The Tribune

• ‘Unless policy directive to alter course’

• Among first calls for new administration

• Finance aims to ‘smooth liability cycle’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said the Government’s $700m foreign currency bond issue is proceeding “unless we get some kind of policy directive to change course” from the new administration.

Marlon Johnson, the acting financial secretary, told Tribune Business that officials and their financial adviser, Goldman Sachs, were working on the basis that the debt raise will still proceed given that it falls under the borrowing envelope approved by Parliament as part of the 2021-2022 Budget.

The proposed $700m bond, which accounts for 37.8 percent of the Government’s total $1.852bn gross borrowing forecast for the the current fiscal year, was planned as the single biggest one-time capital raise in the months prior to end-June 2022.

However, the timing means that the $700m issue is likely to be among the first major issues a newly-elected administration has to consider post-September 16. For the Government’s Annual Borrowing Plan placed the launch date as between late September and early October, depending on how favourable international capital market conditions are, thus leaving the election winner to determine whether to pull the trigger.

“Government fortunately is continuous, notwithstanding the outcome of the election,” Mr Johnson said. “This [the $700m bond] is part of the debt management plan. We are moving ahead with it. The administration that comes in on the 17th may have different policy priorities but unless something significant is announced at that time in the post-election environment, the anticipation is that transaction will go ahead.

“We go ahead, and unless advised otherwise we will proceed for now. Unless we get some kind of policy direction to change course - and it could happen at any time pre or post-election - we’ll proceed. We are sensitive to the fact there is an election. If the administration in place on the 17th decides to change direction, we are a creature of instruction and will proceed on that basis.”

The Government’s pre-election economic and fiscal update, released on Sunday, confirmed the intention to proceed with the $700m bond offering. “As proposed, the 2021-2022 debt strategy contemplates sourcing approximately 48.2 percent of the borrowing requirements from the domestic market and the remaining 51.8 percent from foreign currency sources,” it said of the Government’s financing needs.

“Following the conclusion of a competitive Request for Proposal process, the Government awarded a mandate to Goldman Sachs, in late July, 2021, to be the book-runner on a proposed $700m bond transaction— of which a maximum tranche of $200m is to be guaranteed by the Inter-American Development Bank (IDB).

“Alongside this bond issuance, the Government also intends to pursue a liability management transaction for at least 50 percent of its existing $300 million 2024 bond issue.” Mr Johnson said this meant the Government will seek to “optimise the debt portfolio” when market conditions and management strategies allow, enabling it so “smooth out the liability cycle over time”.

Elsewhere, the pre-election economic and fiscal update said unaudited figures showed the Government overshooting its $1.327bn deficit target for the 2020-2021 fiscal year by $21.6m or 1.6 percent, bringing in at $1.349bn. Revenues were said to have exceeded Budget targets by $110.1m or 6 percent due to the steady tourism rebound, although COVID-19 fall-out meant spending remained elevated.

“Budgetary operations for fiscal year 2020-2021 were dominated by the continued adverse impact of the COVID-19 virus on domestic economic performance, which necessitated government maintaining extraordinary levels of expenditures to support social and economic assistance programmes, health and safety initiatives and operational requirements of several state-owned enterprises (SOEs),” the report said.

“However, these spending pressures were partially mitigated by the better-than-expected revenue performance. The revenue outturn benefitted from the steady improvement in economic activity during the second half of the year, as the stopover tourism sector restarted in earnest.

“Total revenue for fiscal year 2020-2021 settled at $1.873bn - some $110.1m (or 6 percent) ahead of budgetary targets. This positive outcome reflected the strengthened rebound of the tourism sector in the second half of the year, with both tax and non-tax revenues surpassing budget targets. Tax receipts of $1.603bn were 105.9 percent of budget,” it added.

“Relative to the budget, key gains against target were observed in taxes on property of $38.7m (36.9 percent), aided by the Government’s tax amnesty programme; VAT of $75.4m; Excise taxes of $14.8m and immigration fees of $23.5m, reflecting the recovery in economic activity; and miscellaneous and unidentified revenue of $17m, which included gains on the sale of securities held in the sinking fund to settle future foreign currency debt obligations.

“Nonetheless, reflecting the economic effects of the pandemic on the economy and consistent with earlier expectations, revenue receipts overall were down $226.5m (10.8 percent) against the outturn of the previous fiscal year.”

Turning to spending, the Government said: “Aggregate expenditure firmed by $322.7m (11.1 percent) to $3.221bn against the prior fiscal year, boosted by substantial increases in outlays for social assistance benefits ($196.9m), finance charges ($43m), public debt interest ($77.7m) and subsidies ($42.2m).

“However, the increase in overall expenditure was partly offset by reductions in spending for compensation of employees ($65.5m), supplies and materials ($18.9m), services ($10.3m), capital transfers ($55.8m), other fixed assets ($15.6m) and other machinery ($12m).”