Dear Sir,

I am neither Bermudian nor even a resident, but I am one of the many expatriates who has lived on the island and holds a very strong affection for Bermuda and Bermudians. As such, I would like to make some comments on Bermuda Government debt.

I’ve had a look at the Bermuda Government Consolidated Fund YE 31 March 2021 accounts — these are the latest that have been published.

A couple of comments:

1, Net interest bearing debt equals $3 billion, on which $129 million of interest was paid — that equates to an interest rate of about 4.3 per cent

2, Most of the debt was negotiated in the three to five years before March 31, 2021, when base rates were very low — in the vicinity of 2 per cent. This implies a yield “spread” for the risk of the Bermuda Government of about 2.3 per cent per year.

3, Assuming that the Standard & Poor’s assessment (of a stable A+ Sovereign Credit Rating) is accepted by the market — and so the 2.3 per cent risk margin remains, then (as base rates have increased by at least 2 per cent subsequently) — I can imagine an effective interest rate of 6.5 per cent or even higher in the coming year.

4, A 6.5 per cent effective interest rate on $3 billion would be $195 million per year — so an increase of $66 million per year

5, Per the YE 31 March 2021 accounts, the Bermuda Government has an income of $1 billion per year, but on that it runs a deficit of $400 million (40 per cent of income). If we remove the increase in accrued pension liability ($131 million), we get a “cash” deficit of $270 million

I appreciate that an increased interest expense of $66 million would not be a “catastrophic” change in Bermuda Government finances, but:

a, It would mean that debt interest would be approximately as large an expense as health and 50 per cent larger than education

b, Assuming a Bermudian working population of 30,000 — 64,000 Bermudian population less 14,000 expatriates, who can and will leave should better economic prospects arise elsewhere, and the one third who are either too old or too young to work — means that each working-age Bermudian will pay an extra $2,200 per year in debt interest alone, and $6,500 per year in total interest

Median Bermudian wages are about $64,000 per year, so interest alone would be 10 per cent of those wages.

My fear is that eventually Bermuda will be so desperate that it will seek to impose taxation on the assets of offshore trusts and other structures domiciled in Bermuda in an effort to fund government spending — and that would wreck that part of the economy, which would rapidly relocate elsewhere.

RICHARD BOUTLAND

Morganville, New Jersey