Business leader warns of debt threat to Bermuda
Premier and Finance Minister David Burt, fresh from delivering Bermuda’s annual budget, has admitted that debt levels are an “absolute concern” after a business leader, laying out the stark reality of economic crises facing Bermuda, said government debt, liabilities and guarantees exceeded US$7 billion.
The warning from Arthur Wightman came in a speech at the Chamber of Commerce Budget Breakfast on Monday, before he introduced Burt, included references to the island’s mounting debt, continued deficit spending, substantial pockets of poverty, a shrunken tax base, unfunded liabilities and high unemployment.
Wightman, the territory leader for PricewaterhouseCoopers Bermuda, laid out some facts, including that the annual deficit for 2022-23 is expected to be US$77 million – US$7 million higher than planned and US$11 million worse than FY 2021-22.
Wightman said the debt stands at more than US$3 billion, with a debt-to-revenue ratio of approximately 275 per cent versus a benchmark of 80 per cent, and that approximately 12 per cent of government income is required to service that debt.
He said unfunded pension liability estimates, including the contributory pension fund, stand at approximately US$3 billion and would run out in the next 20 to 30 years, unless urgent action is taken.
Wightman said government guarantees exceed US$1.1 billion and are expected to rise to more than US$1.3 billion over the closed Fairmont Southampton resort and the stalled Morgan’s Point development, which was backed by the former One Bermuda Alliance administration when it was in power between 2012 and 2017.
Premier Burt announced in the budget that the Morgan’s Point project will be reimagined as a housing development, not a hotel. Burt told legislators he is confident work would start in the second quarter of this year on refurbishing the Fairmont Southampton resort, with work finishing in 2024.
The island’s largest hotel closed in 2020, putting hundreds out of work.
“So if you add up the debt, liabilities and guarantees, you are at around US$7.4 billion. This, for an island of 60,000 people, of which only about 50 per cent of that population is working, equates to almost $0.25 million per worker,” Wightman said. “That level of financial obligation is incomprehensible for the average person. And yet it needs to be comprehended and addressed.”
Wightman said Bermuda needed 10,000 people added to the workforce, as well as plugging the brain drain by stemming emigration. Thousands of Bermudans, armed with a British passport, have moved to the United Kingdom in recent years, although exact figures are unavailable.
“There is palpable concern around the risk presented by Bermuda’s debt, liabilities and guarantees. And Bermuda’s reliance on international business cannot be understated. IB contributed over US$2 billion to the island’s economy in 2021, and even marginal adverse changes could jeopardise the island’s going concern,” he said.
But Premier Burt said debt costs would be coming down next year.
“The first time that I delivered a budget statement in 2018 as minister of finance, the entire international business community expected me to raise the debt ceiling. We did not raise the debt ceiling,” he told reporters.
“We were able to keep the debt at US$2.5 billion. The only reason that the debt ceiling in this country was raised was because of One Bermuda Alliance’s failed Morgan’s Point project and then a once-in-a-century pandemic.
“So, of course, debt levels are an absolute concern. We are reducing our debt this year by repaying US$50 million of debt that is becoming due that we are not refinancing, and that repayment is going to see our interest costs go down next year,” Burt said.
In the budget delivered to the House of Assembly last Friday, Premier Burt announced sweeping changes to payroll tax, with exempt companies incurring no extra tax liability.
He said the government expects to record a deficit of US$43 million in the next financial year, but he was unapologetic about not using anticipated increases in revenues to be more aggressive about debt reduction or to reach a balanced budget sooner.
Total revenues for the 2023-24 financial year are projected to be US$1.155 billion, up US$44 million on this year’s revised estimate, with much of that increase again expected to come from payroll tax, which is estimated to pass the US$500-million mark for the first time at US$512 million.
Burt said US$96 million would be spent on capital projects, including repaving the island’s roads, saying the lack of government spending on civil infrastructure had increased the risk of “catastrophic failure”. He cited the ferry terminal in Hamilton as an example, saying it is “one hurricane away” from being rendered inoperable.
“This budget, therefore, contains funding for a number of projects that have been delayed for many years, where infrastructure has passed its useful life and needs to be urgently replaced,” the premier said.
The Chamber of Commerce applauded the Progressive Labour Party’s government’s plans for the next financial year, and expressed relief that taxes were not raised.
But in a statement, the chamber warned that the national debt — now at US$3.35 billion — was still “a Damocles sword” that threatened to destabilise growth.
Opposition Leader Cole Simons said the budget showed that Premier Burt was “out of touch with reality”.
– CMC