There has been no fall-off in the appetite for Government bonds last year despite a dip in confidence in the Barbados economy during that period.
Governor of the Central Bank of Barbados, Dr DeLisle Worrell, said, however, when compared to previous years there was a shift among one group for shorter-term maturities as oppose to longer-term maturities. “We looked at the numbers for the overall appetite for domestic bonds and there was no diminution of the domestic appetite for bonds,” reported Worrell.
“The take up of bonds in 2013 was just as strong as previous years. There was some shifting, mainly on the part of the commercial banks, from longer-term maturities to shorter-term maturities, but that is a phenomenon that we are seeing globally because of the levels of uncertainty. And actually it helps the Government in one sense because the longer-term maturities earn higher interest rates,” he said.
Worrell was responding to questions from journalists on Wednesday during the Central Bank’s first media conference for the year. Worrell said there was no exclusive dependency by the Government on the National Insurance Scheme for domestic financing of its debt. He said looking back, the take up of government papers has always been by a mixture of commercial banks, insurance companies and individuals who were looking to invest gratuities and other lump sums of money.
“That continues to be the case. So the notion that there is sort of exclusive dependence on national insurance has never been justified,” said Worrell. He said: “By the same token, as I have said before, Government paper is a good investment for our National Insurance [Scheme]. It earns a market rate of return and it is 100 per cent secure. Our Government has never been late on service payments on any domestic instrument of any kind,” added Worrell.
In October last year it was reported that the Barbados Government withdrew its US$500 million bond offer on the international financial market.
Worrell said there was no need now for the Government to float that bond issue again, adding that the Central Bank financing was the consequence of the loss of foreign exchange reserves.
“We were able to arrange a borrowing of US$150 million which we got in December and if necessary the Parliament has approved that we can extend that to another $75 million. So we expect that that will be adequate for our needs,” he said. “What happens when the demand for foreign exchange exceeds the supply the banks and the companies have to come to the central bank to buy foreign exchange from our reserves with Barbados dollars, So that reduces the liquidity in the banks and it is that liquidity which we had expected to finance the Government. So then because of that loss of liquidity then the central bank must step in,” explained Worrell. (MM)