As Belize Economic Train Turns : The Superbond Print E-mail
( 0 Votes )
Written by Administrator   
Thursday, 30 August 2012 00:00

As emerging economies continue to wade through the global economic crisis, the challenges of crafting a strategy for long-term sustainability becomes even more masterful. Belize’s debt to equity ratio is projected to be around 84%. There is a need to find solutions to service the debt, while meeting other obligations. In 2006, in order to avert a sovereign default, the uncontrollable debts, which had average interest rates of 11% or 12%, were shopped in the bond market. This resulted in the now infamous Super Bond. The deal that was signed in February 2007 was for US 548.6 million dollars or BZ 1.1 billion. The country had surpassed grim and was at serious risk of defaulting on its loan payments. The structure of the debt was that there would be a grace period of 12 years, from 2007 to 2019. The payments would be made semi-annually on February 20th and August 20th of each year. During the grace period, interest would step up from 4.25% to 6% until August 2012, when the interest would step up to 8.5%, twice the initial rate. Under the present configuration, the principal repayments would commence on August 20th, 2019. Belize would have to pay approximately BZ 110 million from 2019 to 2029 until the full principal is repaid. These principal payments are in addition to the principal payments stretching over the full 22 years of the Super Bond.

The Prime Minister indicated that it’s necessary to find a debt sustainable solution to service the debt and meet other expenditure obligations. In early August 2012, there were signals that Belize intended to renegotiate the Super Bond as it’s presently configured. The economic indicators, as reported on the Central Bank website, showed as much that there would be increasing financing gaps commencing in January 2013. There was every indication that the revenue projections would allow for the payment that was due on August 20th, 2012, but the inflow of revenue was not realized, which made it difficult for the payments to be made. As a result on August, 20th, 2012, the government indicated that they were unable to make the payment. Prior to the non-payment, three indicative scenarios, which would serve as a basis for discussion, were put forward. These scenarios were based around the present economic situation and all three would create relief for the country. The first scenario seeks no reduction in principal, but a reduction in interest, an extension of the maturity date, and a 15-year grace period. This means that the payments would be made over a longer time and at lower interest rates. The second scenario seeks a 45% reduction of the principal, no grace period, a maturity date of 2042 and a stepped up interest from 1 to 4%. The third scenarios seeks a 45% reduction of the principal, a grace period of 5 years, a maturity date of 2042 and a fixed 3.5% for the duration.

As is in the case where negotiations are concerned, the three scenarios that form the basis of the negotiation, is the government’s position. It is now for the bond holders to consult and review to determine whether scenario A, B, C, or some other configuration would be acceptable.

In the meantime, the payment of US 23 million, BZ, 46 million has not been paid; there is a still a grace period for the payment to be made or the eventual default because of non-payment. During this time, Standard’s and Poor and Moody have continued to downgrade Belize. Moody’s downgraded Belize credit rating sending it deeper into junk territory as it went from CAA 1 to Ca. This downgrade cites a restriction of government’s 547-million bond or weak economic growth. Basically saying that with Belize unable to finance its ever growing debt, the bond holder chance of receiving payment lessens or the chance of default is high. In the international arena, it could be read as Belize being risky for investment; it could also mean that for Belize to access international financial capital, it would mean at higher interest rates. If the standby arrangement with the IMF is enacted then it could mean that the IMF would provide liquidity to Belize, but would expect Belize to restructure its debt and probably take austere measures to find debt sustainability solutions.

As Belizeans, we need to be vigilant and be aware of the economic challenges we face, but please do not give in to those who continue to preach doom and gloom. As the country continues on its negotiation path, there is every hope that a solution will be worked out where the bond holders either accept one of the three scenarios or some other configuration that would keep Belize on a debt sustainable path. There is every indication that Belize’s credit rating will be upgraded and that path to the IMF, which has been averted so often, will not have to be taken.