The Ministry of Finance, accompanied by HSBC, has been travelling the world recently, seeing what kind of reception a Government debt issue would get.

According to one financial website, the bond could be for as much as $500 million, or roughly 75 percent of Bermuda's current debt, for a period of ten years.

Bond issues have some advantages over borrowing money directly from banks, the other main means of getting financing. The first advantage is that it enables the borrower to fix the debt at a certain rate and currency, thus giving some certainty from floating interest rates and exchanges rates.

That's appealing for Bermuda, which is now borrowing money at historically low market rates. But as the world economy improves, so interest rates will rise, at which point the cost of servicing the Island's $675 million debt will start to rise from the current estimate of $40 million a year.

So from that perspective, the bond makes sense. Of course, it could prove to be expensive if interest rates don't rise as expected – or fall again. But at least there is certainty.

Another argument in favour of a bond is that it can keep some of Government's borrowing at home, by enabling local investors to take up some of the debt. That way, the money paid in interest stays in Bermuda and helps to boost the economy.

But Government's timing has been poor. Had a bond been floated before the current downturn, Bermuda's economy and public finances would have been in vastly better shape than they are now. A bond issue floated in 2005, after the HSBC takeover of the Bank of Bermuda, could also have sucked up much of the excess liquidity in the economy and would have helped to stop the Bermuda economy becoming as overheated as it did. That would have been achieved largely by slowing the rise in real estate prices.

Now, local investors are less likely to come in because there is less capital around, not least because the Butterfield preference share and rights issues have taken some $340 million in liquidity out of the economy. Instead, it is likely that most of the bond will be taken up overseas, and the interest will boost the coffers of Asian, European and North American investors.

It is reasonable to think that these investors will also want some assurances that Bermuda has a plan to get out of its current fiscal problems. While it can be argued that the current level of debt is manageable, and it is inarguable that it is much lower than in many countries, it is also undeniable that Bermuda's situation has worsened very quickly.

For that reason, one would expect investors to want to see a plan that all but guarantees that Bermuda will return to a surplus on its current account budget and that there is a debt repayment plan in place.

The same demands will no doubt be made by the ratings agencies, whose opinions on Bermuda will determine how much interest Bermuda ends up paying on the debt. Whether the current Budget will achieve those goals remains to be seen, but the $27 million current account budget surplus (after interest on debt had been paid) is predicated on growth of one percent and big increases in tax revenue from payroll tax and international companies. It is not at all certain that those goals will be met.