Treasury Minister Chris Sanders (file photo)

(CNS): Finance Minister Chris Sanders said the rest secured by the Cayman Islands government to invest in US government bonds to manage CIG’s borrowing into capital projects for the life of the budget. Announced the decision to withdraw all of its loans. Saunders has decided to receive all cash as the government’s $ 393 million credit line will soon expire its 3.25% fixed rate and is expected to rise over the next six months. Said.

In a statement released Thursday, Sanders explained that the move would prevent the government from funding capital projects over the next two years and paying interest rates as high as 6.75% by the end of this year.

Faced with the financial constraints expected during the pandemic, the previous administration set up a US $ 403 million credit line with a consortium of local banks in December 2020. However, despite the challenges, the government’s finances were relatively stable, so no funding was needed except for a $ 10 million drawdown to keep the credit line active. As a result, neither the previous administration nor the current administration has ever used cash.

Mr. Sanders decides to invest in US Treasury bills for two years at the same time as receiving a loan to reduce interest costs on borrowings approved to fund future capital projects by 2023. Said that was done.

“By using existing local credit lines, the government can borrow for 15 years at a fixed rate of 3.25% per year,” Saunders said. “The Cayman Islands prime rate is currently 4% and is expected to increase over the rest of 2022, following the widely expected Fed rate hike. In the future, it will expose the government to higher interest rates than the current 3.25% fixed rate offered by the consortium. Withdrawing loan funds now will avoid the negative effects of expected future rate hikes. . “

As the loan clock passed, the Cabinet decided on June 7 to withdraw money before the favorable fixed interest rate transaction expired on June 18.

The Federal Reserve Board is expected to meet over the next five months to direct more rate hikes, following yesterday’s rise of 0.75%. “These rate hikes could mean that the government is facing borrowing rates of up to 6.75% pa,” he said, pointing out the urgency of using existing credit lines.

“The existing US $ 403 million long-term facility offered by the local consortium at 3.25% pa is cheaper than the existing prime rate of 4% and could be gained by government attempts to negotiate. It should be better than future offers. A new deal in the current volatile interest rate environment, “Sanders said.

He said no penalties would be imposed if the government repays the loan early. “Faster repayment than planned for the facility is a means of reducing interest expense that the government will face and is currently about 350 million CI from 2022 to 2023 for capital projects such as mental health facilities. Parliament has approved to borrow dollars. Schools and waste power plants. “

Mr Sanders said the loan fund drawdown is not used for the government’s daily operating expenses, but only for infrastructure projects. He said operating expenses are covered by income. With bond money until you need it, CIG saves you the cost of borrowing, as you earn about as much money as the interest paid on a loan.

“As of June 16, the yield on US Treasury bonds for two years was about 3.2%, which will significantly reduce the cost of transporting the withdrawn loan funds to the government.”

He said four regional banks were interested in acting as brokers on behalf of the government in the purchase of US Treasury bonds, and CIBCFirstCaribbeanInternationalBank was a successful entity.

“In our efforts to ensure a stable, effective and accountable government, this course of action is the wisest and most responsible action for borrowing in current market conditions,” Sanders said. “By investing up to 3.25% interest rates over 15 years and investing borrowed funds until needed, we reduce the cost of borrowing while funding the capital projects needed to expand the island’s infrastructure. It is a clear victory for the Cayman Islands during times of global instability and maintains continued financial stability. “

He said the government will not borrow any more for the rest of the term and as of May 31, the government’s debt is $ 206.4 million CI. The drawdown will increase the balance to $ 535.5 million CI and the debt-to-GDP ratio of about 9.9%, making it one of the lowest in the world.

“This increase in cash on hand will strengthen the country’s ability to respond to emergencies that can occur during these difficult times,” he said. “The government has considered this decision very carefully and concluded that it is in the island’s best interest to withdraw loan funds in June 2022 ahead of the expected rapidly rising interest rate environment in the short term. I did. “

If the government had to negotiate a new facility in the future, it would definitely cost the country, he said.

Source link

Previous articleEmirates News Agency-Heavy rain in Lahore, Pakistan kills 5 people and injures 4
Next articleKit Harington replays his role as Jon Snow in a new Game of Thrones spin-off