The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday reassured there are “no issues” over the Government’s ability to refinance some $3.466bn in debt maturing this fiscal year given its access to “credit lines”.

Simon Wilson, the financial secretary, told Tribune Business he was “very confident” the Government will be able to rollover more than 28 percent of its total debt portfolio during the coming 12 months based on feedback already received from investors and holders of these securities.

“We have done market reads and have credit lines available,” he said. The Bahamas has to refinance some $868.1m of external debt, meaning foreign currency-denominated bonds and other IOUs held by overseas investors, and $2.598bn in domestic debt held by Bahamian institutions and individuals over the 2023-2024 fiscal period which closes at end-June next year.

This effort will likely be scrutinised closely by the global capital markets since Moody’s, the credit rating agency, warned in its latest June 2023 update that “the major risk” facing The Bahamas is the potential difficulties it will encounter in refinancing some $1.9bn of maturing debt at reasonable interest rate costs.

Noting that these refinancing needs, equivalent to 14.3 percent of Bahamian gross domestic product (GDP), will come due in the 2023-2024 fiscal year, Moody’s said the Davis administration will “need to find alternative financing sources” given that international capital markets are effectively closed to it due to the high prevailing interest rate environment.

“The major risk for the sovereign [The Bahamas] centres on challenges in financing and refinancing its upcoming maturities. Even with a narrowing fiscal deficit that turns to a surplus in fiscal 2025, the Government faces large gross financing needs. The Government will see a peak in maturities due in fiscal 2024, when gross refinancing needs reach 14.3 percent of GDP,” Moody’s said.

“Although the Government doesn’t intend to access international bond markets through commercial issuance, it will need to find alternative financing sources to repay upcoming external amortisations amid still tight financing conditions. Refinancing upcoming maturities at higher borrowing costs would weigh on the Government’s debt affordability.”

The Ministry of Finance’s latest public debt sustainability bulletin, covering the final quarter and full 2022-2023 fiscal year and which was released quietly on Monday, revealed that the Government will this year have to refinance the equivalent of more than $1 out of every $4 of its outstanding debt. Redemptions where investors are repaid their principal are likely to be minimal and concentrated on the international side given the Public Treasury’s cash-strapped position.

“At end-June 2023, approximately 28.06 percent of the portfolio was due to mature in one year, up from 21.24 percent a year earlier, and included a near doubling in the external component to 16.57 percent arising from the bond maturity,” the Ministry of Finance report said.

“The debt redemption profile for fiscal year 2023-2024 includes reissuances of Treasury bills ($908.8m), Treasury notes ($97.5m) and Central Bank advances ($323.1m). The large increases in external payments for fiscal year 2023-2024 and fiscal year 2028-2029 reflect the incidence of central Government’s bond maturities, as is the case with fiscal year 2027-2028 and fiscal year 2029-2030 through fiscal year 2031-2032.”

The report added that the Government plans to smooth out these debt maturity spikes through “appropriate liability management exercises” in a bid to ease the strain imposed by having multiple domestic and international debt issues expire at the same time.

“Across the maturity spectrum, the longer maturity and amortising profile of the multilateral and bilateral credits continue to provide smoothing to debt operations,” the Ministry of Finance said, referring to multilateral lenders such as the Inter-American Development Bank (IDB) and Caribbean Development Bank (CDB). “Domestic redemptions reflect the heavy concentration of bond issuances, which are typically refinanced upon maturity.”

To secure lower interest costs than prevailing market rates on its planned commercial bank borrowing during the 2023-2024 fiscal year, the Government’s recently-released annual borrowing plan signalled that it is “pursuing” guarantees from the IDB and other multilateral institutions to help underwrite this financing.

As an example, The Bahamas’ $385m foreign currency bond issue last year saw some $200m of the principal underwritten or guaranteed by the IDB in return for so-called ‘blue economy’ reforms. This produced a combined interest rate, or debt servicing cost, that was lower than prevailing market conditions.

Mr Wilson confirmed to Tribune Business that the successful execution of the Government’s annual borrowing plan rests heavily on its ability to obtain these IDB-type guarantees, describing these as “very important in the short-term, very very important”.

The Ministry of Finance report, meanwhile, confirmed that The Bahamas’ total public sector debt over the 12 months to end-June 2023 had increased by more than half a billion dollars to hit $12.644bn. “Total public debt stood at an estimated $12.644bn at end-June 2023, which corresponded to a quarterly rise of $130m (1 percent) over end-March 2023 and an annual gain of $513.4m (4.2 percent) relative to end-June 2022,” the report said.

“Foreign currency debt at $5.776bn represented a reduced 45.7 percent of total debt compared to 46.2 percent at end-June 2022. Reflecting almost uninterrupted quarterly gains, Bahamian dollar debt registered annual growth of $340.1m to $6.868bn with the corresponding share in the total firming by 0.5 percentage points to 54.3 percent. Approximately $462.6m or 90.1 percent of the annual increase in the debt stock was attributed to operations of the central government.”

When it came to the Government’s direct debt, the Ministry of Finance report added: “The central government’s debt outstanding was an estimated $11.255bn at end-June 2023, a gain of $462.6m (4.3 percent) over end-June 2022. Benefiting from the sustained improvement in domestic economic indicators, outstanding debt ass a proportion of nominal GDP receded to an estimated 81.9 percent from 87.3 percent for fiscal year 2021-2022.”

As for debt servicing costs paid by Bahamian taxpayers, the report said: “Annual debt service costs amounted to an estimated $3.252bn for fiscal year 2022-2023, an increase of $401.8m (14.1 percent) over the prior year. Paralleling the central government’s debt profile, nearly 72.9 percent of the aggregate costs were associated with Bahamian dollar obligations with the remaining 27.1 percent appropriated to foreign currency liabilities

“Principal payments aggregated $2.603bn, with the dominant 79.8 percent in Bahamian dollars primarily explained by the Government’s domestic securities issuance programme. Of the $648.8m in interest costs, approximately 54.5 percent was denominated in foreign currency.”