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Belize’s credit rating cut as country looks to restructure $530 M in bonds

Posted: Wednesday, November 16, 2016. 4:01 p.m. CST.

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By BBN Staff: Belize’s credit rating has been downgraded by S&P Global Ratings. Prime Minister Dean Barrow attempted for the second time in four years to renegotiate the country’s debt.

The agency has now lowered the rating from B- to CCC+ with a negative outlook.

PM Barrow was in New York last week meeting with financial advisors and bond holders of 2038 since the government has declared that it is facing “serious economic and financial challenges.”

The government had proposed that bond holders form a committee before the end of November, or about two months before Belize faces the next payment.

According to a source of the Latin Finance magazine, Barrow wants to reopen and extend the bonds, the country’s only securities in the international credit markets.

Belize is looking to restructure $530 Million in bonds.

S&P Global ratings agency cited when cutting Belize’s rating: “impaired fiscal and external imbalances, limited external funding, reduced foreign exchange reserves and the loss of correspondent banking relationships.”

According to the agency, 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.”

According to the International Monetary Fund, last year the economic growth in Belize slowed to 1 percent. Belize’s GDP is forecasted to contract this year, and the economy is still reeling from the impact of Hurricane Earl, which struck the country in August.

The agency also informed that adding to Belize’s anguish is a widening fiscal deficit, which hit 7.7 percent of GDP in March and that it expects government debt to rise to 81 percent of GDP this year, up from 76 percent in 2015.

A senior fixed income portfolio manager at Invesco, Sean Newman said that bondholders should take a tough stance in any negotiations. He stated: “Bondholders should come together to aggressively demand that the terms be met.”

“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,” he added.

The rating agency added that 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 also cited “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.”

The government has said it has retained Citigroup as its structuring advisor and Cleary Gottlieb as its legal counsel.

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