PLP On $800M Borrowing: “We Will Wait & See”

June 23, 2013

The Government’s plan to borrow up to $800 million to cover three years of operating deficits is risky but it could pay off, and the Opposition will take a “wait and see approach” on the matter, Shadow Finance Minister David Burt said.

Earlier this week Finance Minister Bob Richards said, “Borrowing three years’ worth of deficits now will save the government tens of millions of dollars of financing costs. This will give us certainty of financing as well. Instead of borrowing on a year to year basis in a rising market, we will be locking in three years at low rates.”

“There has never been multi-year financing, until now,” continued the Minister. “The next bond issue, expected this summer, is anticipated to cover three years’ government operating deficits. Therefore the amount raised will be in the range of $400-$800 million.

“We judge that we are in the last phase of the ultra- low US$ interest rate cycle. As the US economy gains strength, US$ interest rates, and therefore bond yields and borrowing costs, are highly likely to rise.”

Speaking to Bernews on Friday, Mr Burt said: “I believe that it’s risky, there is no question that it is risky, and I think that he knows there is inherent amount of risk inside the situation. But it could pay off, and most people would bet it should pay off.

“However the way that markets work, those type of variables, the perception that interest rates will rise over the long term, will definitely price into the issue.

“So I am not entirely certain if the savings will be as high as he thinks the savings will be. But if interest rates do in fact get up, and we do pre-fund our deficits for the next few years, the Government and the people of Bermuda could see a savings.

“But that is an if. There is a question to see if how much it ends up costing the government, or how much it ends up saving the government. So we take a wait and see approach.

“On our side of the House, we are not going to oppose the Government on any issue they are going to take which has the potential to save the country money. So we will take a wait and see approach.

“I will not criticize it today, it is fraught with risk, but we will see how it works out over the next two or three years,” said Mr Burt.

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Comments (22)

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  1. Reuters: Bermuda Plans 10-Year US Dollar Bond | Bernews.com | July 30, 2013
  1. Thank you Mr. Burt for your, “willingness” to at least be patient and wait and see, while acknowledging the savings(I also agree) may not be as large as mentioned…but a savings is still a savings.

  2. Encyclopedia says:

    Burt clearly knows it is the right thing to do and that it should have done in a precious year.

    He does not know how to react to this smart move by the government and it is clearly seen in the imprecise verbiage he has used.

  3. Argosy says:

    His views, like those of the rest of the PLP, are no longer relevant.

    We can, at least, thank the Doc for that part of his legacy!

  4. Really says:

    Mr Burt is an excellent politician and will be a strong part of Bermudas future

    • Argosy says:

      ….apostrophes and full stops included, Really???

    • Encyclopedia says:

      He has ruined his reputation by being part of Cox’s inner circle and running a very poor campaign and timing the entire election wrong.

  5. Truth (Original) says:

    It must be mug having to comment on something that you know you should have done, something you said you were going to do and didn’t do it.

  6. Um Um Like says:

    When interest rates “get up”, do they also go up? All these two and three letter words are confusing me. I guess I’ll wait and see.

  7. Noggin says:

    Signs that at least both parties are trying to work together instead of dividing us!

  8. Vote for Me says:

    One perspective is that the borrowing is likely to cause a further downgrade in Bermuda’s sovereign rating. Why? Because Richards previously stated that the $1bn icrease in the debt ceiling was as a caution only. He did not anticipate getting anywhere close to that limit (2013 budget debate). We have are now moving to that limit (however characterised) which shows that Richards does not have an effective plan.

    We also need to know that whilst he plans to invest the excess funds, they still represent actual debt for Bermuda.

  9. Victor says:

    And if this does not work out as planned…We will really be in the hole and Government (whoever is in power) will have to either raise taxes, slash spending or both. Why not bite the bullet now so that Government stops eating up so many resources and business can just get on with it without having to always look over its shoulder and wonder what is coming next? The reality is any return to earlier levels of prosperity can only come from private enterprise so why are we not doing everything in our power to achieve this? (Bermuda is not as business friendly as it might appear, especially to our own).

  10. Jus' Askin' says:

    If You think this is a good idea you really are dumb ;-)
    Borrowing money to cover deficits will increase our debt, but they want to say it will save us money, idiots. This government needs to create more revenue period. The only good reason to do this now, is our credit rating is slipping and it maybe difficult to borrow in a year or two years time. Bermuda is a shrinking economy and there is nothing the OBA or PLP, even if they worked together, can do to save this country.

  11. You're kidding me.... says:

    Mr Burt.
    Thank you for your comments ,and especially your approach to this matter.Now that’s what I call a good politation
    We may not allways agree with one another but can we please respect ones different opinion,and you have shown me that it can b e done without jumping at each others throat for not sharing the same opinion …..

  12. jt says:

    If you are not going to oppose it now you can’t be critical of it later.

  13. Navin Johnson says:

    The funds will not be used right away so if ,by some chance, gaming is approved and we dig out of this mess t will be retired or repaid…..interest rates and credit downgrades means it would cost a lot more to go to the well later…..nice of Mr Burt to take a wait and see as he is bright enough to know how we got in this mess

  14. Rhonda Neil says:

    taking a risk means it can go either way….. so if we end up losings on this.. the PLP should not then complain….. IMV we will loss on this bet…. but only time will tell…

  15. Bermewjan says:

    There’s a reason that we have had yearly financing in the past – it is so that no one MP can access and abuse a significant amount of funding and then abuse the system to their own gain and to Bermuda’s detriment. What is Bob going to do with the $600m not required this year that he plans to “prudently invest”? Is he going to risk it all on ILS in the hope that if his luck holds he will be able to get us out of our debt load quicker?

    While this may seem a good idea, I’m not sure I buy the “prudently invest part”. Let’s face it, the OBA really doesn’t have a chance of being re-elected unless they do something magnificent in relation to the debt burden, so why would Bob “prudently” invest it? His motivation is more likely to bet the house in the hope that his horse comes in on ILS – after all the amount of premiums that can be written against a capital holding of $600m is huge… not to mention the massive management fees the Investment Manager (Bob?) and the Broker would receive. The fees alone would make any concept of previous government corruption pale in comparison.

    Do you folks really think that giving $600m of government leveraged funds to an average investment manager like Bob, who will only gain personally if he wins or looses his gambles is a good idea?!?!

    Don’t be so naive!

  16. John E. Thorne says:

    The financial risk is far less than the risk we took putting the PLP in power in 1998. In fact even if we lose the entire amount borrowed it will still be a better result in hind sight.

  17. Muff diver says:

    We are not going to oppose the govt if an issue saves us money!
    Please Mr.Burt,your govt only wasted our money on yourselves and friends and family.There is nothing left now,and even union heads agree that the public sector has to take cuts.
    Please leave the financial management of Bermuda to the experts,you had your chance and blew it!

  18. Sandy Bottom says:

    Frankly, it’s hard to see how any PLP politician could suddenly argue against borrowing.

  19. Bermyman says:

    70% of Government revenue is burned up by the cost of the civil service. We will have to borrow until we deal with that monster of an issue, the PLP’s proverbial Frankenstein.