By NEIL HARTNELL
Tribune Business Editor
The newly-appointed Financial Secretary sees the Bahamas' strained finances as "an opportunity" rather than a challenge, as the Government borrowed a further US$250 million.
Marlon Johnson told Tribune Business that the syndicated loan taken out on September 14, 2017, was part of the total $722 million borrowing approved by Parliament to cover the forecast 2016-2017 and 2017-2018 deficits.
He declined to comment further on what appears to be a 12-month 'bridge financing' facility, based on the Ministry of Finance's press statement, or the remainder of the Minnis administration's borrowing plans.
While the Government is hoping its recently-announced austerity measures will slash the $722 million borrowing requirement, capital markets sources suggested last week's loan would ultimately be replaced by longer-term financing.
One financier, speaking on condition of anonymity, told Tribune Business that the Government was likely to go to the international capital markets for up to $500 million - or two-thirds - of its financing needs this fiscal year.
They suggested the Government had approached Royal Bank of Canada (RBC), its bankers, to help arrange a large foreign currency bond issue - something Mr Johnson said he "cannot deny or confirm" when Tribune Business raised the matter with him.
"The local market can only really support a small fraction of that," the financier said of the Government's borrowing requirements, "so the decision was made to go to the international markets for the bulk of it.
"The expectation was to raise up to $500 million on the international markets, and the balance - a couple hundred million - locally. There's just not the capacity here, and the banks, insurance companies and NIB to some extent have been tapped out and have no ability for further exposure."
The National Insurance Board (NIB), together with the banks and insurance companies, already have significant holdings of Bahamas Government Registered Stock (BGRS) and other public sector debt instruments. There are regulations and prudential norms that limit such holdings, preventing them from acquiring more government paper.
The US$250 million loan, which is priced at LIBOR (London Interbank Offer Rate) plus 3 per cent, was billed as helping "to meet capital and other budgetary requirements" of the Government during the 2017-2018 financial year. Interest payments are to be made every six months, with principal paid one year later.
The financier agreed that using foreign currency borrowing to finance the Government's deficits "is not ideal, but that kind of money is not available to them".
The proceeds from the $250 million loan will initially give a boost to the Bahamas' external reserves, which the International Monetary Fund (IMF) last week described as "below traditional adequacy benchmarks" in providing 2.4 months' worth of import coverage.
But, medium and long-term, the extra foreign currency borrowing will increase the drain on the external reserves to finance interest and debt payments.
Central Bank data showed that the Bahamas' total foreign currency debt was already $2.645 billion, or 29.3 per cent, of the total $7 billion-plus national debt at year-end 2016. This ratio is likely to increase as a result of the latest loan and the Government's financing plans.
Mr Johnson told Tribune Business that the Central Bank dealt primarily with the external reserves, but the Government's latest information indicated there were no issues with their coverage level.
"From all the information we have, there are no issues at all with the external reserve holdings," he said. "They're well within prudential norms. I can only confirm the reserves are healthy."
However, another financial analyst, also speaking on condition of anonymity, expressed concern about the Government's increased foreign currency borrowing.
"That's not good," they said. "They'll have to manage that carefully. I'm not happy about that."
Kenwood Kerr, Providence Advisors' chief executive, told Tribune Business that the $250 million facility's interest rate was cheaper than the Government would obtain in the domestic debt market.
He added that the loan would help "shore up" the external reserves, pointing out: "Reserves are expected to be called on during the rebuilding as a result of Hurricane Irma, coupled with Christmas season shopping and inventory build-up
"Also, while liquidity is generally available, credit criteria for the most part remains tight/rigid at the local commercial banks, and may impact consumers and, to some extent, Government's borrowing ability in local currency."
Mr Kerr said the Central Bank was also moving to reduce its exposure to government bonds, and added: "The key is that the new administration must stick to the plan to be prudent, and address all necessary debt obligations and not over spend."
Mr Johnson, meanwhile, said he was focused on implementing the Government's fiscal policy agenda, and providing mechanisms to help it achieve its objectives.
He told Tribune Business that the Minnis administration was "so far on track" with its bid to slash recurrent spending by 10 per cent 'across-the-board' this fiscal year, an initiative which Moody's is projecting as delivering $100 million in extra savings.
"We're working hard to put that policy provision in place," Mr Johnson said, "and we're working with all the Ministries to do our best to control expenditure growth."
Conceding that it was "a challenging job to hold the line on spending", the Financial Secretary said governments throughout the world were facing similar fiscal challenges to the Bahamas.
"The way I look at is not to look at it as a challenge, but as an opportunity to see how we can do better and see how we can get more out of what happens," he told this newspaper.
"We all have to take this as an opportunity to do more with less, and make sure we maximise the resources we have. That's the way to look at it positively; see what we can do better with what we have."