Published On:Thursday, November 26, 2009

By NEIL HARTNELL

Tribune Business Editor

A former senior banker yesterday told Tribune Business that the Bahamas' total foreign currency debt now stood at almost 33 per cent of its total $3.6 billion debt, up from 14 per cent in 2007, with the recent $300 million sovereign bond issue having taken the absolute level of foreign borrowings above the $1 billion mark.

Al Jarrett, a former Bank of the Bahamas International chairman and FINCO managing director, told Tribune Business that the Bahamas' total national foreign currency debt was the sum of the Government's direct debts, plus those borrowings it had guaranteed on behalf of public corporations such as BEC, Water & Sewerage Corporation, Bahamasair and the Nassau Airport Development Company (NAD).

Responding to assertions by Zhivargo Laing, minister of state for finance, that the Bahamas' total foreign currency debt stood at less than 10 per cent of GDP or about $600 million, Mr Jarrett argued that some $550 million of borrowings guaranteed on behalf of public corporations had to be added to the equation.

That, he added, took the Bahamas' total foreign currency borrowings to between $1.1-$1.2 billion, and said: "That has to be paid from some portion of the foreign reserves. Some $1.1 billion has to come from the external reserves to pay this debt, not $600 million.

"The Government is responsible for paying those public corporations' debts, and it's part of the national debt. My calculations now show that foreign currency borrowings now represent 33 per cent of the national debt, an increase from 14 per cent in 2007."

Mr Jarrett said that in 2007, when the current administration took office, the Bahamas' total foreign currency debt was some $430 million out of a total $2.9 billion, but it was now $1.1-$1.2 billion out of $3.6 billion.

The Central Bank of the Bahamas' statistics appear to bear out Mr Jarrett's argument. As at the end of the 2009 second quarter, the Central Bank's data shows that the Government had some $986.948 million in foreign currency borrowings, representing some $583.739 million borrowed directly and $403.209 million guaranteed on behalf of the public corporations.

Even allowing for the fact that the Government's $300 million sovereign bond only added a "net" $100 million in foreign currency debt, given that it refinanced an earlier $200 million syndicated loan, that will take foreign currency debt to almost $1.1 billion - and that supposes there were no other borrowings or guarantees.

And, as at the end of the 2009 second quarter, the total national debt was already over $3.5 billion, meaning the new bond issue will have pushed that past $3.6 billion. Those figures are also largely in line with his ratios.

And, with the latest sovereign bond coming due in 2030, and previous $200 million and $100 million issues falling due for principal repayment in 2033 and 2038 respectively, the Bahamas will have to repay some $600 million to foreign creditors in an eight-year period. And that is not to mention the $247 million in domestic bond principal due over that period.

Mr Jarrett also questioned whether the Bahamas was using old gross domestic product (GDP ) figures to calculate its debt-to-GDP ratio, arguing that the recession had cut Bahamian GDP to $6.9 billion, compared to a previous $7.2 billion. Any reduction in GDP will automatically increase the debt-to-GDP ratio, especially in the face of rising fiscal deficits and government borrowings.

And, when it came to unemployment, Mr Jarrett said he believed some 25 per cent of the Bahamian workforce had either lost their jobs, were discouraged from actively seeking work, or were working on reduced incomes.

"It is my estimate that 44,000 people are either unemployed, working for less or discouraged," he told Tribune Business, arguing that extrapolating this out had led him to the conclusion that some 100,000 Bahamians - family members of those impacted by the recession - had joined what he termed the 'Misery Index'.

This, Mr Jarrett said, was a critical factor behind the surge in crime the Bahamas had recently experienced.