Wednesday 17 October, 2018

BES: Government on the right path

President of the Barbados Economic Society (BES), Shane Lowe, has thrown support behind government’s debt restructuring plans, saying the alternative would have been much more painful to Barbadians.  

His comments were made in response to the announcement from the Central Bank of Barbados (CBB) that government, in an attempt to restructure its massive $6 billion-dollar debt, would be issuing holders of government paper, both individuals and institutions, new conditions of repayment.  

The revised repayment conditions will see bondholders receiving a reduction in the interest rate, in addition to extended maturity dates.  

Lowe told Loop News, although the debt restructuring process will be difficult for bondholders, it would have been worse if government had chosen to increase tax burden on citizens.  

“It [government] could have gone about it a different way but it would have meant more taxes to citizens or reduce expenditure which means that fewer social services would be offered.” 

More than 1,500 pensioners are expected to be adversely affected by the debt exchange offer which Lowe noted could see them having to alter their retirement plans.  

“For a relatively young person that might not be such a big deal as they may depend on the interest income rather than the actual principal but for pensioners it might be an issue as they may have been hoping for that money to use for their retirement spending.” 

However, he stressed, this option is better than the alternative of paying increased taxes or, if government had chosen to reduce its expenditure on social services, paying user fees for government-run services.  

Lowe said as long as government secures the level of acceptance on the debt exchange offer, 50 percent of bondholders, he believes the debt restructuring will achieve the necessary results by reducing government’s interest costs and the amount of debt it has to repay each year. CBB Governor, Cleviston Haynes said government hopes to reduces its debt by 60 percent by the year 2033.     

Lowe said the exchange offer will give government “more breathing room” as investments, which were coming due in two to three years, will now mature over a ten to fifteen-year period.  

Lowe added, the initial fallout from the debt exchange offer will most likely derail the confidence of present and future investors but he was of the view, if government is able to achieve the targets, confidence will return. 

“Any debtor who says that they are not going to repay a loan on the original terms tends to suffer some reputational effects. Having been affected by this debt restructuring, naturally people may be a bit more nervous over the next few years because they are not sure if it will happen again. 

If government is able to successfully restructure the debt and make the necessary expenditure cuts and earn additional revenue, then people might actually become more confident in government going forward.”

 

 

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