Despite the pain it felt on having its Barbados government portfolio revised downwards, Scotiabank has encouraged the government to “stay the course.”
Brendan King, Scotiabank’s senior vice president for international banking, popped in to Barbados as part of a regional visit to personally tell customers, clients and the government of the bank’s ongoing commitment to the country.
Last year, the Barbados Government announced it had been able to implement a debt exchange offer for its domestic debt. The package included reductions in interest rates, prolonging repayment periods, and, according to the Central Bank of Barbados, “selective principal reductions,” all aimed at, in the parlance of the economists amongst us “to create fiscal space.”
At the time of writing - late last year - the central bank noted that a “debt exchange for its foreign currency commercial loans is planned.” That has just been concluded.
At yearend 2018, without restructuring of foreign debt factored in, the stock of debt was reduced to $12.8 billion, down from around $16 billion, the central bank said.
Of course, the commercial banks operating here were among those institutions which took the biggest hits. But at the same time, the dramatic decision to drastically reduce corporate tax rates to five percent and under in order to achieve parity with our then offshore sector has also had the effect of providing an incentive for all companies, including the banks, to stay in Barbados because they may be able to recoup some of what they lost in the debt restructuring via the tax restructuring.
Mr. King went out of his way afterwards in a press interview to stress that Scotiabank was all in for Barbados. He admitted that “the restructuring process was very challenging; the government chose a certain direction, and it moved forward in a certain way.” But he applauded the Barbados government for “the consistency they were showing in achieving their IMF targets.”
The Scotia executive added that “It’s early days and what I was saying to the minister is it’s extremely important that that commitment is unwavering, and the commitment to the targets are met.”
He added: “Sometimes that will require adjustment to their plans on the fly, and I relayed to him the experience that we saw in Jamaica several years ago where Jamaica went through a similar restructuring and are coming out of it now very strongly.”
Jamaica is perhaps Scotia’s most profitable market and way bigger than Barbados. And Scotia is pleased. “We’re seeing very strong foreign investment in Jamaica and we’ve seen our growth in Jamaica be higher than we’ve seen for years. So I think it’s a good template for Barbados.”
He noted that the IMF targets were met despite a change in Jamaica’s government: “It was started by one party, then an election was called and the next party maintained it.” So the view from Toronto was that “This is really society coming together, taking the hard decisions and consistently sticking to the targets because the end benefit is for all citizens, like we’re seeing in Jamaica now.”
And rather than dwell on the past, the bank was “really focussed now on moving forward.”