The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s bid to raise almost one-third of its near-$2.2bn gross financing needs for the 2023-2024 fiscal year from external banks is “looking very favourable”, a senior official revealed yesterday.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that talks to secure some $700m in external (foreign currency) debt financing from a number of unnamed banks were “very advanced” as the Government again seeks to avoid the high interest rates that will inevitably be demanded on any international bond issue.

The Davis administration’s 2023-2024 borrowing plan, released quietly on Friday before a formal unveiling yesterday, is aiming to raise $995.9m or 45.3 percent of its total gross financing needs for the next fiscal year from external or foreign sources. Of that $995.9m, some $700m - representing 31.8 percent of the $2.199bn total - will come from commercial banks, with the remaining $295.9m provided by multilateral lenders such as the Inter-American Development Bank (IDB).

To secure lower interest costs than prevailing market rates on the commercial bank loans, the borrowing plan signalled the Government is “pursuing” guarantees from the IDB and other multilateral institutions to help underwrite this financing.

“External loan financing includes opportunities for new international financial institution-related policy loans estimated at $210m, which will help to mitigate the risk in the debt portfolio through their typically longer maturity structures and comparatively lower financing costs relative to commercial borrowings,” the plan said of credit provided by the likes of the IDB and Caribbean Development Bank (CDB).

“The Government also intends to pursue policy-linked partial-credit guarantees that will help to secure commercial loan facilities in larger quantum and at a reduced cost. The Government is in active discussions with international financial instiututions and commercial banks regarding these transactions.”

Asked how the discussions were progressing, Mr Wilson told this newspaper: “Those discussions are very advanced and looking very favourable.” He confirmed that these loans would be structured in a similar way to The Bahamas’ $385m foreign currency bond issue last year, which 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. While several sources, speaking on condition of anonymity, said it was not a given that The Bahamas will obtain the guarantees it is seeking, given the reforms, terms and conditions demanded by the likes of the IDB, Mr Wilson disclosed that the Government was hoping to successfully conclude talks “by the end of summer’.

“It’s not a slam dunk per se,” he added, “and it’s not an easy process, but we think the process offers significant benefits in terms of longer tenor (maturity) and lower cost of debt,” the financial secretary added. Prime Minister Philip Davis KC, in unveiling the 2023-2024 Budget, had revealed The Bahamas was exploring a “debt-for-nature swap” with the IDB that could result in at portion of its $11.4bn national debt being forgiven.

Explaining that the move was part of wider discussions with the multilateral lender on “two policy-based guarantees” designed to give The Bahamas access to financing at lower-cost interest rates, he added: “The Government is presently seeking IDB Board approval for two policy-based guarantee instruments, which will allow access to market financing at even more favourable rates.

“These guarantees will support the Government’s debt management operations during the upcoming 2023-2024 fiscal year, which also contemplates a debt-for-nature swap. A debt-for-nature swap is an arrangement whereby a developing nation can have a portion of foreign debt forgiven, typically in exchange for committing to specific conservation measures....

“A key component of the Government’s fiscal strategy is to use access to the Caribbean Development Bank and IDB financing to lower our overall funding cost by leveraging the institutions’ AAA credit rating. Reduced borrowing costs and improved debt tenor are tools which should improve the overall debt profile of the nation.”

Mr Wilson, confirming that this is what the borrowing plan refers to, also shrugged off concerns from Moody’s, the international credit rating agency, that refinancing the $2.067bn of existing debt is The Bahamas’ greatest short-term fiscal challenge, saying he was “highly confident, highly confident” this will be accomplished.

“Our job is to execute,” he added. “We have ‘plan A’, we have ‘plan B’. If you look at the revenue performance to-date, the recovery in the economy, it’s quite clear this is not out only option.” Moody’s, in its assessment of The Bahamas, said: “”Interest payments are projected to grow over the coming years and will be higher than expected.

“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.

“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.”

Just $131m of the near-$2.2bn is new new debt, representing the projected fiscal deficit for 2023-2024 that must be covered by new borrowings. “Based on Parliamentary authorisation, the Government’s gross financing needs for fiscal year 2023-2024 are forecast at $2.199bn, comprising $131.1m (6 percent of the total) in new borrowings/loan drawings to cover the Budget deficit and targeting debt refinancing requirements at $2.068bn (94 percent of the total),” the plan said.

“Approximately $967.3m (44.4 percent) of the gross borrowing needs will be sourced in Bahamian Dollars; another $235.5m in foreign currency domestic debt which represents a roll-over of the promissory note arrangement with the Central Bank of The Bahamas for the fiscal year 2022-2023 SDR borrowings; and the balance of $995.9m (45.3 percent) in foreign currency from external sources.

“However, the execution strategy will continue to monitor market conditions, with the possibility of adjustments so as to achieve the Government’s borrowing needs at the lowest cost within acceptable levels of risk.” With elevated global interest rates effectively barring the international bond markets to The Bahamas, the Government plans to source the bulk of its financing need domestically.

Outstanding Bahamian dollar domestic bonds will increase by a net $120m during this fiscal year, with Treasury Bills also increasing by a net $45m.