S&P revises Belize sovereign credit outlook down to negative from stable; current rating is CCC+
Standards and Poors is expected to downgrade Belize in its credit rating from a ‘B’ to a C.C.C. plus. The downgrade is due to government’s inability to meet financing requirements which are impaired by fiscal and external funding, reduced foreign exchange reserves and loss of correspondent banking relationships. S and P also projects government debt to rise to eighty-one percent of GDP this year.
* Negative outlook reflects view of potential further deterioration in government's ability or willingness to service its debt
* Expect net general government debt to rise to 81% of GDP this year, up from 76% in 2015
* We anticipate slow progress in lowering the fiscal deficit over the coming years
* Although risks to political stability will remain low in the coming four years, we find Belize's governmental institutions weak
* S&P revises Belize sovereign credit outlook down to negative from stable; current rating is ccc+ Source text: [bit.ly/2fQPO9q]
Belize Gets Downgraded by Standard and Poor’s Global Ratings
It is no secret that Belize’s economy has seen a downward trend in its growth performance and that austerity measures announced earlier by Government will create some challenges in both the private and public sectors. But, there is more to Belize’s economic performance than just the local effects.
Just yesterday Standard and Poors lowered Belize’s long term foreign and local currency sovereign ratings from a B-minus to CCC+ while the rating for the short term foreign and local currency sovereign credit rating went from a B to a C. The current situation that Belize faces is the result of several factors including the loss of correspondent banking relations, the BTL arbitration award as well as the high expenses in public workers ‘salaries.
According to the report, the reason for the downgrade is due to Belize’s inability to meet its financial obligations after becoming impaired by fiscal and external imbalances, limited access to external funding, reduced foreign exchange reserves, and the loss of correspondent banking relationships (CBRs).
In the report’s outlook for Belize it noted, quote, “Although risks to political stability will remain low in the coming four years, we find Belize’s governmental institutions weak. Prime Minister Dean Barrow, of the centre-right United Democratic Party, is serving his third and final five-year term (2015-2020). We expect the government to continue to move slowly on fiscal and other policy adjustments, given adverse economic circumstances. The country’s recent history of debt restructurings continues to negatively affect our ratings. We expect net general government debt to rise to 81% of GDP this year, up from 76% in 2015. This heavy debt burden is a credit constraint, particularly given Belize’s narrow, open economy and fixed exchange regime. Interest payments currently stand at 9% of general government revenue, but we project they will rise toward 13.5% in 2019. Government debt servicing will increase in August 2017 as the coupon rate for Belize’s external bond due in 2038 (US$526.5 million at end-2015) rises to 6.767% from 5%, and it will again rise in August 2019 as principal payments start to come due.” End of quote.
Standard and Poors Global ratings does its analysis with five factors in mind, namely, institutional assessment, economic assessment, external assessment, the average of fiscal flexibility and performance and debt burden as well as monetary assessment.
S&P cuts Belize as country looks to restructure $530m in bonds
S&P Global Ratings has cut Belize’s sovereign credit rating deeper into junk territory as the Central American country looks to restructure its debt for the second time in five years.
The ratings agency lowered the rating to CCC+ from B- with a negative outlook.
Last week, Belize Prime Minister Dean Barrow traveled to New York to meet its financial advisors and holders of the country’s 2038 bonds after the government said it is confronting "serious economic and financial challenges."
Ahead of the meeting, the government urged bondholders to form a committee before the end of November, or roughly two months before the country faces its next coupon payment. A government spokesman did not immediately respond to a request for comment.
One source familiar with what was discussed at some of the meetings said Barrow wants to reopen and extend the bonds, the country’s only securities in the international credit markets. Belize is looking to restructure $530 in bonds.
In cutting Belize’s rating, S&P cited "impaired fiscal and external imbalances, limited external funding, reduced foreign exchange reserves and the loss of correspondent banking relationships." The rating agency said the negative outlook stems from the "potential further deterioration in the government’s ability or willingness to service its debt, given the risk of continued worsening in liquidity for the sovereign and for the economy as a whole."
Economic growth in Belize slowed to 1% last year, according to the International Monetary Fund (IMF). Belize’s GDP is forecast to contract this year, and the economy is still reeling from the impact of Hurricane Earl, which struck the country in August. Adding to Belize’s woes is a widening fiscal deficit, which hit 7.7% of GDP in March, S&P said. The rating agency added that it expects government debt to rise to 81% of GDP this year, up from 76% in 2015.
Sean Newman, a senior fixed income portfolio manager at Invesco, said bondholders should take a tough stance in any negotiations.
"Bondholders should come together to aggressively demand that the terms be met," he said. "A hardline stance should be taken. Before the current government came to power, the country was actually operating with a minor fiscal deficit. What the prime minister has done since coming into office is ramp up spending."
Another investor who asked not to be named said some bondholders "at this point in time are looking for haircuts."
S&P said Belize’s economy has also been hurt by the loss of correspondent banking relationships. Only two out of the country’s five domestic banks have managed to maintain correspondent banking relationships with full banking services. Belize’s central bank has also lost three of its five correspondent bank relationships over the last two years, S&P said.
"The loss of these financial links could significantly impair activity in key sectors of the economy, including tourism and trade and counteract efforts to reduce fiscal deficits," S&P said.
The government has said it has retained Citigroup as its structuring advisor and Cleary Gottlieb as its legal counsel.