Hospital, pensions and covid could push Jersey's debt above £2bn

Thursday 12 August 2021

Jersey’s Treasury Minister has published a plan which would see the island taking on debt to the tune of more than £1.8 billion, not including interest. That would mean that the island's ratio of debt to the total value of the economy, would leap to 39%.

That number includes £756 million for the new hospital, but also a further £450 million to re-finance liabilities in the public sector employees, and teachers, pension schemes.

The figures have been released in a ‘debt framework’, published by Treasury Minister, Deputy Susie Pinel. The figure of £1.8 billion does not include interest, and is made up of:

• a £250 million social housing bond, which is already in place;
• £756 million in two new bonds to pay for the new hospital, which will be discussed by the States in the autumn;
• a new £450 million bond to refinance liabilities in the public sector, and teachers', pension schemes;
• a new £385 million bond to refinance the borrowing which has already been agreed to pay for covid support schemes. 

The report paints a new landscape for Government finances in an Island which has long prided itself on low levels of borrowing: last year, debt as a proportion of the total value of the Jersey economy was just 5.4%.

This year, it is due to jump to 34.2% because of borrowing for covid and the new hospital.

If the debt strategy is backed by the States Assembly, the ratio will increase to 38.6% by 2024.

The report recommends that Jersey should set this ratio, of ‘debt-to-gross domestic product’, at between 30% and 40% in the medium term, which it says should not affect the island’s credit rating, which in turn influences how much it can borrow.

Pictured: The Government plan to borrow £756m to fund the new hospital at Overdale, to be paid back within 40 years.

However, the report does indicate that the island’s current “AA-” credit rating from Standard and Poor’s could fall, potentially due to factors outside of Jersey’s control, such as the UK’s rating and prevailing market conditions, as well as the state of the local economy.

It says: “Jersey will aim to maintain an investment grade rating (BBB- and above) under all market conditions. This will support the ability of the Government to issue debt or to access short-term facilities if warranted by the prevailing environment.”

Pictured: Jersey's Debt to GDP ratio until 2024

Some of the debt referred to in the framework has already been agreed and taken out, such as a £250m bond in 2014 to fund improvements in social housing, and the up-to £500m ‘revolving credit facility’ to pay for the Government’s pandemic response.

However, new debt is proposed: 

•  £756 million to finance the new hospital at Overdale, to be paid off over 30-40 years with an expected coupon (or annual interest rate to be repaid) of less than 2.5%. It is anticipated that returns made from investing money in the Strategic Reserve, or ‘rainy day fund’, will repay both the capital and interest of the loan.
• Although the credit facility for covid measures is up to £500 million, the Government only has authority from the Assembly to draw down up to £385 million. The strategy envisages paying off this short-term loan by borrowing the same amount over a longer period. It is planned to ‘ring fence’ around £350m from the receipts of the prior-year-basis tax debt to repay most of the long-term debt at maturity, in around 20 years’ time.
• The Government plan to borrow around £450 million in 2023 to meet its public sector pension liability for civil servants and teachers.  The report says that the annual financing costs of this 30-35-year loan will need to be met from existing general revenues, which will result in an increase in the current level of funds allocated for funding these liabilities.