No buy in

Govt debt comes back to bite it

Private sector financing continues to dry up, with some of this island’s major investment management firms today publicly signalling their decreased appetite for Government securities out of fear that the Freundel Stuart administration could soon default on its debt.

Earlier this year the Central Bank of Barbados reported that despite a very liquid financial system commercial banks were holding fewer Government papers.

And with the Stuart administration currently struggling to bring its finances in line amid an overall debt of about 140 per cent and a high fiscal deficit of about six per cent of gross domestic product, some of Barbados’ most reputable investment firms today indicated that they were very cautious about investing in Government securities given the level of debt and subsequent downgrades, suggesting that it was now a matter of when Government would default on its debt payments.

Addressing the fourth annual Eckler investment review seminar at the Lloyd Erskine Sandiford Centre, Senior Investment Analyst at Sagicor Asset Management Inc Nicolette Blackett said her company would be avoiding Government papers, given the current situation.

Nicolette Blackett

She explained that returns on the company’s investment in Government bonds had been low in recent times.

“Actually, as at the end of September it is at 1.52 per cent. So of course it is not doing that well this year and that again is because the majority of it is in the Barbados Government debt. So as the ratings deteriorate, this fund will also deteriorate,” she said of the company’s preferred income fund invested in Government bonds.

In terms of its outlook, she said: “We [Sagicor] obviously know the conditions here in Barbados so we continue to address these conditions and we also make the decision for our mutual funds. We are not taking any more lump sums . . . and also in terms of the challenging times, we are just not investing more in the Government of Barbados debt and we are just going to manage that situation,” Blackett said, adding that the company would continue to seek out international investment options for higher returns.

Meanwhile, Vice President of Royal Fidelity Merchant Bank & Trust Jillian Nunes also pointed to the high Government debt and low credit ratings, saying that situation was being closely monitored.

Jillian Nunes

“We see some economists are forecasting that there might be another such downgrade before the end of the year. In justifying that we see the same unaddressed issues,” she said, pointing to the high Government debt and low appetite from private sector for government papers.

Nunes also recalled the announcement earlier this year by Minister of Finance Chris Sinckler that he was in negotiation with the National Insurance Scheme to engage in a swap programme to issue longer dated and lower interest bearing securities in exchange for those the fund holds. By doing this, it lessens the amount of interest Government has to pay and the burden that imposes.

“I don’t believe he has made any progress with that initiative, but that is exactly the kind of programme that we remain on alert for as the potential [for it] to extend to our bond holders still exist. As such we remain very cautious of Government of Barbados debt. Last year we made the exemption for Treasury bills  . . . this year we are not occupying that space either,” Nunes said.

In its latest downgrade of Barbados’ credit worthiness, international ratings agency Standard and Poor’s (S&P) said amid high current account deficits and limited external inflows, external liquidity has been weakening.

“The decline in international reserves reduces Barbados’ capacity to defend the currency peg and increases the risk of a balance of payments crisis,” S&P cautioned, while lowering Barbados’ long-term local currency rating to ‘CCC’ from ‘CCC+’ and affirming its long-term foreign currency sovereign rating at ‘CCC+’, with a negative outlook on both ratings.

The negative outlook, S&P said, “reflects the risk of a downgrade given difficulty turning around fiscal policy (with parliamentary elections in 2018), a possible domestic debt exchange could be a default under our criteria, and prospects for a balance of payments crisis”.

Principal and Consulting Actuary with Eckler Ltd Lisa Wade told Barbados TODAY that given the current situation those who invest in Government bonds could get lower returns, which would result in individuals or investment firms having “a harder time trying to make up that difference of shortfall in funds.

“So it does impact everybody,” she said.

Explaining that it was more difficult for Government to borrow at favourable rates on the international market, Wade said a situation was created in Barbados where “either bills won’t get paid, or taxes would have to be raised”.

Yesterday, officials of Fortress Fund Managers also expressed limited appetite for Government papers, saying the recent downgrade was one of serious concern for investors.

“I think downgrades are a concern obviously for everyone, particularly for investors like ourselves. It means that [Government’s] ability to repay and honour the debt repayments when they come due is clearly a concern to the ratings agency and by extension, ourselves as investors. So it is a concern,” Investment Director of Fortress Roger Cave said.

Concerned about the situation, one reputable economist, who did not want to be identified by name, expressed concern that the island was being forced into a formal arrangement with the International Monetary Fund (IMF).

In fact, he said the current situation was simply “not good” with “foreign banks, collecting Bajan deposits and paying next to nothing in interest while forcing Government into an IMF programme.

“It is not like the Government is running massive deficits. They are actually trying to cut the deficit,” he said.

