A bill increasing Government's borrowing limit to $1 billion has been approved by the Senate.

The Government Loans Amendment Bill — which nearly doubles the public debt ceiling from $550 million — was first announced by Finance Minister Paula Cox in the Budget last month.

It creates a financial cushion of $250 million which can only be used only in the case of "systemic threat or risk issues to the economy".

It also covers Government's estimated borrowing requirements of $147 million to help pay for the planned capital expenditure programme, and prepares for the financing of the new hospital.

As well as raising the borrowing limit, the bill also allows for interest on public debt to be paid out of cash in the Sinking Fund, a fund set up in 1993 to set aside money for the purposes of paying debt.

Further, it allows the Minister to suspend the payment of the annual Sinking Fund contribution by a year.

Government has already announced it did not would not pay its normal Sinking Fund contribution in the next fiscal year, although it intends to resume paying it in 2010/11.

On Wednesday, Government Senator Kim Wilson noted it was not the first time the Sinking Fund payment was not made in the year that it was due.

She said: "In fact from 1994 to 1997 no contributions were physically made to the Fund. The first statutory contribution to the Sinking Fund was made in fiscal year 1998, some five years late."

She added: "Let me state that the Government re-affirms its commitment to prudent long term financial planning and to maintaining a robust debt management policy."

But Opposition Senator Jeanne Atherden said it was not smart to "borrow our way out of a problem".

She added that this could have been avoided if more money had been put aside during the years where Government saw large surpluses.

Independent Senator Walwyn Hughes, who was involved in creating the Sinking Fund 16 years ago when he was Permanent Secretary of Finance, said it was never intended to be used in this way and had been created to pay off debts.

He added: "The problem is we had the opportunity to do something about debt, to build a proper reserve.

"I don't envy the Minister and her staff with the changes in the economy they face but I would like to have seen this avoided."

Opposition Senator Michael Dunkley added to the voices of concern. He said: "What is the plan, the long term plan? How are we going to deal with this?

"I would feel better about this if I knew there was a plan to deal with it.

"I hear phrases like 'prudent long term financial planning' but we are in this position because we were not as prudent as we should have been."

Government Senator David Burch took issue with the Opposition's opinion that the Progressive Labour Party had taken the decision lightly to raise the country's debt level or had brought about the current economic difficulties.

"Do these people live in the real world?" he said. "The PLP did not create this situation. Are you aware what is going on around the world right now?

"It's really playing politics to suggest that the Government have created this. Do you not think that when the Minister (of Finance) did this she knew about Butterfield Bank?

"I don't hear people complaining about that," he said referring to the $200 million deal recently announced. "Where do you think the money came from? What were we supposed to do, let them fail?"

But Opposition Senator Michael Fahy said the United Bermuda Party supported the Butterfield Bank deal and was not implying the Government had created the recession but pointing out that if money had been put aside during years of large surpluses it would not now have to raise its debt ceiling.