Warning over Govts orgy of debt
The sale of bonds hailed as a success by Government may not be the good news the PLP are claiming, according to Shadow Minister Bob Richards.
Speaking in the House of Assembly on Friday at the Motion to Adjourn, the One Bermuda Alliance MP said that while the 4.13 percent interest rate may be a record low rate for Bermuda, he said that bond prices internationally are at an all-time low.
Compared to other jurisdictions, Mr Richards said our bond rates were higher than other similarly rated countries, and closer those rated BBB- — one step above junk bond level.
The cost of money for the Bermuda Government continues to be excessive compared to other AA jurisdictions, he said.
Yes, it was a successful issue. Yes, it was oversubscribed. Anyone who sees AA with the interest of a BBB- is going to buy it in a heart beat.
The truth is, we are paying a lot of money for our debt. This bond is to keep the lights on in Government. That is what this is for.
Earlier this week, Government announced that it had raised $475 million of ten-year notes through the sale of bonds with an interest rate of 4.13 percent.
The net proceeds will be used to repay outstanding short-term debt with local banks, with the balance to be used to fund capital expenditure programmes and for other budgeted governmental purposes.
The news came out on the same day that international ratings group Fitch downgraded the Islands credit rating from AA+ to AA.
Premier Paula Cox said that despite the downgrade, Bermuda continues to receive high ratings from all three ratings agencys, and that numerous other nations have been downgraded this year due in part to the global economic crisis.
While the Premier also noted that Bermudas new rating is the same as that which the Island held between 1994 and 2006, Mr Richards said debt has swelled dramatically since 2006 and today.
Thats the difference, Mr Richards said. Its the orgy of debt that this Government has engaged in.
He told the House that the Governments cumulative Current Accounts deficits, including debt service and including this current fiscal year was $1.4 billion.
However over the weekend he issued a correction, saying the correct figure was $700 million.
He further said that Fitchs reasoning for the downgrade matched the complaints and concerns of the OBA, such as a rising debt ceiling, withdrawals from the sinking fund and the failure to create multiyear budget programmes.
They say all of these factors have undermined the credibility of the fiscal policy of this country, Mr Richards said. This sounds like its coming out of my mouth or the mouths of my colleagues, but its coming out of a ratings provider.
If people want to see who is on the mark on this, this is the truth.
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