The government will seek to source $892.4 million of this fiscal year’s borrowing from local markets and $959.2 million in foreign currency, the Ministry of Finance revealed yesterday.
Details of the government’s borrowing plans were outlined in the first Annual Borrowing Plan (ABP), which outlined the government’s intention to use an estimated $899.7 million of its borrowings to refinance maturing debt securities and loans in the form of issuances, buybacks, switches and redemption of bonds and treasury bills.
The government passed a financing resolution last month for $1.85 billion this fiscal year to retire old debt and cover the shortfall between revenue and expenditures, which are estimated to come in at $2.24 billion and $3.19 billion respectively in 2021/2022.
While the bulk of borrowing – approximately 52 percent – is being sought in foreign currency, the government noted it will continue to surveil domestic market conditions and investor sentiment to determine if more financing can be sourced domestically.
“Of the $959.2 million proposed in foreign currency borrowings, $700 million or 73 percent is to be derived from the international capital markets, representing the bulk of the overall financing at 37.8 percent,” the ABP states.
“Loan funding, at $372.4 million, will constitute 20.1 percent of the aggregate financing requirement, with nearly 64.5 percent to be sourced from potential international financial institution (IFI) financing, inclusive of budgeted loan drawings. The government will continue to monitor market conditions and investor responses, which could result in changes to the prospective funding plan.”
Regarding foreign debt, the government is seeking in the first half of this fiscal year to place $700 million in external bonds, using a US$200 million guarantee from the Inter-American Development Bank (IDB), to scale up fundraising in the international capital market. The government is also seeking $259.2 million in foreign currency loan financing.
It is hoping to leverage a multilateral guarantee to get favorable pricing for $19 million, which is to be sourced from a commercial bank. Additionally, the government intends to seek funding from an IFI in the amount of $160 million in the second half of the fiscal year. Another $80.2 million is expected from installment withdrawals from existing multilateral loans from various investment projects.
On the domestic side, the government’s plan is to issue $210 million of new bonds, taking advantage of months where there are no or low bond maturities; and maintaining a level of flexibility to address unexpected changes in the timing of cash flow requirements and prevailing market conditions.
During the second half of the fiscal year, the intent is to seek $113.2 million in Bahamian dollar loan facilities from the domestic market, representing 12.7 percent of the total domestic funding target.
“Outstanding bonds maturing in FY2021/22 total $484.1 million, of which $115.3 million (23.8 percent) bear floating rates and $368.9 million (76.2 percent) bear fixed rates. The government’s refinancing strategy will emphasize the following objectives: continue to monitor market absorption metrics for each benchmark tenor (3, 5, 7, 10, 20 and 30 years) to gauge demand for upcoming issuances and employ a grow/shrink strategy across maturity buckets. This would provide for the allocation of bonds to adjust to ultimate investor demand along the yield curve,” the ABP states.
The government will also “seek to achieve a gradual lengthening of the maturity structure of the bonds, to minimize refinancing risk and promote a sustainable debt path over the medium to long term”. It will also “continue the replacement of the floating rate with fixed rate bonds to reduce the outstanding debt portfolio’s exposure to interest rate risk”.
The debt management plan also involves the rollover of existing issues from treasury bill tenders. The existing issues and fixed rate treasury notes totaled $721.8 million and $145.1 million respectively at the end of June 2021.
“Based on the maturity profiles, the combined volume of treasury rollovers will approximate $3,175.1 million for the fiscal year. Outstanding treasury notes are expected to decline by an estimated $85 million, with a corresponding increase proposed for treasury bills,” the ABP states.
“Ultimately, changes in outstanding levels will depend on market conditions, investor participation and the need for short-term funding.”
Speaking to the release of the Annual Borrowing Plan and government’s debt management, Minister of State for Finance Senator Kwasi Thompson said the objective is to provide for the government’s borrowing needs at the lowest cost, while maintaining prudent levels of risk and contributing to a well-functioning government domestic securities market.
“To better achieve these objectives, our debt management activities are going to be more transparent moving forward. The publication of our medium-term debt management strategy every November and our annual borrowing plan every July will clearly articulate how we intend to eventually attain sustainability in our debt position,” he said in a statement.
The Public Debt Management Act, 2021 which was passed in Parliament in March, requires that a debt management plan is presented within 14 days of the approval of the annual budget.
The ABP is a key component of the government’s annual debt management mechanism for conveying its commitment to fiscal accountability and for increasing transparency and borrowing predictability in debt operations, the Ministry of Finance pointed out.