Island can’t sustain growing debt, warns Kim Swan
Bermuda cannot sustain the current level of debt it is accumulating, according to opposition MP Kim Swan.
Mr Swan said yesterday that financial statements on the Consolidated Fund issued by the Auditor General on Friday made for worrying reading.
The statements show that Government drew down all $200 million of a term loan it got from Butterfield Bank last May and upped its borrowing at the end of last year, extending and increasing overdraft facilities with both Butterfield and HSBC Bermuda, totalling some $80 million.
Government also signed a $50 million overdraft facility with Butterfield Bank in November that expires at the end of next month, with a daily charge of 1.2 percent above the bank’s base rate of about 3.75 percent.
The accounts reveal Government spent nearly $276 million more than it took in revenues in the fiscal year ending March 31, 2011.
Mr Swan, who was elected as a United Bermuda Party MP, said: “Bermuda cannot sustain itself running current account deficits indefinitely. The country’s problems are further complicated because Government has become a larger employer in Bermuda than the private sector and a large percentage of Government expenditure services its payroll and its debt.
“Government must work to reverse that by empowering private enterprise to become the greater employer of our people. The entire country benefits when private enterprise is thriving again in Bermuda.”
He said the PLP Government had been slow to acknowledge the country was in recession, while the UBP had urged it to be “more financially prudent and save for a rainy day”.
“With our savings depleted and the country still spending more than we are earning, the global recession is magnified by our lack of preparedness, as evidenced by the expansive growth in the amount being paid in interest servicing the debt,” said Mr Swan.
“The real challenge Bermuda faces is that a government which must call an election within a year, who has overspent atrociously and encouraged elaborate living, must now change its way of doing business and become more financially prudent.”
Peter Everson, chairman of the Chamber of Commerce’s economics committee, said the statements were “no surprise” because the Government Budget for this fiscal year anticipated borrowings of about $147 million and there was also a $50 million shortfall for the previous year.
“If you add $50 million to $147 million, there’s absolutely no surprise that it’s all been borrowed.” he said. “What isn’t a surprise to me but might be to the man on the street, is the fact that the Government has had to borrow another $130 million through the overdraft.
“It’s consistent with what they have done over the last few years. For this current year, they’ll obviously have to borrow money to pay down the overdraft, plus the shortfall between revenue and expenditure for this next budget year.”
Mr Everson said the problem with such borrowing was the interest charged on it and the fact that the full amount would have to be paid back at some point.
He said Government could expect to pay more than $70 million annually just to meet its minimum requirements on the debt, plus about another $30 million into the Sinking Fund.
That amount, he added, represented more than ten percent of the Government’s expected $900 million Budget for 2012/13.
A spokesman for the official Opposition, the One Bermuda Alliance, said the party would comment on the financial statements at a press conference today.
Premier and Finance Minister Paula Cox said in a statement on Friday: “I wish to assure the public that the Government is sensitive to the challenges which may arise when deficits reach short-term peaks.
“However, the Government is moving ahead with a credible plan for medium-term fiscal consolidation in order to reduce public debt and to keep the country on a sustainable fiscal path.”