The Government’s net debt will increase this year even though it is repaying $50 million of borrowing, MPs heard on Friday.

But the amount of interest Bermuda would have paid will drop as a result of the repayment.

David Burt said the Government will repay $50 million to lenders, taking money from the sinking fund to do so.

This, the Premier said during the Budget debate on the finance ministry, meant that debt service costs would be lower than they would have been had the money remained in the Government’s coffers.

The explanation came during a debate with Opposition leader and shadow finance minister Cole Simons, who pointed out that the funds in the sinking fund had been borrowed in the first place and that the repayment was not due to “judicious management or financial prudence”.

Mr Simons said: “I think we need to make it abundantly clear that the $50 million repayment was coming from the sinking fund and the sinking fund was funded by borrowed capital when they went to the capital markets.

“So we’re repaying the $50 million from the money we borrowed from the capital payments. So we’re repaying our loan with loan proceeds received in July 2022. It is not from judicious management or financial prudence.”

Mr Burt agreed that some money had gone into the sinking fund as a result of last year’s debt refinancing, but he maintained that the funds used to repay the debt were already in the fund.

“The purpose of the sinking fund is to retire existing debt,” he said, adding that while it had been expected that the Government would have to refinance the $50 million, this was not the case due to its financial performance.

He added: “There are additional funds [in revenue] so we do not have to refinance that debt which will [mean] lower interest payments going forward.

“Whatever you like to say, there will be lower interest payments going forward.”

According to the Budget Statement, the repayment of the $50 million will reduce interest payments by $2.4 million a year.

However, net debt will increase to a record $3.142 billion, up from $3.098 billion in the current financial year.

This is because while borrowings will drop $50 million from $3.343 billion to $3.293 billion, the sinking fund will drop $93.5 million to $151.8 million due to the debt payment and $43.5 million paid to cover this year’s Budget deficit.