OBA: ‘Damning Judgment On The Government’
Fitch’s downgrade of Bermuda is a “damning judgment on the Government’s financial stewardship,” Shadow Finance Minister Bob Richards this afternoon.
Yesterday [June 26] Fitch Ratings downgraded Bermuda to ‘AA’ from ‘AA+’ citing “deteriorating fiscal and government debt ratios and lack of a credible fiscal consolidation strategy.”
Later that day Government raised $475 million in 10-year bonds at 4.13% interest, with the majority going to refinance existing debt. $180 million represents new debt, which increases Bermuda’s net debt to approximately $1.4 billion.
Mr Richards said, “Bermuda, we must have more responsible leadership on the economy. But this Government shows no sign of doing that. Just look at the way the Premier/Finance Minister is spinning Fitch’s findings.
“The Premier says that the downgrade is the same rating as Bermuda had from 1994-2006,” Mr Richards said. “The problem here is that in 1994 Bermuda owed less than $160 million. With this latest borrowing the Government will owe about $1.45 billion, already reaching the legal limit it raised just a few months ago.”
“The cost of this downgrade on that amount of debt is staggering compared to the minuscule amounts in the years the Premier mentioned. In fact, despite Fitch’s wake up call, the Premier and her Government show they are still asleep, gently drifting on the river of denial.
“Let us also remember that this bond issue is to be used for current expenses: keeping the lights on, paying salaries, servicing the debt etc.
“As for the nonsense Government spouts about using the money to build infrastructure, this is not borne out by the facts. The fact is that no more than $500 million has been used for capital spending – which leaves nearly a billion dollars not spent on infrastructure,” continued Mr Richards.
“Even if this were true, what kind of manager would blow all his cash on infrastructure and then have to borrow money to keep the lights on? This debt is the result of financial mismanagement. Investors now know it from the Fitch report and so do Bermudians.”
“Before the downgrade, existing Bermuda Government bonds yielded 3.81%. After the downgrade the new issue yield was 4.138%, an increase of 0.33%. With the issue size of $475 million, the cost of the downgrade to Bermuda taxpayers was $15.5 million.”
Mr Richards full statement follows below:
Yesterday, Fitch ratings passed judgment on Bermuda’s economic prospects.
In short, the agency did not like what it saw.
It downgraded the Island’s credit rating, meaning it now sees Bermuda as a riskier proposition.
What was particularly disturbing about the Fitch report were the comments it made about the Government’s management of the public purse.
Fitch expressed little confidence in its ability to manage Bermuda’s finances.
It also cast doubt on the Government’s credibility – citing lack of discipline and noting its failure to accurately estimate the size of its deficit.
And Fitch issued a thinly veiled warning to Bermuda – that without a more disciplined approach to the Island’s finances, without a plan to reduce Government’s huge and growing debt, and without a plan to close its mounting deficit, further negative judgment would follow.
Make no mistake Bermuda, this was a damning report.
And, even in the arcane language of high finance, it left no doubt that it saw the Government of Bermuda as the Number One problem in its assessment of the Island.
Before I address some of the issues raised by Fitch in more detail, I would like to make the following point:
Some of Fitch’s comments are so in line with our on-the-record positions, they could have been made by the One Bermuda Alliance.
But they were not. They have been written by an impartial agency.
For example, “The downgrade of Bermuda’s rating reflects the …. lack of a credible fiscal consolidation strategy.” The credibility of Government’s control over its expenses is in doubt. In fact the word “credible” or “credibility” appears three times in a page and a half. Credibility is the lifeblood of finance and this downgrade is due to a credibility gap with respect to Bermuda’s government.
Fitch also says: “Resumption of economic growth and concrete signs of fiscal consolidation and debt stabilization would help to sustain Bermuda’s ratings.”
This is exactly what the OBA has been telling Bermuda what must be done: the simultaneous twin paths of pro-growth policies plus cutting wasteful government spending are the only ways to stabilize and reduce debt.
