Barbados Government Shifts Focus to Domestic Financing amidst Investor Concerns - Experts Analyze Challenges and Opportunities

Government’s strategic shift back to mainly domestic financing makes sense overall, but investors still feeling “sour” about their debt restructuring losses in 2018 could be a major obstacle.

Economist Professor Troy Lorde gave that assessment as he observed that some Barbadians “are concerned about what seems to be our dependence on borrowing”.

Lorde, who is Dean of the Faculty of Social Sciences at The University of the West Indies (UWI), Cave Hill, also called for “a lot more transparency around how we spend those monies”, while acknowledging that if there were reasons like climate resilience and infrastructural improvements, this could be considered money well spent.

“The question is whether local sources have any real risk appetite for Government debt and we understand why. When the Government came in, in 2018, a lot of holders of domestic debt took [financial] haircuts and I think that would have soured a lot of [individuals] from really purchasing Government debt,” he told the DAILY NATION.

“So I think there is some souring there. I don’t think there is the appetite for domestic investment in Government paper. The BOSS Plus bonds, the interest rates promised on those are very nice, but I think that those haven’t been taken up in the way that Government had hoped.”

His former UWI colleague Jeremy Stephen, who lectured in banking and finance at Cave Hill, said any Government emphasis on domestic borrowing over external financing was nothing new.

He saw it as “just returning to normal” after the economic disturbance that led to debt restructuring in 2018 “diverted Barbados from its path”.

“Returning towards a less of a dependency on external financing is important over time for a country like ours,” Stephen explained. The two experts were reacting to Government announcing in its Medium Term Debt Management Strategy for 2024 to 2027 of a renewed emphasis on domestic financing.

Government’s 2024/2025 borrowing plan is for $577 million in domestic financing, comprised of $392 million from domestic bonds and $185 million from treasury bills, and external financing of $384 million in $158 million from investment loans and $227 million from the International Monetary Fund.

Lorde said a focus on more domestic financing meant Government was reducing foreign interest rate risk, but he saw the need for more transparency in how borrowed money is being used.

“When we borrowed $25 million, was it used solely for the thing for which it was borrowed? Or did we need it to pay salaries or repay other debts or do something else? This is what I get from members of the public – they are concerned that when we borrow, that these monies may not be used totally to do these things that were outlined,” he said.

Stephen said that historically, Government has opted to primarily find financing through the local market.

Protecting Barbados dollar

He reminded that a precursor to the debt restructuring was the substantial investment in treasury bills by the Central Bank for Government to fund “a lot of Government’s recurrent expenditure, that being the salaries and advances that it made to state-owned enterprises”.

“The whole model is all about protecting the value of the Barbados dollar. The whole idea was that we borrow most of our foreign exchange, but you don’t want it to leak back out as quickly, which meant that you had to in some way support any financing within the local economy via financing from local sources. So it’s not necessarily a bad thing,” Stephen said.

He envisaged that Government will borrow more slowly over time from external sources, try to capitalise on foreign exchange earnings from tourism and the international business sector in particular, and focus on slowing the leakage of foreign exchange where it is spent more for something like imports “and not necessarily for debt service”.

“You wish to control that more, so you can stagger those debt payments easily, and you can predict those debt payments and they [Government] don’t want to depend too heavily on [external] debt. So most financing needs will be driven by the local market for that reason.” (SC)