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An opinion column in the Worker’s Voice of  October 1 states: “…Bermuda’s present economic crisis is in no way related to the way the country was governed prior to OBA’s election victory…”

Earlier in the article, apparently using Wikipedia as her reference, the writer, LaVerne Furbert, states: “…a marked global decline that began in December 2007, and took a particularly sharp downward turn in September 2008.”

I strongly disagree with the suggestion that today’s financial woes cannot be traced back to the previous administration. And here’s why.

The Seventh Minister for Finance had full control of Bermuda’s national finances from 1st April 2004 until December 17th 2013. In the mutually acknowledged ‘boom’ years between April 2004 and December 2007, starting out with a National Debt of $119.5m, by December 2007, the Seventh Minister’s pattern of over-spending had added $363m in additional and new National Debt.  By Ms Furbert’s own admission, this happened before any global crisis.

Then, and we agree, the global crisis hit.  The consequences of the habit of over-spending were immediately worsened by an economic decline driven by three local factors.

First, a decline in ResPop as Business Residents and Bermudians left Bermuda. But this decline is still not admitted or acknowledged, even by this new Government.

Second, a change in the modus operandi of Bermuda’s primary Insurance industry resulting in a reduction in IB’s Bermuda footprint.

Third, a Government Debt Service Cost expense that, in just eight years, had rocketed up from the easy-to-handle $11.4m and 1.5% of Revenue of 2004/05, to the un-manageable $131m and 15% of Revenue of 2012/13.   

Binding these three factors into one solid whole is the management style of those responsible for handling national finances between April 2004 and December 2012. Even after the ‘global crisis’ of 2007 to 2008, and up to 2012/13, the Seventh Minister for Finance continued over-spending. She added another $1,091m in National Debt. By the time she was dumped from office, she and the Government that she had led had added a grand total of $1,450m to Bermuda’s National Debt.

In 2013/14 and for many years going forward, the huge priority payments – counting interest costs only – that Bermuda now carries will act as a drag on all national economic growth.  Without Sinking Fund contributions, Bermuda’s annual interest cost to service its now $2,324m Debt load will be $121m out to 2017/18. Of that $121m, some $82m of current interest costs are committed to paying for the ‘sins of the past’ management that managed between April 2004 and December 2012.

The statement “…Bermuda’s present economic crisis is in no way related to the way the country was governed prior to OBA’s election victory…” is, in my view, inaccurate.

How Bermuda was governed between 2004 and 2012 plays the largest part in today’s economic crisis. The new Government took over a national operation that was already crippled by a high Debt Service load. That high Debt load is the legacy of the Seventh Minister and her party.

Debt to GDP ratio

In her column, Ms Furbert resurrects Dr Andrew Brimmer’s Debt to GDP ratio argument. She writes: “…my research indicates that Bermuda’s debt to Gross Domestic Product (GDP) is very low compared to some countries.”

Despite his excellent credentials, Dr Brimmer was totally wrong in introducing this comparison. It is a meaningless comparison.

For clarity, in the second photo above, I present Ms Furbert’s Debt/GDP argument. I show its outcomes relative to revenue. Before examining that sidebar, hoist in these critical points.

First, the debt interest costs must be found and priority paid every year.

Second, all of Bermuda’s Debt is serviced with foreign exchange — not Bermuda dollars.

Third, Bermuda’s Debt and GDP figures shown are based on Bermuda’s reported 2012 GDP of $5,446m; and Bermuda’s projected GDP of $5,391m for 2013. Note that in October 2013, Bermuda’s Debt to GDP ratio has already risen to 43%.

When you examine the graph, it quickly becomes obvious that Bermuda cannot possibly spend much more of its Revenue on Debt Service — and remain a stable society.

Ultimately and universally, 1 + 1 always equals two. Never eleven, as some would have you believe.