt management strategy, when I say it’s not to be a theoretical document, it has to have the maturity profiles where we’re able to match cash flows against projected cash outflows,” Mr Bowe added. “It’s more to say we know when debt repayments are coming due, and we’ve set aside cash flow to repay it when they come due or refinance.

“Since Independence we have not actually repaid any debt. In practice, since Independence, we have been borrowing to repay borrowing. The better question, though, is whether we have reached the position of culmination in how much we can borrow to refinance legacy payments as opposed to demonstrating the capacity and ability to repay.”

Arguing that The Bahamas still has access to traditional financing sources on the international capital market, Mr Bowe said of the country’s lenders: “We have to meet them half-way. All investors want to make sure their investment is secure, and we have to give them confidence that their trust is well-placed.

“It has to be a mixture of both. Every lender and investor likes to receive some cash back. That’s why you see dividends. Redeeming one instrument is beneficial for confidence..... We have to become aggressive in demonstrating we have the capacity to pay and build confidence we are continuing to grow and build confidence we are investing the borrowings for future returns.

“That’s most important now; that it’s being spent not on items of current utility but items that will benefit us in the future; making investments in accordance with a long-term plan.”

Moody’s revealed, meanwhile, that a further $1.7bn in debt repayments are due between 2027 and 2030, taking the total over the next decade to $5.4bn - more than half of the $10.356bn debt owing at end-June 2021.

Mr Davis, though, has said the Government will seek to restructure and renegotiate its sovereign debt via negotiations with the holders if the need arises. This will likely involve stretching out maturities across more years, and lowering attached interest coupons, so that the debt servicing and repayment burden is lessened for struggling taxpayers.

And Moody’s itself was relatively sanguine about the issue given what it termed as The Bahamas’ “favourable debt maturity profile” and consistent access to international capital markets, although it noted the upward interest rate pressures.

“The Bahamas’ liquidity risk is also informed by its high borrowing requirements and a recent increase in reliance on external bonded debt, which carries higher borrowing costs and increased rollover risk,” Moody’s said.

“As of March 2021, around 76 percent of total government debt was composed of long-term market debt or multilateral lending. External long-term market debt has an average maturity of nine years, while domestic bonds mature on average in 11 years.”