We believe that the entire process of government is an exercise in stewardship. The term stewardship refers to a responsibility to take care of something owned by someone else.

Fiscal stewardship refers to the practice of making sure that current spending programmes and tax policies are affordable and sustainable over time.

The issuance of government debt is an integral part of any government's stewardship responsibility for the common wealth, which is the wealth of a country common to all of us taxpayers. Some people call this common wealth the public purse.

How effective, how affordable, how sustainable has the Government's stewardship of the public purse been?

Most Bermudians know by now that public debt has soared to unprecedented levels under Finance Minister Paul Cox. Consider just three statistics on this point:

¦ Government debt is approximately $1 billion, though it can be argued that off balance sheet debt can take overall debt to $2 billion.

¦ The Government has spent $200 million more in each of the past three years than it took in.

¦ Government debt for every newborn Bermudian is estimated to run this year to $19,305; in 1998 that debt was $3,326.

Bermuda a debtor nation

These statistics are just the tip of the iceberg. The cold truth is the Government has turned Bermuda into a debtor nation like never before, making it vulnerable in a harsh, unforgiving and ever ruthless world.

So what is being done? What steps are being taken to reduce the risks that now threaten Bermuda?

Well, the Ministry of Finance says it is considering issuing more debt through an intermediate maturity bond that will lock in current low interest rates.

One of the major elements of a bond issue is its size. The issue has to be large enough to ensure a "liquid aftermarket" in which investors are confident they will have a market for buying and selling the bonds before their maturity date.

In the past, Bermuda faced challenges in floating a bond because the issues were not big enough to attract interest in major markets. Amazingly, we didn't owe enough money for the big time!

Well that's one problem Bermuda no longer has. We certainly now have accumulated enough debt to make a bond issue viable.

But of course gaining access the debtors' club is like checking into the famous Hotel California where you "can check out anytime you like, but … never leave".

The Bermuda Government has traditionally used mostly floating rate bank debt, where interest rates float up and down depending on market conditions. They are now thinking about issuing a $500 million intermediate term bond of, maybe, five to seven years maturity, supposedly to lock in prevailing low rates.

Currently the cost of floating debt is very cheap, but to fix your borrowing costs for a longer period of time, the market will make you pay a premium. Under current market conditions, there is a very high extra cost to locking in borrowing for a fixed term versus floating debt.

So the Government's desire to lock in low interest rates will, ironically, cost the Bermudian taxpayer more money. Currently the difference between floating rate debt and fixed five-year debt for an A credit is about 2.5 percent.

Let's apply that rate to $500 million. A 2.5 percent rate spread means a bond issue will cost the people of Bermuda an extra $12.5 million in interest per year. So in the debtors' club there are no easy or free choices. The choices are to:

1. Continue borrowing at low floating rates but risk the uncertainty of future interest rate increases, credit shortages and availability of future credit flow; or to

2. Issue an intermediate bond and pay the premium demanded by the market for the extra risk in a longer term commitment.

Let us not forget that the bond issue will cover about half of government debt, the other half will still be mainly in floating rate debt and subject to the same interest rate uncertainties I just mentioned.

So, even if the government successfully issues a $500 million, five-year fixed rate bond, what happens in five years when the bond matures? How will we repay it then? It is highly unlikely the Government of Bermuda will have saved up $500 million to repay this bond in five years.

The answer is that it will have to be refinanced with a new set of debt. But how do we know what the economic conditions will be in five years? Perhaps they will be very bad and it will be difficult or impossible to refinance.

Does the Finance Minister just hope that Bermuda's economy will miraculously rebound and that we will have the $500 million in hand in five years? Or does the Minister just hope that by luck refinancing conditions will be favourable?

The need for a plan

As we have already seen, planning finances on hope is not proper stewardship of the common wealth. A proper financial plan for Bermuda's outstanding debt should involve "laddering" the debt. Instead of having half the debt on a floating rate basis and the other half on a five-year basis, a laddered approach involves spreading the maturities of Bermuda's debt obligations evenly between floating rates on the short end and up to, say, seven years on the long end, in five to six steps, like steps of a ladder.

This way the government doesn't have to predict which way interest rates are going to move. Instead, it can balance the uncertainties and risks of floating rate debt against plumping for a single refinancing date sometime in the future.

In the debtors' club, Gross Debt is often used as a benchmark of a country's indebtedness, but we here in Bermuda have paid scant attention to Gross Debt because it includes unfunded pension liabilities.

According to figures released by the government in January, Bermuda's unfunded pension liabilities exceeded $572 million. If you add that to the $1.25 billion in debt that was authorised in the 2010 Budget (although not all of that amount had been taken up at that point), you get a Gross Debt of $1.8 billion. That is 30 percent of Bermuda's Gross Domestic Product (GDP).

If you add the proposed new hospital, costing let's say $500 million, Gross Debt would be $2.3 billion. That is a 39 percent Gross Debt of GDP ratio. USA's Gross Debt is 90 percent of GDP.

But let's look at these figures another way: Gross debt per person in the United States is $42,208. Gross debt per person in Bermuda is $36,179, or 86 percent of the US level.

In other words, we are just 14 percentage points below America in spite of the fact that Bermuda fights no wars, puts no men in space, did not invent the Internet, gives insignificant amounts of aid to poor nations and has no diplomatic corps. And let's not forget that unlike the United States Bermuda cannot create its own money. We must earn it! Within this context, Bermudians should ask what these figures say about the effectiveness and sustainability of this government's stewardship of the common wealth. Are we safer? Are we stronger because of it?

I put it to you that the Minister of Finance and her Government have presided over a dangerous deterioration in our fiscal strength.

They have mishandled and continue to mishandle their sacred duty as stewards of the common wealth. This may not be clear to the man on the street but we are – all of us – more vulnerable because of it.