The quoted comment was posted to the blog From Private to Public – Cinnamon 88 to CLEARWATER BAY, a concern for taxpayers. It is a nugget of information – see blogmaster’s highlighted text – that has not registered in the BU space, however at this seemingly late stage it is a matter ripe for discussion. To be fair to government the amendment occurred in the light of day however …
The Government response has ‘promise’, and certain bodies, like the Accountant General have much on their plate. Of news to me, was “following the debt restructuring exercise in 2018, the Local Loans Act was amended to remove the 2% sinking fund requirement in respect of the restructured Series Bonds. The sinking funds were then transferred to the Consolidated Fund…”
This was yet another step to aid in the cash crunch, and gave the GoB cash. It also means there is no provision to periodically set aside money (sinking fund) for repayment of the ‘restructured Series Bonds’.NorthernObserver
The common explanation for the purpose of a Sinking Fund is “a fund containing money set aside or saved to pay off a debt or bond. A company [government] that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the hardship of a large outlay of revenue. A sinking fund is established so the company can contribute to the fund in the years leading up to the bond’s maturity”.
The obvious explanation to which NorthernObserver alludes is that the government because it is broke ignored the importance of a good financial rule i.e. creating a sinking fund to make paying at maturity of the bonds easier. In other words to mitigate against a default. The biggest irony in this case is that a selected default by the Mottley government in 2018 must have informed the decision to jettison the sinking fund arrangement. Oh what a tangled weave when first we practice to …
The decision to do away with the sinking fund arrangement obviously had the approval of government’s banker. Four years later the government feels confident enough to issue bonds. In the prevailing climate stoked by NIS fear, 2018 restructure and a hostile economic climate, it will be a hard task for the government to convince the most patriotic Bajan to buy government bonds. There is the reminder every decision has consequences.
Here is a copy of the Local Loans (Amendment) Bill, 2018 passed in our parliament on the 24/10/2018.