By: Kimberly Ramkhalawan
November 25, 2022
This year the Eastern Caribbean Currency Union celebrates the 20th Anniversary of the Regional Government Securities Market, RSGM. However, the mark the occasion, they say it is time more household investors come on board, as it is currently dominated by credit unions, banks and other institutional investors. In marking the occasion, the market hosted a panel discussion themed “Grow Your Wealth, Protect your Financial Health”, all aimed at garnering ideas on how it can attract smaller investors.
Back in 2002, the RGSM was established to address a number of deficiencies in capital markets within the currency union prior to that year, as at that time, there was only a primary market for government securities. What this meant, was that if a government security was purchased, on the issuance of the government, it was mandatory that it was held until maturity, as there was no opportunities, liquidities for selling before maturity date. The markets that existed before were relatively high and fragmented and each government issued treasury bills and bonds within their national borders, with very limited participation by investors from the other members of the currency union.
This limited market size and limited demand exerted upward pressure on the interest rates, but after the RGSM’s entry in 2002, saw rates go down significantly.
The RGSM meant it could raise funds for member governments of the Eastern Caribbean Currency union, to provide investment opportunities for citizens of the region and not just for investors in the national insurance schemes, banks and insurance companies but all households. Development of money capital markets in the ECCU, with the stock exchanges providing resources and funding for the development of not only governments, but private sector as well.
Mike Sylvester, PS in Ministry of Finance, Grenada, serve on ECCB Board of Directors, and currently serves as the regional Chair RDCC, Regional Debt Coordinating Committee, says it is currently strategizing what can be done to go around the current framework and structure that would attract small everyday investors. Apart from growing the market with small investors, the RGSM is also urging member territories to participate as well, especially if they do not have financing needs such as bonds and treasury bills, as he says when there is an increased pool of resources, there is an opportunity for more investors by individuals by institutional investors.
Noting that it has been in existence for sometime, Sylvester says he would like to see the secondary markets be more developed, as its currently very narrow, and would like to see it reach the place where it doesn’t force investors to hold bonds til maturity, but offers the flexibility to liquidate, sell or realize cash or purchase a more suitable investment on the market. In the same vein, he says there must be a threshold for withdrawals, in order to support the market, and ways in which investors can participate without the involvement of a broker, making it cheaper for the small sized investor.
Earl Estrado, Retail Investor who has used the RGSM for over ten years, looked back at how it helped his business grow, in accumulating capital for expansion in the early years, while in the senior years of his business, one looks for wealth preservation and capital accumulation, a strategy he has taken in his business. However, in offering his two cents on how the RGSM can improve, he says long term planning and diversification of investments. The securities at the RGSM have been very solid and below risk while providing very good returns. None of the CU countries have gone into selective defaults despite economic and other challenges, while investors in other territories have often been encouraged to take a loss on their investment. The rate of returns continues to be consistently above commercial banks, gaining for stock over the years, while banks have opted to reduce their interest rates with higher service charges. This he says can be a plus for the RGSM if promoted well enough. In offering his two cents on ways in which it can improve its reach, Estrado suggested increasing its marketing strategy, making the public aware of investment opportunities and the know-how to go about engaging in the market. Going forward in attracting investors, he notes that it should not be assumed that small investors are intelligent investors, as often the average person has large sums sitting in banks earning very little next to nothing.
Diversifying the market means encouraging governments to issue new products, such as disaster recovery bonds, blue, orange and green bonds, as well as major infrastructure projects, targeting financing for specific projects.
He suggested opening up the markets to the diaspora living outside member states, while opening up the possibility to expand into supporting MSMEs to raise capital.
Estrado adds it is also critical to encourage brokers or the RSGM relations to become more dynamic, assisting in selling the products while educating people on the opportunities present as well as general financial education. He goes further to suggest that the entire process become electronic from payment to receipt of funds, providing an opportunity for business to become easier.
Since its inception, participating governments in the RSGM has raised over some $17.3 Billion. Of this figure, $14.3 billion was Treasury Bills, while long term bonds accounted for $3Billion.