By Neil Hartnell
Tribune Business Editor
The Ministry of Finance is taking the “if it sounds too good to be true, it probably is” approach to low-cost financing and other “no strings attached” offers, the deputy prime minister said yesterday.
K Peter Turnquest, asked by Tribune Business to respond to concerns that the government is not taking advantage of attractive debt financing proposals, said The Bahamas as a sovereign nation cannot afford to act as a “fly-by night” entity in evaluating any proposals that come its way.
He added that the country had to first carry out extensive due diligence to ensure those offering the government financing were credible and operated with integrity, and they have the necessary wherewithal to finance/arrange what they are promoting.
Mr Turnquest said The Bahamas can ill-afford to borrow from institutions that are “not financially sound”, and which would seek to call-in the loan if they ran into difficulties - something that could place this nation in dire fiscal straits.
“We review these offers of financing and debt write-offs, and paying our debt with no strings attached, all the time,” Mr Turnquest said. “The old adage applies: ‘If it’s too good to be true it probably is’.
“As a sovereign nation, we are not a fly-by night small entity that can allow itself to be held at the mercy of any kind of these institutions. We have a very sophisticated debt management unit, staffed by competent professionals, that evaluates each and every offer.”
He spoke out amid suggestions that the Government may be ignoring low interest rate offers to finance its $1.3bn deficit for the 2020-2021 fiscal year. One offer seen by Tribune Business involves the a $750m foreign currency bond, priced at 3.87 percent interest, that is placed “with a major international bank” and funded by the global capital markets.
The offer, which was conveyed to Mr Turnquest on September 3, 2020, and copied to the Ministry of Finance’s acting financial secretary, Marlon Johnson, and ex-Central Bank governor, Wendy Craigg, came from Public Resources International, a US-based debt advisory firm that has worked on restructurings and other matters with governments before.
“PRI has been engaged by the World Bank/IMF to implement debt settlements for seven countries, including Bolivia and Honduras in Latin America,” the company said of its credentials. “PRI has also carried out important financial assignments for Antigua and Barbuda, Grenada (including funding for a desalination plant through US Export-Import Bank), St Kitts and Nevis, and St Vincent and the Grenadines.”
However, the proposed bond would carry a “floating” rather than fixed interest coupon. Yet PRI argued that this still produced a 3.5 percentage point savings rate for The Bahamas compared to the likely 7.5 percent fixed rate such a bond would attract, thereby cutting the interest bill for Bahamian taxpayers.
It added that The Bahamas would be able to refinance the bond “without penalty” after three years, and said: “There is no floating rate risk for at least three years as the floating rate would have to increase 3.5 percentage points before fixed rate at 7.5 percent [making it] more advantageous than floating rate. No reputable economist considers this to be likely.”
Mr Turnquest confirmed that the PRI offer was one being evaluated by the Ministry of Finance. And Mr Johnson added: “The Government gets any number of offers from people wanting to lend them money. We literally get dozens per year.”
Meanwhile, the fate of the Government’s COVID-19 individual and business assistance initiatives that are due to expire at end-September will depend on the resources left and how many persons go back to work as a result of tourism’s planned re-opening, the deputy prime minister said yesterday.