#BTEditorial – Investors have lost their innocence

It is fair to say that most Barbadians have accepted that they are operating in extraordinary times and that it is not business as usual.

Very few areas of our lives and economy have been untouched by the COVID-19 pandemic over the past two years. The patience of Barbadians at every level has been tested in a way that is unprecedented.

In the business world, the word pivot has become the new buzz as entrepreneurs celebrate their ability to shift with the times. But for ordinary citizens who have become accustomed to operating from pay cheque to pay cheque, adjusting and manoeuvring between bills, loans and rising food prices is a natural part of their existence.

For the middle and upper classes of our society, who are likely to have more disposable income or assets that they can liquidate in the event of an emergency situation, are in a better place than the vast majority of those who exist on low or no income.

In the current environment most people are holding on to their cash. This is not unusual during periods of economic uncertainty and job insecurity. More people are prepared to put something aside, ever so slight, because they believe that rainy day could come anytime.

Statistics from the United States for example, showed that citizens of that country put away US$3.7 trillion into their savings accounts during the COVID-19 pandemic. The main reason identified for this was the country’s provision of billions of dollars in stimulus cheques to support the millions of people who lost their jobs during the pandemic and faced real challenges to feed themselves and their families. Moreover, much of the world was in lock down, there were widespread business closures and so there were fewer places and items on which to spend. 

Here at home, by the end of March 2020, Barbadians had a total of $7.2 billion stashed away in savings in financial institutions. We do not have a specific information that gives us a profile of the average Barbadian depositor.

It is likely that many of those savers are in the older age group who have established themselves in their careers and possibly already made their largest purchase which for most Barbadians is their home or land.

This is important to note given the announcement this week by Governor of the Central Bank of Barbados, Mr Cleviston Haynes. As he reviewed the economy over the last 12 months and provided a snapshot of what we could expect in 2022, he also made an interesting revelation.

Haynes, to his credit, has carried out his duties quite adeptly, managing to avoid controversy following the dramatic removal from the institution of his predecessor Dr DeLisle Worrell.

During the question-and-answer portion of his presentation, Governor Haynes disclosed that Barbadians have basically turned their backs on Government’s attempt to entice them to return to investing in Government debt instruments.

We anticipated that the response to the $125 million in Treasury Notes that opened last November would not likely be fully subscribed. Given the historic debt restructuring exercise that spooked both institutional investors and individual savers, we felt there would be a level of reticence.

However, his disclosure that only 25 percent of the bond issue had been purchased, was quite a reveal.

“[The bank] recognised that the market may not yet be fully ready to get back into those investments” Haynes told the media.

With all the billions of dollars that Barbadians have been saving, our lacklustre equities market – to put it kindly, and few relatively secure and stable interest earners on the market, we expected a much better response, though not full subscription.

The tepid response suggests to us that there is still a significant lack of confidence following the bruising investors endured in the 2018/2019 debt restructuring process.

Furthermore, the promise of the administration that there would not be a repeat, and that investing  in Government bonds and other instruments was still a safe prospect, seem to have fallen on deaf ears.

To be fair, the denominations were quite low at $1,000 and up and the interest rate of 4.25 per cent, payable every three months is quite attractive given current market conditions.

We understand too that government was also testing the market. Well, the Ministry of Finance has been given its answer – investors still have the sour taste in their mouths from the last haircut.

While Governor Haynes indicated that the Central Bank was not about to rush to purchase the remaining Treasury notes, we expect that a Central Bank purchase is inevitable.

“So far, we have not had to do so because Government has adequate financing to cover its activities and therefore, we would want to give the public that ongoing chance to be able to buy into this,” was the Governor’s response.

It is in the interest of our financial system that we get our investor market functioning at full steam. For this to occur there must be confidence on the part of those who have money in financial institutions to trust it to others.