Premier and Minister of Finance Andrew Fahie said in a recent statement to the House of Assembly that this move will save the government “about $1.6 million” over the next five years when the new loan payments are expected to conclude.

He said this is because of significantly reduced interest rates from Republic Bank. He said these reduced rates mean “a decrease in the government’s debt service cost” and a subsequent reduction in the territory’s forecasted debt service ratio under the Protocols for Effective Financial Management.

The government had opened the $45 million loan account with Banco Popular back in October 2009 for the construction of what was the ‘New Peebles Hospital Project’. And in 2018, it conducted a in a legal review of the government’s debt profile.

“It was opined that the terms and conditions under the agreement were unnecessarily restrictive and onerous given that the BVI is a sovereign borrower … The review recommended that early repayment or refinancing would remove the contractual requirement to maintain all government bank accounts with Banco Popular. This would enable the diversification of banking risk, and render the ability to negotiate lower fees, and potentially higher deposit interest rates, with other financial institutions,” the Premier explained.

The Premier said the government had made “numerous attempts since 2018 to renegotiate the restrictive terms and conditions” for the Banco Popular loan. He, however, said, the negotiations were unsuccessful in eliminating the critical clauses as requested.

The Ministry of Finance, therefore, began the process of developing a strategy to immediately repay or refinance the loan immediately.

“The strategy chosen was to pay off the balance of the loan on 31st May 2021, which was $17,250,000, and accrued interest for the period in the amount of $57,750. Therefore, the amount of the repayment was $17,307,750. However, to ensure the amount being repaid was replaced in short order, a restricted tender was arranged for a new five-year loan facility for $17,250,000 to be signed and drawn after the repayment of the Banco Popular loan. Mister Speaker, Republic Bank Limited emerged as the successful bidder for this new loan facility,” said Fahie who explained that there is no increase in Central Government’s debt stock.

This new loan would only be replacing the recently settled loan with Banco Popular. Therefore, the value of the loan remains unchanged at $17,250,000, but at a fixed interest rate of 1.51 percent offered by Republic Bank compared to the four percent floating interest rate of the recently paid-off Banco loan.

Going hand-in-hand with the savings from this refinanced loan, Republic Bank also accepted the suggestion to add a moratorium option so that the government can postpone loan payments for six months in the event of catastrophic events, such as natural disasters and economic shocks.