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OPPOSITION WARNS GOVERNMENT OVER PLANNED US$400m BOND

Government 12 Jan, 2022 Follow News

OPPOSITION WARNS GOVERNMENT OVER PLANNED US$400m BOND

The opposition Progressives party has cautioned the PACT government against proceeding with plans for a US$400 million 30-year bond.

In a press release on Wednesday after it was recently reported that the government had published its intentions on its official procurement website, Progressives leader and former Minister of Finance Roy McTaggart urged the government to “change its course.”

Beyond the publication of the procurement notice, there has been as yet no further announcement by the government detailing and justifying its decision to seek the proposed bond.

Describing the plan as “rushed and unexpected”, Mr McTaggart questioned why no mention of it was made at the recently concluded Budget and Finance Committee meetings of Parliament.

Recalling previous experience with a US$312 million 10-year Bullet Bond arranged by the UDP Government in 2009, he said that bond cost the country dearly in set-up fees and interest.

According to the former Finance Minister and veteran banker, “this proposed Bond will cost us far more than that.”

“This proposed bond issue, together with other planned borrowing by this government, will undo the hard work of the previous two administrations and substantially increase the country’s debt and undermine the government's current excellent financial position,” Mr McTaggart warned.

Giving a further background of the 2009 bond issue, he said: “We should not forget the lessons learned from the 2009 bullet bond.”

According to Progressives leader, “The country’s experience with the US$312M 10-year Bullet Bond arranged by the UDP Government in 2009 became a cause of concern about how the bond would be repaid. The UK advised the then government to create a sinking fund to ensure money could be there to pay it. The government ignored that advice.”

He said, not only did the Bond Issue cost substantial public funds to put in place, but for every year of the ten years the debt was outstanding government paid interest on the total $312 million.

“By our estimates the interest payments on that bond amounted to more than $180 million. By contrast a standard 10-year amortised loan would have had interest payments of just over $100 million, a savings of about $80 million.”

Mr McTaggart said that by early 2013, a member of the Interim Government, led by then-Premier Juliana O'Connor-Connolly, had expressed the view that the country would not likely be able to repay the bullet bond in 2019 and suggested that the government may need to sell assets to repay the debt.

“That was not our approach when we formed government in 2013 — rather than have a fire sale of government assets the Progressives led Governments of 2013 to 2017 and 2017 to 2021 re-established and maintained fiscal discipline to Government finances. We achieved substantial year-on-year budget surpluses, introduced no new taxes or fees on families or businesses, and reduced existing 'tax burdens' where possible. And we worked to substantially rebuild our reserves and put in place a plan to greatly reduce Government debt, including the repayment of a significant portion of the bullet bond. The remaining amount was converted to a standard amortised loan with excellent repayment terms.”

The former finance minister has castigated the PACT administration for “continuing to ignore prudent financial principles”.

“The government has seemingly turned its back on the prudent financial principles that brought stability to government finances, underpinned our consistent economic growth, and created the headroom that allowed the country to chart a steady and safe course through the initial stages of the pandemic. It is a disregard for the long-term financial interests of the Cayman Islands.”

Citing fiscal stability as a hallmark for the Progressives term in office, Mr McTaggart said: “The contrast with our Progressives strategy is obvious. Over the two Progressives-led Governments, the national debt fell from around $560m in 2013 to under $250m on the day we left office. A reduction of over $300m or above 55% in Cayman's national debt. No other Government in the history of Cayman has achieved this. The PACT government seems set to undo in two years what it took us eight years to fix – leaving the country again with massive debt.”

He cautioned that the proposed bond being sought by the PACT government, “will saddle us with interest payments on $400M for the next 30 years and by my estimates, conservatively assuming interest rates of between 4% to 5%, will cost the country between $480 million to $600 million dollars in interest over the life of the bond. Far more than the amount being borrowed.”

Another warning from the former finance minister is that “if the government goes forward with this 30-year bond, it will leave the country, and future governments, with the burden of repaying almost one billion dollars in interest and debt through to the year 2052; if it actually is repaid by then.”

Saying that “such a bond is unnecessary and should not proceed”, Opposition Leader McTaggart said he “sincerely hope that the government carefully reconsiders the present course of choosing increased debt.”

He also suggested that instead of a bond, the current administration should instead seek to use existing revenues to pay its way and invest for the future “rather than hindering future generations of Caymanians, our children and grandchildren, with the millstone of enormous growing debt.”


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