With many of the government’s bonds trading in the red on the international markets, concerns about Bahamas government debt are rising, but Financial Secretary Simon Wilson said yesterday The Bahamas still has capacity in the markets.
The $825 million issuance the government placed in 2020, which is set to mature in 2032, is trading 47.81 percent less than it was a year ago. The $750 million bond placed in 2017 that is due to mature in 2028, is trading 39.12 percent less than it was a year ago. The $155.28 million bond issued in 2014, which comes due in 2024, is trading 22.88 percent less than it was year ago, according to the Frankfurt Stock Exchange.
Though their performance a month ago shows some improvement, those bonds are still in the red.
Asked yesterday if he believes this performance was indicative of the international markets’ appetite for Bahamian government debt, and if it’s the reason why the Davis administration is focused on sourcing financing predominantly in the domestic market, Wilson said no.
“No, no. The international markets right now are very volatile. Still, there was an over-reliance on the international markets previously,” he told Guardian Business.
Speaking in regards to higher costs of future financing given the performance of the bonds, Wilson said, “I wouldn’t worry so much about that. I think for us, we are well on our way to the refinancing of payments. We think we have enough capacity in the markets. The other things you have to remember is how the bonds trade doesn’t impact our cost of funding because the bonds are fixed rated, so it doesn’t impact our costs.”
Wilson continued, “If the plan is to go back in the short term then there is a challenge. But we’ve already signaled that our intention is not to go back in the short term. We have an opportunity if we are careful and we stick to the plan, and the plan is to reduce the size of the deficit and have a longer track record of economic growth. We have an opportunity to really change this narrative.”
There are no further plans for international borrowing this fiscal year.
The government in June placed a nearly $400 million dual tranche bond offering in June, $200 million of which was supported by an Inter-American Development Bank (IDB) guarantee.
That financing covered shortages in the last fiscal year, as well as cash shortages anticipated this fiscal year.
The Free National Movement (FNM), however, is not convinced the government has a clear strategy.
Pointing to the bond performance in a statement yesterday, Shadow Minister of Finance Kwasi Thompson said the series 09/29 and series 20/32 bonds are in the midst of a historic price collapse.
“The 20/32 series are trading today (August 5, 2022) at 57 cents on the dollar and the 09/29 series are trading at 52 cents on the dollar. The latter is now down by more than 50 percent from last year and both bond series have trended steadily downward over the last 52 weeks, erasing close to half their value,” he said.
“Why is this occurring and what effects will this have on The Bahamas? The government must bring focus on this troubling occurrence. The government must heed constant advice to bring to Parliament a credible medium-term fiscal plan that ensures expenditure restraint and a defined flow of enhanced revenue inflows. The extravagant spending on travel, entertainment, and events must be curtailed, and the engagement of consultants and new staff must be kept strictly to a limited number of priority areas. The government must articulate a coherent tax reform plan and must bring the same to the public for a full consultation.”
Wilson, however, pointed out that those bonds were placed under the previous administration and were poorly executed.
“They did a trade that was a very bad trade – 20/32, which was done in 2020 – that in essence reset the price of Bahamian dollar debt. It was a horrible trade. It was horribly designed and horribly executed. It was a large trade but it was horrible,” he said.
“If you talk to anybody who knows about the markets, they will tell you that trade really put us in a bad situation.”
Wilson said The Bahamas is limited in how it’s traded because this country is not on the JPMorgan Emerging Market Bond Index.
The government revealed recently that it has engaged international financial services firm Rothschild & Co. to help it achieve some of its debt management goals.