Bond to help CIG cover social charges

Finance Minister Chris Saunders’ 2022-23 budget

(CNS): Finance Minister Chris Saunders said the decision to consider issuing a US$400 million bullet bond in US capital markets will allow the government to restructure public debt on a more long term and will provide the flexibility it will need to respond to the country’s growth. social costs.

Saunders told CNS that PACT is considering offering retired homeowners reverse mortgages to help them access their own capital and reduce their reliance on government financial support. As Caymanians are forced out of jobs at 65 with inadequate pensions, the welfare bill will continue to rise.

“We are very concerned about the growth in the level of social protection expenditure, especially for the elderly,” he said. “The government wants to provide those who own their own homes with reverse mortgages that can sustain them into retirement. To do this, we need to restructure the debt and over a longer period.

Saunders explained that banks will not offer reverse mortgages to pensioners and that for the government to do so it needs to borrow for longer than the current 15 years, which is why the Department of Finance is looking into the idea of ​​a bond to allow greater flexibility and probably much better terms.

The Minister indicated that the credit facility negotiated by the previous government was set at 3.2%, but given the low cost of borrowing at present, he believes that the government can significantly improve this.

According to a government request for information supply site, the department is seeking independent financial advisers to serve as consultants for the issuance of a 30-year, US$400 million bullet bond in the US capital markets in the second quarter of this year.

The main difference between a bullet bond and a loan is that the full principal value is paid on the maturity date instead of regular installments. RFI suggests that the government aims to issue the bond in the second quarter of this year.

Over the next year, the government has already committed to borrowing just under $300 million and another $50 million the following year, bringing the overall debt to around $485 million. Most of this debt is contracted with local institutions and must be repaid during the current decade.

Following the publication of the tender, the opposition was quick to criticize the government for the proposal. Opposition Leader Roy McTaggart said it was ‘rushed and unexpected’ and never mentioned in recent budget and finance committee meetings.

However, the government said at these meetings that it was considering restructuring the public debt. McTaggart said the government’s previous experience with a bullet bond was costly and should have served as a lesson to future administrations.

“Such an obligation is unnecessary and will become a significant financial burden for the people of these islands over the next three decades,” said the PPM leader and former finance minister. “That ultimately means less money available to help families and businesses in the medium to long term, especially as we recover from the pandemic in a still uncertain economy.”

McTaggart accused the government of turning its back on prudent financial principles and disregarding the Cayman Islands’ long-term financial interests, saying the government was undermining the work of the previous administration.

“During the two progressive-led governments, the national debt went from about $560 million in 2013 to less than $250 million the day we left,” he said. “The PACT government looks set to undo in two years what took us eight years to fix – again leaving the country in massive debt.

“This bond will burden us with interest payments on $400 million over the next 30 years and, according to my estimates, conservatively assuming interest rates between 4% and 5%, will cost the country between $480 and $600 million in lifetime interest. of the link. Much more than the amount borrowed.

But Saunders made it clear that the government is looking for better terms, not more expensive ones, and the PACT government is navigating very different economic waters from those faced by the previous administration.

He stressed the will of the current government to help the population and the need to borrow to do so. He told CNS he was disappointed with the opposition leader, who he said continues to play politics on the country’s finances at a very difficult time and on future social issues that will need to be addressed.

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