BRIDGETOWN, Barbados, Monday October 30, 2017 – The Barbados Government is fast running out of options and it could soon be forced to choose between going to the International Monetary Fund (IMF) for a bailout or devaluing its currency.
Economist Jeremy Stephen issued the dire warning as some of the island’s major investment firms – including Sagicor Asset Management Inc, Royal Fidelity Merchant Bank & Trust and Fortress Fund Managers – made it clear they had lost interest in Government securities because the country was at risk of defaulting on its debt.
“It is either the IMF or some other form of international funding, or devaluation,” Stephen told the Barbados Today online newspaper. “If Government cannot finance its activities it would have to devalue, or rather the Central Bank would have to print more money, which would force devaluation.”
Addressing the fourth annual Eckler investment review seminar, Senior Investment Analyst at Sagicor Asset Management Inc. Nicolette Blackett said her company would be avoiding Government papers, given the current situation.
“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,” she said, adding that the company would continue to seek out international investment options for higher returns.
Blackett further lamented 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.
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.
“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.
Officials of Fortress Fund Managers also expressed limited appetite for Government papers, saying the recent downgrade was one of serious concern for investors.
“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.