Bob Richards yesterday spelt out the danger to the country of failing to tackle the Government’s debt mountain, while announcing an annual budget that will add to it.

The finance minister said the debt burden “undermines our ability to support the needs of the Bermudian people”, as he revealed that debt-servicing costs alone in the year ahead would total more than $187 million — not far short of the total spent on health, seniors and the environment, the largest ministry.

The gross debt outstanding at March 31, 2017 is projected to be $2.44 billion — equivalent to about $49,000 per Bermudian.

“There is no doubt that the biggest threat to the future prospects of the way of life we enjoy in Bermuda today is the problem of the government deficit and public debt,” Mr Richards told MPs in the House of Assembly yesterday.

“If left unchecked, it threatens the job security of Bermudians in both the public and private sectors. It threatens seniors, whose pension incomes come from the Government. It threatens the quality of healthcare received by Bermuda residents, as very substantial government subsidies support the hospital.

“It threatens those on financial assistance, a government-funded support service. And finally it threatens our children who depend on public education.”

Mr Richards’s budget lays out plans for spending exceeding revenue by $199 million. This deficit is lower than the $212 million shortfall in the current fiscal year, which ends on March 31. However, it makes limited progress towards the stated aim of eliminating the deficit by 2019. Increases in payroll tax, fuel duty and fees for many government services will boost revenue by 7 per cent to $996.3 million. However, spending will increase by 1 per cent, fuelled by rising debt-servicing costs.

Before debt servicing and capital spending, Government’s current account will have a surplus of $75.2 million.

The Government will need to borrow an additional $150 million in the 2016-17 fiscal year to fund itself.

“Debt service has become the second-largest ‘ministry’ in Government,” Mr Richards said. “It is stealing from the future of our children and their children. It is constricting our ability to respond to people’s needs.

“It is weakening our ability to maintain the infrastructure that supports everyday life. It is threatening our solvency and, with that, our financial independence.

“So we must get to grips with the deficit and debt problem because they stand between us and a secure future.”

Only once the deficit is under control can debt reduction begin, Mr Richards said.

He referred to government’s daunting debt maturity schedule, which involves the island’s creditors being paid back $2.385 billion over the next eight years. Most of that debt will be rolled over, most likely at a higher rate of interest.

This is one reason why Bermuda’s credit rating is so important, Mr Richards said. But the consequence of ratings downgrades would go further than higher interest payments on government debt.

“Bluntly put, if the Bermuda Government is downgraded, many of our international business partners get downgraded too,” the finance minister said.

“So the linkages are clear: deteriorating creditworthiness of the Bermuda Government not only threatens the job security of public servants, it threatens the job security of those people employed in international business and the job security of all those companies and individuals employed in providing services to international business.

“This constitutes most of the Bermuda economy.”

Credit ratings are especially important to Bermuda’s international insurance companies. A downgrade for them means reduced opportunities for writing some kinds of business, as well as increasing their cost of capital.

This year, Mr Richards said Government will draw from the sinking fund, where it sets aside money to pay off long-term debt, to pay back $90 million due to creditors.

The Government’s net debt has skyrocketed by more than 1,130 per cent over the past decade and is expected to total $2.37 billion by the end of March next year. In March 2007, net debt was just $196 million, barely more than the coming year’s debt servicing costs. The rate of year-over-year increase in the net debt has slowed, Mr Richards pointed out. It will increase 10 per cent in 2016-17, a far cry from the 74 per cent spike in 2009 and the seven successive years of 20 per cent or more increases between 2008 and 2014.

Mr Richards’s projections for the next two years offer some hope. The Government will need to borrow another $98 million in 2017-18, falling to zero the next year when no budget deficit is expected.