The following is an analysis provided to us anonymously of the Government’s 600 million dollars loan and the report of the Government’s Economic Recovery Committee. You will see from this that we have been badly served by Hubert Minnis, Peter Turnquest and the whole FNM administration.– Editor
Any right thinking Bahamian must be very exercised about the fiscal and economic direction of the country. The Minister of Finance’s recent statements has made it clear to us that either he is not being advised or he does not understand the advice being given. From the statements emanating from the officials of the Ministry of Finance which is now filled with political appointees, both things are occurring.
While some believe that silence is the appropriate course of action for the political opposition under the present circumstances, the Opposition must speak up. The political opposition should be the counterbalance to the foolish statements of this Minister. Yes, these are technical matters and to the man on the street they might be irrelevant but to financial stakeholders including domestic and foreign investors they want to know whether any Bahamian understands the implications of the actions of this clueless Government.
It is clear that under this administration we are a lock for an IMF programme and we would all be worse off if we silently allowed this to happen.
The facts to support this assumption are clear.
The November 2017 bond issuance was arranged by the PLP administration. It was the PLP administration that arranged and negotiated the $400 million bridge financing and arranged the bond issuance which was used to fund the 2017/2018 budget, the first budget of this administration. This bond financing was only executed by the FNM in November 2017 and the key thing which made The Bahamas attractive to investors at that time was a properly functioning Revenue Modernization Unit. This Unit which was bringing in an additional $400 million a year in revenue when this administration came into office was promptly discontinued by the Minister Peter Turnquest as soon as bond issuance was completed. So comparing pricing between the November 2017 and October 2020 bond issues is like comparing apples with oranges.
The Government during this present crisis has sought funding from multilateral financial institutions (IMF, IDB and CDB) through various lending instruments which are broadly categorized as policy based loans. These loans committed the Government to certain changes in domestic policy to receive funding. Prior to the present nomenclature being adopted for these loans they would have been referred to as structural adjustment loans. The Minister has not presented to Parliament any of these loan agreements which is a major break from the practice of other Ministers of Finance. These loan agreements have consequences as they significantly narrow the policy space for current and future administrations.
The $248 million short term funding [stated by] the Minister which was retired from the US$600 million debt issuance was used to retire debt from BEC/BPL. It was the Prime Minister Hubert Minnis who tabled the resolution for this borrowing immediately after the budget Communication. It was an act of fiscal subterfuge. The Government has never explained why the banks which were previously happy to receive a Government Guaranteed for BEC debt had suddenly rejected the Government Guarantee and instead insisted on a direct Government loan. This short term loan was from Credit Suisse (CS), a fact the Minister of Finance [confirmed] in his response to allegations published in a local tabloid sought to distort.
The CS loan was retired from the proceeds for [of] the $600 million bond issue. Parliament was previously advised that the CS loan was to be serviced by BPL and retired from the proceeds of the rate reduction bond. Hence the expenditure was not included in the deficit for the current fiscal year. It is now clear that this amount should have been included in the deficit calculation for the current budget and you could argue that the Minister misled Parliament. The Minister should explain whether BEC/BPL is off the hook for the $248 million loan and what are implications for the size of the rate reduction bond. The Minister should also explain why can’t the savings being experienced by BPL as a result of the Government retiring the loan be used to forgive the arrears of persons impacted by the pandemic.
The pricing on the $600 million bond is high and this would increase the cost of future debt issuances by this administration. A point of contention during the budget debate was the inadequate funding for interest expense in the budget. The position of the PLP has now been confirmed that the Government intentionally unbudgeted interest expense. Bahamian US$ debt traded at 8.25% prior to this recent issuance. The Government should explain why its initial price guidance was 9.25% and why it settled at 8.95%, These facts require an explanation as 70 bps (the difference between 8.95% and 8.25%) represents an additional $4.2 million in annual interest charges for this debt.
If the Government had gone to the market when the PLP issued its economic plan [in the Spring] the savings would have been about much more.
On the domestic side the situation is even worse. The Government has run out of credible lenders in the domestic market.
The Minister admitted in Parliament that the Government was forced to borrow $140 million from the Central Bank in July 2020 to fund expenditure, which was probably the maximum amount the Central Bank could have advanced to the Government at that time. Immediately thereafter because of pressure from the IMF, the Government passed new Central Bank legislation in one day which prohibits the Central Bank from lending to the Government. Government’s only borrow from the Central Bank when there are no available lenders in the market, to take away this option in this economy is economic suicide.
Mr. Turnquest alluded to reality in his statement to the Parliament when he spoke about regulatory and prudential restrictions which could restrict banks, insurance companies and pension plans investing further in Government debt, leaving only the Central Bank, given the financial pressures on the NIB fund. In these circumstances, why would the Minister mislead Parliament and the public about the Government’s ability to raise a further $400 million in new debt domestically this fiscal year. It is unlikely to happen and this could force the Government back to the IMF.
Minister Turnquest also alluded to principal deferments negotiated by the Government. Principal deferments sought by borrowers are considered by ratings agencies as defaults. The Minister needs to quickly explain what he meant by deferments as I am sure other lenders to the Government would consider this as admission of insolvency.
A couple other things:
It was the PLP administration which created the [Small Business Development Corporation]SBDC and left only for the Executive Director to be appointed. So the Prime Minister’s statement about his administration creating the SBDC is false.
Using the SBDC as the sole vehicle for funding small business is wrong. Why go to Parliament and refinance the NIB loans to BDB to provide it with liquidity and not use that additional liquidity to fund small business development? Is it because BDB’s liquidity is being used to purchase an overpriced building on Robinson Road, rather than fund small business development?
Why is the Opposition silent on the abuse of the Central Bank resources? In the middle of a pandemic, why is the Central Bank continuing with its vanity project of its new office building, which would be a significant draw on the country’s foreign reserves at this critical moment. Also what is the legal authority for the Central Bank to fund directly Government expenses such as the demolition of the Post Office Building, something its current Act prohibits?
The recent statement by the Actg. Financial Secretary about collecting VAT from foreign based digital services providers is not supported in legislation. VAT is only paid by VAT registrants and Facebook; Instagram and Twitter do not qualify as registrants. His ignorance about the VAT legislation is unacceptable given that this is now year three of his tenure.
Bahamians VAT registrants are already allowed to impute the VAT paid on the purchase of foreign services whether electronic or otherwise. He is saying that this practice is no longer allowed?