National Debt and Capital Spending
5 February 2010 | Minister Paula Cox
Mr. Speaker,
I rise this morning to reconfirm for Honourable Members and indeed for the general public that the public purse is in safe and prudent hands. Over the course of the last week or so, there has been a great debate in another place on the matter of Bermuda’s level of debt and indeed on related issues of public finance.
Some aspects of the debate have been informed and thoughtful. Other aspects of the debate have been alarmist and irresponsible given the weighty nature of the topic.
The result has been some disquiet, some confusion and unease in our community. It must not be left unaddressed.
Mr. Speaker, debt is a feature of household finance, business finance and indeed public finance. In all three spheres, debt is used to assist in the financing of assets that have a medium to long term life. Such assets add to greater convenience, comfort and well-being for households, a competitive edge and greater profit capacity for businesses, and enhancements to the delivery of public goods and services for governments.
Clearly, it is important that the level of debt is managed carefully and prudently. As a general principle, the level of debt should not exceed the capacity to repay it.
Mr. Speaker, the Ministry of Finance has responsibility for the management of public debt in Bermuda. The Ministry’s prudent handling of Bermuda’s public debt has been reviewed by external, objective credit rating agencies such as Moody’s, Standard and Poor’s and Fitch Ratings. In each and every case, the score card has been at the high end of satisfactory.
Bermuda has an investment grade sovereign credit rating that means that lenders have a firm belief that the loans will be repaid when they fall due.
Mr. Speaker, this belief seems not to have featured in the debate in recent weeks. Further, some of the participants in the debate seem to have forgotten what the public sector borrowing was for. As a general rule, Government borrows to help finance the development or acquisition of hard capital assets as an investment in the country’s physical and social infrastructure: facilities for our seniors, modern schools for our children, an internationally accredited airport, safe and suitable office buildings for public sector workers, a modern public transport system and so on.
Most recently, “The Approved Estimates of Revenue and Expenditure For The Year 2009/10”, debated and approved in this House, provided considerable detail of exactly what has been financed by borrowing in the last several years. The Capital Account Estimates in Schedule B of the Estimates Book provides a summary total of what had been spent for some 163 projects to the end of March 2008. In addition, it shows the Original and Revised Estimates for the projected spend in 2008/09 and the Estimate for 2009/10 for projects in the plan that continued in those subsequent years.
Mr. Speaker, I shall not burden Honourable Members with an exhaustive line by line recitation of the amounts spent on each project. Rather, I shall provide a summary of what these projects have cost in a few understandable groups and I shall confine myself to the totals for the cumulative period ending March 31, 2008.
Mr. Speaker, capital spending on education was the largest single category. $143.4 million dollars of borrowed funds was invested in the country’s school plant to make it safer for children and teachers, outfitted with modern equipment including playgrounds. Funds for CedarBridge Academy and the new Berkeley Institute are included in the total.
$28.2 million was borrowed to fund new facilities in the health sector including $23.8 million for the Sylvia Richardson Care Facility in St. George’s. Would anyone wish that this funding had not been provided?
Mr. Speaker, some $80.6 million was invested in airport works, and seaport infrastructure. A further $127 million was borrowed and invested in foreshore protection, the new Recycling Centre, refurbished ferry docks and public landings, major building upgrades, the Pembroke Marsh Development, the expansion of the Tynes Bay Waste Treatment Facility, and schools maintenance. The National Sports Centre and the acquisition of open spaces among other projects absorbed some $31 million.
Mr. Speaker, the total sum for all of the 160-plus projects amounted to $447.2 million. This is a partial accounting of where the borrowed funds have been invested. I have not delved into the details of capital acquisitions such as laboratory equipment, buses, ferries, office equipment and furniture which would complete the picture.
Mr. Speaker, I will conclude by briefly touching on the issue of sustainability of the public debt. The actual amount of Bermuda’s long term debt amounts to about 11 per cent of GDP. This is manageable and sustainable for a small country with a GDP of an estimated $6 billion.
Other countries with which Bermuda is often compared have much higher debt/GDP ratios. In the Cayman Islands in June 2009, the debt/GDP ratio was 19.8 per cent of GDP. In Switzerland, it was 44.4 per cent in 2009, 71 per cent for the United Kingdom and 83.9 per cent for the United States.
I share the debt/GDP ratios of these other jurisdictions for comparative purposes only. There is no intent for Bermuda’s debt to mirror such levels, but for context and balance, I thought Honourable Members may find the information helpful.
It is very easy in any discourse on technical issues, such as sustainable public finance and debt, to confuse and mislead the wider public, whether deliberately by omission or by a failure to provide the proper context and explanation, whether intentionally or inadvertently. The discussion of serious matters of public affairs in Bermuda deserves better.
Thank you Mr. Speaker.
