Standard and Poor’s Rating Services has published a revision of its outlook on the long term ratings on Belize. According to this revision, dated November 25, 2015, Belize’s outlook has gone from being positive to being stable with an affirmation of the B-Minus/B Rating on the country’s foreign and local currency sovereign credit.
According to the report, the rationale behind this revision is based on the country’s weaker fiscal and external positions that increase its vulnerability to external shocks. The report says that Belize’s fiscal outlook has deteriorated and it is expected that the change in Belize’s debt figure will substantially exceed the initial target which was five point one percent of GDP for the fiscal year ending March 2016.
The increase is being attributed to higher spending particularly with the thirteen percent public sector wage hike, the pre-election spending and the compensation owed to Fortis and Ashcroft Alliance. With these payments in mind, Standard & Poor’s Rating Service projects that the general government deficit will reach eleven point two percent of GDP in fiscal 2015/2016 from the three point nine percent of GDP that it was in 2014/2015.
In an interview with Prime Minister Dean Barrow, over the weekend, he did allude to the tightening of government spending, which he says is the rationale behind the streamlining of the annual Christmas Cheer program.
Chamber Concerned Over Belize’s Economic Ratings
Standard and Poor’s latest report in which it has readjusted Belize’s ratings has brought about concerns by the Belize Chamber of Commerce and Industry. In a release from the BCCI, there were six main points made including the statement in the report that spoke of Belize’s increase in fiscal deficit due to the pre-election spending and the compensation owing to Fortis and the Ashcroft Group following the nationalization of the Belize Electricity Limited and the Belize Telemedia Limited.
The second point mentioned by the BCCI was that Belize’s Government debt is predominantly denominated in foreign currency and held by non-residents. According to the report, S and P is expecting the government’s debt to increase to seventy four percent of its GDP from what was sixty six percent in 2014. The fourth point in the release was where the report stated that interest payment are averaged at about nine percent of general Government revenue and would rise to ten percent in 2017 and 2018 when there is a step-up in coupon payments on the country’s five hundred and thirty million US dollars bond which is due in 2038.
The BCCI has also expressed concerns over the S and P’s prediction that the country’s international reserves will decline to less than four hundred million dollars. Of note, in the S and P’s report is that the Belize’s ratings over the next twelve months could be lowered if the government’s underlying fiscal deficit does not moderate or if the central bank’s international reserves decline more than they forecast.
Belize’s Economic Outlook Downgraded – From Positive to Stable
A recent Standard and Poor’s research affirms that Belize’s B minus, B rating has been revised to stable from positive, on what is being described as a weaker fiscal position. That frail status is the result of shortfalls due to pre-election disbursements, as well as settlements for the B.T.L. and B.E.L. nationalizations of 2009 and 2011, respectively. The stable forecast balances a weaker fiscal position and higher external exposure against growth potential. It is supported by a recovery in agricultural exports, particularly sugar, and investment in tourism-related infrastructure. The issue of the mounting deficit however, remains a serious concern for the business sector. The Belize Chamber of Commerce and Industry, in the wake of the latest ratings, has issued a release outlining a number of concerns. Senator Mark Lizarraga explains what the ratings mean for Belize.
Mark Lizarraga, Business Senator
“Our deficits have risen primarily due to pre-election spending and compensations for the public utilities that we had nationalized. It goes on to say that Belize’s fiscal outlook has deteriorated and we expect, or Standard and Poor’s expects, that this deficit will continue to rise over the next three years. It says fiscal slippage was largely due to higher spending like pre-election spending, the public sector wage increase and the compensation again for the utilities. What is interesting though is that it’s making some assumptions and it’s saying that it is assuming in these projections that it is going to be allocating fifty million U.S. dollars per year for the next two years for the final compensation for BTL but that it can go as high as a hundred million U.S. each year. So if that were to happen our position in fact would worsen. It is also saying that it is expected that government debt will rise from seventy-four percent of GDP this year which is higher than the sixty-six percent in 2014 and it is expected to reach seventy-seven percent of GDP over the next two years. It is also saying that, and I quote, we do not expect a significant shift in policy or a new initiative from the present UDP party that has won its third term. It is saying that what is desperately needed, and I quote, progress remains to be done to attract more private investment and to foster competitiveness.”
Belize’s current account deficit has widened this year owing to lower commodity prices, weak agricultural exports, low oil prices and higher imports of capital goods.