Bermuda cannot relax its management of Government finances despite a successful debt issue of $1.35 billion this summer, the finance minister warned today.

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Minister Dickinson on Government Debt December 4 2020.pdf

Curtis Dickinson told the House of Assembly that the Government took on $520 million in new loans and - despite refinancing $830 million at lower interest rates - almost 14 cents of every dollar raised in Government revenue is used to service the debt.

He said: “This level of debt service has the potential to displace spending in critically important areas such as education, social services and national security.

“We must focus on achieving better value from the dollars we expend as our ability to incur additional indebtedness will become increasing constrained underlining the urgent need to balance the budget and reduce our indebtedness.”

Mr Dickinson told MPs that the Ministry of Finance had successfully issued $1.35 billion in new debt in August.

A 10-year bond was issued earlier at a record low interest rate of 2.375 percent and Bermuda’s first ever 30-year bond was issued at a rate of 3.375 percent.

As a result of the issuance, $830 million in loan facilities due to expire in the next few months and bonds carrying interest rates ranging from 3.717 percent to 4.854 percent and due to mature between 2023 and 2027 were all refinanced.

New debt of $520 million was raised, bringing Bermuda’s total debt to $2.97 billion.

Mr Dickinson said that debt will be used to fund anticipated deficits for this financial year and the next two years.

He added that the refinancing produced annual interest savings on existing debt of $10 million, although overall debt service costs will rise by $3.1 million.

Mr Dickinson said the borrowing strategy was essential.

He added: “It allowed the Government to lock in historically low rates to help fund an economic recovery, reduce interest expense on existing debt and take advantage of strong current global demand for investment-grade assets like those of Bermuda.

But he said it was “expected that the international capital markets will tighten”.

Mr Dickinson added: “As conditions tighten, retaining the confidence of investors and rating agencies will be critical.

“Therefore, it is absolutely essential that we continue to manage the fiscal affairs of the country prudently and we must be astute in the use of the additional funds borrowed from this debt issue.”

Mr Dickinson said Bermuda’s high level of borrowing and continued budget deficits had increased the economy’s vulnerability to external events.

He added: “This vulnerability has now materialised in a far more rapid and powerful form than anyone could have expected with the onset of Covid-19.”

Mr Dickinson said: “The increase in Bermuda’s debt meant the annual debt service cost is currently $127.2 million, claiming 13.6 cents of every dollar of revenue that Government takes in.

For Mr Dickinson’s full statement, please see Related Media