Government is set to borrow up to $800 million to cover budget deficits for the next three years.Finance Minister Bob Richards yesterday explained that borrowing for the medium term in the current low interest rate environment will save the taxpayer millions of dollars in financing costs."We judge that we are in the last phase of the ultra low US dollar interest rate cycle," Mr Richards said."As the US economy gains strength, US dollar interest rates, and therefore bond yields and borrowing costs, are highly likely to rise."Borrowing three years' worth of deficits now will save the Government tens of millions of dollars of financing costs.“This will give us certainty of financing as well. Instead of borrowing on a year to year basis in a rising market, we will be locking in three years at low rates.”The money will be raised this summer through a bond issue divided into two tranches a local Bermuda dollar denominated one and a US dollar one.Local retail Bermuda dollar investors, Bermuda based US$ institutional investors and global institutional investors are the likely targets for the bond issue, the Minister said.The unprecedented strategy will not fall foul of borrowing rules, the Minister said, because two years' worth of borrowing will be placed in the Sinking Fund and “prudently invested”."Public debt is defined by a simple formula: gross debt outstanding minus money in the Sinking Fund," he said.Government committed in March to keep public debt at such a level that the net debt/GDP ratio is capped at 38 percent, that the net debt/revenue ratio is below 80 percent and that the debt service cost/revenue ratio is below 10 percent.Mr Richards estimated the new strategy will save between $20 million and $40 million depending on future interest rates.He stressed that Government is committed to eliminating deficits but said operational deficits will likely continue through the next three to four years.He touted the new strategy as an improvement over the former administration. He said: “Although the previous administration gave lip service to the inauguration of a medium term financial plan, their actual method of debt financing remained unchanged: i.e. the method was to borrow money either through bank lines or bond issues for the current fiscal year. There has never been multiyear financing, until now.”He said the strategy will show rating agencies that Government is following their recommendation to tap into local money markets.“The Ministry is currently reviewing offers from a variety of investment banks to manage this upcoming bond issue and will announce the successful manager/managers in due course.“We are confident that there is significant appetite in the local retail market for government bonds,” he said.“We have already apprised the rating agencies of our change in strategy.”The Government Loans Act will be amended shortly “to allow money to be deposited and extracted from the Sinking Fund, as it was not designed for multiple year budgeting.”Government raised the debt ceiling to $2.5 billion earlier this year — a $1 billion increase.The current operating deficit is $331 million and the net debt is projected at $1.75 billion by the end of this fiscal year. Government projects public debt is likely to rise to just over $2 billion by 2017, but could be as high as $4 billion under a worst-case scenario based on an extrapolation of current deficit and debt trends.