The Prime Minister has thrown up a challenge to the CARICOM Development Fund (CDF) to find a new way to raise capital to help member countries fund projects.
And it appears the CDF has already begun work to possibly float bonds to tap into the savings built up by CARICOM people.
Mottley, speaking at the eighth meeting of contributors and development partners of the CDF at the Accra Beach Hotel and Spa, said it was time for reflection within the region on how to better put the billions of dollars in savings accounts in commercial banks across the Caribbean to use.
Mottley proposed that the CDF issue “regional growth and resilience bonds” to Caribbean residents in an effort to assist “disadvantaged” states in the effort of fully implementing a CARICOM Single Market and Economy (CSME), fuel growth and build resilience.
She said: “I raise [this suggestion] against the background that the savings within the Caribbean Community is on or about US$49 billion.
“We need to ask ourselves whether our citizens are happy to have those level of savings attract rates of return in the form of savings rate that hover at about 0.1 per cent,” she said.
Mottley also pointed to the need for growth in the approximately US$105 million base of the CDF if it is to better help countries meet their developmental needs.
The Prime Minister suggested: “We have, therefore, to come to recognize that it is in the context of the issuance of growth and resilience bonds, in my humble opinion, that we can expand significantly the capital base of this fund, and to allow it to play the role that is absolutely critical to growth within this region.”
The CDF, which was established about 11 years ago, was set up to help disadvantaged CARICOM states make the transition to a regional single market and economy.
Mottley, who is on record as criticising the low interest rates on savings in commercial banks, said it was against the backdrop of the lack of interest from commercial banks to develop the region that the Caribbean had to create the instruments necessary for growth.
Pointing to Barbados’ example of being heavily reliant on tourism and the need to further develop the sector, the premier described the banking sector as “lukewarm at best with respect to the consideration of projects that drive tourism development at the national level”.
She called on the CDF to “reflect and refine” the possibility of issuing a growth and resilience bond, adding that “if we are able to attract even just five per cent of the savings” in commercial banks it would maximize the CDF’s funding capacity to better assist member states in need.
The Chief Executive Officer of the CDF Rodinald Soomer, said the organization has embraced the idea of issuing bonds.
“We think it is an excellent idea to be able to give citizens an opportunity to participate in acquiring instruments that would allow us to get to the level of capitalization required to make a greater impact particularly on the infrastructure deficit in the region,” Soomer said.
But he indicated that the move would take the organization to a “level of operation that far exceeds where we are at now”, leaving the board of directors to consider the steps the CDF would have to take, the internal capacity building required and partners it would need to work with to launch the instrument.
With Prime Minister Mottley expecting a definite decision in time for the next half-term CARICOM summt in Bridgetown next February, Soomer said the CDF would be moving “aggressively towards doing the preparatory work”.
Should it be accepted by the board a paper would have to be produced, which would make way for the changes to various Articles of the CDF to allow it to issue bonds.
Soomer told Barbados TODAY work has already begun with the CARICOM Secretariat to conceptualize the proposed instruments and meetings were also ongoing with investment managers to determine how such an instrument would be launched.
“So we are embracing it and we are rising to the occasion, the challenge that has been put to us with respect to growth and resilience bonds,” said Soomer.
And with some member countries with outstanding pledges of funding, the CDF chief said the board would likely consider extending the funding cycle by another year or two.
The current funding cycle runs from 2015 to 2020. [email protected]