Three days after the relaunch of its savings bonds instruments, the Central Bank of Barbados today reported that the $10 million issue was sold out.
Prominent economist Dr Justin Robinson, dean of the Faculty of Social Sciences at the University of the West Indies (UWI) Cave Hill, suggested the public response might be an indication that Barbadians were waiting for “a safe” investment option.
However, Ryan Straughn, a former president of the Barbados Economic Society, expressed caution. He said while the response was a good thing for the Government at this time, he was more concerned, given the high level of public debt, about the Government’s ability to deliver on those investments in five years’ time when the issue matures.
Governor of the Central Bank Dr DeLisle Worrell said since the launch of the series on Monday, the response from the public had been overwhelming.
“Three days after the new series went on the market, we were getting calls from different banks requesting additional allotments,” said Worrell.
The Central Bank has been issuing savings bonds for 35 years. They are available for purchase through commercial banks by all Barbadian citizens and permanent residents, as well as credit unions, registered charities and other benevolent associations.
The Central Bank did not provide a breakdown of the percentage of the bonds purchased by each of the categories of investors. However, the maximum value per individual was $100, 000.
Last week, the state financial institution introduced the 75th savings bonds issue, which will attract an interest rate of 5.5 per cent over a five-year period. The minimum savings bonds one can purchase is $50.
Worrell said the next series would have the same price and the same percentage yield as the previous one. He assured investors who had not yet been able to buy savings bonds that they would not have to wait too long for more to become available, as the Central Bank was moving to ensure “savings bonds are always available to the public”.
“We will be opening another series of $10 million on Monday, June 8,” he announced.
Linel Franklin, the Central Bank’s senior operations officer in Banking and Instruments, had indicated during the launch of the sold out series that in the past, take up of savings bonds traditionally occurred within a week, but that was not the case within the past five or so years.
Central Bank officials had attributed the slowdown to a lack of knowledge, especially among the younger generation.
“All Barbadians should have the opportunity to take advantage of these safe, lucrative investments. We’re ecstatic that savings bonds are a secret no more,” said Worrell.
In his analysis of reasons for the rapid purchase of the investment instruments this week, Robinson told Barbados TODAY it suggested that there was “a shortage of safe investment offering a good rate of return”.
“There is a lot of liquidity in the banking system. It suggests that persons are looking for safe investments offering good rates of return and that those had been in short supply. So now that such an instrument that fits that profile has come on the market, a number of people have gone for it in a big way,” he said.
With another series of savings bonds coming on to the market next Monday, Robinson said he would have to “wait and see” how fast the take up would be.
However, Straughn took a slightly different approach in his analysis. He told Barbados TODAY that while he was not aware if the quick purchase was unusual, the Central Bank should have provided a little bit more information in relation to what was the percentage take-up among the various groups.
Straughn said he was more concerned about the Government’s ability to repay when the time comes.
“The fact that it has been sold out, $10 million worth of bonds, it would mean that the Government in principle would have gotten over $7.7 million out of the issue,” he explained.
“I suppose that is good news for them from the point of view that it demonstrates that people are still keen to put their faith in the Government to repay, although the Central Bank indicated before that the domestic debt is unsustainable,” Straughn added, pointing out that he had stopped purchasing any form of Government paper about three years ago given the debt situation.
Acknowledging too that the banking system continued to be very liquid, the economist went on: “The exposure is quite limited so I think, in that context, it could be interpreted that institutions are probably going to risk small sums in the short term rather than large sums over the long term”.
Straughn said he believed the Government would have to draw on the Consolidated Fund to repay the latest savings bonds investors in the next five years.
“It is only $10 million which, in the scheme of things, is not necessarily a lot of money given that the Government is spending nearly $4 billion every year,” he explained. “But, of course, it is the frequency with which you start to issue these bonds that I think will determine the level of desperation for some quick cash.”
Straughn added: “Truth be told, monies are available in the system because the banks are quite liquid. Deposits are still relatively strong even though the economy is not performing as well as we would like. So it is one of those catch 22 situations. Leave it in the bank; there is not much activity going on the stock exchange, not a lot of new companies that you would want to risk investing a little money with through some type of venture capital and so, at the moment, the 5.5 per cent interest rate looks quite decent for a five year investment.
“And the truth is nobody expects the Government to default. It is backed by the Consolidated Fund,” he said. [email protected]