By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government’s decision to go to the international capital markets for a US$300 million bond yesterday appeared to be questioned by a Wall Street credit rating agency, which said there was “significant appetite” for its debt in the Bahamas.
Standard & Poor’s (S&P), in its full country analysis of the Bahamian economy, confirmed Tribune Business’s revelation earlier this week that the Christie administration is seeking to raise up to $300 million in foreign currency financing to help fill its 2013-2014 Budget deficit.
While acknowledging that this was likely being done to boost the Bahamas’ external reserves, S&P said it would increase the amount - and percentage - of foreign currency debt held by this country.
Foreign currency borrowings, as a percentage of the total national debt, have already risen from 10 per cent in 2005-2007 to 24 per cent in 2012, and the $300 million bond plans means this number is only likely to increase.
As a result, the Bahamas will be faced with having to use more of its foreign currency reserves to service that debt and, ultimately, pay the principal.
“The Government plans to issue abroad again this year on the order of $300 million to finance the fiscal deficit and bolster international reserves,” S&P confirmed.
“ We expect gross external public sector debt to increase again in 2013 and 2014. Debt began to rise with a US$300 million private placement in November 2009, and this was followed by another $180 million loan in 2012.”
The former was placed by the Ingraham administration, while the latter was a receipt of so-called Special Drawing Rights (SDRs) from the International Monetary Fund (IMF). These are international reserve assets created by the IMF, and serve as “potential claims” on the Bahamas’ external reserves.
Summing up the impact of the proposed US$ bond issue, S&P added: “Domestic debt accounted for closer to 90 per cent of central government debt in 2005-2007, then dropped to 80 per cent in 2009-2011 after the Government did a private placement and, subsequently, increased borrowing from multilaterals.
“In 2012, it stood at 76 per cent. Since the Government plans to rely on more external financing in 2013 and 2014, we expect this share to decline somewhat further.
“This is despite significant liquidity and appetite for government paper in local markets, to bolster international reserves.”
The Bahamas’ foreign currency debt, S&P added, some 95 per cent of which is denominated in US dollars, has an average principal maturity of 17 years.
Elsewhere, the S&P report effectively said the Christie administration had yet to achieve any of the economic objectives announced in its 2012 election manifesto, while again blasting the Free National Movement (FNM) for its so-called ‘stop, review and cancel’ policy with regard to government contracts in 2007-2008.
Noting that the Progressive Liberal Party (PLP) had run on a platform of boosting the economy and jobs, lowering crime, turning Grand Bahama around and reversing the Bahamas Telecommunications Company (BTC) privatisation, S&P was critical of the ‘mortgage relief’ plan promises.
“The PLP ran on a campaign promise of mortgage relief, but the relief programme that it put forth after coming to office had coverage lower than what it had promised,” it added.
“In the end, only a handful of homeowners qualified, and little to no relief was granted.”
As for the FNM and BTC privatisation, S&P said: “Besides that no action has been taken on BTC, it appears the BTC privatisation is an isolated event because the Christie administration has not undertaken a broader review of public contracts, as the FNM government did upon assuming office in mid-2007.
“That process lasted several years, stalled numerous investment projects and, in our opinion, contributed to the economic downturn.”
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