Barbados Bonds at Record Yields as IMF Urges Restraint

Barbados dollar bond yields traded at record highs for a third day as the government pledged to start firing 3,000 public workers and the International Monetary Fund urged the Caribbean island to rein in spending.

Yields on Barbados’s 2021 dollar bonds were at a record 9.58 percent at 12:16 p.m. New York time and were up 33 basis points, or 0.33 percentage point, this week. The 2022 dollar bonds traded at 9.61 percent after rising to a record 9.64 percent on Dec. 18.

Central government debt as a percentage of gross domestic product rose to 94 percent in September, the IMF said in a Dec. 13 statement, citing a level that has helped prompt bond restructurings in countries from Cyprus to Jamaica. Barbados’s government is taking the right measures and can avoid a debt restructuring, according to analysts at Canadian Imperial Bank of Commerce and Oppenheimer & Co.

“I expect them to be able to get through this,” John Welch, a strategist at CIBC in Toronto, said in a telephone interview. “Their financing needs aren’t especially large in absolute terms.”

Struggling with declining tourism revenue in the wake of the global financial crisis and high debt, six Caribbean countries have gone through nine debt restructurings since 2003. Jamaica restructured about $9 billion in local bonds this year before receiving about $2 billion in loans and aid from the IMF, World Bank and Inter-American Development Bank.

An e-mail message to Barbados’s government information service by Bloomberg News wasn’t immediately answered.

Market Signals

“The market’s signal to Barbados is clear,” Carl Ross, a managing director at Oppenheimer in Atlanta, wrote in a research report to clients. “Barbados must implement its adjustment report quickly and forcefully.”

Barbados Finance Minister Christopher Sinckler announced a plan in August to boost economic growth, reduce the budget deficit to 2 percent by 2020 and bolster reserves. Last week, he said the government would also fire 3,000 public workers starting next month, freeze wages for two years and cut travel budgets for ministries in half.

“We cannot hope to cut or tax our way out of this economic decline,” Sinckler said. “The pressure is on us to step up and remove all obstacles to investment in our country whether from domestic or foreign investors.”

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