Good afternoon and thank you for joining us.
Today, I will cover two areas in my remarks; the Pre-Budget Report and the Fiscal Responsibility Panel 2020 Annual Assessment.
This past year has been challenging, to say the least. The COVID-19 pandemic brought an unprecedented level of economic hardship for Bermuda and its people and caused a significant decline in Government revenues.
The Pre-Budget Report
Today, we are issuing the Government’s Pre-Budget Report in advance of the 2021/2022 Budget. A report that appropriately reflects the impact of the coronavirus
on our economy and will provide everyone with an opportunity to understand the focus of the next Budget. It will also allow the people of Bermuda to provide feedback that will be valuable as the Government prepares the 2021/2022 Budget.
Preparing the 2021/2022 Budget will be challenging given the unprecedented uncertainties in the context of the COVID
-19 pandemic. And, as I highlighted in a Ministerial Statement made in the House of Assembly late last year, in fiscal year 2020/2021 the Government took unprecedented policy actions to redirect existing resources towards health and social support measures.
Other factors which have had an impact on the framing and composition of the 2021/2022 Budget include:
· Continuing deficits, high debt levels and the debt ceiling;
· Government’s 2020 General Election Campaign Platform and the 2020 Speech From The Throne;
· Economic considerations;
· Taxation sensitivities;
· Continuation of Zero-Based Budgeting that will include a Public Service Value Assessment to provide for a better-quality portrayal of the range of services delivered by the Government of Bermuda;
· Feedback from the Pre-Budget Report in advance of fiscal year 2021/2022;
· Risks facing the country; and
· The implementation of the Government’s fiscal strategy; which is to reduce net debt and balance the budget by 2023/2024.
The Pre-Budget Report will be available this afternoon, on the Government Portal, www.gov.bm/prebudgetreport.
However, before its release, I want to advise the public on a material change in the 2019/2020 financial performance as a result of an accounting adjustment.
While it has been a challenging period due to COVID
-19, there are other significant challenges the Government has had to remain focused on. One of those is the failed development at Caroline Bay.
As you will recall, in 2019 the Government was forced to respond to legal demands on its guarantees of the project loans. It did so by purchasing the loans (as opposed to direct repayment of the guaranteed loans) to avail itself of all legal remedies available to the lenders. Around the same time, the Government also purchased claims related to subcontractors who remained unpaid for up to 1.5 years, many of whom are Bermudian and were struggling.
The rights attached to the loans and subcontractor claims allowed the Government to petition to the Supreme Court of Bermuda for the winding up of George's Bay Limited ("GBL"), the corporate entity that owns the assets subject to the guaranteed loans, and the appointment of joint provisional liquidators ("JPLs") to take control of the company and its assets.
The liquidation process is still ongoing, and thus the GBL assets are still under control of the JPLs. Therefore, while we expect control to transfer to the Government during this year, the Government currently only has a claim on those assets. This has an impact on valuing the claims according to Public Sector Accounting Standards (PSAS).
Our accountants and advisors have concluded that, according to PSAS and considering the current status of the liquidation process, they do not have enough information from the JPLs to provide a valuation range for accounting purposes at this time.
Therefore, the claims asset has been written down by $183.3 million to a nominal value of $1,000.
It is important to understand this does not mean the asset is worthless. In fact, once the Government obtains control, we expect to restructure the assets as a going concern. The Government has engaged professional advisers to assist in the development of a realization strategy that seeks to maximize the value of the Government’s claim. With the successful execution of any realization strategy, we expect to see value flow back into the financial statements. However, there are still a lot of challenges to overcome in order to obtain a return on the Caroline Bay assets. Although a non-cash write-down, it is of significant value and is a stark reminder that there can be a real cost to a government guarantee.
Our budget process is clear and transparent, and this Pre-Budget Report explains the complex issues and factors driving the Government's fiscal policy decisions, while also giving everyone an opportunity to participate by giving us your views.
I encourage everyone to please take the time to read the Pre-Budget Report, and once you have read it, submit your thoughts, recommendations and concerns by email to firstname.lastname@example.org.
We anticipate that this report will give the public a better understanding of our aims and objectives and encourage discussions on the budget strategy and how effectively it deals with our current economic and social priorities, especially as we continue to navigate through this pandemic and the uncertainty it brings.
This report will also allow stakeholders such as business and social groups to understand and comment on options for the next budget. This can give stakeholders confidence that the administration’s budget policies are grounded in longer-term fiscal and budget strategies.
As we have done in previous years, we will have a series of meetings in the coming weeks with members of the International Business community, the Chamber of Commerce, local businesses as well as the Trade Union Congress (TUC) leaders. Due to the pandemic our meetings this year will be virtual.
Once the consultation period has ended, on February 1st, we will carefully evaluate all responses we receive as we finalise the Budget. Once again, we will post the Pre-budget Report on the Bermuda Government portal at www.gov.bm/prebudgetreport.
I encourage everyone to please take the time to read it and submit your thoughts, recommendations and concerns by email to email@example.com. We want to hear from you.
On Friday 26 February, I will deliver the 2021/2022 Budget Statement in the House of Assembly.
Fiscal Responsibility Panel 2020 Annual Report
Today, we are also releasing the Fiscal Responsibility Panel 2020 Annual Assessment.
Established in 2015, the Panel was created to increase transparency and international credibility – an international, independent committee to review, monitor, assess and publicly report on the fiscal progress of the Government.
In all of their previous reports, the Fiscal Responsibility Panel has warned of Bermuda’s vulnerability to a global economic downturn. With the onset of COVID
-19, this risk materialised in a far more powerful form than the FRP or the Bermuda Government could have anticipated.
As I have said previously, this is an unprecedented crisis and not of our making. It has had profound impacts on Bermuda’s economy and our public finances. This Government’s immediate response to the crisis was swift and broadly appropriate, both concerning health-related and emergency economic measures in support of workers and businesses.
The report can be found on the Ministry of Finance section of the Bermuda Government portal and will be laid before the legislature when Parliament returns next month.
In closing, I want to thank the entire team at the Ministry of Finance. This has been a tough year. Everyone rose to the challenge as we make every effort to get our economy back on track. Thank you all for your support.
I especially want to acknowledge the hard work and dedication of our beloved Financial Secretary, Anthony Manders, who recently passed away. He was a dedicated colleague, a gentleman, a true family man, and integral to the process that, every year, goes into putting together the Government’s Annual Budget.
As he was my most senior trusted adviser over the past two years, I am grateful for the support he gave me and his hard work and dedication to the Government and people of Bermuda.