UWI economists raise concerns over investment drive

Economists have voiced serious concerns over the Mia Mottley administration’s ambitious investment roadshow, warning that credibility issues, market saturation and debt sustainability could undermine its success and deter both local and foreign investors.

As the government prepares to court investors at home and abroad, two economists interviewed by Barbados TODAY called for a more diversified, disciplined and credible approach to ensure the success of the drive.

The domestic investment drive, launched late last month, aims to secure approximately $300 million to support government operations and manage national debt more affordably.  

Prime Minister Mia Mottley announced during last week’s post-Cabinet press briefing that the government would also embark on a non-deal roadshow to attract foreign investors, with stops planned in New York, Boston, London, and Paris. She had previously outlined the overseas push, set to begin in early June.

But Dr Ankie Scott-Joseph, lecturer in economics at the University of the West Indies at Cave Hill, cautioned that the government should look beyond the domestic market due to growing instability.

“The government’s decision to turn to the domestic market should be welcomed, but rising global and domestic economic instability suggests that the capital market must become more appealing and desirable for investment,” Dr Scott-Joseph told Barbados TODAY.

She emphasised the importance of raising funds at low interest rates in various markets: “The government must raise funds at low interest rates in various markets, but investors prefer higher interest rates, particularly in the domestic market. High-quality and timely information regarding low and steady inflation, as well as the importance of long-term fiscal management, would serve to support a viable capital market.”

Dr Scott-Joseph suggested that the risk of market saturation could be mitigated by expanding into regional markets: “Expanding its wings to reach complementary markets, such as regional investors, may be a viable alternative, given the domestic market is at risk of saturation.”

She also recommended the creation of a secondary market to facilitate trading of existing bonds and other assets. “This is particularly important because the market may become saturated,” she said. “For instance, the supply of debt could exceed the demand for bonds, which would make it more difficult for the government to raise cash in the domestic economy.”

A regional approach, she argued, would help reduce foreign exchange risk and bolster economic stability. “A regional approach would also enable the government to decrease its exposure to foreign exchange risk while ensuring economic stability. Expanding the depth and variety of the investment base is the way forward.”

Dr Antonio Alleyne, another UWI economist, described the expansion of funding sources as commendable but cautioned that the government’s long absence from the capital market could undermine investor confidence.

Dr Alleyne said: “You have not been in the market for a number of years, can I trust you? That’s the question that an investor would be asking. How much trust in liability can I put into your economy after being out of the market for so long?”

He pointed to the country’s debt: “It is commendable that you reduced the debt by $3 billion, but it is still a debt of $15 billion in an $8 billion, $9 billion economy or whatever we are; it is still a massive size. So, when investors look at these things, they are going to question it.”

Dr Alleyne insisted that while the investment initiative is a positive move, “we will face significant challenges going into the market. I don’t know how persuasive the powers are, but again, those things definitely need to come into play, because our credibility will be in question and our debt sustainability may be in question”.

He also stressed the need for fiscal discipline, especially in the face of potential external shocks. “If we meet another external shock, can we sustain our debt payment? These are all the questions I see that an investor will be asking any other party, if you want to borrow my money. Will you be able to sustain my debt payment if you face another external shock, or do I have to find some restructuring again? And, with some level of uncertainty, the debt levels of the interest will be marginally higher, or expected to be higher, than what the prime minister is perceiving at this point.”

Dr Alleyne further criticised the focus on traditional markets such as the US and Europe, urging diversification towards Asia, Africa and Latin America. He supported the idea of expanding investment opportunities beyond the domestic environment.

But he maintained reservations about the government’s reliance on the International Monetary Fund (IMF) as a backup. As the IMF-sponsored austerity programme wound up, the administration announced the IMF would remain on “speed dial”.

Warning that this could further erode investor confidence, Dr Alleyne said: “It will give a negative connotation to the investor. We should not be running to these individuals as a backup plan . . . as an argument to do certain things. That doesn’t add any real credibility to the economy when we have to keep running back to such institutions.”

emmanueljoseph@barbadostoday.bb