Minister: ‘Low-cost loan facility is available to countries with stable debt’
As a member country of the International Monetary Fund (IMF), the Government has applied to take advantage of a low-cost emergency loan facility that is available to all member countries. The loan amount is approximately US$252 million and falls within the borrowing authorization approved in the Supplementary “Hurricane Dorian” Budget in February. The additional resources will support the Government’s ongoing coronavirus (COVID-19) response and other budgetary operations.
“This loan is not a structural adjustment facility. It does not involve the conditionality elements normally associated with the IMF facilities that most are familiar with. This facility is a low-cost option, with an interest rate of some 1.054% that we are smartly availing ourselves to address our current needs,” said K. Peter Turnquest, Deputy Prime Minister and Minister of Finance.
“In a few days, we are going to present a new budget and it will continue to reflect the double impact of Hurricane Dorian and COVID-19. However, we have demonstrated that our approach to addressing these emergencies is to focus on the health and safety of Bahamians, social protection for the most vulnerable, and the need to sustain employment. These priorities will continue into the new budget, as we work to stabilize the domestic economy and plant the seeds of recovery. This loan facility assists us with meeting our existing obligations through the end of the fiscal year, as has been approved by Parliament during the Supplement “Hurricane Dorian” exercise,” said Minister Turnquest.
Since COVID-19, some 27 countries have accessed financial assistance using the IMF’s Rapid Financing Instrument (RFI), including other CARICOM countries. Member countries with stable debt can apply for this facility when they have had a major economic shock, such as those caused by wide fluctuations in commodity prices, natural disasters, or other emergencies – in this case COVID-19.
“This particular low-cost facility is a one-time deal that cannot be used again until repaid. A simple way to think of this is like borrowing against the value of your ownership in a company. The Bahamas has a quota in the IMF which can be likened to its ownership of shares in the IMF. Borrowing against these shares is normally at a lower interest rate than borrowing from a commercial source, and therefore a more favorable option for emergencies like the one we face today,” said Minister Turnquest.
The IMF Board meeting is planned for early June and if approved the funds would be made available to the Government within three business days. Again, unlike with IMF-supported programs, there are no conditions or prior policy actions that the Government must take before the funds from the RFI can be disbursed.
While the Government could have negotiated a loan with other financial institutions, the RFI is indisputably the better option, in the current circumstances, given its fast disbursing nature and low interest rate. Although the loan must be repaid in 5 years, the grace period of three years is favorable as this will give the Government time to refinance the loan for a longer time horizon, if it deems fit.
