Vexed Bermoothes

Blustery Opinions From Bermuda

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Dancing on the Ceiling

June 27th, 2012 · No Comments · Bermuda Politics, Economy

Debt ceilings are supposed to represent a “hard stop” on public sector borrowings.

The PLP laughs at your debt ceilings.  They’ve raised the limit several times, most recently back in March when it was lifted to $1,450,000,000 “to give some breathing room”.

At the time I predicted “My bet is that we’ll blow through this new cap just as quickly as we did its predecessors.”  Indeed, with yesterday’s $475,000,000 debt offering we are are effectively at the limit again.

And at the rate the PLP spends, this is probably only enough to get through the election.  I predict that they’ll be seeking to raise the debt ceiling again shortly, and topping up the short term borrowings again (later to be converted to bonds).

The PLP have no plan to either control their spending or to pay the debt back.  Without an abrupt halt from the Bermuda voters, they’ll easily cruise through $2 billion.

I don’t buy their whole “investment versus austerity” schtick.  Most of Bermuda’s debt has not gone into capital projects – it’s hosed away on uncontrolled current account spending.  This is clear from Government’s own financial statements.  In fact this year we are spending effectively the same amount on interest as we are on capital projects!

The economy has shrunk, if not permanently then at least for an extended term.  Like it or not, Government must also shrink.  No politician wants to ‘fess up to that … but it’s an unavoidable fact.   The warnings from external authorities – such as Fitch’s Bermuda downgrade yesterday – will become more shrill:

“More importantly, Bermuda’s debt/revenue ratio at 150 percent in 2011 is above the AA median, and is deteriorating faster than its peers. Moreover, recurrent changes to the debt ceiling, withdrawals from the sinking fund to meet interest payments and the inability to implement a multi-year budget programme have undermined the credibility of the fiscal policy anchor and the commitment to fiscal consolidation.”

The analyst from Fitch was clear in his comments to the Bermuda Sun:

Mr Mosquera said after the next general election, the rating agency will expect a clear plan from the Government of the day: “Are there measures to increase Government revenue or to address Government expenditures if revenues are not coming back?  The revenue base in Bermuda is so narrow there are not many alternatives.”

He said Bermuda needs to “recover economic growth, and even if you have that… you need a plan to cut the deficit.  The spending has to go down and the revenue has to go up. It’s simple math. In our opinion, one is not enough. Changing the tax system is not feasible for Bermuda because of the tax advantage they have.”

Bermuda’s economic prosperity was dependent on IB.  We did not listen, they moved on, and we face these current hard times as a result.  Now Government’s financial existence is dependent on international creditors.  We’d better listen this time.

It strikes me that the PLP think they can wait this out, that the economy will soon recover and they can wiggle out of this in “business as usual”.  That is not going to happen quickly for the following reasons:

  • They were already running deficits before the economy went sour.
  • Many of the producers of that economic boom – our insultingly named “guest workers” – have been ushered out by PLP policies.  They are contributing to the economy and tax rolls somewhere else now.

The “New Bermuda” is a poorer, smaller Bermuda.  Get used to it.  Size our government to fit our community not our ego.

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