Govt looking to domestic borrowing

Government is shifting the majority of its financing from external to domestic sources as it implements a new debt management strategy that includes borrowing $961 million this financial year.

The borrowing plan for the 2024-2025 fiscal period, which ends on March 31, is detailed in the new Medium Term Debt Management Strategy (MTDS) for 2024-2025 to 2026-2027.

“The borrowing plan for 2024-2025 seeks to capitalise on the liquidity in the domestic market, as well as the strong relationships built with official sector development partners,” Minister in the Ministry of Finance Ryan Straughn explained in the minister’s statement accompanying the MTDS.

Projection

Government’s borrowing plan for the 2024-2025 fiscal year notes that the gross financing requirement for 20242025 is projected at approximately $1.16 billion.

“This sum is exclusive of $495 million in Treasury Bills, which will be rolled over, as per the agreed terms in the 2018 Domestic Debt Exchange and $220.6 million, which will be covered by Government’s overdraft at the Central Bank of Barbados. Approximately $200 million in cash buffers will be utilised,” it outlined.

The report published by the Ministry of Finance and laid in Parliament said that the remaining financing needs would be met partly by $577 million in domestic financing, comprised of $392 million from domestic bonds and $185 million from Treasury Bills.

This was in addition to external financing of $384 million is $158 million from investment loans and $227 million from the International Monetary Fund (IMF) – $151 million from the Resilience and Sustainability Facility and $76 million from the External Fund Facility.

Straughn said that in seeking to satisfy Government’s financing needs, “the MTDS evaluates the costs associated with various forms of available financing within a framework that is consistent with an acceptable level of risk”.

“It is reflective of our commitment to reduce the debt-to-GDP ratio to 60 per cent by 2035/2036 and the associated policy reform efforts articulated in the Barbados Economic Recovery and Transformation Plan 2022,” he stated.

The debt strategy document shared that “in the last year, Barbados has increased its external borrowing by approximately $921.8 million, to assist inter alia with much needed budgetary support geared towards managing the residual health (human) and economic fallout from the effects of the global pandemic COVID-19, as well as the country’s efforts towards building climate resilience”.

“Another $200 million 4.5 per cent issuance of BOSS Plus bonds was opened and made available to the public,” it added.

Objective

Government said that the objective of the MTDS “is to determine the most appropriate borrowing strategy for the Government within the context of a cost/ risk tradeoff, taking into account the financing constraints”.

It elaborated on this, stating: “The focus of the public debt strategy during the period will be to maintain the current average maturity of the debt stock through a restart of medium to long-term domestic debt issuance.

“This policy will build on the ongoing economic consolidation, successful restart of the Treasury Bill market, liquidity to be provided through scheduled amortisations and debt swaps, and improving confidence in the Government’s credit profile.”

The debt management strategy now being used “increases the share of domestic borrowing where over the medium term approximately 60 per cent of gross financing needs will be met from domestic securities issuance, medium term increasing to longer term”.

The remaining 40 per cent of gross financing needs “will be met from external official sources, mainly multilateral”.

That represents a move away from the 2023-2024 to 20252026 debt management strategy which “was predicated on utilising majority external official sector funding to meet gross financing needs”.

The Ministry of Finance says in the MTDS that this plan “materialised largely as envisaged”, but had some challenges.

“Inflows from policybased loans and the disbursements from the IMF were as projected, however, there was a shortfall in disbursements from investment loans compared to what was forecast, as some projects experienced delays,” it reported.

Shortfall offset

“This shortfall in multilateral investment loans was offset by increased domestic securities issuance, particularly treasury bills, as there was a strong demand, once regular issuance recommenced.”

Straughn said that the publication of MTDS was intended to “continue enhance debt transparency and accountability, while providing greater context around Government’s borrowing decisions”, in accordance with the Public Finance Management Act.

Government’s debt was $14.9 billion at the end of September, but the authorities said “the debt stock currently has low refinancing risk, with the majority of domestic debt held in stepped rate bonds which amortise over an extended period and the external debt portfolio consisting primarily of multilateral loans along with a sovereign bond which amortises over five years”.

They added, however, that “the stock of debt remains a source of vulnerability. Debt service costs have increased as a result of the higher interest rates on external multilateral debt as well as scheduled payments on the restructured debt obligations”. (SC)

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