Chief Minister’s statement to Parliament on new £500m facility with NatWest
The Chief Minister’s statement on the new £500m credit facility with NatWest:
Mr Speaker
I have today laid before Parliament a copy of a new £500m credit facility agreement with NatWest International Gibraltar.
NatWest UK, who were brought into the transaction by the local NatWest team, is also a party to the agreement.
The facility is split equally between these two lenders.
As I make this address, we have published a joint press release with NatWest where I have recorded my gratitude for their continued support.
As honourable members will know, I have written to Mr Speaker explain that at NatWest’s request, the agreement that I have laid before Parliament has had the lender’s signatures and personal details redacted.
This facility is the fruit of our strong and ever-growing relationship with NatWest; one that has been nurtured by Government and the bank over recent years.
It is rewarding to see that a bank who has stuck with us continues to demonstrate its commitment to our community at a time that we need it the most.
This is not a bank that has been ready to lend us an umbrella in the blazing sun only to take it away in the rain.
It is a bank that has been there when the hail has started and the rain has fallen.
The cold November rain has not broken our relationship.
It has sealed it.
I would like to take the opportunity to thank Andrew McLaughlin, Gordon Paterson, Kim Slater and Mark Stevens, all of whom have made an invaluable contribution towards closing this deal.
Through this facility NatWest have cemented and reaffirmed their commitment to the local community.
As I say in our joint press release, this facility marks the turning of a new leaf.
We hope that as we see mass vaccination in 2021 raise the prospect of an imminent recovery, we can use this facility to kick-start our economy back to normality.
This facility is backed by the UK Government’s £500m guarantee that was announced on 19 November.
We have built an exceptional relationship with the UK since we took office and it is at times like these that we can leverage on our relationship to obtain a timely facility on better terms than that which we would have obtained had we gone to the market without the backing of a guarantee from Her Majesty’s Government.
The market conditions are right for public borrowing, for the right purposes, with interest rates at a record low 0.1% and with central banks seriously contemplating negative interest rates.
This makes our borrowing cheaper and more affordable than ever.
The guarantee is a show of support from Her Majesty’s Government, and they have assessed the risk of the guarantee being triggered as very low.
That is a demonstration that, when we have been considered as a convenant by the UK and by Her Majesty’s Treasury in the UK they have decided that they are confident in our ability to bounce back after this pandemic and deliver on our repayment commitments.
That is a hugely important note for this House, Mr Speaker.
Too often we hear about the ability of the Government to sustain its borrowing.
Very often, the statements we hear are based on party political considerations, no doubt.
But this statement is not infected with party politics.
And neither could anyone suggest that we might have knobbled HMT to get them to say what we might want them to say.
And despite that, there is a clear statement of confidence in our public finances. I think that is extraordinarily value.
Genuinely hugely valuable for the whole community.
Putting aside party politics.
Because these moments through which we are living are too important for party political games.
And I thank Honourable Members Opposite for having suspended what I have previously called ‘politics as usual’ as we have dealt with these extraordinary times.
Because our common interest as a people is to have got this right now.
Arguments can come later.
But right now, to have this facility on the back of the guarantee we have secured, is EXACTLY what we needed and EXACTLY the confidence that our economy needed to see objectively ascribed to us.
Mr Speaker, due to our size and our talent pool, our economy is one that is agile and innovative, we can channel our productivity and reinvigorate so that we see the levels of economic activity and consequent revenue that we saw before the pandemic.
I am confident that we will be able to do so and that our economic actors will achieve that.
The timeline of that return of activity, productivity and profitability will become clearer as the timeline for the full vaccination of our community and the rest of Europe and the world becomes clearer.
It is important to note that this credit facility agreement has been entered into by Her Majesty’s Government of Gibraltar.
It is direct borrowing and it is in full compliance with our statutory borrowing limits, as I explained during my emergency budget address in March, where I set down our calculations and how we had the ability to borrow a further half a billion pounds.
The Hon Roy Clinton, opposition spokesperson for public finance commented at the time that he was in agreement with these calculations.
Its not often that I quote Mr Clinton with approval, but I will do so today.
[Roy Clinton extract: “in terms of numbers, the Chief Minister’s calculations are correct in terms of his headroom. On a number of £2.4 billion or £2.5 billion of GDP he can indeed borrow 40% of that, which would give him £940 million. He says he has headroom of £500 million and I would agree with that calculation and can assure the House that that is correct.”]
Honourable members will note, for the record, that was actually quoting Mr Clinton with approval because he was actually confirming I was right and quoting me with approval.
Given the state of international politics this day, we should permit ourselves a momentary slap on the collective political back of this place for having had the ability and foresight to permit agreement to breakout when our nation has most needed it.
In relation to the facility itself, whilst the borrowing under this facility will be within our current statutory borrowing limits, the effect of this pandemic on the economy remains unknown and it may be that we have to adjust our borrowing limits or metrics at a future date.
This is also something we highlighted at the time of the Emergency Budget.
However, for the time being, I can categorically confirm that our intention is to stay within the borrowing limits.
I am sure Honourable Members will agree that should be our aim.
Indeed, we can already see some signs of recovery as our income receipts move in the right direction but there is still some way to go.
With some sectors, such as tourism, heavily reliant on a return to normality there continues to be a need for Government intervention.
We are committed to supporting viable businesses that we expect to hit the ground running as and when the crisis recedes.
Perhaps, Mr Speaker, it might also be helpful for me to explain the difference between a credit facility agreement and a loan agreement.
A loan agreement requires that the full amount of the loan is drawn down (and paid) to the borrower upon signing the agreement.
A credit facility, which is what we have here, on the other hand, gives the borrower the ability to drawdown the credit facility in various tranches.
That is to mean, the borrower only borrows the part of the facility that they need to use.
ONE OF OUR FIRST drawdowns will be used to repay our £150m facility with Gibraltar International Bank.
As I announced in September, this has now been drawn down in full.
As a short term facility, its expiry falls on April 2021 and I can confirm that we will repay this facility in full before its expiry.
But before we repay the £150m facility with Gibraltar International Bank, we will need to draw down to cover other expenses and loss of revenue because the costs of responding to this pandemic have exceeded £150m.
I have to reiterate, this is not a debt that can be stained with politics or partisanship; it is not a debt of anyone’s making.
I note the Official opposition’s concerns with the purposes to which the facility will be applied.
I want to make clear that we are fully committed to using the facility towards financially stimulating our economy but we will do so when the conditions are right, so that the stimulation can have its maximum and most efficient impact.
We recently published the second set of accounts for the COVID-19 Response Fund up to 30 September 2020 which showed the cost of this pandemic running at £110m with BEAT running at a cost of £18m.
It has increased further since then and it will continue to increase due to the other business support measures that I am announcing today.
The COVID-19 Response Fund covers all costs of the pandemic including recurrent costs such as PPE, additional staff costs such as the costs of taking on additional health care workers and nurses and spending on furlough costs.
It also covers capital costs such as setting up the Nightingale facilities or spending on ventilators.
The COVID-19 Response Fund is ultimately funded by borrowing specifically for the purpose of supplementing revenue that is lost or deferred to allow Government to continue to function and meet its recurrent and committed costs.
And in great measure that will be the first utilisation of this money in replacing the borrowing from Gibraltar International Bank by April.
Additionally, Mr Speaker, we expect that we will be able to discern the right spending to target with these available funds.
I commend this statement to the House.
