The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian commercial banks have “significant capacity” to take on more government debt, the Ministry of Finance’s top official has asserted, after the national debt for the three months to end-September fell by $29m.

Simon Wilson, the financial secretary, told Tribune Business the modest decline is nothing to get excited about yet as the total government debt closed the 2022-2023 fiscal year’s first quarter at $12.1bn. However, he voiced hope that it represents “the start of a trend” in what will be a long haul, spanning multiple administrations, to rebuild The Bahamas’ fiscal headroom and cut the debt burden to more sustainable levels.

Speaking after the Government’s debt management office published its first quarter report, covering the three months to end-September 2022, he added that the Government remains confident that it will be able to secure the majority of the financing needed to cover this fiscal year’s projected $564m in Bahamian dollars from the local capital markets.

Pointing to “a number of over-subscriptions” in recent Bahamas Registered Stock (BRS) or bond issues, Mr Wilson told this newspaper that contrary to suggestions Bahamian commercial banks - major buyers of government debt - are at or near their regulatory and prudential limits on how much they can hold, they have the ability to make more substantial investments.

“When you look at the percentage of bank assets, commercial bank assets, which are held in government liabilities, in government debt, it’s around 14 percent, which is very, very low,” he said. “So if we compare it to other countries in the region, they are in the 30 percent range and higher. There’s significant capacity in the local banking system based on the numbers to absorb more. I think we’re seeing that now with the over-subscriptions as well.”

Not all recent BRS issues have been over-subscribed. The latest one, which closed on October 13, 2022, raised $35.682m or 89 percent of its $40m target, according to the Central Bank’s website, with investor appetite heavily weighted to the shortest-term three year securities. These attracted more than $20m, or over half the subscriptions, due to concerns that the Government’s securities have become a much riskier prospect post-COVID.

However, the Government’s September bond issue was far more successful in attracting $50m - an outcome two-thirds higher than the $30m raise targeted. The Government needs to refinance, or rollover, nearly $2bn in domestic debt denominated in Bahamian dollars this fiscal year, and its decision to avoid the unfavourable international bond markets and high interest rate environment makes it especially reliant on the local capital markets to achieve its fiscal strategy.

“The debt redemption profile for fiscal year 2022-2023 includes the reissuances of Treasury bills ($863.4m), Treasury notes ($101.1m) and Central Bank advances ($205m),” the Government’s debt report said. Mr Wilson said the Davis administration’s debt management strategy, and reliance on the local market and its more than $2.3bn in surplus commercial banking sector liquidity, was making “good progress”.

He added: “We are planning based on the premise we will not go back into the [international capital] markets for at least this fiscal period.” The debt report shows close to $400m in external government debt, likely denominated in foreign currency, is due to be repaid this year but Mr Wilson said this was not causing any undue concern despite the aversion to the global bond market.

Noting that some $180m of external debt is coming due in January 2023, he added that the Government “has a plan to refinance that already at much lower costs”. Meanwhile, the Government’s debt report, with one eye to the future, said: “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 Government intends to smooth out these spikes through appropriate liability management initiatives. Domestic maturities are also dominated by the domestic bond issuances of central Government.” Close to $800m of external, foreign currency debt is coming due for repayment in 2024 and another $600m in 2029.

The spike in foreign currency debt repayments during this period was cited as a factor behind Moody’s recent downgrading of The Bahamas’ sovereign creditworthiness. However, Mr Wilson argued there is no cause for alarm. “We’re putting together a liability management strategy which will help us smooth out these spikes,” he added. 

“As they come to maturity, we have to plan two to three years ahead what we want to do, and that’s what we’re doing now. We’re not concerned. The situation is in hand. That is 2027. We have four years before that, and have some strategies we will execute prior to that.”

As for the forthcoming maturities of Bahamian government debt, the Government’s report said: “The average time to maturity (ATM) tapered to 6.92 years at end-September 2022 from 7.26 years in the comparable period of 2021. The average 23.6 percent of the portfolio scheduled to become due in one year is heavily weighted by the short-term Treasury bills and notes, which placed the internal component maturing in one year at a slightly reduced but dominant 34.8 percent.

“Conversely, external debt due to mature within one year, at 10.6 percent of the total, constituted a more than two-fold increase from last years’ 4.82 percent, and reflecting scheduled bond and loan redemptions.” 

As for the Government’s total debt, the report added: “Outstanding debt of the public sector [central government and agencies and government business enterprises (GBEs)] stood at an estimated $12.102bn at end-September 2022. This equated to a quarterly decline of $28.8m (0.2 percent) since end-June 2022, and a year-on-year increase of $673.6m (5.9 percent) over end-September 2021.

“Foreign currency indebtedness at $5.569bn constituted 46 percent of the debt stock at end-September 2022, slightly below the 46.2 percent share at end-June 2022 and above the 44.2 percent posted a year earlier. Bahamian Dollar debt of $6.533bn million represented a dominant 54 percent of the public debt stock, compared with respective proportions of 53.8 percent and 55.8 percent at end-June 2022 and end-September 2021.

“Between end-September 2022 and end-June 2022, the change in the debt stock was explained by contractions in both the central government ($17.8m) and the agencies and GBEs ($11m) components.”