Remarks by the Prime Minister and the Minister of Finance at the signing of the loan with the Republic Bank
REMARKS BY THE PRIME MINISTER AND THE MINISTER OF FINANCE
HONORABLE ANDREW A. FAHIE
WHEN THE LOAN IS SIGNED WITH THE BANQUE DE LA RÃPUBLIQUE
First of all, let me say good day and blessings from God to everyone.
I recognize the protocols already established and I thank my honorable colleagues for being here with me as well today, as well as the hardworking staff of the Department of Finance.
God continues to lead the BVI to greener pastures.
We are here at this watershed moment to turn a new leaf where we are refinancing the Peebles Hospital loan.
In doing so, we will help BVI achieve savings of $ 1.6 million; this will increase our borrowing ratio and capacity and keep us below the threshold of protocols for effective financial management.
One of the things your government is committed to is effective and prudent financial management.
To explain why and how we got here on 2sd October 2009, the government of the Virgin Islands signed a $ 45 million loan agreement with Banco Popular for the construction of the New Peebles Hospital project.
Following a legal review undertaken in September 2018, it was found that the terms and conditions of the agreement were unnecessarily restrictive and onerous given that BVI is a sovereign borrower.
The balance of this loan which would mature in 2026, on April 30, 2021 was seventeen million two hundred and fifty thousand dollars (US $ 17,250,000.00) and it had a variable interest rate including the US prime rate. (currently 3.25%) plus a 0.75 percent margin, currently totaling 4.00 percent.
By analyzing the profile of the State’s debt (State and guarantee), even in this environment of lower interest rates, it was found that this loan was among the most expensive of the State in terms of commitments. of interest.
The review recommended that an early repayment or refinancing would remove the contractual obligation to maintain all government bank accounts with Banco Popular.
This would allow for diversification of banking risk and would make the ability to negotiate lower fees and potentially higher interest rates on deposits with other financial institutions.
This action would also eliminate any concerns about Banco Popular’s right to grant and / or exercise a right of first refusal with respect to any new financing which, if followed, restricts competitive borrowing and risks increasing financing costs. of the government.
In addition, it will also remove the restriction on the government’s ability to sell assets.
All of this just means that the way the Peebles hospital loan was structured was very burdensome and restrictive for the government and people of the Virgin Islands.
And by repaying that loan or refinancing it on more favorable terms, those charges could be drastically reduced and some of the very restrictive terms that came with it could be removed. And that’s what we’re doing today with Republic Bank, the newest bank to operate in our jurisdiction.
In light of the continued impact of the global COVID-19 pandemic – the worst pandemic to hit the world in the past 100 years – on our tourism industry and, by extension, the prolonged negative implications for our economy, your government is currently reviewing its debt strategy and, if these concerns about the Banco loan were not resolved, this loan would have a negative impact on the government’s access to affordable and sustainable future loan financing.
The Government has made numerous attempts since 2018 to renegotiate the restrictive conditions of this Peebles Hospital loan.
After these negotiations failed to eliminate the critical clauses requested, the Ministry of Finance began the process of developing a strategy to repay or refinance this loan.
The chosen strategy was to repay the loan balance on the 31st.st May 2021, which was $ 17,250,000, and accrued interest for the period in the amount of $ 57,750. Therefore, the reimbursement amount was $ 17,307,750.
To ensure that the repaid amount was replaced quickly, a restricted tender was organized for a new five-year loan facility for $ 17,250,000 to be signed and drawn upon after the repayment of the Banco Popular loan.
Republic Bank Limited has emerged as the successful bidder for this new loan facility.
I am happy to say that there is no increase in the outstanding central government debt, as this new loan would only replace the loan recently settled with Banco Popular.
Therefore, the value of the loan remains unchanged at $ 17,250,000, but at a fixed interest rate of 1.51% offered by the Republic Bank compared to the floating interest rate of 4.00% on the Banco loan recently. reimbursed.
With this interest rate, the government would save around $ 1.5 million over the period from June 2021 to June 2026.
In addition to the substantial interest savings just mentioned, the government would save an additional $ 100,000 in annual fees normally paid on the Banco loan.
Thus, over the period from June 2021 to June 2026, the acquisition of this new loan mechanism would allow the government to save approximately $ 1.6 million.
Going hand in hand with these much-needed savings, the reduction in interest charges means a decrease in the cost of servicing the government’s debt, which translates into a reduction in our expected debt service ratio under the protocols for a effective financial management.
This means the BVIs will come out of that signature in a stronger position in the protocols metric than if we hadn’t refinanced the loan like we are doing now.
The Republic Bank has also followed the government’s suggestion to add a moratorium option so that we can defer loan repayments for six months in the event of catastrophic events, such as natural disasters and economic shocks.
I cannot stress enough how useful this additional flexibility is to our government as we continue to navigate this uncertain and ever-changing economic environment. This is our first loan with Republic Bank, and I am extremely happy to have such a favorable agreement with this institution.
I would like to thank the Bank for granting the government such favorable terms, which is extremely useful in these difficult economic times. My government looks forward to having an excellent working relationship with Ms. Marion Blyden and her team at the Republic Bank.
Successful negotiations for this loan would not have been possible without the hard work, commitment and dedication of the staff of the Department of Finance and our UK debt adviser, Mr. Alex Musson, who guided the negotiations successful with the Republic Bank. I must also say that we thank Banco Popular for the time we have spent doing business with them in this regard, as we continue to do business with them in other respects.
There have been several attempts in the past without much success to renegotiate this loan, but it has paved the way for us to now ensure that we are saving the government money; that we make sure that we also stay within our ratios in effective financial management protocols and that gives us more flexibility to do certain things financially.
This is indeed a great achievement of the Ministry of Finance, and for the people of the Virgin Islands and as Minister of Finance, I would like to thank the Acting Financial Secretary, Mr. Jeremiah Frett and his entire team, for it has indeed been an effort to accomplish this. And I can’t forget one of our team at the Department of Finance, Ms Phillip, for her hard work.
Today we are turning a new leaf in the best interest of the people of the Virgin Islands and that is why I continue to say that God continues to lead the BVI to greener pastures and God be the glory.
We thank you.