Strengthening Public Debt Management Framework and developing government bond market in The Bahamas The project will implement the Sustainable Development Goal (SDG) 17.4 in the Bahamas, which aims ‘to assist developing countries in attaining long-term debt sustainability through coordinated policies aimed at fostering debt financing, debt relief and debt restructuring, as appropriate, and address the external debt of highly indebted poor countries to reduce debt distress’ 

The overall aim of the project is to promote long-term public debt sustainability in the Bahamas by strengthening its capacity to manage public debt effectively. The project focuses on supporting The Bahamas through an integrated programme of assistance to strengthen and reform its governance structure, policy framework and government securities market. 

In the aftermath of global financial crisis, the economy of The Bahamas suffered a prolonged economic slowdown. The Government finances deteriorated sharply and public debt ballooned from 25.3 per cent of GDP in 2008 to 63.3 percent in 2018, by about two and half times in just a period of 11 years. It also triggered a series of credit rating downfalls by the International Credit Rating Agencies, which further undermined the prospects for economic recovery and raised concerns over long-term debt sustainability. The Government thus initiated a number of reform measures aimed at promoting growth, strengthening public finance and debt management and restoring fiscal and debt matrix back to sustainable levels, all of which are critical for the long-term sustainability of public finance and debt. 

Against this backdrop, the project will support the Government in its pursuit of strengthening capacity to manage its public debt more effectively. This would be achieved through delivery of an integrated programme of Technical Assistance (TA) with the following four components: Strengthening governance framework for the public debt management (Component 1), Bolstering Policy framework for debt management (Component 2), Developing government bond market (Component 3) and Improved Project Performance (Component 4)

Component 1: Strengthening governance framework for public debt management 
The main purpose of this component is to strengthen governance framework, which embodies legal framework and institutional arrangement for the debt management.  This will be delivered through two sub-components, viz. strengthening and modernising legal framework for debt management (Subcomponent 1.a)  and  restructuring of the debt management function on a functional line (Subcomponent 1.b). 

 Subcomponent 1.a: Strengthening legal framework for debt management
This subcomponent will revamp the existing legal framework, which has become outmoded and no longer fit for purpose. Under this subcomponent a new Public Debt Management law will be established, regulation to operationalise various provisions of the new Public Debt Management law will be drafted and a new agency agreement between the Ministry of Finance and the Central Bank of The Bahamas defining their respective roles and responsibilities under the new debt management framework will be operationalized 

Subcomponent 1.b: Restructuring of the Debt Management function for effective debt management 
This sub-component will support restructuring of debt management function on the functional lines to promote specialization and efficiency in accordance with the best international practices. Accordingly, a new debt management office under Ministry of Finance will be set up and made fully functional under this component. 

Component 2: Strengthening Policy framework for debt management
This component will focus on strengthening the policy framework for debt management and will be delivered through three subcomponents, viz., (a) Institutionalizing strategic planning in public debt management, (b) establishing a buyback and exchange program for government securities, and (c) setting up a non-competitive bidding scheme for retail investors and drafting of guidelines on issuance policy. 

Subcomponent 1.a: Institutionalizing strategic planning in public debt management
The aim of this subcomponent is to provide strategic underpinning to public debt management operations, which is currently missing. It will involve formulation and implementation of a Medium Term Debt Management Strategy (MTDS) that strikes a balance to minimize the long-term debt servicing cost and risks and remain consistent to broader macroeconomic policy and market access objectives. 

Subcomponent 2.b: Establishing buyback and exchange programme for Government securities
The main purpose of this subcomponent is to consolidate government debt, which is highly fragmented into large number of securities, into a smaller number of securities through buybacks and switches with a view to promoting market liquidity and to managing refinancing risk on government securities more effectively. Under this module, guidelines on buybacks and exchanges will be drafted; a buyback and exchange programme will be developed and implemented. 

Subcomponent 2.c: Non-competitive bidding scheme and guidelines on issuance policy  
The main purpose of this sub-component is to develop Guidelines for the issuance of government securities and establish a non-competitive bidding scheme for government securities to promote higher investors, including the retail, participation in issuance of government securities.

Component 3: Developing government bond market
This component aims at developing a government securities market in The Bahamas that secures sustainable access to funds for government financing requirement consistent with its debt management objective. This component will be delivered through two subcomponents, viz., (a) improving efficiency and safety of securities settlement process and infrastructures and (b) introduction of Central Bank repos 

Subcomponent 2.a: Improving efficiency and safety of securities settlement process and infrastructures
This sub-component will support a comprehensive assessment of risks in functioning of existing financial market infrastructure, against a global standard called PFMI framework, for necessary corrective action by the Central Bank and developing an appropriate regulatory framework for the Central Securities Depository.

Subcomponent 2.b: Introduction of Central Bank repos
This sub-component aims at introducing Central Bank Repo operations for effective implementation of monetary policy, which will also promote money market and bond market development. Implementation of this sub-component will involve drafting of a Master Repo Agreement for Central Bank operations, designing guidelines for repo implementation, developing a liquidity-forecasting model and supporting Central Bank in implementation of repo.

Delivery of the Project through all of the above components will result in following expected outputs:

Strengthened and modernized legal and regulatory framework for debt management is in place to promote accountability, transparency and effectiveness in debt management operations
 A new debt management office is established and functional under the Ministry of Finance to manage Bahamas’s debt burden effectively. Debt Management function is restructured on functional lines in accordance with international best practice.  
Medium term debt management strategy (MTDS) is established that guides prudent borrowing decisions based on cost and risk considerations. 
Operational and regulatory framework for financial market infrastructure is strengthen facilitating safe and efficient settlement of transactions in Government securities
Buyback and exchange progamme for Government securities is established to improve secondary market turnover and reduce refinancing risk of Government 
Central Bank’s Repos are introduced to improve effectiveness of monetary policy and development  of money and bond market
Guidelines on Issuance of the government securities and a non-competitive bidding scheme for retail investors are introduced facilitating improved investors’ participation in primary issuance of government securities. 

Component 4: Improved Project Performance
This component will focus on improving project performance through (a) Monitoring and evaluation, and (b) training and capacity building in project implementation team. Monitoring and evaluation of the project progress against the agreed results framework; budget and timeliness will be undertaken on a biannual basis.