BERMUDA-Business leader warns of debt threats to Bermuda.

HAMILTON, Bermuda, CMC – Premier and Finance Minister David Burt, fresh from delivering the annual budget, has admitted 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 exceed seven billion US dollars.

The warning from Arthur Wightman came in a speech at the Chamber of Commerce Budget Breakfast on Monday before he introduced Burt, which 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, PricewaterhouseCoopers Bermuda Territory Leader, laid out some facts, including the annual deficit for 2022-23 is expected to be US$77 million, seven million dollars higher than planned and $11 million worse than 2021-22

Wightman said the debt stands at more than three billion, with a debt-to-revenue ratio of approximately 275 percent versus a benchmark of 80 percent and roughly 12 percent of government income required to service that debt.

He said unfunded pension liability estimates, including the contributory pension fund, stand at approximately three billion dollars and will 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 (OBA) administration when it was in power between 2012 and 2017.

Premier Burt announced in the budget that the Morgan’s Point project would 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 most prominent 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. For an island of 60,000 people, of which only about 50 percent of that population is working, this 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 and plugged the brain drain by stemming emigration. Armed with a British passport, thousands of Bermudians have moved to Britain in recent years, although exact figures are unavailable.

“There is a real concern around the risk presented by Bermuda’s debt, liabilities, and guarantees. And Bermuda’s reliance on international business (IB) must be considered. IB contributed over two billion US dollars to the island’s economy in 2021, and even marginal adverse changes could jeopardize the island’s going concern.”

Bui Premier Burt said debt costs would be coming down next year.

“The first time I delivered a Budget Statement in 2018 as minister of finance, the 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. This country’s debt ceiling was raised only 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 will 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 the payroll tax, with exempt companies incurring no additional tax liability.

He said the government expects to record a deficit of US$43 million in the next financial year. Still, 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 2023-2024 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 $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.”

For example, Burt used the ferry terminal in Hamilton, saying it is “one hurricane away” from being rendered inoperable.

“This Budget, therefore, contains funding for several 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 US$3.35 billion — was still “a Damocles sword” that threatened to destabilize growth.

Opposition Leader Cole Simons said the budget showed Premier Burt was “out of touch with reality,” and nobody could believe his words.