Mr. Speaker, I rise today to advise Honourable Members of the completion of the audit of the Consolidated Fund Financial Statements for the year-ended March 31, 2019, which were tabled in this Honourable House today.
As Honourable Members are aware the Consolidated Fund is the general operating fund of the Bermuda Government and is the Fund through which Government conducts the majority of its transactions. The Consolidated Fund financial statements report the financial position, operations, change in net debt and cash flows resulting from the activities of the Government. This includes the accounts of the Senate, the House of Assembly, all Government departments and offices and all courts.
Mr. Speaker, I am pleased to report that the 2019 annual accounts of the Consolidated Fund of the Government of Bermuda were given an unqualified audit opinion and can report that the items that precipitated the 2018 qualified opinion have been rectified.
Mr. Speaker, despite the clean audit opinion, under the Audit Act 1990, section 6(1) (b), the Auditor General is able to include in her report, any other comments she considers appropriate. Accordingly, the Auditor General has, for the ninth consecutive year, included explanatory paragraphs as ‘other matters’ which she deems appropriate. These “other matters” relate to the following:
Public Debt and Guarantees – The Auditor General has highlighted that while the Government is within the legislated debt limit of $2.5 billion, there is a further $1.2 billion in guarantees to various lenders by the CF.
Increasing Net Debt – The Auditor General has noted that the net debt, as calculated on the Statement of Changes in Net Debt increased by $102 million and continues to grow (pg. 7 of the financial statements).
Usefulness of the Financial Statements – The Auditor General explains that the usefulness of the financial statements is limited because they are not “Summary Financial Statements”. That is they do not represent the combined financial position and activities of all Government entities, only the CF.
It is important to note that these explanatory paragraphs do not alter the Auditor General’s unqualified opinion, but are highlighted matters.
However, the Government notes the Auditor’s concerns in these areas and has already started to tackle these matters. For instance Mr. Speaker, the Ministry of Finance has already put in place a plan to eliminate the deficit and ultimately reduce the debt.
Mr. Speaker, liabilities related to pension and other employee future benefits are also included in the “Net Debt” amount disclosed in the Financial Statements and the Government has already started the review of these benefits to ensure their sustainability.
Mr. Speaker, in relation to guarantees of the CF to various lenders, the Ministry notes that the majority of these guarantees are related to debt taken out by public authorities and the number of $1.2 billion in guarantees mentioned by the Auditor General could be misleading if not clarified.
Mr. Speaker, guarantees are contingent liabilities to the Government and are not included on the Government’s balance sheet, or counted against the debt ceiling, unless the guarantee becomes due and payable by the Government. All guarantees are disclosed in notes to the financial statements of the Consolidated Fund and the annual budget. These guarantees are as follows:
a guarantee by the Government of the Bermuda Hospital Board’s annual service payment obligations related to the financing for the new acute care wing at the King Edward Memorial Hospital, over a term of 30 years consisting of principal, interest, construction, lifecycle and hard facilities maintenance. The total present value of the future payments due from the BHB to the private sector partner was $279.3 million as at March 31st 2019;
a guarantee by the Government of the West End Development Corporation payment obligations related to: (i) the repayment of construction financing for the construction of affordable housing; and (ii) the repayment of financing to facilitate the completion of the Land Reclamation Project in Dockyard for the America’s Cup, (iii) the repayment of financing to facilitate the completion of the King’s Wharf project, in total estimated at $71.85 million;
a guarantee by the Government of the Bermuda Housing Corporation (“BHC”) payment obligations related to the repayment of construction financing for the construction of affordable housing, estimated at $29.3 million;
a guarantee on behalf of the Bermuda Casino Gaming Commission supporting an overdraft facility with a local financial institution of $1.2 million. $1.021 million had been drawn on the facility as at March 31st 2019.
a guarantee on behalf of the Bermuda Tourism Authority supporting a loan with a local financial institution of $10.0 million to repay a loan from Royal Caribbean.
various other small business loan guarantees with the Bermuda Development Economic Corporation totaling approximately $1.4 million as of March 31, 2019; and
a $165 million guarantee by the Government of various loans to Morgan’s Point Limited, the Caroline Bay hotel developer for the construction of a Ritz Carlton hotel and residence.
It is generally not the policy of the Ministry of Finance to issue guarantees to the private sector unless the matter is of national importance. It is also important to note that any private sector guarantee agreement includes conditions typically included in non-affiliated financial guarantees and the Government is compensated for providing these guarantees.
