A return of confidence in future Government securities hinges on how Government handles its fiscal affairs from this point on.
This was the assessment given by Governor of the Central Bank of Barbados Cleviston Haynes as he responded to questions from journalists on Tuesday regarding Government’s debt restructuring exercise.
He acknowledged that people suffered a shock once the debt restructuring exercise started last year.
“As an individual therefore, it will take some time for you to rebuild that confidence that this is ‘risk free’ instruments,” he said.
“The way that we do that is by how we manage our fiscal affairs. If we are able to manage our fiscal affairs in such a way that the concerns which led to the eventual restructuring are substantially diminished, that people see that we are able to service consistently and continuously the bonds on an ongoing basis, that our debt does not reach unsustainable levels, eventually that confidence in investing in Government securities will return,” he predicted.
However, he warned that this would take some time. “It doesn’t happen overnight.”
“People were shocked by what took place with the restructuring and therefore it is something we have to work on and something Government has to work on in order to benefit all of us over the long run,” he said, adding that the same applied to the external creditors.
“We anticipate, and there is global evidence, that we will be able eventually to get back into international capital markets. If we were to launch a bond tomorrow would we be able to do it, I guess not. So confidence comes with how we manage our affairs going forward, that is what we have to recognize and do and therefore achieving our targets is a critical aspect of what we need to do going forward in order to rebuild that confidence,” said Haynes.
A part of Government’s targets under the International Monetary Fund (IMF) backed Barbados Economic, Recovery and Transformation (BERT) programme, is a primary surplus of six per cent and a reduction of the island’s over 120 per cent debt of gross domestic product (GDP) to about 60 per cent by 2033.
Haynes said reaching a deal in principle with external creditors meant there was greater certainty on the part of Government in relation to its foreign exchange and fiscal positions, and the targets were even closer within reach.
“It enables us therefore to determine better what fiscal space exists to do other things because now you have to look not only at the primary balance, we have to look at our cash flows. So we now better understand what our cash flows will be over the course of the next few years as a result of the external debt restructuring,” said Haynes.
He said the closure of the deal not only signalled greater certainty, but greater clarity “and hopefully greater confidence”.
“Those creditors, both domestic and foreign, are relying on us, and the reason we have been able to reach agreements in relatively short order with the creditors is because they have accepted the commitment which the Government has been demonstrating towards achieving the fiscal targets, therefore that is something we have to continue to pursue in the coming months,” he cautioned.
“The external debt restructuring, as you would appreciate is important if for no other reason than it gives greater certainty,” added Haynes.