Starting with this column, over the next three columns, I’ll show you exactly, clearly, and honestly what Bermuda’s core economic problem is and what needs to happen in order to fix it.

The chart below shows you most of the Elephant. These figures were reported, in part, in the July 2013 Bond Prospectus. The key fact to remember is that right now Bermuda must first pay $122 million as the annual interest payment on its $2.374 billion of Public Debt. Like an elephant’s trunk, this $122m is attached to everything. Don’t forget it. Don’t ever ignore it.

Key relationships.

That $2.374bn is about 2.7 times [270 per cent] Government’s 2013/14 revenue of $871.2m. It is about 44 per cent of 2013’s GDP which is expected to come in around $5.4bn. The $800m borrowed in July and December 2013 is roughly 15 per cent of 2013’s GDP and is the level of borrowing that Greece was forced into.  Lastly, the $800m borrowed is about 92 per cent of 2013/14’s projected revenue of $871.2m.

Basic Elephant facts that you must never forget.

One – That $122m is a priority payment. It takes precedence over all other Government payments.

Two – Only $2.375m stays in Bermuda, the rest goes overseas in foreign currency.

Three – Of the $800m borrowed in this year, $330m is already allocated to covering this year’s $330m planned deficit (FY 2013/14). That leaves only $470m to cover future deficits.

Four – The sidebar shows you that between May 2014 and October 2016, Government is supposed to repay a total of $210m to retire four Senior Notes [$45m, $75m, $30m, $60m]. If Government pays off these four Notes, then Government will only have ($470m - $210m) $260m to cover future deficits. If the $69m Overdraft is also paid off, then there will only be $191m to cover future deficits.

Five – If Government rolls over the four Senior Notes and keeps the Overdraft, then the interest charged on the total $279m rolled-over will likely be re-negotiated upwards; perhaps costing an additional $2m in annual interest. Downside, this will mean that today’s $122m annual interest cost will float higher. Upside, the trade-off benefit will be that Government will still have $470m to cover future deficits.


The KEMH Public Private Partnership [KEMHPPP] project is scheduled to complete for April 1, 2014. On that date the Government should take over the new hospital wing and become responsible for paying the anticipated $27m annual costs. This $27m annual cost will effectively be added to the Public Debt.

Why $27m and where does that number come from? It is the amount that was quoted by PLP Minister of Health Zane DeSilva in November 2012 when he answered a question about what the ongoing annual cost for the KEMHPPP would be.

Purists, accountants, and semanticists may say that the $27m will actually be paid by the Bermuda Hospitals Board [BHB]. This is technically correct. 

However, BHB’s annual deficit is already in the scores of millions and adding another $27m to it, just pushes their annual deficit higher.

Who makes up BHB’s annual deficit? The Government.  

From whence cometh the Government’s money?  From the Consolidated Fund. And who pays into the Consolidated Fund?  Private sector taxpayers.

So whether the $27m is first funnelled through the BHB or is paid direct is immaterial. Either way, that $27m will come from the Consolidated Fund.

So just what is Bermuda’s Total Annual Debt Service Cost [TADSC]

As of 1st April 2014, the TADSC will be $122m for the $2.374bn in loans plus $27m for the KEMHPPP. This makes a TADSC of $149m.  

This $149m a year is the amount that you must tattoo on your hand, sear into your brain, and bring to the forefront every time you think about Government finances. $149m, $149m, $149……

Come heaven, hell, high water, or hurricane, the first thing that Government must do is fork over that $149m – over $12m a month - in order to priority feed the Elephant. 

Remember the $149m Elephant.  This Elephant will not go away.