#BTEditorial – Returning comfort to wary investors

Government is taking another big step to encourage Barbadians to move some of the billions of dollars they have tucked away in deposit accounts at commercial banks and credit unions and use them to purchase bonds.

Admittedly, the economic situation in the country is a much improved one with greater prospects of growth and development than was the case when the current administration entered office in 2018.

We know that the debt restructuring process was a necessary evil. It hurt, but it also allowed the country the kind of relief it needed from the enormous debt burden that strangled the government’s ability to do much other than make debt repayments.

In the process, holders of government debt instruments took a big hit, including our social security scheme – National Insurance Scheme which lost $1 billion.

The voluntary debt default was bruising also for our foreign debt holders. In a paper titled Barbados Sovereign Debt Restructuring 2018-19 – Like the Island, Small But Perfectly Formed published in the Capital Markets Law Journal, made some interesting observations.

It stated: “Barbados’ privileged position made it particularly vulnerable to the financial storm that followed the global financial crisis. . . . As one of the wealthier countries in the Caribbean, international private creditors had been keen to provide loans and buy bonds issued by Barbados in the boom years leading up to the financial crisis.”

Importantly, the paper stated that the island’s debt to GDP had been rising “precipitously” from 53.8 percent in 1999 to 100 percent in 2009, and by the time the Mottley administration was elected to office in 2018, the ratio had climbed to 175 percent.

The country faced a debt crisis, and few options were available to it. That is the backdrop.

Government bonds were regarded as the “surest investment” around. They were better than mutual funds in many instances, securities on the Barbados Stock Exchange, and certainly much better than commercial banks where your balance will be whittled away by bank charges rather than boosted with interest payments.

Today, Government and the Central Bank of Barbados are enticing Barbadians with a $200 million tranche of BOSS+ bonds offering 4.5 percent interest payments twice yearly.

The fact is that despite some lingering fears on the ground, the BOSS+ bonds represent one of the best paying investment instruments on the market.

Unless one is lucky to own shares, for example, in West India Biscuit Company (WIBISCO) or Emera, that are traded on the Barbados Stock Exchange, the pickings are slight.

One of the greatest boosts to efforts to rekindle the bond market in Barbados was the audacious $100 million purchase last April by CIBC FirstCaribbean International Bank  (FCIB) of BOSS+ bonds.

According to the Central Bank, prior to the purchase by FCIB, $22 million of the security was taken by individual investors.

The Central Bank in an optimistic statement about the appetite for investment in bonds by Barbadians said confidence was returning. Its director of banking and investments Julia Weeks said the initial series of BOSS+ bonds proved Barbadians are willing to put their toes in the water again.

“We have made a second tranche available for those who haven’t invested as yet as well as for those who have but want to acquire more,” she outlined.

Building your savings is a good thing, but making those savings work for you is a much better option.

At the same time, there must be an acknowledgement that the recent introduction by government of the Natural Disaster Deferment and the Pandemic Deferment Clauses that allow government to capitalise interest and defer scheduled amortisation for a two-year period if a pandemic or natural disaster occurs, has caused some trepidation among bond holders.

In fact, some people have made the argument that government should push for pandemic and disaster clauses to be introduced as standard features in financial agreements for long-term debt such as mortgages.

This interesting concept that has taken root and is being pushed by our leadership at international fora should also be part of reform of the local financial system. ]]>