Government may have to bail out five state-owned enterprises (SOEs) that are not in the best of financial health.
They are the Queen Elizabeth Hospital (QEH), Transport Board, Caribbean Broadcasting Corporation
( CBC), National Petroleum Corporation (NPC) and Barbados Water Authority (BWA).
Their financial challenges are flagged in the Fiscal Risk Statement 2025 prepared by the Fiscal Risk Unit of the Ministry of Finance, Economic Affairs and Investment.
‘Moderate risks’ The report says that at this stage the five SOEs, which are being restructured and reformed to improve their financial stability and operational efficiency, “have been identified as posing moderate risks as a result of the implementation of mitigating measures by the Government”.
“However, if this risk materialises, there is a 30 per cent likelihood of requiring supplementary funding, which is considered possible. This could result in a moderate risk-weighted impact of between 0.05 per cent and 0.5 per cent of GDP based on the 2024 GDP value of $14.428 billion,” the risk statement explained.
This would be an overall bail-out of between $7.2 million and $72.1 million, said the statement, the preparation of which is mandated by the Public Finance Management Act.
Low liquidity
The five agencies being categorised as posing a moderate risk to Government’s fiscal situation is based on indicators “pointing to low levels of liquidity and the absence of robust mechanisms for quick cost recovery and maintaining strong financial health”.
“Moderate risks with greater than ten per cent but less than 50 per cent likelihood of realisation include a . . . potential bailout of the NPC,” the report states.
“Moderate risks with a greater than 50 per cent likelihood of realisation include the potential bailout of the Transport Board, QEH, and CBC.”
The unit said that a risk assessment indicated that the five SOEs had “a concerning trend of low liquidity levels and fluctuating profitability”.
“For instance, BWA is largely influenced by challenges with overdue receivables, while QEH generally reports a high level of monthly payables and a working capital deficit,” the statement explained.
“Two SOEs, namely the Transport Board and the CBC, were identified as unable to meet their obligations as they come due. This presents an increased likelihood that they will require some level of capital injection going forward to sustain their operations.”
Another risk highlighted in the report was the $71.6 million in Government guaranties of loans at SOEs, namely Kensington
Oval Management Inc. (KOMI) – $50 million, Barbados Investment & Development Corporation (BIDC) – $19.42 million), and $2.17 million to the University of the West Indies (UWI).
The document noted that while Government guarantees constituted an explicit contingent liability, “fiscal risks in this area are relatively limited”.
“Guarantees include external SOE debt consisting of multilateral debt and bond issues on behalf of three state-owned enterprises. The state has committed to issuing no additional guarantees on domestically financed debt,” it said.
“There have been regular principal repayments on the guaranteed debts, and the current balance is approximately $71.6 million. A maximum of approximately 70 per cent of the secured debt portfolio belongs to the KOMI, although it holds one-fifth of the loans.
Share of guaranteed debt
“A 27 per cent share of the guaranteed debt is held by BIDC, and the remainder of three per cent share of the secure debt portfolio is held by University of the West Indies although it holds more than half of the loans.
“The authorities assess risks from guarantees materialising as a low risk, since the total amount of guarantees poses a minor risk as a percentage of the total debt stock to GDP.”
The Government report said that steps were being taken to address the fiscal risks posed by SOEs. This is part of the Extended Fund Facility (EFF) arrangement Government has with the International Monetary Fund.
The SOE aspect is focused on “significant structural reforms aimed at creating greater efficiency, improving overall financial health, and achieving self-sufficiency”. It is aimed at reducing the SOEs’ risk-weighted impact on public finances.
Some of the initiatives being undertaken include:
• The elimination of service redundancies through mergers and divestitures.
• Introduction of cost control initiatives, business revenue enhancements and expansion initiatives.
• Implementing performance benchmarking, stress testing and forecasting to be better able to ensure timely identification and resolution of potential risks.
• Strengthening oversight to enhance reporting mechanisms and to facilitate better decision-making and risk management through various oversight committees such as the Fiscal Technical Working group, Management Accounting Unit and the Fiscal Risk Unit.
(SC)