Mr. Speaker, with regard to the preparation of Summary Financial Statements for the Bermuda Government, the Ministry agrees there are benefits to issuing consolidated financial statements, however Honourable Members are advised that there are other associated issues that need to first be addressed before proper consolidation can take place, and the Ministry notes that it would be prudent to have all of the audits of public authorities current to ensure the Summary Financial Statements are not misrepresented to users.
The audit report date is November 19, 2019 (2018 – November 19, 2019). Certain private debt placements made by the Government contain a reporting covenant requiring delivery of the audited financial statements within two hundred forty (240) days of the fiscal year-end
(November 26, 2019). Honourable Members are advised that this reporting covenant was met.
Mr. Speaker, a few of the financial highlights of the 2019 Consolidated Fund Financial Statements are as follows:
Cash balances as at March 31, 2019 totaled $26.7 million which was $6.5 million higher than the balance as at March 31, 2018.
Mr. Speaker, Net Public Debt, which excludes guarantees and is net of the Government Borrowing Sinking Fund, increased by $42.3 million during fiscal 2018/19, standing at $2.461 billion at the end of the year compared to $2.419 billion in 2018. This represents a 1.8% increase from 2018. Items of note are as follows:
There was a successful public debt issue of $620 million in November 2018. The majority of the proceeds were utilised to retire higher interest-bearing debt saving the Government just over $1.0 million in interest expense.
The 2019 Sinking Fund balance was $218.9 million compared to $150.2 million in 2018.
Mr. Speaker, the total revenue raised by the CF for fiscal 2018/19 , excluding the extraordinary revenue of $10.2 million from paying off the North Channel Shipping loan, was approximately $1.09 billion, representing an increase of $27.5 million (2.6 %) from fiscal 2017/18’s total revenue of $1.063 billion. This exceeded original budget estimates by approximately $416,000. The most significant generators of revenues for fiscal 2018/19 were Payroll Taxes, accounting for $467.5 million or 42.9% of total revenue (2017/18 – $456.7 million or 42.7 %) and Customs Duty, accounting for $226.1 million or 20.7% (2017/18 – $223.0 million or 20.9 %).
Current expenses for fiscal 2018/19 were $1.187 billion (2017/18 – $1.130 billion). The three largest components of current expenses were employee costs, grants and contributions and interest on debt. Total employee costs were $550.1 million or 46.3% of total expenses (2017/18 – $518.5 million or 45.9%). Included in this amount is $78.5 million of non-cash retirement benefit expenses. Grants and contributions were $319.2 million or 26.9% (2017/18 – $285.3 million or 25.2 %) and interest on debt was $124.0 million or 10.4% (2017/18 – $117.9M or 10.4 %). Total current expenditure on a modified cash basis was $1.11 billion (2017/18 – $1.073 billion), which was $7.9 million less than adjusted budget estimates (2017/18 – $20.7M less).
Mr. Speaker, total capital account cash expenditure was $58.6 million, which was $3.6 million lower than the original budget estimates.
Total capital and current account cash expenditure for 2018/19 was $1.168 billion, which was $11.5 million or 1.0% lower than the original budget estimate of $1.180 billion.
Mr. Speaker, the all-inclusive results from government operations (both current and capital) for the year ending March 31, 2019, were a deficit of $123.3 million. There are many non - cash expenses included in this figure. If we strip those away, the modified cash all-inclusive results from government operations (on the same basis that is shown in the Budget Book) was a deficit of $77.7 million. This compares to a deficit of $89.7 million that was originally budgeted. Therefore, the actual overall deficit was down by $11.9 million or 13.3% when compared to the original estimate. The decreased deficit is a result of prudent management of discretionary current and capital expenditures.
Mr. Speaker, the 2018/19 fiscal results are concrete facts that indicate that this government is committed and capable of maintaining control of the public finances while at the same time working for the people of Bermuda and delivering the level of services that they deserve.
Mr. Speaker, the Ministry will be providing full commentary on the actual fiscal performance for 2018/19 in the Pre-Budget Report in Advance of Fiscal 2020/21, therefore I do not propose to go into further detailed highlights at this time.
Meanwhile Mr. Speaker, the statements of the Consolidated Fund provide valuable information on the financial position of the Government and I would encourage the public to examine these statements.
Thank you Mr. Speaker