For the fourth time in five years, Government has gone to Parliament seeking an increase in the amounts of Treasury bills and Tax Certificates it can issue.
Minister of Finance and Economic Affairs Chris Sinckler introduced a resolution at yesterday’s sitting of the House of Assembly to raise the limit from $1.75 billion to $2.75 billion Sinckler said the move was necessary “during this time of economic challenge”.
In 2008 the limit was raised to $1 billion, in 2010 it went to $1.2 million and it was again increased to $1.75 billion in November of 2011.
Explaining the reasons for the resolution Sinckler told the House that Government anticipated an overall deficit this year in excess of $1.3 billion and would have to source $844.5 million from the domestic market and $373.3 million from foreign sources.
Reminding members of the $123 million decline in current revenue for last year as reported in this year’s Estimates, Sinckler said the decline had continued for the first few months of this fiscal year.
He told the House, “it is necessary for us to ensure that for the proper liquidity management of the Treasury, that we have access to resources to ensure that those critical functions of Government continue in a fashion
that is not abridged in too perilous descents as to bring Government to a halt.”
While acknowledging that long-term instruments such as debentures, credit notes and bonds were always
a preferred option, Sinckler said in the context of the existing economic environment, “the appetite by individual and institutional borrowers for longer time paper has been abridged somewhat”.
However, Leader of the Opposition Mia Mottley suggested commercial banks were not taking up Government paper, an indication she said, that there may no longer be confidence in Barbados’ medium to long term securities. She said commercial banks had only increased their holding of bonds at the end of December last year by $55 million, even though government had increased their issuance of the same by $2.2 billion.
“Why come today to increase the limit to Treasury bills by $1 billion when you have the capacity to issue longer term instruments which provide a better return to the investment?”
“Why are we not making use of debentures and bonds for which the Government already has legal authority and for which the instrument gives the investor a better return and removes from Government the significant roll-over risk that is attached to shorter term instruments?” Mottley asked.
But Sinckler stated that given the current economic climate and because of the large amount of domestic liquidity in the banking system, as well as “the containment of aggregate demand in the economy”, the investments that businesses and individuals were making in longer term instruments had “waned some”.
As a result, he said there had been a preference for shorter term investment instruments such as the Treasury bills and Tax Certificates issued by Government for its financing needs.
