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IMF approves “Superbond” restructuring, warns on devaluation

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International Monetary Fund (IMF)

Posted: Sunday, March 14, 2021. 11:08 am CST.

By Aaron Humes: The International Monetary Fund (IMF) has commended Belize authorities for recognizing the critical nature of their financial situation and evaluating needed remedial measures.

Alongside those measures, the IMF mentioned with approval the decision to approach creditors of the “Superbond” (officially Belize Bonds due 2034) “to complement the efforts to restore debt sustainability through balanced and sustained fiscal consolidation and growth-enhancing structural reforms.”

At the same time, the IMF warned in not so many words that the Belize-U.S. currency peg is weakened and, while Belize remains committed to it, there must be an effort to successfully implement a strategy to restore debt sustainability, which in turn would lower the current account deficit and increase international reserves. Strengthening the currency peg also requires limiting government financing by the Central Bank of Belize (CBB) over the medium term.

Belize’s domestic banks are in a strong position, the IMF notes, with non-performing loans rated at just under six percent at the end of 2020, abundant liquidity and strong capital buffers. The Central Bank introduced forbearance measures to mitigate the impact of the pandemic on the banking system. It was recently given further powers to develop economic policy to pump liquidity in the system back to businesses.

But the IMF warns, “A slow recovery from the pandemic could accelerate the erosion in asset quality and increase NPLs, especially for banks exposed to vulnerable sectors such as tourism. In this context, the CBB should maintain loan classification and provisioning rules to appraise the banks’ potential credit losses as accurately as possible, phase out forbearance measures and loan deferrals by banks, and strengthen prudential standards as the pandemic recedes. Dividend payments should be restricted until the full impact of the pandemic on banks’ capital is known. A comprehensive third-party asset quality review should be done when the economy recovers from the pandemic. Efforts to strengthen AML/CFT supervision of banks should continue and sanctions for non-compliance should be enforced.

The Fund also prescribes various ideas for maintaining correspondent banking relations (CBRs) and ensuring Belize avoids further shocks such as the collapse of the Atlantic International Bank Limited (AIBL) due to the Sanctuary Bay scandal and Choice Bank incident.

 

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