Column: “Overspending Has Not Improved”

February 18, 2016

[Opinion column written by Larry Burchall]

In Bernews on February 3rd 2016, reporting on Government finances up to December 31st 2015, the Ministry of Finance reported:- “Gross debt increased by $125 million as the Government drew down on its credit facility in order to finance the fiscal deficit. At the end of December 2015, total Government debt was $2.31 billion and debt net of the Sinking Fund was $2.194 billion.”

Speed-reading that Ministry of Finance release, you could easily miss the section that I have underlined. Whether or not you noted it, you’ll still get burned.

Larry Burchall 160217

December 2013 – The eighth Minister for Finance completed borrowing $800 million. The Minister indicated that the $800 million was to be spread over the next thirty-nine months – out to March 2017.

February 2015 – Just fourteen months later, less than halfway to thirty-nine months, the Minister told us that the $800 million was “running out” and that he had “only $95 million left.”

July 2015 – With Butterfield Bank, the Government negotiated a $200 million two-year Loan Facility. That $200 million two-year Loan Facility was similar to a bank overdraft. It is due to be cleared by July 2017.

December 2015 - Just five months after taking up the $200 million Loan Facility [overdraft], the Ministry of Finance reports that it has burned through 62.5% [$125 million] of that $200 million overdraft.

February 2016 - That $200 million overdraft still has another eighteen months to go but now there is only $75 million left. Government is due to repay Senior Notes of $30 million in May 2016 and $60 million in November 2016, with both amounts owing to foreign lenders.

December 2013 to December 2015 – In twenty-four months, the Government burned through a total of $925 million [$800m + $125m]. By February 2016, from that total $1.0 billion Loan and Loan Facility, only $75 million was left.

So $925 million [92.5%] of that $1.0bn was burned through in just 24 months – a burn through rate of $38 million a month – burning through more than a million dollars a day of borrowed dollars. That is scary!

Before Santa Claus returns in December 2016, two things will likely happen. First, the Government will go scuttling back to foreign lenders to borrow more dollars in order to keep the overly expensive Government overspending at the same high overspend rate as now – and in the past. This will happen because Bermuda has to pay off the $30 million May 2016 and $60 million November 2016 Senior Notes; followed by clearing that $200 million July 2017 bank overdraft.

Second, the Government will raise the Debt ceiling. The Minister will likely move it from its current $2.5 billion, to at least $3.0 billion – perhaps even higher.

The Bermuda Government’s twelve year-old habit of overspending has not improved. Instead, it has worsened.

Between December 2013 and December 2015, the dollar ‘burn through’ rate accelerated.  Today’s high burn through rate is much higher than the rate at which the previous administration burned through their borrowed millions.

The resulting picture and portent is ugly, very ugly.

In this ugly real world setting, the eighth Minister for Finance still insists on pushing ahead with his unwise scheme to give away, annually, at least $20 million of desperately needed Government revenue for an unaffordable new Airport terminal building.

In September 2014, the eighth Minister for Finance told Bermuda’s Seniors: “… money doesn’t grow on trees.”  However, under his management, money is being burned through the way a raging fire burns through a forest of dry trees.

- Larry Burchall

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Comments (21)

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  1. Accurate says:

    ‘Rock’ and ‘Hard Place’ Not much of a choice – anybody checked the lifeboats recently?

    • Really Really BETTTY says:

      The Government 12 year habit of overspending has in fact gotten worst under the OBA. …….wow……but the OBA promised me they would be better managers of the public purse…..

      The OBA also promised me they had great ways to solve our debt levels. …did I buy into the hype only…

      Did the OBA actually have a Financial Recovery Plan. ….

      Did the OBA continue to play Blame it on the PLP as a distraction strategy…..because they were indeedy doing much worst……ooh

      Mr.Burchall there is much to chew over coffee and cookie in your article. …

      Bermuda We need Collaborative Solutions Now..

      Much love

      • True Lies says:

        They tried to decrease spending on the bloated civil service, and then we had the illegal marches. Goldfish memory?

  2. watching says:

    “In this ugly real world setting, the eighth Minister for Finance still insists on pushing ahead with his unwise scheme to give away, annually, at least $20 million of desperately needed Government revenue for an unaffordable new Airport terminal building.”

    This says it all.

    Similarly to how Fahy continues to push ahead with immigration reform.

    The OBA don’t seem to listen to the people. But there will be a day when the peoples’ voices will speak loud and clearly.

    • Really Really BETTTY says:

      Spot on….

      Great info in Burchall article. …..no it can’t be true……OBA spending faster than the PLP. …really

    • smh says:

      Does anyone honestly believe that if the PLP get into power THEY won’t go ahead with a new airport? Wake up

      • Ian says:

        Uh that’s because your uncle Bob signed off on a “no cancellation” clause which commits Bermuda to his shady deal even in the event of a change in government. You folks don’t really focus too much on the details huh?

        • Sickofantz says:

          rUBBISH. tHE plp ALREADY HAD PLANS TO BUILD A NEW AIRPORT. tHEY WOULD PROBABLY MAKE THE SAME KIND OF MESS OF IT THEY MADE OF EVERY OTHER CAPITAL PROJECT.

  3. Bermyman says:

    Time to Chop the Civil Service!

    The Airport only netted $10m a year. Think about that in terms of an essential facility, imagine in it’s decaying state it had to shut down or become partially operational- think bridge in St.Georges with a gargantuan price tag! That facility needs to be off the books and revamped otherwise it will become a huge financial burden for Government in Future.