Minister of Finance Chris Sinckler could not be reached today for comment on the matter. marlonmadden@barbadostoday.bb

15 Responses to No buy in

  1. Saga Boy October 24, 2017 at 11:46 pm

    Isn’t it interesting that the government has not defaulted on repayment of Gov paper and these people are ready to pull the plug. A significant part of the private sector depends on gov to survive. Time for gov to clearly identify those company and say how much money they earn on an annual basis. This is the time to work with gov because if they ever pull the plug all of us will suffer.

    Reply
  2. Mac October 25, 2017 at 1:33 am

    Saga Boy

    What has the earnings of the private sector got to do with government defaulting on its debt.?

    Reply
  3. Saga Boy October 25, 2017 at 4:23 am

    Everything Mac. They owe gov over $900 mil and they continue to keep foreign currencies offshore. If they pay their due it would reduce the likelihood of Gov defaulting. The USA and Canada in the last 15 years has done a lot to keep the private sector from exporting funds to Barbados and without adequate taxation.

    Reply
  4. archy perch October 25, 2017 at 4:48 am

    Mac you have asked the most sensible question in the world…Smile.SMH!
    Go to the top of the class/ass!
    Take your name off the voters list, will yah !

    Reply
  5. Carson C Cadogan October 25, 2017 at 7:00 am

    “”…….Nicolette Blackett said her company would be avoiding Government papers, given the current situation””

    Your company?

    Where is it??????

    Reply
  6. Carson C Cadogan October 25, 2017 at 7:03 am

    These WHITE companies are determined to sabotage our BLACK DEMOCRATICALLY ELECTED Govt.

    Reply
    • Ann Thomas October 25, 2017 at 12:56 pm

      Correction Carson and Mikey, the black democratically elected government is sabotaging itself. It does not need help from anybody else, it is doing a fantastic job on its own.

      And now when they cannot answer the issues, have no successful programmes to show Barbadians and no policies of merit to defend, they are now talking about morality and smear campaigns. Give us a break.

      I distinctly remember both the Prime Minister and Minister of Finance speaking about Easter is coming. Can you tell us all, when?

      The Minister of Finance said his 19 month fiscal consolidation programme was working. Then he proceeds to throw even more taxes at the people. Please tell me and others what his definition of working is?

      The best thing that our black democratically elected Government could do now is call elections!

      Reply
  7. Adrian October 25, 2017 at 9:35 am

    I thought it was normal for Governments to cover maturing debt by issuing new debt. If that’s the normal practice, then the only way Government will default is if these instructions which traditionally purchase Government debt and who currently hold Government debt decide to move away from traditional practice. The question now is if these instructions actually does that, what interest would be served; who would gain or who would not.

    Reply
  8. Saga Boy October 25, 2017 at 12:14 pm

    Adrian that is the practice but there are those who want this government to crash.

    Reply
    • Concerned Man October 25, 2017 at 12:44 pm

      There are also those who believe this Government has not been in accident… Even with many bodies strewn all over the road and the vehicles are all a mangled mess of piled up metal and plastic….

      Reply
  9. Ossie Moore October 25, 2017 at 12:37 pm

    To me as I look at all of this messy fulescap-paper it looks as though many who call them selves brainiacts needed the have some Gear Box and Eric Flies lessons .

    Reply
  10. hcalndre October 25, 2017 at 12:38 pm

    Saga Boy; you are a sympathizer and an apologist for a government that is incompetent, hard ears and just don`t care, you may suffer but they will live happily after. It`s too late and they are shame to ask now.

    Reply
  11. Ossie Moore October 25, 2017 at 12:53 pm

    While reading this news article it struck me as though I was reading a meteorlogical chart on the Inter Tropical Convergance Zone which would be expected to have a trough of inclementsy producing thunderstorms and gusty winds prevailing from the Central Bank location this weather patters will persists over the next Christmas season. Huricane Hunters have measured the system to be 16x 24 miles in diameter.

    Reply
  12. Milli Watt October 25, 2017 at 9:22 pm

    I would love to see SAGICOR collapse a CLICO but a million times worse. I got time and I going wait.

    Reply
  13. Haskell Murray October 28, 2017 at 5:02 pm

    All this talk about going to the IMF is nonsense , Barbados does have a problem in that it does not have a rigorous and effective tax collection system in place, if it had , there would not be a deficit. With so many individuals and companies not paying the taxes owed have caused the government to create a deficit.Solution , create a tax court and enforce the tax laws with no lenience .
    It is disingenuous and intellectually dishonest for these two ladies to mislead the uneducated public about
    the workings of government paper and the returns their companies are getting from such paper. Now when you buy government paper , you know what interest rate you will be earning since that rate is fixed and does not float so to say that your companies will not be buying government paper because of its low return is misleading to the public. I hope it is an editing problem and not a truth problem.

    Reply

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