House raises debt ceiling as Govt coffers run dry

  • Finance Minister Bob Richards

    Finance Minister Bob Richards

Gibbons: Govt was on the brink

Following last night’s debate Minister of Economic Development Grant Gibbons said that the legislation had been passed “with a certain sense of urgency” in order to prevent Government from running out of money.
“Basically, what the Finance Minister was saying was the debt ceiling had to be raised because otherwise, there were insufficient funds available to make it to the end of the financial year — which of course is the end of this month,” Dr Gibbons said.
“If you look at what was budgeted in the financial year 2012/13, in terms of revenue there doesn’t look like there was going to be as much as originally estimated, while spending was up on original estimates.
“That would have left us with a shortfall of around $70 million, which meant that we would have been unable to pay essential government costs such as payroll at the end of the month.”
Dr Gibbons said he believed it was the first time in Bermuda’s history that Government had come to the brink of being totally cash-strapped.
“The last Government was in the habit of raising the ceiling in increments but they didn’t raise it sufficiently to cover spending through to the end of the year,” he said.

Government last night rushed through legislation allowing it to borrow an additional $1 billion — saying it needed to act quickly before it ran out of funds.

The Government Loans Amendment Act 2013 was approved by a majority vote in the House of Assembly to enable Government to raise the national debt ceiling from $1.45 billion to $2.5 billion.

Finance Minister Bob Richards said Government regretted having to borrow more cash but that the only alternative was to slash jobs and services.

To drive home the plight of Government finances, he said the amendment was essential in order to prevent the public purse from running dry.

“For the edification of members of this House, had it not been for this provision this Government would have run out of money — we would have run out of money had it not been for this Act,” he said.

“Let no one have any illusions about the severity of the cash flow of this Government.”

Mr Richards acknowledged that there had been “some disquiet in the public domain” about the severity of the increase, but that plans were already being put in place to bring down debt in the long term — by reducing Government spending and increasing investment coming into the Island.

He pointed out that, under the former Progressive Labour Party Government, raising the debt ceiling had become “an annual ritual” which had undermined the Island’s financial credibility.

“If we carried on doing what you were doing, this country would be $4 billion in debt in five years,” he said.

“The last Government was very keen on spending money but not that keen on raising it.”

Opposition MPs initially supported the bill, acknowledging that Government needed funds to keep the Country running.

Shadow Finance Minister David Burt gave the increase his backing — but also defended criticism that the previous Government had spent money recklessly.

“The honourable learned member has admitted that it’s very easy to balance a budget. He could do it tomorrow — he just has to fire a whole bunch of Civil Servants,” Mr Burt said.

“This party was not going to let that happen. The PLP took steps to ensure that our people were protected.

“We look at this exorbitant rise in the debt ceiling and, on the face of it would be irresponsible for us on this side of the House to say ‘no, we are not going to vote for it’. We have an obligation to international markets and this country must pay its debts and so, from that perspective we are not going to say that we’re not going to support it.

“But we do have some questions as to why the large raise because, not so long ago we were told wonderful things about how you were going to reduce debt. And then we come here and find the largest debt ceiling in this Country’s history.

“The reason why there’s disquiet among the people of this Country is because they were told something before the election — and got something different after the election.”

Opposition leader Marc Bean also took a shot at the Finance Minister over his claim that the deficit would be cut.

“It is very disappointing because we have heard what was said by the crystal ball guru,” Mr Bean said

“The crystal ball is now cloudy.”

Mr Burt made a last-minute attempt to delay a vote on the bill, arguing that the Opposition needed to see precise figures before it could support Government’s “rationale” for raising the debt ceiling to an unprecedented level. But the protest was made during the third reading and so the bill could not be blocked.

Mr Richards had earlier said that it was with a great deal of regret that he was forced to raise the ceiling.

But last night he pledged that Government initiatives would reduce the need for further borrowing in the long-term.

“We have to wrestle this debt beast to more manageable levels,” he said.

“We are trying to put in place concrete plans for the people of Bermuda. We are forward-looking. We have been handed a really big hole and have tried to concentrate on putting a rational plan forward, a rational plan based on concrete rules. Before this, the plan was being thrown away year after year after year.

“We have spent days and nights looking at revenues and trying to attract inward direct investment to this country. And we have been successful — that capital is coming. Investment always proceeds earning and jobs.”

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Published Mar 5, 2013 at 8:00 am (Updated Mar 5, 2013 at 12:55 am)

House raises debt ceiling as Govt coffers run dry

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