  4. swing voter says:

    Unfortunately most of the hell raisers won’t bother to consider your submission Mr. Burchall, much less read it! They just aren’t interested in the numbers, and would rather shoot down any attempt to improve the situation. Saddening.

  5. 2MorePlease says:

    Larry, your numbers might be right and as close to accurate as you can get.

    Your assessment of the current government spending might be in your best honest opinion.

    However, it is quite obvious that you have not been made privy to the current governments’ ultimate success plan.

    There is a large contingent of believers out here who hold faith in this ultimate success plan, even though you may not have deduced its subtle potential for success.

  6. mixitup says:

    So about that overspending by the PLP argument Mr. Burchall… I see no difference in what this Gov’t is doing from what was done 2009 onward.

    • mixitup says:

      I take that back…there is a difference, they are burning through cash much FASTER!! And talk about fiscal management… a million dollar roundabout and a Minister who claims he didn’t know it was going to cost that much, the Airport Development, America’s Cup? where is this money OBA!

  7. Chris Famous says:

    Interesting

    “In September 2014, the eighth Minister for Finance told Bermuda’s Seniors: “… money doesn’t grow on trees.” However, under his management, money is being burned through the way a raging fire burns through a forest of dry trees.”

    - Larry Burchall

  8. Vincent Vega says:

    Larry,

    Recently, John Wight was quoted saying “Bermuda’s debt stood at more than $2 billion but if guarantees and other unfunded healthcare schemes and pensions were included, the island could be as much as $7 billion in the red.”

    Can you do your magic and let us know precisely what this off balance sheet $5 billion is?

    We love how you give just the numbers, no spin, just the truth.

    Regards,
    Vincent

    • Larry Burchall says:

      Vincent Vega,

      You asked about the $5 million in liabilities.

      They do exist. However in the struggle to keep Nanci well-fed while trying to get to a balanced budget, these liabilities can only ever be treated as an ‘over-the-horizon’ problem. It’s a problem that will really matter only if we can successfully reach the horizon – still in one national piece.

      While struggling to reach the horizon, BdaGov can only do what companies like American Airlines and General Motors have already done. That is cut – or should I say ‘adjust’ pension payouts – so that existing pension funds can carry their reduced obligations without a need for a top-up from central Govt – ultimately, the taxpayer.

      This has partly happened already. In FY 2013/14, Govt eliminated – should I say ‘adjusted’? – their obligation to the pension funds for Civil Servants and Parliamentarians by deciding [decreeing?] that henceforth, there would not be any biennial ‘cost of living adjustments’. Govt removed – adjusted – part of that liability by removing $241 million of future obligations to pay into those funds.

      Seniors have already been hit with a similar ‘adjustment’. Following a 2013 decision, Senior’s pensions are no longer ‘adjusted’ for cost-of-living-adjustments’.

      These three pension pots are closest to the horizon, so they got attended to. The other obligations are further off and are being left alone – for now.

      Problem we’ve got is that we must get to the horizon without a social explosion. Last night’s democratic ‘venting’ suggests that patience may be wearing thin.

      Larry.

  9. mixitup says:

    The silence on this page is Deafening!! OBAer’s we await your comments on Economics, Prudent Spending, Fiscal Responsibility, Corruption, Fuzzy Math….. remember you all are the only ones who understand this stuff! :/

  10. flikel says:

    “February 2015 – Just fourteen months later, less than halfway to thirty-nine months, the Minister told us that the $800 million was “running out” and that he had “only $95 million left.””

    Wow, I was told and sold on the fact that our learned Finance minister predicted and foretold the demise that Bermuda was about to face. I was told and sold on the fact that this individual had tremendous insight.

    It appears this is not the case.

  11. Triangle Drifter says:

    You can’t help wonder where we would be had the OBA taken over from the PLP with less than $200M instead of $2.5B as the PLP left the OBA to deal with?

    Wonder how many truly have the slightest idea of where what was the ‘jewel of the Atlantic’ is financially now?

    Interest on our debt costs us something in excess of $500 per MINUTE, $31,000 per hour. 50c per hour for each of us. Think about it.

  12. Jonathan Land Evans says:

    Thanks, as ever, Mr. Burchall, for keeping the ongoing very worrying state of the public finances in the public eye. It is disappointing that the OBA has been so timid and ineffectual in addressing the need to reduce the very high cost of public administration. The OBA’s electoral victory in 2012 was, I think, quite a surprising development, and not one that was ever likely to be repeated in 2017. It is regrettable that Finance Minister Richards and his Cabinet colleagues did not resolve to be bolder during their term of office. Relying on over-optimistic hopes of a vigorous cyclical economic recovery, a high-profile boat-race, and a proposed new airport which always struck me as being unnecessary as well as unaffordable, was never going to add up to a magic wand for either the public finances or the overall economy. Meanwhile, some Bermudians seem bent on us re-living the 1970s (armed robberies, rabble-rousing politicking, workplace unrest, animosity towards expatriate residents, and quite possibly worse to come) but without the nice soundtrack — and, crucially, also without a vigorous economy to pay for our collective bad habits, this time around. Anyone who thinks that Bermuda’s future is rosy (whichever party happens to be in power) is, I’m afraid, likely to be disappointed. I expect we will muddle through, but people will probably have to get used to a lower standard of living in the future than they have become accustomed to in recent generations. It’s very sad — especially as it need not have happened.

  13. Hoolieh says:

    With decreasing deficits, this article makes no sense? Are you mixing apples and oranges? Were capital or debt repayments included in the your spending figures?

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