The government has continuously tried to convince Bermudians that the problems are due to the global recession. This Fitch report explodes this myth by observing that “Bermuda’s debt/revenue ratio at 150% in 2011 is above the AA’ median, and is deteriorating faster than its peers.”
If all our problems are the result of the global recession why is our debt situation deteriorating faster than our peers? It’s because our debt problems have “Made in Bermuda” stamped all over them.
We have made the point numerous times that justifying higher Government debt by comparing Bermuda’s debt ratios to larger countries is misleading because our economy lacks their diversification.
Fitch confirms this long-held OBA position by saying that Bermuda’s credit strengths (that the Premier quoted) … “are counterbalanced by Bermuda’s lack of economic diversification, weaker growth prospects and limited policy flexibility.”
The Government has been misleading itself and Bermudians on this very important point for years. And it is this kind of misleading argument that is sleep-walking this Government and all of Bermuda into a deeper and deeper financial hole – a hole that will take decades to climb out of.
Fitch’s final judgment on the Government’s management of the economy reads as follows:
“Recurrent changes to the debt ceiling, withdrawals from the sinking fund to meet interest payments and the inability to implement a multi-year budget program have undermined the credibility of the fiscal policy anchor and the commitment to fiscal consolidation.”
Again, this is a damning judgment on the Government’s financial stewardship.
Bermuda, we must have more responsible leadership on the economy.
But this Government shows no sign of doing that.
Just look at the way the Premier/Finance Minister is spinning Fitch’s findings.
In a press release, the Premier says that the downgrade is the same rating as Bermuda had from 1994-2006. The problem here is that in 1994 Bermuda owed less than $160 million. With this latest borrowing the Government will owe about $1.45 billion, already reaching the legal limit it raised just a few months ago.
The cost of this downgrade on that amount of debt is staggering compared to the minuscule amounts in the years the Premier mentioned. In fact, despite Fitch’s wake up call, the Premier and her Government show they are still asleep, gently drifting on the river of denial.
Let us also remember that this bond issue is to be used for current expenses: keeping the lights on, paying salaries, servicing the debt etc.
As for the nonsense Government spouts about using the money to build infrastructure, this is not borne out by the facts. The fact is that no more than $500 million has been used for capital spending – which leaves nearly a billion dollars not spent on infrastructure.
Even if this were true, what kind of manager would blow all his cash on infrastructure and then have to borrow money to keep the lights on? This debt is the result of financial mismanagement. Investors now know it from the Fitch report and so do Bermudians.
Fitch sees little possibility of future economic growth for Bermuda. Why is that?
Consider what the Bermuda Government intends to use the money for. As pointed out in the document prepared for the bond issue, the use of the monies is not for Bermuda growth opportunities, but to pay off existing loans and keep the lights on. Therefore, the bond issue will provide no additional boost to the economy and the lives of local Bermudians.
So how does this help the local Bermudian?
Bermudian’s tax money ultimately backs Bermuda government bonds and therefore taxpayers are the ultimate guarantor of these bonds. As the new money is not going towards growth opportunities, Bermudians will have no way to earn more than the cost of this bond issue, which is expected to be about 4%. Therefore, the Bermuda government will be locking in a national loss and Bermudians can expect to pay for that loss.
Not surprisingly, all of this has a cost. Before the downgrade, existing Bermuda Government bonds yielded 3.81%. After the downgrade the new issue yield was 4.138%, an increase of 0.33%. With the issue size of $475 million, the cost of the downgrade to Bermuda taxpayers was $15.5 million.
In addition, the cost of money for Bermuda continues to be extraordinarily high relative to its AA rated peers. BBB rated bonds currently trade at 3.34% — 0.328% lower than Bermuda. This means that Bermuda bonds trade at the level of BBB- bonds, which is one notch above junk-bond status. So the credit markets are not being fooled by Government spin. They know mismanagement when they see it.
