The Leader of the Opposition, and Shadow Finance Minister, the Hon. N.H. Cole Simons, JP, MP has released the following statement regarding Bermuda’s debt ceiling:
“Many will have heard this sentiment echoed throughout the holiday season: “Happy New Year and let’s hope 2021 is better than 2020.” There is no doubt that COVID-19 caught us all by surprise and knocked us all for a loop, but IF WE PAUSE AND RE-WIND THE CLOCK TO LIFE IN BERMUDA, PRE-COVID, WE WILL FIND SOME ALARMING TRENDS IN GOVERNMENT SPENDING THAT HAVE CONTINUED, DESPITE THE PANDEMIC.”
Before the pandemic, Bermuda’s budget was in critical condition. During the fiscal year of 2017/18, the gross debt for the country was $2.217 billion dollars; and continued to grow. The 2019/20 Government Budget estimate initially projected a current account surplus of $7.4MM, but the actual number came in with a current account deficit of $14.6 million. This is a negative variance and unplanned spending of $22million. The projected deficit for fiscal year-end 2020/21 is estimated at USD295 million, without considering the second half of the 2020/21 fiscal performance statistics which has yet to be recorded and presented.
The untimely arrival of COVID-19 in mid-March 2020 meant that unbudgeted funds had to be spent to keep the economy afloat and help Bermudians. The OBA, like many in this country, congratulate the government for how they have managed the pandemic on behalf of Bermuda.
COVID RELATED EXPENSES:
The government spent $78.8 million in COVID-19 related expenditures.
- $57.6 million – is connected to the Government’s Unemployment Benefit in which we paid benefits to over 10,000 persons;
- just over $21 million was spent for other COVID-19 related matters to keep Bermuda safe and secure. This included costs to purchase PPE. To provide for the Bermuda Regiment; to provide for quarantine facilities; to provide for enhanced cleaning contracts; to provide grant funding for the BEDC Business Sustainability & the Continuity Funding Programme.
However, as the Shadow Finance Minister, and a citizen of this country, what I cannot thank the government for, is their unjustifiable spending during the pandemic that has nothing to do with expenses related to the COVID-19.
As of September 2020, the net stood at $2.94 billion, with gross debt hovering around $3.15BLN, which threatens to raise the debt ceiling of $3.5BLN. That’s almost a one billion dollar increase in debt in less than four years. The worst part of that statement is that the second half of 20/21 fiscal year performance reports and statistic have yet to be reported. If nothing changes, in an island of fewer than 65,000 people, Bermuda will be on a glide path to almost $4 billion dollars of debt. That’s Billion with a ‘B’ and the government will likely have to raise Bermuda’s debt ceiling yet again.
While the government has shown that they will assist Bermudians in an emergency like the current pandemic, they have also demonstrated a systemic lack of unjustifiable spending, for example:
- In August 2018, the government paid $600,000 to former premier Dr. Ewart Brown’s Brown-Darrell Clinic, Bermuda Health Care Services and the Bermuda Hospitals Board to help ensure CT and MRI services are readily available to the public- from the public purse.
- More recently, they spent $11 million dollars to cover severance cheques to former employees of the Fairmont Southampton Princess, without making any arrangement to retrieve these funds from their employer, Gencom Ltd.
- Then there’s the unrecovered unsecured USD 800,000 loan due from Anthony Blakely and Savvy Entertainment Ltd and associated recovery costs and legal fees.
- Earlier this month we also heard about the increased rent of a government department from $300,000 to $800,000 payable by the Bermudian taxpayer into the pocket of sitting MP, Zane DeSilva. The rationale from the government is that they are protecting the children. How is the government protecting our children, when generations of Bermudians will be the ones responsible for repaying a debt of almost 4 billion dollars and it continues to grow?
While I do not have a crystal ball about Bermuda’s future, in 2021, what I can predict, is that this government will continue to take Bermuda into increased and unsustainable levels of the debt at a time when the country can ill afford it. “
For a more detailed breakdown of the budget deficit:
As the Minister of Finance indicated for the 2020/21 National Budget, we had a revenue target of $1.122 billion; current expenditure of $1.057 billion, including debt service of $121.4 million; capital expenditure of $85.0 million; leading to a projected deficit of $19.8 million.
