The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has ignored Opposition protests by injecting the majority of $300m in surplus bond proceeds into the National Investment Fund with its direct debt having now breached the $12bn threshold.

The Ministry of Finance, unveiling its report on fiscal developments for the first quarter of the 2025-2026 Budget year, confirmed that $265.3m of the surplus $300m generated by last year’s $1.067bn external foreign currency bond issue have been placed into the National Investment Fund to help finance critical infrastructure projects -despite the Free National Movement’s (FNM) arguments that such a move must first be approved by Parliament.

And, according to the report, the Davis administration is also treating the $265.3m as “equity” even though it seemingly represents the proceeds of borrowing given that a bond is a debt security, or IOU, obligating the issuer to repay investors interest and principal. However, the National Investment Fund injection is classified as “equity” in the fiscal summary for the three months to end-September 2025.

“The financing position also includes the $265.3m that was placed into the National Investment Fund to be used for strategic infrastructure investments,” the Ministry of Finance affirmed. “Approximately $265.3m was placed in the National Investment Fund to be used for strategic investments in infrastructure.” This move, though, has been the subject of political controversy both inside and outside the House of Assembly.

With the first $767m generated by last years bond placement used to rollover, or refinance, existing debt, the Opposition has said it has no problem with using the excess $300m as the Government plans to do via the National Investment Fund. Rather, its objections lie with the mechanism the Government is using because it believes it must first, under the constitution and statute law, place all borrowing proceeds in the ‘consolidated fund’ and then obtain Parliament’s permission for how they are used.

Kwasi Thompson, the Opposition’s finance spokesman, previously voiced fears voicing fears that the Government would circumvent the provisions of the Public Debt Management Act by directing the $300m excess sovereign bond proceeds directly into the National Investment Fund as opposed to first going into the ‘consolidated’ fund.

“Any government spending ought to be approved by Parliament,” he told this newspaper last year. “The way government spending is appropriated by Parliament is through the Budget process. The Government has to get parliamentary approval to borrow funds and to spend funds

“The law obligates the Government to come to Parliament to get approval to spend government monies. If the Government wants $300m to invest in the National Investment Fund, which we have no difficulty with, it must be approved by Parliament. And to be approved by Parliament it must be in the Budget.”

The Government’s treatment of the National Investment Fund’s $265.3m as “equity”, rather than borrowing or debt, will likely be viewed by the Opposition as a further device to keep these proceeds off its balance sheet and from adding to the ever-increasing national debt. This accounting treatment also ensures it does not impact what would be a projected first-ever Budget surplus for the 2025-2026 fiscal year of $75.5m.

The Ministry of Finance report revealed that, despite a $36.5m year-over-year reduction in the 2025-2026 first quarter’s fiscal deficit, which fell from $177.6m in the prior year to $141.1m this time around, the Government’s direct debt - excluding liabilities it had guaranteed on the behalf of state-owned enterprises (SOEs) and agencies - had risen by almost a net $300m during those three months.

“Consequent on these developments, the direct charge on the Government, inclusive of exchange rate adjustments, increased by $297.8m to an estimated $12.07bn at end-September 2025. This corresponded to an estimated 73.4 percent of GDP, compared to 72.1 percent of GDP at end-June 2025,” the Ministry of Finance said.

Total gross borrowings of $552.9m exceeded debt repayments during the period of $255.1m, with Bahamian dollar liabilities increasing by a net $338.9m during the July to September 2025 period. Much of the latter increase was driven by a net $290.3m surge in short-term Central Bank advances - something that has previously drawn scrutiny from the likes of the International Monetary Fund (IMF).

The Washington D.C-based Fund, in its latest Article IV report on The Bahamas released earlier this month, produced a chart showing that the Government had again hit its legal limits, or effectively maxed out its ability to borrow further from the Central Bank as at end-September last year - the same timeframe as the Ministry of Finance report.

These borrowings had again risen to around 15-16 percent of government revenues, representing the legal limit, with the Bahamian government’s reliance on Central Bank advances shown to be much greater than its Caribbean and Central American counterparts in Barbados, Belize and the Eastern Caribbean Currency Union (ECCU). “Reducing the ceiling on Central Bank advances to the Government would support the exchange rate peg,” the IMF urged in its latest Bahamas’ assessment.

The Ministry of Finance report, meanwhile, revealed that the Government had loaned a collective $57m to five unidentified government business enterprises (GBE) during the three months to end-September 2025. These appear to have been classified as investments in the fiscal summary, but some will view them as subsidies disguised to keep them off the Government’s balance sheet and from adding to the national debt given the poor repayment track record of many state-owned enterprises (SOEs).

And, elsewhere, previous drawdowns meant the Government was only able to use a near-$3m from “sinking funds” established to repay future bond issues when they mature to cover its immediate financial needs. Less than a net $30m remains accessible in these funds because the majority are still tied up as collateral for the Goldman Sachs ‘repo’ arrangement that the Davis administration previously entered into.

“During the first quarter of fiscal year 2025-2026, drawings on the sinking fund for the servicing of debt obligations totaled $2.9m,” the Ministry of Finance said. “The four sinking fund arrangements earmarked for scheduled retirement of external bonds, along with the Goldman Sachs repurchase agreement, held a cumulative value of $125.1m, of which $95.6m is subject to the repurchase agreement.”

However, the Government’s fiscal performance was showing positive signs. “Total revenue aggregated $789.6m, a strong increase of $107m (15.7 percent) over the prior year and equated to 20.3 percent of the Budget target,” the Ministry of Finance said.

“Tax revenue improved by $101.6m (16.5 percent) to $717.8m, associated with notable gains in taxes on international trade and transactions ($15.5m), VAT collections ($70m), and taxes on use and permission to use goods ($5.8m).”

As for its spending, the Ministry of Finance said: “ Aggregate expenditure increased by $70.6m (8.2percent) to $930.7m, accounting for 24.4 percent of the Budget target.

“Recurrent spending rose by $64.6m (8.7percent), led by a $17.9m (11.3 percent) boost in outlays for the use of goods and services. There were also notable increases posted for compensation of employees ($8.9m), other payments ($28.2m) and subsidies ($13.8m).”