The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is giving “priority focus” to reducing its foreign currency debt to 30 percent of total liabilities in a bid to reduce pressure on The Bahamas’ currency peg and external reserves.

The target is set-out in the first-ever Mid-Term Debt Management strategy, just released, which says the Government will increasingly look for domestic (Bahamian dollar) borrowing opportunities to finance its annual fiscal deficit and debt rollovers as it seeks to slash a foreign currency burden that currently accounts for 44.9 percent of its national debt.

“Priority focus will be given to ensuring the achievement, at the earliest, of the 30 percent target for the ratio of foreign debt to total debt,” the report says. “The currency and interest rate composition of debt, as well as its maturity structure, are important determinants of debt vulnerability. Therefore, external debt will be maintained at 30 percent (+/-5 percent) of total debt.

“Foreign currency borrowings are targeted at financing government’s capital expenditures, refinancing the global bond issuances, and achieving policy action reforms designed to promote private sector-led growth, secure improvements in the policy, legal, and institutional framework for state-owned entities, public–private partnerships, fiscal management, and the business and investment climate, and build resilience to climate change, including emergency and disaster response.”

To achieve this goal, the Government is planning to adopt a financing/borrowing strategy that reduces the risk associated with rising interest rates, and therefore debt servicing costs, by borrowing at fixed interest rates. In doing so, it still plans to extend the time at which its various debt principal issues mature.

As a result, it will raise 72 percent of its financing needs from the domestic Bahamian market and 28 percent from foreign sources. “In this context, and consistent with the key debt management objective of securing debt at the lowest cost and prudent degree of risk, the Government will continue to monitor market absorption metrics for domestic securities and leverage opportunities for a higher level of domestic issuances relative to foreign currency debt,” the Medium-Term Debt Management Strategy report said.