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Top business leader spells out debt threats to island

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Budget Breakfast: Arthur Wightman, the Premier and Minister of Finance, David Burt, and Christopher Schaper (Photograph by Akil Simmons)

A business leader has laid out the stark reality of the economic crises facing Bermuda — warning that government debt, liabilities and guarantees exceed $7 billion.

A speech yesterday included references to the mounting debt, continued deficit spending, substantial pockets of poverty, a shrunken tax base, unfunded liabilities, high unemployment and the several hundred among the ranks of the homeless.

The remarks from Arthur Wightman, PwC’s Bermuda Territory Leader, came at the Chamber of Commerce Budget Breakfast event before he introduced David Burt.

He minced no words in laying out some facts:

• The annual deficit for 2022-23 is expected to be $77 million, or $7 million higher than planned and $11 million worse than 2021-22

• Debt stands at more than $3 billion, with a debt-to-revenue ratio of approximately 275 per cent versus a benchmark of 80 per cent and approximately 12 per cent of government income required to service that debt

• Unfunded pension liability estimates including the contributory pension fund stand at approximately $3 billion and will run out in the next 20 to 30 years, unless urgent action is taken

• Government guarantees exceed $1.1 billion and are expected to rise to more than $1.3 billion with the Fairmont Southampton and Morgan’s Point guarantees

He continued: “So if you add up the debt, liabilities and guarantees, you are at around $7.4 billion. This, for an island of 60,000 people, of which only about 50 per cent of that population is working. That equates to almost $0.25 million per worker.

“That level of financial obligation is incomprehensible for the average person. And yet it needs to be comprehended and addressed.”

Mr Wightman said that Bermuda needed 10,000 people added to the workforce as well as plugging the brain drain by stemming emigration.

He noted: “Government has promised a plan within the next few weeks.”

Mr Wightman was speaking before the Premier delivered his remarks to the business community with regard to his annual Budget, presented on Friday.

A panel assembled by the chamber to discuss the Budget included Chris Schaper, representing international business, Myra Virgil, representing the philanthropic and social sector, Stephen Todd, representing the tourism sector, and Nathan Kowalski, the chairman of the chamber and a resident economist.

Mr Wightman said: “We are living through extraordinary times with trends like climate change, technological disruption and social instability disrupting and reshaping the business environment.

“According to PwC research, three quarters of global CEOs believe global economic growth will decline over the next 12 months, and according to chamber research, only one third of business owners in Bermuda are confident in Bermuda’s economic future.

“There is palpable concern around the risk presented by Bermuda’s debt, liabilities and guarantees.

“And Bermuda’s reliance on international business cannot be understated. IB contributed over $2 billion to the island’s economy in 2021 and even marginal adverse changes could jeopardise the island’s going concern.”

Mr Wightman said while it was fortunate that IB was on an upswing, the OECD’s global minimum tax may force Bermuda to compete in areas other than tax, or even regulation.

He said it may mean that the island has to compete in terms of “talent, lifestyle, immigration, cost of living and healthcare — not necessarily areas Bermuda has a strong value proposition in on a relative basis.”

He said the government-IB partnership needs to be more symbiotic and co-operative than ever.

He welcomed a budget focus on reducing the tax burden on employers, something he believes will lead to more entrepreneurial investment, job creation and growth in business.

Mr Wightman also noted the sustainability risks of the shrinking and ageing population, especially in today’s challenging economy.

He said: “Retailers, taxi drivers, restaurateurs have been fighting a war of attrition while Bermudians have been leaving now for some time, seeking better educational, health, welfare and economic outcomes offered in particular by the United Kingdom.”

He accepted that payroll tax changes announced in the Budget may allow people on lower incomes to catch a break, with a more progressive tax system.

But he cited government figures that 10 per cent of the population were in poverty in 2022.

He said: “Depending on the measure, this number could be significantly above 20 per cent. Youth unemployment at 30 per cent, over 2,000 Bermudians on financial assistance, at least 650 people experiencing homelessness.”

Mr Burt said that debt costs would be coming down next year.

The Premier told a press conference: “The first time that I delivered a Budget Statement in 2018 as minister of finance, the entire international business community expected me to raise the debt ceiling. We did not raise the debt ceiling.

“We were able to keep the debt at $2.5 billion.

“The only reason that the debt ceiling in this country was raised was because of One Bermuda Alliance’s failed Morgan’s Point project and then a once-in-a-century pandemic.

“So, of course, debt levels are an absolute concern.

“We are reducing our debt this year by repaying $50 million of debt that is becoming due that we are not refinancing and that repayment is going to see our interest costs go down next year.”

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Published February 21, 2023 at 7:59 am (Updated February 21, 2023 at 8:20 am)

Top business leader spells out debt threats to island

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