Political clash over plans to increase public debt limit

Draft legislation to increase the Gibraltar Government’s borrowing powers prompted the first political exchange of 2016 yesterday.

A Bill to Amend the Public Finance (Borrowing Powers) Act 2008 was published late last month and seeks to increase the net public debt limit from £200m to £300m.

But the GSD voiced concern about a proposal to also remove a restriction that limits net debt to 80% of the government’s recurrent revenue.

This would mean that the legal net debt limit would be the higher of £300 million or 40% of Gibraltar’s GDP, with no ratio cap linked to government revenue.

The GSD said the 80% limit existed to ensure that the government was always able to service public debt and that revenue was a more direct link to the health of public coffers than GDP.

“Given 40% of GDP has always been higher than 80% of recurrent revenue, the government would be allowed an extra £200 million of net debt assuming GDP of £1.6 billion,” said Opposition MP Roy Clinton.

“This reliance on GDP alone and not recurrent revenue as a ‘warning light’ cannot be considered a prudent step to take in the management of our public finances.”

But the Gibraltar Government said the 80% revenue ratio was prohibitive because it restricted the government’s ability to borrow even when the debt was well below the other two criteria.

It said the principal aim of the amendment was to increase the net debt limit to £300m in line with a manifesto commitment, adding that this had been debated and “spelt out” during the election campaign.

“The practical effect [of the amendment] is also to keep the two criteria which are normally used to define debt levels in the rest of the world, namely the ratio of debt to GDP - which is also a criteria contained in our manifesto - and the cap, set at 8% of revenue, on the cost of servicing the debt,” a spokesman for No 6 Convent Place said.

“The ratio of 80% of revenue for limiting the size of the debt is removed because it has the effect of restricting the debt level, even when it is comfortably below the other two criteria, and exposes us to unexpected fluctuations in income.”

The Bill has yet to be debated and approved in Parliament and is certain to prompt lively debate across the floor.

“We intend to question the government as to the need for this amendment to the Act,” Mr Clinton said.

“It would appear to be designed to avoid the requirement to seek Parliamentary approval for an increase in borrowing limits, which in itself is deeply concerning coming so soon after the general election.”

For its part, the government said it looked forward to setting out the detail of the proposal during the course of the parliamentary debate on the Bill.