The Tribune

• Refinance ‘not raised’ as issue despite ‘bunching’

• ‘Concerned, but not overly’, over Ukraine fall-out

• Revenue ‘slightly’ up on $162m over-Budget mark

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official last night said he foresees “no issues whatsoever” over the Government’s ability to refinance $2bn in domestic debt coming due for repayment by June 2022.

Simon Wilson, the Government’s financial secretary, told Tribune Business he was “highly confident, highly confident” that most if not all investors will agree to roll over their existing holdings despite conceding that there is a “bunching” of different debt issues reaching maturity.

The fact some $2bn is coming due for repayment within a six-month period had “not been raised as a problem”, he added, by either the Ministry of Finance’s debt management office or the Central Bank which were in contact with the institutional and high net worth investors holding it.

“We don’t see a problem. This is normal Treasury operations,” Mr Wilson told this newspaper in response to concerns about the huge amount of principal maturing all at once. “It’s not external (foreign currency) debt. It’s a bunching, but it’s normal Treasury operations.

“It has not been raised with me as a problem. The people in the debt management office at the Ministry of Finance and the Central Bank haven’t raised it as a problem. They don’t see it as a problem, and they’re the ones speaking to the holders of the debt.”

Some $1.907bn in Bahamian dollar-denominated government debt is maturing during 2022’s first half, according to the latest public debt statistical bulletin released by the Ministry of Finance. That means almost 26 percent of the Government’s $10.318m direct debt is due to mature in 2022, split into some $1.905bn in domestic principal and a further $179.7m that is held by foreign investors.

In total, some $2.085bn in debt principal is due for repayment between January and June 2022. Mr Wilson’s optimism, though, was backed by Gowon Bowe, Fidelity Bank (Bahamas) chief executive, who told this newspaper on Tuesday that there were several trends in its favour when it came to lenders agreeing to refinance, or roll over, their government debt holdings.

Besides the lack of suitable alternative investments that provide similar levels of liquidity, and count towards regulatory capital for banks, insurers and other institutions, Mr Bowe also argued that government debt is generating higher returns than the meagre interest paid on bank deposits. These factors, he said, were in favour of investors renewing/extending their existing holdings.

“I will say because of the pandemic and the collapse in revenues, it probably caused the Government to borrow a littler more than planned at different times,” Mr Wilson replied, when asked to explain how the “bunching” of $2bn in debt maturities had occurred.

“We don’t have a challenge with this. It’s mostly domestic debt, so I don’t think it’s going to prove a major problem,” he reiterated, adding that the greater transparency and accountability provided by the Government’s annual borrowing and debt management strategy would help prevent this happening again.

“We look at the maturities to make sure there’s a very smooth maturity profile,” the Financial Secretary said of the Government’s various debt issues. However, not all institutional investors and holder of government debt securities were yesterday as confident as Mr Wilson and Mr Bowe when it came to the roll over prospects.

Several sources, speaking to Tribune Business on condition of anonymity, said the perceived extra risk associated with government debt in the wake of multiple sovereign credit rating downgrades and the economy’s struggles to revive post-COVID meant that many investors were seeking to reduce their exposure to both bonds and Treasury Bills.

They also pointed out that many institutions, especially the commercial banks, were at or near their regulatory and prudential limits in terms of how much government debt they can hold. And several institutions, including Fidelity Bank (Bahamas) and Bank of The Bahamas, have already been forced by the downgrades to take impairment hits against their existing holdings.

As a result, they argued there were several factors mitigating against a smooth collective roll over of the $2bn. “I was horrified to see the issue you wrote about, where 26 percent of direct government debt is coming due,” one contact said. “The can has hit the wall, and it’s going to be interesting to see what they are going to do.

“Everybody is at their limit, that’s what they don’t understand. They think the pension funds and investors have no limits, and that is not the case. You’re going to start having to take impairment charges on your balance sheet. I can tell you there will be institutions that want no more government debt. I don’t know what is going to happen, but it is a concern.”

Tribune Business reported in January that just $11.986m, or 25 percent, of a recent $47.326m Bahamas Government Registered bond issue was picked up by private investors although a subsequent one-year placement was oversubscribed. Michael Halkitis, minister of economic affairs, conceded that the market was seeking one-year, short-term paper because of the perceived risk associated with government debt.

Mr Wilson, though, last night said neither the desire for short-term debt, nor the limits on how much government paper banks and others can hold, was likely to impact the $2bn refinancing. “The market is evolving, which is good,” he said in response to the first point. “It’s going to help us develop a proper yield curve.

“You have to know the market, and you cannot as a government.... you have to be conscious you cannot interfere with the market dynamics.” As to the concerns on investor limitations, Mr Wilson described these as “dynamic, not static”. He added that the Davis administration’s borrowings are forecast to decrease significantly as the economy continues to emerge from COVID-19.

“We’re not out of the pandemic. We’re very mindful of that,” Mr Wilson said, while revealing that government revenues have “increased slightly” more beyond the $162m mark at which they were ahead of Budget projections for the 2021-2022 half-year.

As for the fall-out for the Bahamian economy, and the Government’s finances, from Russia’s invasion of Ukraine, the Financial Secretary added: “We are concerned but not overly concerned. We take our cues from what we’ve seen on terms of the forecasted impact on the US economy.... What will be the impact on our main trading partner, the US?

“As it stands now, most forecasts don’t have this conflict having a dramatic impact on the US recovery. All things being equal, if the US economy stays normal it bodes well for the Bahamian economy.

“Revenues are performing very well, but there’s a lot of work to be done. We are going into high revenue season, and are really trying to focus on doing things to make it easier for taxpayers to meet their obligations.”