With the COVID-19 19 crisis and fiscal indiscipline prior to the crisis, we have seen a severe impact on the 2020/21 fiscal performance. Total revenues for the first half of fiscal 2020/21 were $462.8, $82.6 million, or 15.1% below the same period last fiscal year. This was due to lower collections in all tax types other than Land Tax, Vehicle Licences & Registration, and Financial Services Tax. Payroll taxes were down by $6.5 million or 2.6% Customs Duty was down by $31.4 million or 26.2%. Passenger Taxes were down by $26.2 million or 100%. All Other Receipts down by $10.2 million or 28.3%. We do not expect these challenging revenue performance figures to improve during the second half of the fiscal year because of the spiking nature of the pandemic and other exgratia payments that the Government has the habit of making from time to time.
On the current expenditures, excluding debt service and COVID-19 related expenditures, for the six months ending September 30, 2020, are $35.9 million or 7.7% lower than the corresponding prior period ending September 2019. This was due to most expenditure types being down when compared to 2019 as a result of the Government’s remote working policy.
These savings were offset during the first half of this fiscal year, the Government spent $78.8 million in COVID-19 related expenditures. Much of this expenditure – $57.6 million – is connected to the Government’s Unemployment Benefit in which we paid benefits to over 10,000 persons. They also spent just over $21 million for other COVID-19 related matters to keep Bermuda safe and secure. This included costs related to the following: To purchase PPE. To provide for the Bermuda Regiment; To provide for quarantine facilities; To provide for enhanced cleaning contracts; To provide grant funding for the BEDC Business Sustainability & Continuity Funding Programme;
Capital expenditures for the six months ending September 2020 are $3.4 million lower than the six months ending September 2019. This decrease was mainly due to the Government delaying the start of some capital projects due to COVID-19. Having said that this will change with the Minister of Public Work’s recent announcement of a $13.4MM short term economic stimulus packages for small and medium-size businesses and job creation.
In addition, Interest expenses and related facility fees are tracking $6.1 million higher than in 2019. This is due to higher debt levels after the Government’s capital raise of $1.35 billion at historically low rates.
When factoring in the unbudgeted COVID-19 expenditures and savings that have been identified, the revised current account expenditure is $987.8 million, which is $52.2 million or 5.3% higher than the original estimate.
The original revenue budget estimate for 2020/21 was $1.122 billion. COVID-19 has and is continuing to have a significant impact on Government revenues due to reduced economic activity in many sectors of the economy and the loss of most tourism-related taxes and levies. The Ministry’s revised revenue estimate for 2020/21 is $914.1 million, a reduction of $208 million, or 18.5%.
Here it should be noted that the other unbudgeted COVID-19 expenditures for this fiscal year are estimated to be $125.2 million and consist of Covid-19 Ministry Expenditures, Unemployment Benefit, Supplemental Unemployment Benefit Financial Assistance, Quango’s Assistance: BEDC, Wedco, Golf Courses, Baa – Airport Revenue Guarantee
Considering the above and other contributions, after factoring in the impact of lost revenue ($208.1 million), estimated additional expenses relating to the COVID-19 pandemic ($125.2 million) the Government’s cost-saving measures ($73 million), increased capital expenditure ($8 million), and increased debt service ($7.3 million) Bermuda’s current revised estimate of the deficit for the 2020/21 fiscal year is approximately $295 million. In making this estimate, the Government has provided for accelerated capital spending of $65 million over the next six months to provide stimulus to the economy and increased jobs for Bermudians.
As a result of the above, Bermuda’s net debt at the end of September 2020 stood at $2.94 billion, with gross debt hovering around $3.15BLN, which knocks on the door our current debt ceiling of $3.5BLN, and the second half of 20/21 fiscal year performance reports and statistic have yet to be reported.