Ladies and gentlemen, the Fitch report is telling us that this Government has walked Bermuda into a corner – a very tight corner – where our options are fewer and limited and our strength is depleted.
We cannot continue down this path. We need better leadership. We need honesty. We need realism.
The Government of Bermuda – your government – must be seen to be credible. Without that, there is no confidence and that, as I’ve said before, is the one essential we need to grow this economy once again.
The One Bermuda Alliance will provide that.
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Ok Bob. We get it.
But now let’s hear what you and the OBA will do. Let’s have your plan. All you have done above is criticize the PLP government.
But we need to know how you will fix it. It doesn’t appear that you have any concrete plans to fix things either. Criticisms don’t fix things sir.
Elect them and they’ll do the job. Stop asking them for their answers – they are not the ones that need to provide a solution right now – last time I checked, the PLP was in power, not the OBA…
You are barking up the wrong tree. Get over it.
Guess for 30 years the PLP musta governed from the opposition side then?
LOL
Bob is at least a millionaire and Cannonier is not far behind. You guys wanna win the next election, do a Mike Bloomburg and turn your MP/Ministerial salaries over to the sinking fund. Most of your team members make at least 150K on their day job, they can pledged to take a 75% parlimentary salary cut….then you can justify reducing government payroll or cutting the fat without reprocussion….if OBA show they are willing to suffer with the people, they can win the next GE…..
Swing Voter is watching you
Please the PLP has not given up anything and you ask for the OBA to work for free..some candidates have had to give up their jobs just to run..stupid request.
Swing voter. how about Paula,Ewart Zane and Wayne turning over some of their salaries to the sinking fund !!!!!!!these are the ones that have @#$% ^&
Swing, it goes both ways brother/sister
Stupid and unreasonable request on the people that are trying clean up this mess we are in. Yet you asked nothing of the PLP Ministers that got us here.
It’s unfortunate that you even have a vote.
Hmmmm i’d have to agree, this government is a shabolic state but thats not a good enough reason for a lot of people to change their votes the OBA needs to come out with some policy statements and show that their potential leaders have a voice and are capable of showing the island their ideas and plans. Stop rolling out the old guard like Dunkley, Bob and Trevor lets hear from the young blood and please a platform and plans would be great!!!
PLP are clueless, they are in it for themselves and not for Bermuda. You want to vote away Bermuda, vote PLP
Call the election then so platforms will be released. How much you want to bet the PLP don’t release their platform till the OBA put theirs out.
LOL
Criticisms doesn’t fix things? What a childish idiotic response, with all due respect.
Bob Richards has been saying for years what the government is doing wrong. At every turn they ignore and say they don’t want another opinion. They’ve got us one and a half billion in debt and they try to pretend its some kind of great achievement. The clowns running Greece were saying the same thing.
Mad Dawg, the chinese has bought us…we Bermudians will have to learn their language.
Criticisms very much fix things..
If you say you’re gonna do something, and i say dont do that, thats dumb, and you do it anyway, who’s fault are the consequences??
You can’t then turn around and ask me how will I fix it? I simply wouldnt have done what i warned you not to do in the first place…
Check it out…
Stockton, California, said it will file for bankruptcy after talks with bondholders and labor unions failed.
http://www.washingtonpost.com/business/stockton-california-to-file-for-bankruptcy-protection/2012/06/27/gJQAOoim6V_story.html
..and more to come Bob…Much , much , much more of less ..
“As for the nonsense Government spouts about using the money to build infrastructure, this is not borne out by the facts. The fact is that no more than $500 million has been used for capital spending – which leaves nearly a billion dollars not spent on infrastructure,” continued Mr Richards.
“Even if this were true, what kind of manager would blow all his cash on infrastructure and then have to borrow money to keep the lights on?
