By NEIL HARTNELL
Tribune Business Editor
The government is targeting a 56.8 percent reduction in loans it has guaranteed on behalf of state-owned enterprises (SOEs) over the next four years, cutting this sum by $418.2m.
The 2019 Fiscal Strategy Report, tabled in the House of Assembly yesterday, sets out the Minnis administration’s ambition to increase savings on annual subsidies allocated to the likes of the Public Hospitals Authority (PHA), Bahamasair and the Water & Sewerage Corporation from five percent in 2021-2022 to 15 percent some three years later.
It confirms that the Government is looking to the upcoming $650m Bahamas Power & Light (BPL) refinancing for an instant reduction in its contingent liabilities, as this will remove some $246m worth of bank debt it has guaranteed on the utility’s behalf from both its books and the national debt.
“Explicit loan guarantees provided to SOEs expose the government to the possibility of unexpected and substantial risk, which could lead to a severe strain on the fiscal resources, hence the government’s resolve to ensure that these entities are closely monitored and managed,” the report said.
“Benefits from the ongoing rationalisation initiatives with the SOEs are expected to deliver cost savings, building from five percent of the budgeted subventions in fiscal year 2021-2022 to 10 percent for fiscal year 2022-2023 through fiscal year 2023-2024 and further to 15 percent for fiscal year 2024-2025.”
The document continued: “Contingent liabilities were an estimated $736.1m at end-June 2019 and, based on existing debt levels and repayment schedules, are forecasted to move sharply lower to $416.6m at end-December 2020, then taper off to $317.9m over the three-year period ending 2023.
“This more favourable liability profile reflects the expected swap out of the Bahamas Electricity Corporation’s (BEC/BPL) contingent liability debt with the proposed rate reduction bond, scheduled for issuance in early 2020, and which is not intended to be guaranteed by the government but serviced from a rate reduction fee.
“Other developments that will provide an upside to the profile include the pending sale of the Lucayan Renewal properties, which will extinguish the bulk of the noted ($35m) liability.”
The Minnis administration has long targeted the SOE sector for greater efficiency and reduced subsidies in a bid to both improve public services and lower the financial burden on hard-pressed taxpayers. Shortly after taking office in May 2017 it pushed for all SOEs to develop a three-five year plan to put themselves in a position where they can recover all costs.
“SOEs accounted for almost 14 percent of the fiscal year 20192-20 budget, with this proportion relatively unchanged at 13.9 percent throughout the medium term,” the Fiscal Strategy Report said. “However, initiatives underway, particularly in the aviation sector, could generate significant cost savings which should free more resources to be devoted to other uses, such as healthcare, education, renewable energy and national security.
“The draft Public Financial Management Bill, slated for enactment before the end of fiscal year 20192-2020, also envisages an enhanced governance framework for the SOEs to increase accountability and transparency in their operations, and provides a basis for the eventual consolidation of the public financial position.”