The government has applied for a $252 million low-cost, rapid financing facility from the International Monetary Fund (IMF), the Ministry of Finance confirmed yesterday.
The loan facility is being offered at 1.054 percent interest with no ‘structural adjustment strings attached’ and no conditionality elements. It will be used to support Hurricane Dorian and COVID-19 programs for the rest of the fiscal year.
Deputy Prime Minister and Minister of Finance Peter Turnquest said this particular low-cost facility is a one-time deal that cannot be used again until it is repaid.
“This loan is not a structural adjustment facility. It does not involve the conditionality elements normally associated with the IMF facilities that most are familiar with. This facility is a low-cost option, with an interest rate of some 1.054 percent that we are smartly availing ourselves to address our current needs,” said Turnquest.
“In a few days, we are going to present a new budget and it will continue to reflect the double impact of Hurricane Dorian and COVID-19. However, we have demonstrated that our approach to addressing these emergencies is to focus on the health and safety of Bahamians, social protection for the most vulnerable and the need to sustain employment. These priorities will continue into the new budget, as we work to stabilize the domestic economy and plant the seeds of recovery. This loan facility assists us with meeting our existing obligations through the end of the fiscal year, as has been approved by Parliament during the supplement Hurricane Dorian exercise,” said Minister Turnquest.
The loan must be repaid in five years, however a grace period of three years has been afforded to give the government time to refinance the loan over a longer period if necessary.
Earlier this year, in response to Hurricane Dorian, the IMF offered to make $200 million available to The Bahamas through its Rapid Financing Instrument (RFI), at low cost and without policy conditionality.
At the time, Turnquest said the government was not considering the loan offer. In fact, the government took a hard stance against borrowing in the earlier part of the year, even when the dire economic effects of the COVID-19 pandemic began to materialize.
In March, just as Prime Minister Dr. Hubert Minnis announced a public state of emergency, Turnquest said in the House of Assembly that the government had no plans to request additional financing. However, on May 7, Turnquest said the government would have to borrow at least $250 million in the wake of COVID-19.
The Bahamas will join 27 other countries that have accessed this financial assistance, using the IMF’s RFI, which has only been offered to countries with stable debt that have sustained a major economic shock such as the COVID-19 pandemic, noted the Ministry of Finance.
“A simple way to think of this is like borrowing against the value of your ownership in a company. The Bahamas has a quota in the IMF which can be likened to its ownership of shares in the IMF. Borrowing against these shares is normally at a lower interest rate than borrowing from a commercial source, therefore it is a more favorable option for emergencies like the one we face today,” Turnquest said.
In the government’s nine-month snapshot on budgetary performance, it shows that the government has already borrowed approximately $936.5 million to fund its budgetary operations this fiscal year.
The Ministry of Finance noted that, “While the government could have negotiated a loan with other financial institutions, the RFI is indisputably the better option in the current circumstances, given its fast disbursing nature and low-interest rate.”