Parliament has passed legislation allowing the One Bermuda Alliance government to borrow an additional US$1 billion after the administration said it needed to act before it ran out of funds.
The Government Loans Amendment Act 2013 was approved by a majority vote allowing the government to raise the national debt ceiling from US$1.45 billion to US$2.5 billion.
Finance Minister Bob Richards said the government, which came into office two and a half months ago, regretted having to borrow more cash but the only alternative was to cut jobs and services.
He said the amendment was essential to prevent the public coffers running dry.
"For the edification of members of this House, had it not been for this provision this government would have run out of money. We would have run out of money had it not been for this act.
"Let no one have any illusions about the severity of the cash flow of this government."
Economic Development Minister Dr Grant Gibbons said he believed it was the first time in Bermuda's history that government had come to the brink of being totally cash-strapped.
The previous Progressive Labour Party (PLP) government left debt of US$1.4 billion when it left office last December.
Richards acknowledged there had been "some disquiet in the public domain" about the severity of the debt ceiling increase, but that plans were already being put in place to bring down debt in the long term, by reducing government spending and increasing investment coming into the island.
He said under the former PLP government, which ran the country for 14 years after ousting the now defunct United Bermuda Party in 1998, raising the debt ceiling had become 'an annual ritual' which had undermined the island's financial credibility.
"If we carried on doing what you were doing, this country would be four billion dollars in debt in five years," he said, adding the "the last government was very keen on spending money but not that keen on raising it".
Shadow Finance Minister David Burt supported raising the debt ceiling but denied the PLP government had spent money recklessly.
Unemployment among Bermudians is currently running at 10 per cent as the island battles to get out of a four-year recession.