Two prominent economists have dismissed critics’ suggestions that the Central Bank’s involvement in the Barbados Optional Savings Scheme (BOSS) will result in the printing of money.
Opponents of the new bonds-for-pay scheme that targets mainly public servants have argued that the Central Bank acting as an intermediary for the sale of those bonds not taken up by workers equates to increasing the amount of cash circulating in the economy.
According to Section 13 of the Barbados Optional Savings Scheme Act which passed in both Houses of Parliament on Thursday, the Central Bank is allowed to buy the unused bonds and trade them.
Opposition Leader Bishop Joseph Atherley had joined other critics who insisted that this would result in money-printing.
Atherley said: “(The Central Bank) is helping Government to meet the recurring expenditure vis-à-vis a portion of public servants’ salary… This is a backhand way of printing money”.
But in an interview with Barbados TODAY, Canada-based economist Carlos Forte said he believed the Central Bank’s involvement was to help manage risks and would not result in that institution’s financing of Government.
Forte said: “The fact that the Central Bank will be playing an intermediary role and liquidating those bonds to the extent possible, is also an effort behind the scenes to manage risk.
“You can’t contemplate with any precision how many public servants are going to request of the Government to have the Central Bank convert their bonds into cash, and you may not have a willing buyer at that point.
“You may have them a week later or two weeks later, and so to ensure you have as seamless as possible a flow of funds to those public servants who desire to have their salaries in cash, the Central Bank will purchase those bonds.”
According to the latest Central Bank report, central Government financial assets stood at $573.3 million at the end of March, with $278.3 million of that being Government deposits in the Central Bank.
In an effort to help fund capital projects, Government is seeking to raise just over $150 million through BOSS, which will come into effect July 1, 2020, and end January 31, 2022.
Forte said that given Government’s deposits at the Central Bank, it was in a position to facilitate its involvement as an intermediary to sell the bonds.
“If that was not the case it would be a situation where the Central Bank would be utilising Government’s overdraft facility which is akin to printing money,” he said.
In a separate interview with Barbados TODAY, another prominent economist, Marla Dukharan, also dismissed the suggestion that the Central Bank’s involvement would result in it funding Government.
“Absolutely not.” she said. “Under the parameters agreed with the International Monetary Fund, the Central Bank can’t finance the Government even if they wanted to, and I am not suggesting they may. So this is not possible.
“The Central Bank would be acting as a broker and will sell the bonds it happens to take up to buyers on the secondary market.”
Dukharan said she believed the interest rate being offered on the bonds would make them attractive enough, so the Central Bank would easily get them sold.
“The five per cent coupon and no tax has created a demand for these bonds. So I don’t expect they will have trouble selling them, and the Government will cover any costs they incur in this process, which given the demand for the bonds, seems unlikely,” she added. marlonmadden@barbadostoday.bb
