• Financial Secretary: All actions will be ‘market driven’
• Confirms debt adviser hired but declines to give name
• Opposition warns bonds still trading ‘near historic lows’
By NEIL HARTNELL
Tribune Business Editor
The Ministry of Finance’s top official yesterday reiterated that the Government has “no plans for any restructuring” of the $11.8bn national debt as he confirmed the hiring of an advisory firm to aid fiscal management.
Simon Wilson, the financial secretary, told Tribune Business it was “no secret” that the Davis administration was seeking to engage an “expert debt advisor” whose selection has been endorsed by the debt advisory committee comprised of private sector executives.
He declined to confirm this newspaper’s exclusive revelation that Rothschild & Co, the global financial group with some 3,800 employees spread across 40 countries, has been chosen for the role citing the need to wait for “a formal announcement” that will be made shortly by the Government.
“I think there’s no secret we were going to seek the assistance of expert debt advisers,” Mr Wilson told this newspaper. “The private sector debt advisory committee has endorsed the engagement of an advisor. In time we will make a formal announcement with regard to who that advisor is, and their strategy in terms of providing assistance.
“We are not considering any debt restructuring or any other action that is not market-driven with respect to the management of debt.” His latter comments sought to reassure the international capital markets, as well as Bahamian and foreign investors and debt holders, that there will be no sudden shocks when it comes to the Government’s fiscal and financial management.
Tribune Business reported that Rothschild & Co’s hiring could ultimately lead to a major “refinancing” of the Government’s debt, but this is different from a “restructuring” which Mr Wilson ruled out. For example, rather than issue new sovereign debt, the Government could seek to consolidate existing bond issues via a collective multi-billion refinancing that would help establish “a benchmark yield” for all Bahamas issues traded on the international capital markets.
Meanwhile, more sources confirmed that Rothschild & Co is indeed the debt advisory firm selected by The Bahamas as the Government’s political opponents demanded full transparency and disclosure surrounding the firm’s hiring, the role it will play and responsibilities handled, as well as the Terms of Reference handed to it.
Kwasi Thompson, the Free National Movement’s (FNM) finance spokesman, told Tribune Business this was critical to reviving investor confidence in The Bahamas and the Davis administration’s fiscal turnaround strategy given that the country’s outstanding bonds “continue to trade near historic lows”.
The former minister of state for finance, who held the post during the Minnis administration’s last 11 months in office, argued that this signals the Government’s medium and short-term fiscal strategy has failed to inspire optimism in the international capital markets that The Bahamas’ post-COVID rebound is robust enough to cure the country’s economic and financial ills.
“It speaks for itself,” Mr Thompson said of the heavy discounts/high yields that investors are demanding on The Bahamas’ sovereign debt. Data from the Frankfurt stock exchange shows that the $825m bond, placed at the height of the COVID-19 pandemic in 2020 at an 8.95 percent interest rate, closed last night at over a 35 percent discount to face value. And the yield on the same issue, which will mature for repayment in 2032, is also just shy of 17 percent.
Meanwhile, the $650m bond placed in 2018 at 6.95 percent, and which represented the last major foreign currency issue before the COVID-19 pandemic, was still trading at a near 33 percent discount and yield of almost 15 percent.
“The bond series have been on a consistent and unrelenting downward trend over the last ten months,” Mr Thompson said. “None of the announced fiscal plans and strategies of the Davis administration has returned any confidence to the international investor community. This is why we maintain that it is important that the Government provide absolute clarity on who it has engaged in respect to the critical issue of debt management, and for what purpose.”
Turning to Tribune Business’ revelation regarding Rothschild & Co, Mr Thompson said: “They should be transparent, come out and confirm it, and tell us what are the Terms of Reference and what all the facts are.” He argued that it was critical this occur “given all the possible implications for the country’s credit risk profile”.
“The lack of transparency and clarity on the matter may send an entirely wrong signal to the market,” the Opposition’s finance spokesman added, pointing to what he labelled as the absence “of a consistent story to provide confidence for international investors”.
In particular, Mr Thompson pointed to the “mixed signals” sent by the Government’s Fiscal Strategy Report, published at end-January and which articulated one set of fiscal targets and numbers, and the now-active 2022-2023 Budget which laid out figures that were much different just four months later.
“What has been stated as your fiscal strategy in terms of containing debt, containing expenditure, ensuring you manage the state-owned enterprises (SOEs), all those things have been articulated, and you’re putting forward a transparent tax policy. All those things were articulated in the Fiscal Strategy Report, but when you produce a Budget that is inconsistent with the Fiscal Strategy Report that unfortunately sends the wrong message to international investors,” he added.
“The Government must clearly articulate its medium-term fiscal and tax policy plans that provide definitive proposals on how it intends to raise additional revenues and contain public expenditure. The Government cannot continue to do one thing in its Fiscal Strategy Report and yet do something else completely different during the Budget exercise. As we have pointed out, doing so is a clear breach of the law as per the Fiscal Responsibility Act.”
That, though, was disputed by the Prime Minister during the Budget debate. And both Senator Michael Halkitis, minister of economic affairs, and Mr Wilson have justified the revised Budget numbers as compared to those in the Fiscal Strategy Report on the basis that the economy is rebounding much faster than anticipated from the effects of COVID-19 now it has re-opened further.
Among the so-called “inconsistencies” identified by Mr Thompson are a projected $149m overshoot on the 2022-2023 fiscal deficit, which was pegged at $415.2m in the Fiscal Strategy Report but increased subsequently to $564m in the Budget.
Recurrent or fixed-cost spending, which goes on the likes of civil service salaries, wages, emoluments and rent, was forecast at end-January 2022 to be $2.698bn in 2022-2023, but that was revised upwards by $300m to $2.997bn.
Rather than reduce the public service wage bill to $568m, as shown in the Fiscal Strategy Report, the 2022-2023 Budget expanded this by $56m compared to the outlay for the 2021-2022 fiscal year. And the Government has also temporarily shelved plans to slash subsidies to state-owned enterprises (SOEs), which are set to increase by almost $31m year-over-year this fiscal year.
Mr Thompson, meanwhile, accused the Government of “not living as though we are faced with a fiscal crisis. They continue to do the same things that are inconsistent with having an uncertain economic and fiscal environment. They continue to travel as if nothing is wrong, they continue to hire and they continue to spend, and one of the things we have said time and time again is you must treat this matter with the seriousness it deserves, which means fiscal restraint”.
He told Tribune Business: “The message we would like the Government to hear is you must have a consistent plan for fiscal responsibility, which we have not seen so far. You must also, and we are imploring them, to go back to their Fiscal Strategy Report and abide by what they committed to do in it. Unfortunately they are saying a lot of things, but what they do is different from what they are saying.”