PHONY FNM DEBT MANAGEMENT DOCUMENT
So Kwasi Thompson, the Minister of State for Finance, got his picture in the newspaper on Friday 9 July 2021, boasting about a debt management plan document which was released pursuant to the Debt Management Act, which the FNM passed as part of their financial reform package. The only thing is, this stuff does nothing to improve the debt situation. It comes off as a bunch of idle words. Here is a critique of the whole matter:
What is the expected cost of the debt? The Annual Borrowing Plan (ABP) does not speak to this and because of this is not a credible document. The mechanism for Government borrowing is well established and the Central Bank’s role as a fiscal agent for domestic borrowing has not changed in 50 years. The Government previously forecasted the timing of its debt issuances so this report brings no new information.
What the market and the public needs to understand is the expected cost of borrowing. Without that information it can not be determined if the plan is credible. I do not believe that the plan is credible because the expected cost of borrowing is going to be substantially more than what is budgeted. On the US$ side the use of the IDB guarantee to support a sovereign bond reflects the market’s aversion to lending money to this administration. A $200 million guarantee for a $700 million loan reflects a desperate attempt by this administration to fool the market about their credit worthiness. What is disturbing is that the terms of this guarantee is not public knowledge, although it would probably bind future administrations.
On the domestic side, the statement that the domestic market with liquidity in the banking system at record levels could only support $210 million is a convenient way to say that nobody wants to lend to this administration no matter the cost. This is a precursor for insolvency. Clearly this administration’s back is against the wall.