The Dominica government says it expects by 24 February 2012, to become the sixth OECS Government to issue securities on the Regional Government Securities Market (RGSM).
The Government says it will issue a 91-day Treasury bill of $15 million for the purpose of financing part of its operational budget and to refinance existing debt at a lower cost.
It says the maximum rate offered on the Treasury bill will be 6 per cent.
The RGSM was established in 2002 by the Monetary Council of the Eastern Caribbean Central Bank (ECCB) as part of its thrust to develop money and capital markets in the Eastern Caribbean Currency Union (ECCU).
The aim is to raise short and long term capital at the lowest possible cost; provide investment opportunities for residents; and to develop money and capital markets in the Eastern Caribbean.
Available information suggests that since the inception of the RGSM, five of the eight member Governments of the ECCU have utilised the market to meet their financing needs.
These included St Kitts and Nevis (2002), Grenada (2003), St Vincent and the Grenadines (2003), Saint Lucia (2004) and Antigua and Barbuda (2006).
A government release says to date a total of 263 auctions have been held on the RGSM with Governments raising a total of $5.2 billion.
The Governments are reported to have saved an estimated EC$33 million through the use of this facility.
Readers, There must be an error in this calculation of interest. A 91 days TB at 6% interest, means 6% ARR, and NOT 6% every 91 days. “Out of the Box”, you have it all wrong and please DO NOT give readers the incorrect information. You may learnt your finance from a different book than the one to what I know about finance. What you are saying is that rate of 6% every 91 days is much better that what Berney Merduth paid in his ponsy scheme. Let get serious and give correct information.
Grayson.
What are your qualifications Sir?
Doh tell me is a cetificate or diploma after all these years u on earth!!!
Hairy Bank does not give 6% APR
“Government says it will issue a 91-day Treasury bill of $15 million for the purpose of financing part of its operational budget and to refinance existing debt at a lower cost.”
That’s not sound fiscal policy; it’s a sign of trouble. Although it is common practice, it’s a debt trap once you begin to take short term loans to pay off long term loans. The term “refinancing” is deceptive. There is no fund to pay the debt due so T-bills are issued. We are simply borrowing to pay off the bills and to buy food and gas (operational budget!!). Have we stop to wonder why the USA has to raise its debt ceiling? Is it by accident that the USA owes more than 15 trillion dollars, and growing?
We have to grow our economy through growth of the productive sectors to pay off our debt. Incuring more debt to pay off debt is not the way to go. The government is now giving Mr Brisbane ammunition for his crusade, and I won’t blame him.
honestly people most of us ordinary man can`t buy food or pay our bills, where we getting money to invest.
All this means is that government will give everybody the opportunity to get involved in an activity that the Banks in Dominica and the Social Security have been enjoying over the last 30+ years to now enjoy.
So at 6% it means that government will sell a $100.00 T-Bill at $94.00 to you and 91 days later give you a cheque for $100.00 – the difference of $6.00 becomes your interest on the T-Bill you purchased at a discount 91 days earlier.
In the 1990s government would sell a $100 worth of T-bills at $90.00 and payout $100.00 giving the investor $10 as interest – that was more expensive for government.
Now if you have money in the banks and credit unions in Dominica and those of you out in the Diaspora you done know that the banks will not give you that rate of return of 6% in 91 days or an annualize rate of 24% on your money in 1 year.
So if you have EC$10,000.00 in a fixed deposit for 3 months and getting about 4% or 1% per 90 days you must do yourself a good favor and withdraw your funds with the banks and pay $9,400.00 for EC$10,000.00 worth of T-bills and 91 days later get a cheque of EC$10,000.00 and redeem the matured T-bills for another EC$9,400.00 and get another cheque for $10,000.00. Do that four times in a year and you will get a handsome EC$2,400.00 on your $10,000.00!!! DO the math for EC$100,000.00 and EC$1,000,000.00
The banks still gets a piece of the action since many of them are license and certify broker dealers on the Eastern Caribbean Securities Exchange.
If you still do not believe me just call the treasury department and an officer will explain it again to you.
All in all that is a good move by PM Skerrit and Tim Tim. More, more, money in the hands of people directly.
Now is a good time to form investment clubs in Dominica rather than going a sub that pays no interest.
@ Out of the box.
Could you explain the aspect where the banks(NDB)take about 3% percent of that six percent as thier commission? Since they act as agents of the ECCE. That I consider rather outrageous, since it leaves you at 3% which is what you get in fix deposits these days. So basically the banks gets 50% cut when its your money taking the risk. That is pure exploitation!
3% of 6% is 0.18% leaving you with 5.82% which is still attractive.
The brothers Grimm and Hans Christian Andersen wrote stories like this, they are called “Fairy Tales”.
Nowhere in the article was it stated that it was a 6% APR -ANNUAL percentage rate….
Out of the box, I am sorry to burst your bubble – that 6% interest is an annualised interest rate. Otherwise, it would not be profitable for gov’t to seek financing using that medium. And please don’t be fooled – while treasury bills provide a more attractive rate compared to savings and will therefore benefit the public, governments do not use this as the basis for issuing securities. The 2 main reasons gov’ts choose to issue securities are to assist with their financing needs (it’s cheaper than borrowing from the banks) and also to refinance higher interest debt. And if you read the article carefully, it is both of those reasons that has prompted the gov’t to issue at this time. But frankly, given the amount in question, I suspect it is a short-term liquidity issue more than a refinancing need.
Boy, are we that short of ready money? A mere $15 million, which I gather is intended to redeem another set of T-bills that become due shortly? It’s like getting a loan from Fast Cash to pay your credit card. This really has me seriously worried.
DNO,
Do you have a financial expert (or maybe just a not so expert that might be on your payroll) who can break this down for the average man? Can he/she tell the average reader how he or she will/can/might benefit from this?
Thank you.
Great question. How is the ordinary man to benifit from this scheme, DNO. Break it down for us!! Many of us want to invest in the future of our country.
The min. investment would be E.C.$5,000, with increments of E.C.1,000 if you want to purchase more.