The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has secured more than half its foreign currency financing needs for the current fiscal year by obtaining a $500m loan partially guaranteed by the Inter-American Development Bank (IDB).

The Ministry of Finance, in a statement, said the multilateral lender’s policy-based guarantee “will initially cover up to 40 percent” of the scheduled principal ($200m) and interest that Bahamian taxpayers will have to repay to lenders.

And, by exploiting the IDB’s top-notch ‘AAA’ credit rating with a stable outlook, The Bahamas has been able to secure “considerably more advantageous” interest rates on the ten-year loan than it would otherwise have been able to get on the private international bond markets.

No details were provided on the interest rate(s) secured, or the potential cost savings, that will result from the partially guaranteed loan that was arranged by Banco Santander’s New York branch in the role of global coordinator and mandated lead arranger.

“The landmark transaction is the country’s largest credit-enhanced financing on the international loan market to date. This transaction, being the first of its kind for the IDB, demonstrates The Bahamas’ strong commitment to the diversification of financing sources towards semi-concessional financing and blended finance solutions collaborating with the private sector,” the Ministry of Finance said.

“Additionally, the transaction is supportive of The Bahamas’ external funding pipeline, representing over 50 percent of external borrowing requirements for fiscal year 2023-2024, and will fund eligible budgetary expenses such as infrastructure, education, and social welfare projects.

“The execution of transactions with innovative credit enhancement structures is expected to provide a solid anchor to The Bahamas’ medium-term external funding plan.” It is unclear whether a portion of the $500m loan proceeds represent net new borrowing to cover the projected $131.1m fiscal deficit, or if $300m of what was raised will be used to repay the $300m foreign currency bond coming due this month.

Tribune Business reported back in July 2023 how the Government was seeking to raise almost one-third of its near-$2.2bn gross financing needs for the 2023-2024 fiscal year from external banks via some $700m in external (foreign currency) debt financing. This was part of its effort to avoid the high interest rates that will inevitably be demanded on any international bond issue.

The $500m loan transaction is thus consistent with the Davis administration’s 2023-2024 borrowing plan, which aimed to raise $995.9m or 45.3 percent of its total gross financing needs for the next fiscal year from external or foreign sources.

Of that $995.9m, some $700m - representing 31.8 percent of the $2.199bn total - will come from commercial banks, with the remaining $295.9m provided by multilateral lenders such as the IDB. To secure lower interest costs than prevailing market rates on commercial bank loans, the plan signalled the Government is “pursuing” guarantees from the IDB and other multilateral institutions to help underwrite this financing.

“External loan financing includes opportunities for new international financial institution-related policy loans estimated at $210m, which will help to mitigate the risk in the debt portfolio through their typically longer maturity structures and comparatively lower financing costs relative to commercial borrowings,” the plan said of credit provided by the likes of the IDB and Caribbean Development Bank (CDB).

“The Government also intends to pursue policy-linked partial-credit guarantees that will help to secure commercial loan facilities in larger quantum and at a reduced cost. The Government is in active discussions with international financial institutions and commercial banks regarding these transactions.” The $500m loan aligns exactly with these objectives.

“The transaction’s credit-enhanced structure allowed The Bahamas to secure favourable financing terms, considerably more advantageous than those available on the international bond market. The IDB’s first-loss policy-based guarantee will initially cover up to 40 percent of the scheduled principal and related interest,” the Ministry of Finance said.

The guarantee allowed “the private sector, led by Santander, to lend a much larger nominal amount. As a result, The Bahamas secured significant savings compared to market cost of funding at the time of transaction closing. This structure will advance the country’s objective of reducing debt service costs, extending maturities and tapping new liquidity pools...

“The Bahamas intends to capitalise on the success of this credit-enhanced financing and the approved second tranche of the IDB guarantee for up to $200m to deploy its blended finance agenda through a second transaction over the course of fiscal year 2023-2024,” the Ministry of Finance added.

Meanwhile, Kwasi Thompson, the Opposition’s finance spokesman, yesterday queried why The Bahamas’ post-COVID economic recovery seems to be “petering out so quickly” as he compared the World Bank’s trimmed 1.8 percent gross domestic product (GDP) growth forecast for 2024 with the 4.1 percent average for the Caribbean.

“The Opposition again raises its concerns regarding the fiscal trajectory and growth prospects for the Bahamian economy in light of the World Bank’s recently-published reduction in the country’s economic growth forecast down to 1.8 percent for this year 2024,” he said.

“There are several things that the Davis administration can do to substantially improve the county’s economic growth prospects. We implore them to quickly implement the Bahamas Invest one-stop shop for Bahamian and foreign investments. Coming into office, the PLP found a plan to implement Bahamas Invest already advanced. Two years later we see no evidence of its implementation.”

Bahamas Invest would replace the Bahamas Investment Authority (BIA) as a more proactive investment agency, and Mr Thompson added: “We call on the Government to reverse the many bureaucratic hurdles it has put in place since coming back to office with all the increased reporting, increased taxes and other impediments.

“This government scarcely mentions ‘ease of doing business’ and their actions every day show their lack of focus. The government must focus on growing the economy by removing bureaucracy making it easier to do business and enhancing the digital transformation left in place by the FNM.”

“Just as important, the Government will have to explain why the country’s economic recovery has seemed to peter out so quickly. Given all the lofty announcements and pronouncements about major private investments and public infrastructure, why haven’t we seen most of these projects commence?” he continued.

“While the rest of the Caribbean is poised to grow on average at 4.1 percent, according to the World Bank report, the Bahamas’ growth rate is pegged at less than half of that at 1.8 percent. We should not have to be a laggard in the region in terms of economic growth prospects.”