Lower fiscal revenues and higher public spending will cause Bermuda’s projected budget deficit of $19.8 million to significantly increase, according to Curtis Dickinson, Bermuda’s Minister of Finance.
Dickinson said revenues for the three months ending June 30 were $221.6 million, or 21 percent lower than had been estimated in the budget, primarily due to a shortfall in customs duty collections.
After factoring in the impact of lost revenue, additional expenses relating to the COVID-19 pandemic and the government’s cost-saving measures, the government estimated Bermuda would run a deficit of $225 million for the 2020/2021 fiscal year.
Dickinson noted that payroll tax had been $18.2 million higher than was estimated in the 2020/21 Budget. However, the broader picture was less positive, with the onset of the COVID-19 pandemic, having had “a profoundly negative impact on the Bermuda economy and consequently the government’s fiscal position.”
The mandatory Shelter in Place order, the closing of the airport and the lack of cruise ship arrivals all contributed to the challenging economic picture, Dickinson said.
However, he predicted the economy will improve going forward. “We believe that the extraordinary COVID-19 related expenses that were recorded in the first fiscal quarter will not continue into the remainder of the year,” Dickinson said. “With the easing of restrictions, including the opening of our borders, we expect revenues to show improvement over the first quarter.”
Dickinson pointed to Bermuda’s recent successful capital markets transaction, where it issued $1.35 billion of new bonds, split between 10 and 30-year paper, with equal amounts of capital raised in each issue.
“Orders from investors significantly exceeded the amount offered, reflecting massive interest in Bermuda’s credit,” Dickinson said. “This allowed us to achieve record low coupons and spreads to Treasuries.” Bermuda has used some of the capital raised to repurchase a portion of its outstanding bonds and repay local credit facilities, he said, all of which resulted in lower interest rates.
Dickinson said the government is developing medium–term strategies which can be implemented over the next year to three years to stabilise and grow its economy.
Curtis Dickinson, Minister of Finance, COVID-19