Belize and bondholders to meet today

By Aaron Humes: At 10 a.m. this morning Belize time, Belize’s financial authorities will be discussing, in a virtual meeting, the proposed capitalization of upcoming interest payments due on its 2034 Bonds with bondholders (the “Bondholders”).

Belize is hoping to defer up to two interest payments on the instrument popularly known as the “Superbond”: one due in August, the other next February, together valued at BZ$52 million.

On Friday a report was submitted to the National Assembly as outlined under Section 5, Paragraph 3, Subparagraph F of the Terms and Conditions of the Belize U.S. Dollar 2034

Bonds, to explain why primary surplus was to be less than 2% of GDP at 1.34 percent.

When he first presented the budget in March, Prime Minister and Minister of Finance, Dean Barrow, listed two pre-eminent factors that account for the actual outturn.

First, the BZ$15 million (0.4% of GDP) shortfall in recurrent revenues, attributable to the unforeseeable fall in Quarter 4 GDP output occasioned by the emergence of the COVID-19 virus; Second, the deliberate policy decision to seize the financing opportunity for the start of construction on three major national highways, including multiple bridges, as part of the Government’s capital investment program. Those capital expenditures for Financial Year 2019/20 exceeded budgeted levels by B$38m (1% of GDP).

Jointly, these two factors accounted for a 1.4% of GDP underperformance of the primary balance in Financial Year 2019/20.

Also pointed out was that Tourism and its economic offshoots represent 40% of Belizean economic activity, with united States visitors accounting for 75% of visitor arrivals. After the first COVID-19 case emerged in Washington State, USA, in January 2020, travel to Belize remained unaffected until late February.

Then, precipitously, forward booking nosedived, and by the second week of March, traditionally the busiest month for tourism flows, airlines disclosed plans to discontinue service and cruise ship calls were discontinued. On March 23, 2020 all tourist and other travel to Belize ceased with both the international airport and all land borders closed. As a consequence, the Quarter 1 GDP output declined by 4.5%, according to the Statistical Institute of Belize. GoB’s recurrent revenues, already under some pressure due to a historic drought suffered by Belize in 2019, fell by 1.3% for the fiscal. year.

Further, Government was presented with an extraordinary opportunity to finance three long-pending roadways, each with high potential for future tourism growth. These were: first, the 38-Mile Coastal Road (estimated cost BZ$140m) primarily financed by the CDB and UK; second, the 35-Mile Sarteneja Road (estimated cost BZ$100m) financed by the Republic of China on Taiwan; and third, the 50-mile Caracol Road (estimated cost BZ$140m), funded by the OPEC and Kuwaiti Funds. All three projects will unlock new regions of the country for tourism and agricultural expansion, and together can stimulate the creation of long-term jobs and economic growth. Once completed, these three projects are expected to add between 2% and 5% of output to GDP. As ‘one-off’ capital investments contracted during a period of otherwise modest economic growth, GoB considered these commitments as productive infrastructure and highly beneficial to citizens and creditors alike.

Underscoring GoB’s otherwise judicious adherence to budget targets are the results in FY2019/20 for other broad budget lines such as wages, pensions, and goods and services, which together accounted for three-fourths of all recurrent expenditures. These three cost centers combined were down 2% for the fiscal year, compared to the approved budget (down BZ$17m or .4% of GDP), with the goods and services outlays falling by 8%.

The primary fiscal outturn then, which was just short of the 2% of GDP target for FY 2019/20 is the result of the COVID-19 crisis and of GoB’s purposeful decision to take advantage of immediately available low-cost, non-commercial infrastructure financing.

While the Prime Minister expressed confidence that bondholders would agree to the terms he hid open the possibility of a default even considering the damage it would do to Belize’s reputation.

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