Debt is the money the government owes to individuals or organizations. The cost to borrow money is called interest. When the Government borrows money, it has to pay it back with interest (Interest is the price to borrow). Public debt management is primarily concerned with the Government Debt, which is the money owed directly by the Government (also called the Direct Charge).
Plans to Borrow
The Government tabled legislation to seek authorisation to borrow a total of $72.4 Million this budget year, in addition to drawing down $64.5 Million from existing loans. Together this financing will cover the Government's estimated deficit of $137 million. At the end of the fiscal year, the Budget estimates an outstanding debt of $7,612 million, or 57.3 percent of GDP.
Debt Management & Fiscal Targets
In line with the legally mandated requirements set by the Fiscal Responsibility Act, 2018, the long term debt objective is to reduce debt to no more than 50 per cent of GDP. The Government is working with technical advisors to develop debt management legislation to modernize the public debt management infrastructure and make it easier to achieve and maintain the debt limits.
The Public Debt Management Bill is intended to be enacted by the end of 2019, although the implementation of some of its parts will precede its enactment; namely, the creation of the Debt Management Unit at the Ministry of Finance. The Bill will mandate that an annual Debt Management Strategy Report be produced and presented to Parliament at the time of the Annual Budget exercise, in keeping with our efforts to increase transparency and accountability in the management of public funds.
At the end of the fiscal year, the Budget estimates a debt position of $7.612 million, or 57.3 percent of GDP. This is the Direct Charge on Government, which is not to be confused with the National Debt. The National Debt is calculated by adding the Government's debt with its contingent liabilities (or debts owed by State Owned Enterprises).
The Government tabled legislation to seek authorisation to borrow a total of $72.4 Million this budget year.
The Budget includes an allocation of $628 million to go towards debt repayment in this fiscal year.
The Government has also set aside $46.49 million, covering five sinking funds, to assist with future debt repayment.
As members states to the Inter-American Development Bank (IDB) and the Caribbean Development Banks (CBD), the Government secures loans from these international organisations from time to time. The Government authorised the implementation of three new loan-funded projects, listed below. The Budget includes authorisation to draw down a total of $5.5 million to support the implementation of thes projects.
Also highlighted below is the total value of the loan over the lifetime of the project, and the total value of the project. In addition to loan funding, the Government often contributes budgeted money to combine with loan financing for projects. That is why, in the case of the CDB funded projects, the loan amount is different from the total value of the project.
The Street Light Retrofitting Project is a CDB-funded project that will facilitate the conversion of street lights to LED lights and the installation of a smart street light grid system. Project Value: $17 Million.
This CBD-funded project will be centered on the upgrade of the current BTVI campus, with a particular focus on developments related to Information Technology. Project Value: $9.3 Million.
This IDB-funded project will help to reduce the cost of doing business with Government, streamlining processes and placing them online. It will enable the Public Service to incorporate greater use of ICTs.
Credit Enhancement Programme
The Government is currently considering IDB funding for a Credit Enhancement Facility (CEF) project to further boost economic activity by providing financing for small businesses as well as improving their business skills. These objectives are largely in line with the functions of the Small Business Development Centre (SBDC) and, as such, the SBDC would stand as the executing agency for the project, if approved.
The project would include two major components:
Government Debt should not be confused with National Debt. Government Debt is money owed directly by the Government. It is also called the Direct Charge on Government. The National Debt is calculated by adding Government Debt together with Contingent Liabilities, which are all of the debts owed by State Owned Enterprises that are guaranteed by the Government. If public corporations are unable to pay their debts, the Government has to step in and settle those obligations that it guaranteed.
Source: Central Bank of The Bahamas, December 2018
Interest payments on the debt is one of the Government's largest recurrent expenditures. It accounts for 14.7 percent of expenditure. The Government allocated $371.5 million in the Budget to make interest payments. It also estimates principal payments to total $628 million. Consistent with the increase in government borrowing over the past five to seven years, principal payments have also increased.
Since 2016/17, Government debt levels have been much higher than optimal targets, which means the rate of borrowing has been unsustainable. The fiscal plan is designed to significantly slow the rate of debt growth and bring it to sustainable levels in line with the legally mandated fiscal target of 50% of GDP.
As at the end of December 2018, Government debt was 60.4% of GDP. The long-term fiscal debt target is to reduce this debt level to no more than 50% by 2024/25.
This is the first budget that will be fully enacted under the legal framework of the Fiscal Responsibility Act, 2018. In a nutshell, we have established a sound multi-year fiscal plan to address known fiscal pressures, finance our growth agenda in a fiscally responsible way and to meet the mandated and crucial deficit and debt targets."