The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance's top official yesterday said last week's Federal Reserve rate hike had "a very small" impact on interest costs tied to the $2.317bn in foreign currency debt held by external investors.

Simon Wilson, the financial secretary, told Tribune Business that the Government had issued most of its US$ foreign currency bonds with fixed interest coupons to mitigate against the risk of rate volatility on the global markets.

He spoke after the Government's latest quarterly public debt bulletin, issued for the three months to end-June, further exposed the task the Davis administration and Rothschild & Co, its newly-appointed advisors, face in addressing a growing debt burden that has now breached the $12bn mark.

"Debt of the public sector [central government and agencies and government business enterprises (GBEs)] aggregated an estimated $12.131bn at end-June 2022. This represented a quarterly accretion of $287.8m (2.4 percent) since end-March 2022, and an annual gain of $829m (7.3 percent) relative to end-June 2021," the report said.

"Foreign currency debt amounted to $5.603bn or 46.2 percent of the debt stock at end-June 2022, compared to a lesser 45.2 percent at end-March 2022 and 45 percent a year earlier. Bahamian Dollar indebtedness at $6.528bn constituted 53.8 percent of the total, which was below the proportions at end-March 2022 and end-June 2021, of 54.8 percent and 55 percent, respectively.

"Annual growth in debt outstanding was entirely associated with a $857.5m boost in the central Government’s indebtedness, as debt of the agencies and GBEs registered a net repayment of $28.4m." Meanwhile, the US central bank's 75 basis point rate increase drove short-term interest rates to a range between 2.25 percent and 2.5 percent, increasing all countries' US dollar debt servicing costs where rates are variable and tied to the Federal Reserve benchmark.

The Bahamian government's debt report showed that, of the $5.937bn in external foreign currency debt at end-June 2022, some 39.6 percent or $2.137bn carried variable interest rates that could potentially be impacted by the Federal Reserve's action.

"Reflecting the Government’s recent borrowing activities, the share of fixed interest rate external credit facilities was higher [sic lower] at 60.4 percent at end-June 2022 from 62.4 percent at end-June 2021. The comparative firming in the share of variable interest rate debt, to 39.6 percent at end-June 2022 from 37.6 percent at end-June 2021, reflected the variable terms secured on new central government borrowing," the report said.

"At end-June 2022, approximately 60.1 percent of the aggregate public sector indebtedness was contracted at fixed rates, and the remaining 39.9 percent at variable rates, with these relative proportions observed for both the external and domestic debt. This outcome compares with the year-earlier positions for fixed and variable rates obligations of 58.5 percent and 41.5 percent respectively."

Mr Wilson, meanwhile, said the Government had decided to avoid the international foreign currency bond markets entirely this 2022-2023 fiscal year prior to the Federal Reserve starting its rate hikes. "The decision was made before that," he affirmed. "Our bonds are trading, and all emerging market bonds are trading, at very high yields. It's a very difficult environment for any emerging market; that's why."

The Government has to either repay or refinance around $700m in foreign currency bonds held by international investors during the 2023-2024 fiscal year, but Mr Wilson said the Davis administration is "very confident" this can be accomplished as it is spread "over fiscal years" and not one.

However, the demand for short-term paper, and the risk aversion to the Government's long-term debt securities, means the Government has to refinance more than $2bn of domestic debt coming due for repayment in 2022-2023 after it was largely only able to roll this over for one year.

"The debt redemption profile for fiscal year 2022-2023 includes the reissuances of Treasury bills ($883.4m), Treasury notes ($100.5m) and Central Bank advances ($205m). Spikes in fiscal year 2023-2024 and fiscal year 2028-2029 external payments reflect central Government bond maturities, as is the case with positions in fiscal year 2027-2028 and fiscal year 2029-2030 through fiscal year 2031-2032," the public sector debt bulletin said.

"The Government intends to smooth out these spikes through appropriate liability management initiatives. Domestic maturities are also driven by the domestic bond issuances of central Government..... An average 21.44 percent of the portfolio was coming due in one year, given the impact of the short-term nature of Treasury bills and notes which extended the percentage of the domestic debt maturing in one year to a high of 32.64 percent.

"By comparison, external debt due to mature within one year moved higher to 8.45 percent of the total from 4.71 percent a year earlier."