This really just says it all. Read it over and over and over again if you don’t understand. Cause it ALL boils down to this very statement. Stop coming on her with your bs about “investing in infrastructure” because it just isn’t true. The roads wouldn’t look like sh.t and the street lights would ALL be working. These things are the BASCIS of infrastructure not cheap docs and fancy buildings. Please stop falling for such obvious bs, you are much smarter and better than that Bermuda!
I am sure the present government would like to know what the OBA or anyone else would do to get out of this hole they have dug. Yet any householder could tell them. It is common sense. Stop spending money on non-essentials, especially houses/apartments that are not needed and are lowering even further an already depressed real estate market. It is all very well for foreigners to be able to buy in the upper brackets but what about us ordinary folk who are trying to pay our mortgages with tenants who can’t afford the rents, and no alternatives in sight.
Bob Richards,
Please do us a favour, stop playing us for fools. 15 million? Comparing 2 year old bonds to a new issue. Do you really think that people are that stupid.
I wonder if anyone in the media questioned his math, or just took it for gospel.
Rubbish
thats because unfortunately our media ask few questions on details.
What exactly is ‘rubbish’?
The idea that lots and lots of debt is a great achievement? Is that idea ‘rubbish’?
That debt is a good thing? Is that idea ‘rubbish’?
That Cox has any ideas other than to increase debt by $300m a year? Is that idea ‘rubbish’?
Debt rating downgrades are just a sign that the rating agencies don’t understand Bermuda? is that ‘rubbish’?
Comparing one interest rate to another is ‘rubbish’. I see. Ok, thanks for your expert opinion.
Actually Bob’s math is right.
What kind of math are you using?
0.33% on $475m is a bit over $1.56m a year, which gets to over $15.5m over ten years, the length of the bond.
So it’s you talking rubbish, I’m afraid.
Lol ! Booyaka
At least you are
Poor Mr. Cannioner, at the mercy of Uncle Bob…as Cannioner who knows very little. NO where does the OBA present a plan, as they do not have one. Even the greatest economists in the world have no real answers as to how one gets out of this recession. The current government has made major investments in Bermuda’s infrastructure, yet maybe they did too many Capital and social projects at one time. The debt is a result of investment in Bermuda, which many of our children as us will benefit in the future. But after all this was due to the backlog of the OBA/UBP doing nothing for years.
As long as there is a world recession, Bermuda will find it difficult. Stop spending has not help any country around to world to get out of the recession; in fact it has put the UK back into a double-dip recession. UK made major cuts in government, housing, social programmes etc…But yet are still facing real financial problems. Most countries also have a higher debt level than Bermuda. Bermuda’s overall debt level is lower than most countries during this difficult recession. But, the OBA will ignore such facts. It was the PLP government who improved Bermuda’s ratings in 2006, but before that it was where it is today. So does the OBA really have a plan, or are they in fact playing and dancing the political game?
If OBA wants any one to find them worth voting for, people need to know just what they got, as taking a risk to invest in another party that lacks any real plans is like buying a new house and not having a ‘home inspection” done first……likely to find that is was not worth it in the first place, and the capability they brag about was false to begin with. Turns out to be all spins and wind….to get the swing vote.
Thanks for that Betty Trump , Specialneedsgirl4you, Mia.
PLP done. We are all tired of the lies.
Bud is a great spinmeister, isn’t he?
So prey tell … Pastor Reverend Brother.. (minister, bishop)…. Monk maybe? You say the OBA doesn’t have a plan, can you please enlighten us into the PLP’s plan? The only plan I see is spend, spend,spend unfortunately this the Government has found the pit is not bottomless. unless the government can control they wasteful spending the 180 million will only lead tO more borrowing (and another increase in the debt ceiling)
Funny that no matter what Bob says, it is erased by that smug smirk of his. He actually acts as though he is happy, like a little schoolboy. Very unprofessional in my opinion. And at the end of the day, he provides no solutions to anything. The OBA has said nothing of substance. Why? Because they know as well as we know that most of our economic trouble is because of influences outside the scope of the Bermuda Government. All they want to do is blame it all on the PLP to try and win the government, but once elected, if elected, what exactly are they going to do? Thats my wonder. I feel they have a lot up their sleeve. They may balance the country’s budget. But what will they do to the struggling families? What will they do to the civil service? They have given very little details.
