Richards 2.5b debt ceiling does not mean Govt will borrow that much

Published Feb 23, 2013 at 8:00 am (Updated Feb 23, 2013 at 12:29 am)

A new statutory debt ceiling of $2.5 billion should not be taken as an indication that borrowing under the new Government will increase by another $1 billion, Finance Minister Bob Richards insists.

Mr Richards told the House of Assembly that the new ceiling is at a ?realistic? level ? in contrast to the debt ceilings of previous administrations.

?It is the view of this Government that what has become the annual ritual of ratcheting up the debt ceiling gives the impression that there is indeed no debt management plan at all. This is a negative insofar as capital markets are concerned, the same entities we rely on to finance this debt,? he said.

?Therefore, we will be laying legislation, for the approval by Parliament, to raise the authorised debt ceiling to $2.5 billion. It is important to note that this only authorises the limit of Government borrowing, it does not prescribe the actual amount of borrowing.

?We do not expect the borrowing requirement to take us to that level, but we want a level that is pragmatic, realistic and static. The only adjustment to this ceiling I would like to see is an eventual downward adjustment.?

But new rules will be implemented to keep the debt affordable, he continued.

?In conjunction with the new ceiling, the Government commits to keep public debt at such a level that the net debt/GDP ratio does not exceed 38 percent. Additionally, Government recognises the desirability of achieving a net debt/revenue ratio that is below 80 percent and a debt service cost/revenue ratio that is below 10 percent. We will work toward reducing these ratios to such a level over the medium term.?

Mr Richards was reminded at the post Budget press conference that he had harshly criticised former Finance Minister Paula Cox for using debt/GPD ratio as a measure of affordability of the national debt.

But he said other performance measures were being used and Government was not comparing the country to bigger jurisdictions as had the previous administration.

Mr Richards? forecasting envisages a likely ?base case? scenario where debt could rise to just over $2 billion by 2017.

But he warned the debt could end up being as high as $4 billion if corrective action is not taken.

?The most noteworthy of the scenarios is the worst case because it merely extrapolates the current real life deficit and debt trends,? Mr Richards said.

?In other words if we do nothing and economic conditions remain as they are now, Bermuda is forecast to have a public debt of about $4 billion in five years. Debt service is forecast to be in the area of $300 million per year, making it by far the largest Government ?department?. After paying debt service and salaries there would be little left for anything else.

?The base case scenario shows debt continuing to rise to just over $2 billion and declining thereafter. The best case sees debt rolling over faster and being somewhat lower after five years. Again, we are working toward and hoping for the best case but the highest probability scenario, ie the expected case, is the base case.?

Source: http://www.royalgazette.com/article/20130223/NEWS/702239938&source=RSS

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