The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government potentially faces having to guarantee almost $552m on behalf of the very state-owned enterprises (SOEs) that the Prime Minister yesterday identified as a major “risk” to its financial well-being.

Information released with the mid-year Budget discloses that the “proposed guarantees” required by nine separate SOEs range in size from $8m to $167m to reinforce Philip Davis KC’s warning that their reliance on the Government to underwrite financial support presents “considerable fiscal challenges”.

Besides the $8m that may be required by the Bridge Authority to finance bridge maintenance, Bahamasair is said to need $60.992m for the repair of aircraft engines and to finance a new fleet. Then there is some $37.081m required by the Bahamas Development Bank (BDB) for “operational funding”; $20m sought by the Educational Loan Authority for similar reasons; and $49.192m for Water & Sewerage Corporation activities.

Other agencies named are the Public Hospitals Authority (PHA), which is seeking $35.316m to fund construction of a new Critical Care Block, plus the Clifton Heritage Authority which is eyeing $24m for “operational funding and development of the Clifton Heritage Park”.

The two biggest potential guarantees, though, are being sought by the Bahamas Mortgage Corporation and Bahamas Resolve. The former is seeking to obtain $150m for “operational funding” while Bahamas Resolve, the bail-out vehicle, likely needs the Government to back stop the $167m bond injected into Bank of The Bahamas’ balance sheet because it has been unable to sell sufficient real estate securing the toxic commercial loans transferred to it.

There is nothing to confirm that the Government will agree to guarantee all these financing needs and, certainly given their collective size, not all in this present fiscal year. The near-$552m represents a 153 percent, or more than doubling, of the $218m in guarantees being sought at the same time in the 2023-2024 fiscal year.

The Davis administration, though, yesterday tabled resolutions seeking Parliament’s approval to guarantee some $150m in bank borrowings on behalf of four SOEs. One of these is to facilitate the PMH’s borrowing of $75m from a consortium of banks, headed by CIBC Caribbean (Bahamas), to finance “construction of the [new] Grand Bahama hospital and repairs to the Princess Margaret Hospital (PMH)”.

Another is to guarantee a $50m loan from Scotiabank (Bahamas) to a special purpose vehicle (SPV), owned by either the Government or Water & Sewerage Corporation, “for the purpose of acquiring, upgrading and expanding Family Island water production operations”.

The remaining two loans, for $25m and $10m from the Bank of The Bahamas, are designed to assist the University of The Bahamas (UoB) and Bahamas Technical and Vocational Institute (BTVI) with “accreditation”.

Mr Davis said yesterday: “Financial losses from state-owned enterprises and undisclosed liabilities present considerable fiscal challenges to the Government. The Government faces a fiscal risk by being a guarantor for loans linked to SOEs because the responsibility for interest payments inevitably shifts on to the national budget, creating a significant fiscal burden.

“We are tackling these problems head-on. The Government has commenced training for directors of SOEs, and established a guarantee policy framework that includes eligibility criteria, credit risk evaluations and guarantee fees.

“Additionally, reforms are being considered for the water and healthcare sectors. The major reforms we are implementing in the energy sector will also play an important role, as they will dramatically reduce, and eventually end, the reliance of that sector on the Government.”

The Prime Minister added that legislation to reform civil service pensions, and begin to tackle the Government’s multi-billion dollar unfunded liabilities, will be brought to the Parliament by the time the 2025-2026 Budget is introduced at the end of May.

“The projected pension liabilities of the Government for public service employees are expected to reach $3.5bn by 2030, and pension and gratuity payments now account for 5.8 percent of the recurrent expenditure budget,” he warned. “This has prompted the drafting of a new pension legislation aimed at shifting to a funded defined contributory pension plan.

“Prior to tabling this Bill, a white paper on the Pension Bill will be circulated to fully clarify the importance of taking action now. The tabling of the Pension Bill will be done during the upcoming Budget.” Mr Davis then identified cyber attacks as another major threat facing the Government and wider Bahamian economy.

“In 2025, every nation must consider the risks of cyber attacks, and we are no different. Cyber attacks have the potential to impact our national security, to cause substantial economic losses, and to affect our ability to provide public services,” he warned. 

“We take the risk of cyber attacks very seriously for good reason. In fact, earlier this month a ransomware attack shut down the network at the University of The Bahamas, which they have since successfully worked to recover from with the support of the Government and industry partners.

“As of January 2024, our Government’s firewall had blocked 75 million malicious threats. It is estimated that the cost of one data breach could total $34.9m. This is why we are investing in cyber security” including “construction of a new tier three data centre to be owned by the Government”.