Debt hole is getting deeper, warns Richards

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  • <B>Downgrade concern:</B> OBA finance spokesman Bob Richards said Fitch had cast doubt on Government&#146;s credibility.

    Downgrade concern: OBA finance spokesman Bob Richards said Fitch had cast doubt on Government’s credibility.
    ((Photo by Mark Tatem))

PLP: Richards offers no plan

The PLP last night responded in a statement to Bob Richards comments. It said: “The OBA have spent hundreds of hours complaining, but, they have yet to tell the Bermudians what they would do to address Bermuda's debt”.
"Our plan is clear," noted Premier Paula Cox. "We believe in investing in Bermudians during difficult economic times. That investment will help turn our economy around and get people back to work.
"It's the same model embraced by Barack Obama. The idea is to invest during the worst of the recession to soften the blow and then continue to invest in to get people back to work."
"When our economy returns to growth, tax revenues will increase and we'll close the deficit and start paying down the debt.”
PLP candidate Neville Tyrrell asked: "Where's the OBA's plan? The PLP has already frozen the size of the civil service and we're already shrinking it through attrition. That will not get Bob Richards the deep cuts he claims we need."
"Bob Richards has spent hours talking about this issue, but has yet to explain fully how he would deal with it. Does he plan on reducing government salaries? Does he plan on cutting funding for education? Does he plan on ending FutureCare and DayCare?
“Does he plan on reducing healthcare benefits for our youth and seniors? Does he plan on cutting funding for the police? If not, how does he plan to cut spending? The OBA promises rapid and radical change, but, they fail to tell us what that actually means for everyday Bermudians.”
The PLP statement continued: “Turn off the OBA's ranting and raving and have a look at the steady progress that has been made since 1998. Since that time, contrary to the claims by the OBA, we've made $1.38 billion of Capital Investment in Bermuda and Bermudians. Investments in our schools and students, investments in care for our seniors, investments in tourism, investments in transportation and investments in healthcare facilities; investments in a better future for Bermudians.
“Bermudians prefer steady progress. The PLP will continue to provide the steady progress that will benefit Bermudians.

Government is leading Bermuda into a deep financial hole that it will take decades to get out of, said Shadow Finance Minister Bob Richards in response to the Island’s credit rating downgrade by Fitch.

At a press conference staged yesterday by the opposition One Bermuda Alliance, Mr Richards also said the one-notch downgrade to AA from AA+ would cost taxpayers $15.5 million as a result of higher interest payments on the $475 million of Government bonds sold on Tuesday — a claim later disputed by Junior Finance Minister David Burt.

OBA leader Craig Cannonier added that Bermuda’s standard of living was at risk if Government continued on its current fiscal path.

Mr Richards said the only way out was a two-pronged approach involving pro-growth policies and cost cutting, though he emphasised there would be no public-sector redundancies under an OBA administration.

He described the Fitch commentary on why it had downgraded Bermuda as “damning”.

“What was particularly disturbing about the Fitch report were the comments it made about the Government’s management of the public purse,” Mr Richards said.

“Fitch expressed little confidence in its ability to manage Bermuda’s finances. It also cast doubt on the Government’s credibility — citing lack of discipline and noting its failure to accurately estimate the size of its deficit.

“And Fitch issued a thinly veiled warning to Bermuda — that without a more disciplined approach to the Island’s finances, without a plan to reduce Government’s huge and growing debt, and without a plan to close its mounting deficit, further negative judgment would follow.”

He honed in on Fitch’s observation that Bermuda’s debt-to-revenue ratio was deteriorating faster than its peers in the AA-rated group of countries.

“If all our problems are the result of the global recession, why is our debt situation deteriorating faster than our peers?” Mr Richards said. “It’s because our debt problems have ‘Made in Bermuda’ stamped all over them.”

On Tuesday, Premier and Finance Minister Paula Cox pointed out that after the downgrade Bermuda had the same AA rating that it had from 1994 to 2006. Mr Richards said in 1994 the Government owed $160 million, compared to the almost $1.45 billion it owes today.

“The cost of this downgrade on that amount of debt is staggering compared to the minuscule amounts in the years the Premier mentioned,” Mr Richards said. “In fact, despite Fitch’s wake-up call, the Premier and her Government show they are still asleep, gently drifting on the river of denial.

“Let us also remember that this bond issue is to be used for current expenses: keeping the lights on, paying salaries, servicing the debt etcetera.

“As for the nonsense Government spouts about using the money to build infrastructure, this is not borne out by the facts. The fact is that no more than $500 million has been used for capital spending — which leaves nearly a billion dollars not spent on infrastructure.

“Even if this were true, what kind of manager would blow all his cash on infrastructure and then have to borrow money to keep the lights on? This debt is the result of financial mismanagement. Investors now know it from the Fitch report and so do Bermudians.”

Mr Richards claimed the downgrade would cost taxpayers more than $15 million.

“Before the downgrade, existing Bermuda Government bonds yielded 3.81 percent,” Mr Richards said. “After the downgrade the new issue yield was 4.138 percent, an increase of 0.33 percent. With the issue size of $475 million the cost of the downgrade to Bermuda taxpayers was $15.5 million.”

This claim and Mr Richards’ numbers on capital spending were later disputed by Junior Finance Minister David Burt.

Sen Burt said Mr Richards was comparing the 3.81 percent yield quoted for bonds due in 2020 with the bonds sold yesterday, which are due in 2023.

“It’s disingenuous to compare eight-year bonds with ten-and-a-half-year bonds,” Sen Burt said. “The bonds have a longer maturity and so the interest rate is not the same.” He said he did not believe the downgrade had affected the interest rate on Tuesday’s offering.

Sen Burt stated that the total of actual capital spending detailed in Government budgets since February 1999 was $1.38 billion, compared to the $500 million figure cited by Mr Richards. He added that Government had already made spending cuts and that its fiscal consolidation strategy involved freezing spending over the next three years.

Mr Richards was asked by a reporter whether the cost cutting envisioned by the OBA would include job cuts.

“We will not be laying off civil servants,” he said. “I don’t know how I can be any more clear than that.

“We do believe there’s a huge amount of waste and wasteful practices and we believe we can gain economies there. There are a lot of people who’ve been working in the Civil Service for years and they’re about to retire.

“Our objective would be that as they retire, they don’t get replaced with new bodies. Over time the size of the Civil Service will reduce and that’s what we mean by reducing by attrition.”

Mr Cannonier emphasised the need for a balanced approach, entailing growth and efficiency.

“We have to cut costs, but at the same time we have a put a plan in front of Bermuda that says how we’re going to get folks back investing in the country, which will increase revenue for everyone.

“Everyone from the person sweeping the street, who can be assured that his job is safe if there is money coming in to keep us afloat and keep us moving. If we continue on the path we’re on now, our standard of living is in jeopardy.”

The growth of Bermuda’s debt had left the Island at the mercy of the creditors who underpinned Government’s finances, Mr Richards added.

“We’re paying about $115 million a year just to service the debt,” he said. “That money comes off the top before anyone else gets paid. That’s because if the Government doesn’t pay that, then the Government’s out of business. The one group of people who can put Bermuda under are international creditors.”

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Published Jun 28, 2012 at 8:56 am (Updated Jun 28, 2012 at 8:55 am)

Debt hole is getting deeper, warns Richards

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