The Chamber of Commerce has proposed to Cabinet that a Public Debt Advisory Board be set up to tackle Bermuda’s $1.42 billion net debt.The paper, Developing a Strategy to Manage Bermuda’s Public Debt, was prepared by businessman Kirby Brackstone, a member of the Chamber’s Economic Advisory Committee. It points out that regardless of economic recovery, Bermuda’s level of public sector debt was going to take at least the next 20 years to pay off.Since the debt will affect all of Bermuda for some time, Mr Brackstone said the thinking behind the suggestion of an advisory board was to “depoliticise the debt issue” and come up with a strategy for managing it, including minimising debt service costs.He stressed the proposed advisory board’s role would be to manage the Island’s debt as it stands now and not to criticise or advise Government on spending.“Since the 2005/2006 budget the Government of Bermuda has incurred annual fiscal deficits and has funded these deficits on an ad hoc basis by borrowing both domestically and internationally using a variety of different credit products at different interest rates and terms,” the COC paper said.“This is unprecedented for Bermuda as historically the government only borrowed to finance capital projects, not to fund budget shortfalls. It is uncertain whether or not these budget deficits will become structural and continue into the foreseeable future or whether they will be eliminated once the international business sector begins to expand again. What is certain however is that the existing level of accumulated public sector debt will not be paid off entirely within the next 20 years and therefore will continue to affect future government budgets and the overall economy.”Mr Brackstone said he envisioned the Finance Ministry taking the lead on the board and it being made up of members from the BMA, academic and legal communities, and finance and investment sectors.The Bermuda Chamber of Commerce believes there is an opportunity while the Government of Bermuda’s debt level is still relatively modest and it maintains its high credit rating, to create a Public Debt Management Strategy (POMS) Advisory Board,” the COC paper said.“The purpose of such a Board would be to provide the Minister of Finance with strategic, unbiased and knowledgeable advice on the government’s existing and future borrowing requirements.“The International Monetary Fund and the World Bank consider such boards as international best practices for sovereign debt management as they promote transparency and confidence among both creditors and citizens.”The COC paper said the benefits of a strategy and advisory board were:n A long-term view on public debt, insulated from economic and political cycles.n A reduction in the public debt and debt service costs over the medium and long term.n Making Bermuda a more attractive jurisdiction for foreign investment and international business.n Establishment of a Risk Management Framework to manage risk and cost trade-offs.n International credibility generated by employing recognised best practice.n The foundation needed to potentially develop domestic debt markets.n A partnership between government and the private sector, to bring the best local expertise to the table.The COC paper said the primary objective of establishing a POMS policy framework was to ensure that the financing of government’s requirements and its payment obligations were “satisfied at the lowest possible cost over the medium to long term, and that they are consistent with best practices in risk management”.“As witnessed in the current and ongoing Euro zone debt crises, sovereign debt default has severe economic consequences that can lead to business and banking insolvencies, high unemployment and social instability,” the paper said. “Judicious risk management of public debt is of critical importance in order to avoid dangerous debt structures and levels that could limit a government’s ability to repay lenders.”Mr Brackstone said another objective of a public debt management strategy for Bermuda would be the development of a domestic debt market, “crucial to deepening and expanding our local capital markets”.“The other obvious benefit of a PDMS for Bermuda is that it could be the basis for the development of domestic capital markets of which government securities are pivotal,” the COC paper said.The full paper is attached to the online version of this story.