BOSS Plus falls short, says Central Bank Governor

Despite successfully completing its first International Monetary Fund (IMF)-backed economic recovery programme and achieving certain targets, Government has so far failed to adequately whet the appetite of investors with its most recent bond offer.

At the same time, the Mia Mottley-led administration seems to be some way off from going back to the international market to raise capital.

The take-up of the recently issued $200 million Barbados Optional Savings Scheme (BOSS) Plus investment bonds has fallen short of expectation, according to Governor of the Central Bank of Barbados Cleviston Haynes.

“The demand has been quite slow,” he reported on Wednesday, while disclosing that only around $10 million had been taken up since it became available on September 1, 2022.

The BOSS Plus bonds were issued at a fixed interest rate of 4.5 per cent per annum, payable on February 28 and August 31 of each year. The bonds may be redeemed by the bondholder 24 months after the date of first issue.

With the bad taste of the 2018/2019 debt restructuring still lingering in the mouths of investors, Haynes said he believed that had contributed to the slow takeup of the new bonds, which are an extension of the BOSS bonds that were issued in July 2021.

“To be honest, some of the nervousness that persons have post-debt restructuring has probably been amplified by some of the public debate that has taken place about the Government’s ability to repay debt over time. I think that has probably impacted persons who may have been considering buying these bonds,” he said.

Haynes said the Government now had the task of getting across the message that its current borrowing was “consistent with a macroeconomic programme”, which involves achieving a primary surplus of six per cent of GDP and economic growth necessary to achieve a targeted 60 per cent debt to GDP by financial year 2035/2036.

“Once you accept that is a sustainable path, then investing in Government securities becomes easier because you understand this is a sustainable path,” he said.

“While it is important for us to have access to external financing, I think it is also equally important to be able to develop a domestic capital market.”

Haynes identified the COVID-19 pandemic as a major factor that put a spoke in Government’s wheel to go on the international capital market to raise funds, explaining that it impacted the administration’s ability to achieve its six per cent of GDP primary surplus and to lower debt to GDP ratio further.

“We had to go from running surpluses to actually running deficits. We had to go from not needing to borrow to actually borrowing. We faced a situation where the size of the economy contracted, therefore the debt-to-GDP ratio went up. But most of that increased rate was not because of the borrowing itself but because of the contraction in the size of the economy,” he explained.

The Central Bank Governor said while it was still possible for the Mottley-led government to go to the international capital market, the markets themselves have been in turmoil due to increased inflation leading to rising interest rates that have resulted in higher borrowing costs for countries. That, Haynes said, was not ideal for Barbados.

“Therefore, you have to also make decisions as to whether or not you want to enter the capital market at this point when the rates are so elevated,” he said.

Barbados was able to maintain its credit rating during the height of the COVID-19 pandemic with a stable outlook, but Haynes said this did not “give us the type of rates that we would want to be able to go into the market at”.

“So we have, therefore, to monitor the market development so as to time when you may want to go into the international markets,” he said, adding that international reserves buffers were critical in the current scenario.

“We have to manage our situation in such a way that we are able to take advantage of any emerging opportunities to raise funds, but in the short-term, we would want to focus our external funding on the international financial institutions, and we are trying to work with international financial institutions to be able to get the funding that we will need over the short-term.”

marlonmadden@barbadostoday.bb