The Tribune

By NEIL HARTNELL

TRIBUNE Business Editor

nhartnell@tribunemedia.net

THE GOVERNMENT needs to better explain the gulf between the $1bn increase in the national debt during the 2025-2026 Budget year and its $121.2m fiscal deficit, a senior banker said yesterday, branding it a “significant disconnect” between the two.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, responding to the Central Bank’s recent revelations on the debt increase, told Tribune Business that there were nevertheless “a couple of very plausible explanations” that the Government can offer to explain the difference between the two key fiscal indicators.

One, he said, could be that the Government was holding borrowed funds as cash, or investing them in US money market funds and other securities instruments, which means they would not show up as expenditure in the deficit/surplus calculations because the money has yet to be spent. This would not be picked up by the Government’s modified cash basis of accounting,

Mr Bowe told this newspaper that another explanation could be the Government’s increasing use of special purpose vehicles (SPVs). While such entities are not problematic in and of themselves, he called for greater transparency over SPVs through publication of a listing that identifies them all and what they are being used for, so as to prevent any concealment of government liabilities.

Acknowledging that the difference between the debt increase and deficit for the ten months of 2025-2026 requires further explanation, the Fidelity Bank (Bahamas) chief said: “It’s not a bit of a disconnect; there’s a significant disconnect…

“If I had an increase in debt of $1bn, and a deficit of around $120m, I would probably spend two to three pages explaining why that’s the case so persons understand how borrowings are being utilised and have an understanding of the true net debt position of the country.

“It shouldn’t be so complex that we confuse ourselves. Keep it simple stupid. For the Government’s accounting, let’s keep it as simple as possible and not get into exotic [instruments] in the Government sector.”

Mr Bowe said the Government may have kept a significant portion of its recent borrowings as cash in the bank, or elected to invest it in bonds and other securities, resulting in it failing to appear in its deficit numbers due to the absence of accrual-based accounting. As a result, while The Bahamas’ national debt may be rising, spending is not taking place.

“There should be a very swift and quick answer to identify what are your bank balances and money market holdings, and what are they being held in support of?” he added. Mr Bowe noted that the growing popularity of SPVs with the Government could also provide an answer for the debt-deficit gap.

“The Government of The Bahamas, for the better part of ten years, has been creating these vehicles for the purpose of buying buildings, creating a sovereign wealth fund and the like, and there may be funds going into those vehicles,” the Fidelity Bank (Bahamas) chief executive added.

“Because we don’t have accrual-based accounting, we don’t have a register of assets like we would in the private sector reporting entities. We should have a complete listing of SPV loans and investments in them so we have a very understanding these SPVs are not for the purpose of concealment but because” they are responsible for holding real estate, managing projects and other uses.

Mr Bowe said it would be “a problem” if the Government uses SPVs to prevent the “accumulation of obligations not showing up in a timely manner”. Noting that the law requires the audited financial statements and annual reports of state-owned enterprises (SOEs) to be tabled in the House of Assembly, he suggested that the so-called SPVs be subjected to similar reporting requirements so Bahamians have a “complete picture” of the Government’s financial position.

The 8.8 percent year-over-year increase in The Bahamas’ national debt to $13.17bn is likely to fuel questions about the extent of pre-election spending, as well as the seeming disconnect between the size of the debt surge and seemingly much-lower annual GFS deficit. The latter, which is supposed to measure the net increase in the Government’s debt, as well as by how much its spending exceeds tax/revenue income, stood at only $121.2m at end-April.

The more than $1bn jump in the national debt came despite a slight drop in the Government’s direct liabilities during the three months to end-June 2026. “For the quarter ended-June 2026, the direct charge on the Government fell by $7.1m (0.1 percent) to $12.466bn while, on an annual basis, it grew by $697m (5.9 percent),” the Central Bank confirmed.

“The Government’s contingent liabilities increased by $358.7m over the review quarter, and by $373.5m year-on-year, to $703.4m. Consequently, the national debt, inclusive of contingent liabilities, rose by $351.6m (2.7 percent) over the three-month period, and by $1.071bn (8.8 percent) on an annual basis, to $13.17bn as at end-June 2026.

“As a ratio to GDP, the direct charge decreased by 0.2 percentage points on a yearly basis to 70.7 percent at end-June. However, the national debt-to-GDP ratio increased to an estimated 74.7 percent from 72.8 percent in the second quarter of 2025.” The latter indicator was also ahead of the 74.2 percent national debt-to-GDP ratio at the 2024 mid-point, while total public sector debt - having fallen from 76.6 percent to 75.2 percent at the half-way mark in 2025 - is now back up to 77.3 percent of GDP.

Much of the contingent liability increase is related to the borrowings that the Government guaranteed for its $280m Grand Bahama Power Company acquisition and working capital, plus its liquefied natural gas (LNG) energy reforms and Public Hospitals Authority (PHA) in the months leading up to the general election.

However, the Central Bank report will likely reignite Opposition questions as to why the Government’s direct net debt has increased by almost $700m when the fiscal deficit at end-April 2026 - with just two months left in the fiscal year - was shown as $121.2m. And the re-elected Davis administration, as late as end-June 2026, was forecasting a $32.7m Budget surplus for 2025-2026, albeit reduced by some $42.7m or more than 50 percent from the original $75.5m target.

The surplus, if achieved, should mean the national and direct government debt decreases rather than goes up by a much higher amount. The Opposition has already charged that the Davis administration has been using the National Investment Fund to hide the scale of government borrowing and debt, placing borrowed funds into this rather than the Consolidated Fund, which enables it to treat these monies as equity rather than debt.