Fiscal experts have warned repeatedly that government debt exceeding 40 percent would signal danger as The Bahamas government may be forced into a mode of borrowing that could be fiscally unhealthy

Bahamas: $2.54 Billion In National Debt

By Candia Dames

Nassau, The Bahamas

24 August 2005

The National Debt rose from $2.54 billion to $2.63 billion in the second quarter of 2005, the Central Bank of The Bahamas says in its newly released statistical digest.

In the second quarter of 2004, the National Debt stood at $2.39 billion, but has continued to see a steady rise, according to the figures.

The report reveals that the government’s contingent liabilities continued to grow, jumping from $438.4 million in the first quarter of 2005 to $454.13 million in the second quarter of the year.

The National Debt takes into consideration the government guaranteed borrowings of public corporations and other public entities.

These contingent liabilities include the $24 million in bonds issued by the Clifton Heritage Authority; $40.7 million in loans taken up by the Education Loan Authority; and $111.7 million in Bahamas Mortgage Corporation loans.

At the end of this fiscal year, government debt as a percentage of GDP is projected to be 37.5 or $2.330 billion.

Fiscal experts have warned repeatedly that government debt exceeding 40 percent would signal danger as the government may be forced into a mode of borrowing that could be fiscally unhealthy.

In the notes attached to the 2004/2005-budget communication, the government explains that growth in the debt is justified if it supports increases in the productive capacity within the economy, and if the servicing burden from principal repayment and interest costs does not unduly constrain the economy’s access to foreign exchange for other beneficial purposes.

It’s a point Minister of State for Finance James Smith – who is presently in the U.S. convalescing after what was termed a successful surgery – has made repeatedly.

He has also noted that the economy is projected to grow by 3.5 percent this year and the foreign component of the National Debt is "extremely low."

In an earlier interview, Minister Smith explained that, "If the $2 billion were held by a foreign bank, at anytime [that bank] could demand payment and you’re virtually bankrupt. You can’t even go and negotiate with them for whatever reason. So that means your risk is much higher."

The government has also noted that international observers closely monitor the total foreign currency debt of the government and public corporations, as on the repayment side it represents a required use of foreign exchange earnings.

The International Monetary Fund recommended in its June 2005 report on The Bahamas "a further strengthening of the 2005/2006 fiscal stance relative to the budget proposal and closer monitoring of budgetary developments to help ensure that the more stringent objective [of government debt-to-GDP ratio of 30 percent] is achieved."

In the upcoming fiscal year, the government intends to spend $1.214 billion, an increase of $39 million, or three percent over the 2004/2005 budget.

The government projects it will collect $1.145 billion, an increase of $93 million, or nine percent in revenues.