Sluggish return of confidence in Gov’t bonds

Local investor confidence in Government paper is returning based on the gradual climb in the take-up of the latest bond offer, the Barbados Optional Savings Scheme (BOSS) Plus, according to Central Bank Governor Cleviston Haynes.

However, he said, the demand was still slower than expected, given the lowering of debt and the Government being on track to achieve its fiscal target of about two per cent of GDP by the end of March.

The $200 million BOSS Plus investment bonds, an extension of the BOSS bonds that were issued in July 2021, were introduced on September 1, 2022, at a fixed interest rate of 4.5 per cent per annum.

“I think the last figure I saw was approximately $36 million that has been taken up. I think we saw in December some pickup in demand,” Haynes told journalists on Wednesday, during a press conference on the island’s 2022 economic performance.

At the end of October last year, the take-up was only around $10 million.

The Central Bank Governor noted that in addition to the 360 per cent increase recorded since then, some financial institutions have expressed additional interest in BOSS Plus.

“I have been speaking with one or two players in the financial system who have indicated to me that it is their intent to also increase their demand for the bonds. So, I think one is seeing some progress, slower than one would have liked but you are seeing a little bit of progress in this regard,” he assured.

Investment in government paper has been sluggish due to continued uncertainty among local investors due to the 2018/2019 debt restructuring.

While acknowledging the still high level of uncertainty, Haynes said it was important to note that other countries have also gone through debt restructuring and were able to resume their capital markets.

“My feeling is that Barbados will be no different but we are taking a little bit longer than we had hoped,” he said.

The economist noted that the COVID-19 pandemic did not help the situation, as the Government had to not only adjust its fiscal target downwards from the ambitious six per cent for the first three years but also borrow to support its budget.

That borrowing, he suggested, may have also impacted confidence.

“But we are where we are and we have to deal with that,” said Haynes. “We have to find, therefore, individuals who want to find investment opportunities. They have to believe that Government will maintain its fiscal discipline. The whole notion of the debt anchor reaching 60 per cent is critical to that mindset because the only way to get to that 60 per cent ratio is for you to maintain primary surpluses of a certain magnitude and for the economy to grow at the same time.”

At the end of 2022, government debt rose by $706.5 million to reach just over $14 billion. However, expressed as a percentage of GDP, it declined to 123.8 per cent from the estimated 137.9 per cent at the end of 2021.

“What is important for you as an investor is going to be ‘is Government able to service its debts going forward?’, and once you are able to maintain those primary surpluses, as I mentioned, your ability to service your debt going forward is going to be enhanced,” said the Central Bank Governor.

“Therefore, persons need to be able to develop that confidence that the Government is on the right path and that they are also therefore willing to buy the paper that is being offered.

“Obviously, from the Government’s perspective, they have to find the right maturities – some people want 20 years, some want 10 years, some want three months. So that is part of what now needs to be fleshed out in terms of ‘how do we get the right maturities to suit your own preferences?’,” he added.

Nevertheless, Haynes said: “I think we need to have a more positive outlook in relation to the debt situation because at the end of the day, it is our country and we have to live here and, therefore, we have to be able to finance some of our development.” (MM)