The government is awaiting approval from the Inter-American Development Bank (IDB) on two policy-based guarantee instruments that will allow the country to borrow money at much more favorable rates than before, Prime Minister and Minister of Finance Philip Davis said yesterday during his 2023/2024 budget communication.
Davis also explained in his communication that the government will explore debt-for-nature swaps that allow for foreign debt to be forgiven.
“A debt-for-nature swap is an arrangement whereby a developing nation can have a portion of foreign debt forgiven, typically in exchange for committing to specific conservation measures,” said Davis.
He explained that both the IDB and Caribbean Development Bank (CDB) are this country’s primary development partners and provide a lower-cost source of financing compared to commercial borrowing. Davis said the government has a portfolio of seven loans with the CDB valued at $111.4 million, and a portfolio of 23 loans valued at $836.6 million with the IDB.
According to Davis, multilateral agencies like the IDB and CDB will support the government’s debt management operations in the 2023/2024 fiscal year.
“It will contribute to a reduction in the cost of the guaranteed debt issued by the government, and also include a policy matrix determined by the Ministry of Finance in conjunction with the IDB,” he said.
“A key component of the government’s fiscal strategy is to use access to CDB and IDB financing to lower our overall funding cost, by leveraging the institutions’ AAA credit rating. Reduced borrowing costs and improved debt tenor are tools which should improve the overall debt profile of the nation.”
Debt tenor is another tool in the government’s arsenal to decrease the cost to government while borrowing.
Davis also said yesterday that as a medium-term debt strategy, the government hopes to move away from “costly external commercial debt” that has led to a spike in the cost of interest repayment. He added that the government will rely more heavily on domestic borrowing, given especially that “the average interest cost for domestic bonds subsided by three basis points to 4.63 percent”.
“When considering the maturity of debt, or the average time it takes to repay the principal amount in the government’s debt portfolio, a longer maturity period leads to a reduction in refinancing risk,” said Davis.
“In essence, prioritizing longer maturities is key to managing debt effectively. And so another element of the government’s medium-term debt management strategy is the goal of prolonging the average maturity time of its debt.”