If you and I stepped into a ring to compete for a championship title, and I walk over to you and say I’m going to end this with a roundhouse to your head, is that an intelligent thing to do? No because when I raise my leg your going to be ready, and your going to deliver my balls to my throat. All warfare is based on deception and the element of surprise is a basic tactic. If I want to defeat you, why would I give away my flanking teams position before the final battle? Funny enough, the same goes for politricks.
Where is the Government’s plan?
Their supporters want the OBA to tell them what their plan is. Why? No ideas? Need help?hopelessly lost?
Open for business without a plan means failure!!!!
No one listens to the plp haters – no one – the votes will be the same. Bob, Dunkley Pat, Crockwell have no likeability = no votes.
Well at least you got one bit right. There is hate for the PLP, for what they have done to this little island. Incompetent and corrupt. Shame on them.
That’s fine and you will feel so darn stupid when the country goes further down the tubes another five years for voting on “likeability”.
Lol yup, I got my british passport, and they say “nuffin likes licks”, well apparently some do.
Maybe the OBA should throw the election, make the dopy PLP clean up their own mess. Unfortunately, the PLP have no plans, never had ANY plans, except to spend, spend, spend! So that means the end of Bermuda as we know it if they get in again!
Rah rah rah..Mr. Doom and Gloom is always ready to criticize, as it is easy to do from the back seats, but never offer a solution. The OBA need to stop whining and offer solutions to our issues and then maybe they will convince the voting public to send the PLP to the back seats. Until then your just a bunch of over privileged wanna b”s, who it would seem, can’t be trusted either..
That’s pretty stupid. I think what really must hurt you, is the knowledge seeping into your tiny brain that the PLP are failures.
Over privilaged wanna b”s(b’s/wannabe’s)? Heelllllooooo pot, this is kettle calling….
Poor Mr. Cannioner, at the mercy of Uncle Bob…as Cannioner who knows very little. NO where does the OBA present a plan, as they do not have one. Even the greatest economists in the world have no real answers as to how one gets out of this recession. The current government has made major investments in Bermuda’s infrastructure, yet maybe they did too many Capital and social projects at one time. The debt is a result of investment in Bermuda, which many of our children as us will benefit in the future. But after all this was due to the backlog of the OBA/UBP doing nothing for years.
As long as there is a world recession, Bermuda will find it difficult. Stop spending has not help any country around to world to get out of the recession; in fact it has put the UK back into a double-dip recession. UK made major cuts in government, housing, social programmes etc…But yet are still facing real financial problems. Most countries also have a higher debt level than Bermuda. Bermuda’s overall debt level is lower than most countries during this difficult recession. But, the OBA will ignore such facts. It was the PLP government who improved Bermuda’s ratings in 2006, but before that it was where it is today. So does the OBA really have a plan, or are they in fact playing and dancing the political game?
If OBA wants any one to find them worth voting for, people need to know just what they got, as taking a risk to invest in another party that lacks any real plans is like buying a new house and not having a ‘home inspection” done first……likely to find that is was not worth it in the first place, and the capability they brag about was false to begin with. Turns out to be all spins and wind….to get the swing vote.
Anyone else can tell me why PLP blogger cut and paste their own posts over and over again like the “We are many” Borg mentality to borrow from Star Trek. Or is it some need to always get the last word.
LOL
“The S&P downgrade of the United States resulted in lower borrowing costs for that government. In other words, the markets rejected S&P’s downgrade. It will be interesting to see whether that happens to Bermuda. We think it very unlikely; indeed, we believe it is highly likely that our future borrowing costs on the Government’s debt will increase because of this downgrade.