It is understandable the excitement within the Ministry of Finance following news that external investors are showing greater confidence in Government by snapping up some $140 million or US $70 million in restructured Government of Barbados (GOB) bonds in a debt swap.
Minister in the Ministry of Finance Ryan Straughn was quoted in the media on Wednesday: “Considering that the external bonds were trading at close to par for most of the duration after the foreign debt restructuring in December 2019, then it was not surprising. It demonstrates an expression of confidence in the management of the country’s fiscal affairs by the investors.”
We have come a long way from the period when foreign holders of GOB debt were threatening legal action against the country over fallout from the debt restructuring process.
It was back in October 2019 that the administration announced it had reached a deal with international market creditors more than a year after the country entered a historic selective default. Under the arrangement we issued some US$500 million or BDS $1 billion of new debt at 6.5 per cent and maturing in 2029.
According to Government, as a result of the agreement, the outstanding debt, including deals due in 2019, 2021, 2022 and 2035, would be exchanged for the new instrument with a 26.3 per cent haircut.
Barbados also received kudos for ensuring that in the restructuring, provision was made for natural disasters, which would allow the island to capitalize interest and defer principal payments for two years in the event of a disaster.
All this is critical background as Government is seeking to entice local investors to take a chance again on its debt instruments following the hit that many individuals, businesses, and financial institutions took as a result of the 2018/2019 restructuring process.
The administration has argued that it had few choices given the dire state of public financing when it took office in May 2018. Critical debt payments were coming due, there was about one month’s worth of import cover in foreign reserves, and public services were severely restricted because of the cash crunch confronting government.
However, with this new arrangement, Minister Straughn said in Parliament that the interest payments saved from repurchasing the bonds or the debt swap, as it is commonly referred, would be channelled to a new Barbados Environmental Sustainability Fund, resulting in estimated savings of between US$30 million and US$40 million in the next 15 years.
All this is good news for the financial and economic fortunes of the island. But there is still a problem confronting the administration and that is restoring the confidence of local investors. Having been assured for many years that they could sleep well and gain reasonable returns on instruments such as GOB bonds and treasury notes, they are now evidently reticent to take the chance with their savings at this juncture.
Admittedly, stashing hundreds of millions of dollars in commercial banks, as the statistics show, is not working for Barbadians. It is actually costing them more to keep their money on the bank.
Known for our risk-averse nature, Barbadians remain tepid about putting their money in Government investment instruments. Possibly, this new display of “confidence” from foreign investors may be the kind of development that pushes locals to test their appetite for GOB debt again.
With concerns rising about the level of government’s foreign borrowing and what it could portend for generations to come, government is likely hoping it will inspire hope among the public that will result in it having access to local sources of financing that will not require repayment in foreign dollars.
Last month Minister Straughn made a plea for Barbadians to support the Barbados Optional Savings Scheme (BOSS) Plus bonds “no matter how small the investment”.
In an effort to raise some $200 million in the current financial year, Straughn assured members of the pubic that he as a holder of BOSS bonds, could attest to adding up his interest payments to ensure they were accurate.
“Barbadians have in their hands the chance to help drive the [economic] recovery,” he told the House during debate on the second reading of the BOSS Plus (Offer To The Public) Bill.
His colleague in the Senate Senator Lisa Cummins too sought to rubbish suggestions that BOSS Plus Bond holders could find themselves facing another restructuring. “The 2022 BOSS Plus bonds are exempt from any restructuring that may take place at any time in the future,” she stated.
The jury is out, and it is Barbadians who will give their verdict through their wallets.