Deputy Prime Minister and Minister of Finance the Hon. K. Peter Turnquest shared the Government’s borrowing activities to date for the fiscal year 2020/2021 in the House of Assembly, Wednesday, October 21, 2020. Previously, the House approved a resolution for the Government to borrow $1.334 billion to finance the overall budget deficit for fiscal year 2020/2021, and also for the Government to borrow to refinance maturing debt repayment obligations, estimated at $696.6 million.
DPM Turnquest explained that early in the fiscal year, after an evaluation of available funding options, the Government sourced $140 million in short-term advances from the Central Bank—of which $30 million has already been repaid. Commercial Market Loans He said in August, the Government executed a $300 million Bridge facility obtained from several high-profile global investors, but only drew down $248
million of the loan.
“As structured, the facility carried a maturity of up to 365 days, at an interest rate of LIBOR plus a spread of 5.5 per cent. The Government’s intention was for this loan to assist with meeting immediate cash flow requirements, and then be termed out into a longer-term facility via a capital market bond transaction.”
Borrowing from the IFIs “Consistent with our plan, the Government has sought to maximize opportunities for financing from the International Financial Institutions (IFIs), like the Caribbean Development Bank, the Inter-American Development Bank, and other bilateral creditors. Their more concessionary lending terms, in lower interest rates and longer maturity timeframes, reduce debt costs and risks relative to commercial credits which carry higher interest costs and shorter maturities.”
The DPM noted that in August, the Government concluded a $200 million policy loan with the IDB, at an interest rate of 2.11 per cent, set to mature in 20 years. The loan was completely drawn on September 9, 2020. He stated that again, in September, the Board of the Caribbean Development Bank approved a $40 million policy loan for the Government. However, the Government is currently in the process of completing the documentation requirements and expects to draw down this facility before the end of the month.
This Loan carries an interest rate of 4.1 per cent and a maturity of eight years. “The favourable impact of loans from the IFIs and other concessional lenders on the Government’s debt portfolio is evidenced by their terms. At end-June 2020, borrowings from the IFIs represented some 7.1 per cent of the total debt, with an average interest rate of 1.8 per cent and average maturity of 11.2 years. However, there is a limit to the pool of funds available to loan to individual countries, as IFIs typically must respond to demands from across their member countries.”
DPM Turnquest said, “It is important to note as well that loans from these international financial institutions are also typically associated with supporting policy reforms or capital investments, and therefore take a longer time to structure and close than the traditional commercial loans.”