Finance Minister Paula Cox plans to raise the Government borrowing limit to $1 billion to have the necessary tools to deal with a worst-case scenario for the economy.

In her Budget statement yesterday, Ms Cox said the 82 percent increase in the public debt ceiling would include "a financial cushion" of $250 million to be used only in the case of "systemic threat or risk issues" to the economy.

However she later told The Royal Gazette the measure was temporary, so that by the time economic conditions improved, she intended to remove the "cushion".

Figures revealed in yesterday's statement show how Government finances are feeling the pinch against a backdrop of global economic turmoil.

Revised estimates for the current financial year show that revenue will be nearly $21 million less than budgeted for, while expenditure will be nearly $12 million more.

Borrowing has almost doubled from $90 million last year to an expected $172.6 million this year. That's $61 million more borrowed than had been estimated in last year's Budget.

Revised estimates show that net Government debt is expected to soar 65 percent to $459.5 million this year, up from last year's figure of $278.3 million. And in 2009/10, the net debt is expected to jump again, by a further 39 percent, to $637.7 million.

The Government current account is running at deficit an extremely rare occurrence with a balance of minus $6.3 million. And next year it is budgeted to finish in the black by just $2.7 million.

With a $1.1 billion Budget to pay for and revenues for next year projected to remain flat at around $970 million, Ms Cox proposed unusual measures to try to meet the shortfall.

She announced plans to change the law in order to pay the approximately $20 million interest charge on long-term debt for the 2009/10 financial year out of the Sinking Fund — a fund set up in 1993 to set aside money for the purposes of paying off debt.

Additionally, Government will not pay its normal Sinking Fund contribution — this year it was $8.63 million — in the coming year, though it intends to resume paying it in 2010/11.

Ms Cox said later that the decision to draw from the Sinking Fund had not been an easy one.

"It's not a decision I would have made under normal circumstances," she said. "This is an extraordinary time we are living in, but note that even though the interest is going to be taken out, as opposed to us making an allocation to the fund this year, we also made it clear that next year it will be back to the status quo. And ditto with the $250 million cushion."

Government will also draw on $21 million from the Consolidated Assets Fund (CAF) to help pay for initiatives including drug rehabilitation programmes and counselling.

Last May the CAF received a boost of more than $22 million, confiscated from the Bermuda-based IPOC Fund after a successful joint prosecution with British Virgin Islands authorities.

The law allows for CAF funds, which include confiscated assets from money-laundering, drug dealing and other criminal activities, for a restricted range of purposes.

While Government has proposed 10.5 percent cuts for each Ministry where it is feasible, cuts were generally at a much lower level. And the overall combined expenditure for the Ministries will actually rise one percent — a rise that would have been greater had the Finance Ministry not benefited by $30 million through the Sinking Fund action.

Asked what kind of scenario would trigger use of the $250 million cushion, Ms Cox said: "We're looking at systemic risks to our economy — something that would have a tremendous adverse effect in a key sector — then we need to have the wherewithal to step in.

"I don't want to be in a position to have to recall the House as an emergency measure, because we need to exceed the legal debt ceiling. We need to have all the tools available in our economic tool kit.

"What we envisage — even though we hope we don't have to use it — is that there would be an oversight committee of people from public and private sector who would be qualified to oversee use of the $250 million.

"The beauty of economic stimulus measures is that they should be easily reversible, temporary, targeted and quick acting. Of course, we would like to reverse it when times are better — certainly while I'm still Minister."

The debt ceiling — even without the "cushion" — breaches the long-established guideline adopted by the Government of not exceeding 10 percent of Gross Domestic Product (the value of good and services produced by the economy), which was $5.8 billion in 2007, the latest statistic available.

"What we want to do in an ideal world, is to stay within our 10 percent guidelines," Ms Cox said. "In terms of looking at other jurisdictions, it doesn't make us a bad guy and we're still doing better than most."