By Marlon Madden
Approximately five years after suffering major losses as a result of government’s debt restructuring, commercial banks are again taking up significant amounts of Government paper. A sign, which officials say represents the return of confidence in government debt.
On Wednesday, CIBC FirstCaribbean announced that it was purchasing $100 million or half of the Barbados Optional Savings Scheme (BOSS) Plus investment instrument that became available in August last year.
This represents CIBC FirstCaribbean’s first investment in government bonds since the debt restructuring which commenced in 2018, and it comes on the heels of another commercial bank taking up some $55 million of the five-year bonds, which pays an annual interest of 4.5 per cent.
Donna Wellington, CIBC’s Managing Director for Barbados and the OECS, said the bank’s investment of $100 million in the BOSS Plus bonds was an indication of the financial institution’s “strong commitment” to Barbados.
“We firmly believe from all the signs we are seeing that the Barbados economy is on a trajectory to recovery, following the challenges of the past few years,” Wellington told a press conference at the Central Bank of Barbados on Wednesday.
“Re-entering the local capital market is our strong vote of confidence in Barbados and its prospects for the future. CIBC FirstCaribbean has a vested interest in ensuring that this country flourishes. It is our host country,” she said.
She also admitted that with limited investment options on the local capital market and excess liquidity in the banking system, it was almost a natural step for the bank at this stage.
“The money is always going to be here. The money supply is large, but in terms of excess liquidity for FirstCaribbean, yes, this does help with some of our excess liquidity. However, there are other things that bring it right back into the system,” she explained.
“We have looked at what is happening with the Barbados economy. We have looked at what the Government of Barbados has done to strengthen the economy and we are confident, based on what we have seen, that we can dip our toe, as it would be, back into the market because we are confident in what we are seeing,” Wellington said.
Central Bank Governor Dr Kevin Greenidge said the purchase of the government bonds by the financial institution “signifies the increased level of confidence that is now within the financial sector as it relates to the Government of Barbados’ fiscal and economic position”.
He also saw the move as an effort “to restart the capital market”.
“As you would know, with the debt restructuring that occurred in 2018/2019 financial institutions and investors became a bit skittish and the capital market basically came to a stall,” he said.
“Since then, it has been quite anaemic, nothing going on. We believe now has come the time . . . that we will have a renewed effort to get the capital market going,” said Greenidge.
He made it clear that the significant purchases of government paper was “not a push because the government needs finance or anything like that”.
“The financing position of the government from our perspective is quite manageable and comfortable. The emphasis here is really to get the capital market going,” said Greenidge.
He said increasingly more people were becoming confident in taking up government paper again and he expected that trend to continue in the coming months, especially as the economy starts to fire on all cylinders.
Greenidge, who is expected to give his first economic review and outlook as Central Bank Governor at the end of the month, told the press conference that the Barbados economy was expected to grow by about five per cent this year, with continued growth over the medium-term.
Declaring that the Barbados economy was no longer in the position it was in 2018, Greenidge noted that the debt, which stood at around 124 per cent at the end of last year, was “manageable and sustainable” with government’s fiscal position also sustainable.
“The economy is now starting to rebound, we now need to plateau and keep it going. So now is the time that we are bringing a renewed effort. There are a lot of savings, a lot of liquidity in the banking system and restarting the capital market is an opportunity, in a way, to help move those funds from savings into investment opportunities where they are needed,” he said
Greenidge said with the major purchase of the BOSS Plus bonds by CIBC FirstCaribbean there was now only about $11 million of it remaining. He said the Central Bank is expected to issue a new round of BOSS Plus bonds “shortly” for the 2023/2024 financial year.