Can Belize learn lesson from Barbados’ economic crisis?

BBN Staff: The small island nation of Barbados in the Caribbean, like Belize, has its dollar pegged to the US dollar at an exchange rate of 2 to 1. And like Belize, Barbados, which recently elected a new government in May, is facing an urgent economic problem. Incidentally, the former Governor of the Barbados Central Bank was in Belize this week sharing his expertise with the staff of the Belize Central Bank.

Barbados currently has the fourth largest debt burden in the world, behind countries like Japan, Greece and Sudan. Barbados’ national debt stands at 175% of Gross Domestic Product (GDP)! The Barbados Central Bank’s foreign reserves are reportedly down to just US $220 million, representing just seven weeks of import merchandise, a critically low figure given the international benchmark for foreign reserves is three months of merchandise imports.

With looming debt payments due this month along with the threat of the hurricane season quickly approaching, Barbados’ newly elected Prime Minister, Mia Mottley, has sought help from the International Monetary Fund (IMF) to devise a debt restructuring plan that will make the country’s debt servicing commitments sustainable. Notably, Barbados has three international bonds worth over $600 million.

Now, according to a recent article from the Financial Times, “Barbados must prepare for a long painful journey back to financial and economic health…”

Similarly, Belize negotiated its third restructuring of its own “Superbond” in March 2017. The 2034 bonds represent over one-third of Belize’s total debt stock. The most recent restructuring, its third overall and second in recent years, has been considered unprecedented, unusual and the terms have been deemed unsustainable by financial experts who have examined the terms.

Recently, a research paper from economists at the IMF, determined that the measures undertaken in the third restructuring exercise were not enough to put Belize’s debt on a sustainable downward trajectory. Many have posited that Belize may end up facing further complications servicing the bond in years to come, especially with five US $120 million payments set to begin in 2030 under the new amortization schedule.

The research paper from the IMF researches suggested that Belize, like some of its neighbors in the Caribbean, may have been better suited to opt for a comprehensive debt restructuring package, rather than the limited commercial restructuring that Belize chose.

For years, the IMF has urged Belize to implement more stringent austerity measures, including cutting down the annual “wage bill”, which is the largest of any country in the region. Among other things, the IMF has urged the government to raise the General Sales Tax to 15%, however, the current administration has been reluctant to do so, presumably because of any political fallout it may have. The government, however, has implemented other measures in accordance with the restructured terms of the bond, which has seen the price of a number of other goods and services increase, including gas, Internet data services, and certain grocery items among others.

Barbados’ former Central Bank Governor, Dr. Delisle Worrel, during his presentation to the staff of the Belize Central Bank, recommended that the institution more frequently publish relevant numbers and statistics using understandable graphs and charts and explained in plain English. He also recommended frequent video updates, which can be uploaded via Youtube, to keep the nation informed of the current economic climate. Worrel also recommended daily website updates to inform the public of important government decisions.

In 2017 when the government engaged bondholders in the third restructuring of the 2034 commercial bonds, Belize debt-to-GDP ratio stood at 100%! Experts, meanwhile, insist that Belize must do more to make the economy more sustainable and put debt on a sustainable downward trajectory, however, Belize’s government has avoided entering any of the IMF’s stringent austerity programs, which would likely include some tightening of the belt, which may include tough decisions such as mass retrenchment among other options. It remains to be seen if enough has been done for Belize to avert an economic catastrophe, the like of which Barbados is currently grappling with.

 

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