Thursday 23 January, 2020

Minister: Debt restructuring helping with economic recovery

Government decision to suspend its debt payments has acted as a boost to the local economy and given it the necessary wiggle room necessary to reorder its finances.

Speaking in Parliament on Tuesday, as he led off debate on the Debt Holders Approval of Debt Restructuring Validation Bill 2019, Minister in the Ministry of Finance, Ryan Straughn said with foreign reserves in the region BB $400 million; more pressure was being added as a result of the downgrades between 2013 and 2018.

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“Many persons would recall we entered into a Credit Suisse loan in 2013 and with each downgrade, it cost the taxpayer and people of this country an addition 0.5 per cent for every downgrade so that, by the time we had reached office, the interest on the Credit Suisse loan was almost 13%. Had we paid the $100 million in June last year, and, had we not changed the trajectory in terms of how the previous government was managing the economy, we knew that we could not save the dollar.

“The decision to restructure our debt, both the domestic and the external at the time, was absolutely required because not only were the state of the public’s finances in peril but every Barbadians in this country takes pride and confidence in the fact that the stability of our dollar is what gives business, individuals and households relative certainty to go about their business,” the minister stressed. 

Straughn said the government had to be commended for how it handled the domestic debt restructuring which was concluded four months after it was announced. Describing the overall process as long and intense, he explained the process usually took between 18 to 24 month, if not longer, to be finalized and for it to take effect.

“As you can imagine, nobody wants to know that they are going to get ‘a haircut’ because people having invested would expect that their returns on those investments would be honoured . . . but I will say that throughout those negotiations the one thing that was common whether on the domestic or the external side was that every entity was, in a sense, relieved that the Government of Barbados was now taking decisive action [to] remedy the situation . . . but you still had to negotiate and reach a settlement.”

The agreement, the details of which were revealed last week “in principle includes a reduction of 26.3 per cent in [the] aggregate sum of the original principal amount of the debt obligations and the past due and accrued interest as of October 1, 2019”.

It further stated that Barbados would issue new bonds of at least US$500 million that mature in 2029 and carry a 6.5 per coupon and they will have a five-year grace period.

Creditors will receive an upfront cash payment of US$7.5 million at the closing to those participating in the exchange offer and bondholders would receive a US$32.5 million payout, in the form of Past Due Interest (PDI) bonds with a fixed annual coupon of 6.5 per cent. These PDI bonds will amortize US$30 million in October 2020 and have a final maturity in February 2021.

The balance of the restructuring will be capitalized by the new bonds maturing in 10 years.

Straughn told his parliamentary colleagues the resolution before the House would provide the backdrop where the new offer could be launched over the next two weeks.

“. . . which would give us the ability to execute the offer so that we can put this chapter behind is in a sense, and, for us to be able to put the debt on a trajectory that would achieve a 60 per cent debt to GDP ratio by 2033 as we have outlined in the BERT plan. But critically, investor relations and investor confidence are important . . .  people take note because if a government is incapable of paying its bills, paying tax refunds and paying for goods and services that are being provided to any government agency, that affects business confidence it also affects investor confidence.

“Over the last 17 months, we have sought to restore the trust and the faith in the government of Barbados because we have started to pay down the arrears for both the goods and services that were owed to individuals and firms that supplied to the government in good faith. We have started to repay the VAT refunds that are owed to many businesses and we have already started to repay the personal income taxes that were owed from 2011. 2012, 2013,” he revealed.

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