The proposed Barbados Optional Savings Scheme (BOSS) Plus investment bonds could be rolled out by the end of August with a special configuration that officials hope will help to boost the appetite of investors for Government securities.
Governor of the Central Bank of Barbados Cleviston Haynes made this disclosure while responding to questions from reporters during his half-year economic review and outlook briefing at the Central Bank on Wednesday.
“One of the things we have to be able to do,” he said, “is to understand what the market appetite is for the bonds. So we will probably come with different structures, you know, should we have something shorter, should we have something longer? We have to find the right structure. We are hopeful that this BOSS Plus instrument will meet the needs of the public looking for investments.
“We know that there are some people who approach us because they want to invest. So we are trying to find the right structure that would appeal to a broader mass of people and get the confidence going that this is a market in which you can invest safely,” said Haynes.
Since the disclosure that Government was seeking to expand its BOSS programmme, some economists have noted that it will be a difficult sell, given that investors were still licking their wounds from the 2018 national debt restructuring in which they were made to take a haircut.
When it was introduced in July last year, the BOSS scheme gave public sector workers the option to be paid a portion of their salary in four-year bonds at a five per cent interest rate. It was designed to shift a portion of Government’s wage bill to capital expenditure.
While it was targeted mainly at public servants, other Barbadians were allowed to purchase those bonds from a public servant, a broker, or the Central Bank, once the public servants opted out.
The plan for a BOSS Plus scheme also comes on the heels of the issuing of two Government papers late last year which carried an interest rate of just over four per cent, and have received a less than ideal take-up.
Haynes said he believed the BOSS Plus bonds will carry a slightly better rate than the ones issued last year, but added “We need to get to the point where we don’t have to offer extraordinary interest rates in order to be able to attract [investors].
“That really comes down to confidence. If you have the confidence in the Government and how it is managing the process then we hope that you don’t need to get 8 or 10 per cent in order to be able to invest in Government. But we will always look at the design of the instrument and to see what it is that is perhaps causing people not to take them up at a point in time,” he explained.
During the May to June period this year, the Central Bank was the main source of domestic financing for Government as the demand by the private sector for Treasury Note placements remained weak.
Explaining the Central Bank’s funding of Government, Haynes pointed out that while Government had a substantial primary surplus for the financial year so far, It was still faced with interest and redemption payments to be met.
“This is not just in this quarter, but this is what will happen over the medium-term. In the context where we were not borrowing significantly on the external market either through multilateral or the capital market, then the reliance becomes on the domestic market,” he said.
Haynes further explained that under the law, the Central Bank was able to acquire up to three per cent of GDP in new Government papers within the context of what the economic circumstances are, as well as other factors.
“It is within that context that the bank has taken up some of these securities and would be likely to take up some more in the event that we think the Government needs that particular level of financing – given the context of the overall macroeconomic situation – because at the end of the day the macroeconomic situation is going to be critical in determining what level of financing the Bank provides to the Government,” he explained.
Recalling the two $125 million Treasury Notes issued last year, Haynes said “While the premise of that is that the Central Bank would take up those bonds, the general public was also given an opportunity if they so desired, to buy into these bonds.
“What we wanted to be able to do is to test the market and see what appetite there is and where that appetite is and therefore we want to be able to get the market functioning again,” he said.
The Governor said while there was modest take-up of those bonds, the Central Bank was holding about 120 million of them up to the end of June.
He said the issuing of the BOSS Plus progrmame, which could come in late August, was “another effort to be able to assess the market”.
“For us, it’s going to be a learning curve in terms of what do people actually want. What we would like to see is for an increase in take-up by the private sector,” he said, noting that in other countries in a similar situation, confidence normally returned after about three years.
