Belize has been lauded in some financial circles for the successful debt restructuring it undertook in February this year. The restructuring was necessary because the Government had found itself in a tough position where it was unable to pay its existing creditors and furthermore, unable to get new commercial loans to cover those debts. Even though the restructuring of US$546.8 million in debt has saved the Government from a financial crisis, Belize is not yet out of the woods, as there remains “a very high risk of default despite substantial liquidity relief that was provided as a result of this February’s restructuring.”
This was the caution coming from Moody’s Investor Service in its 2007 report on Belize, which was issued on Monday, July 9.
Moody’s Senior Analyst Alessandra Alecci said in the report that Belize remains “extremely vulnerable” to exogenous shocks (such as a hurricane), leaving little room for Belize to slip, as the Government’s ability to adjust is still very limited.
The Moody’s report notes areas in which the Government has improved fiscal targets, such as the projected deficit of 1% of GDP in this year’s budget, but whether a government in an election year can and will achieve such targets is quite another story.
Moody’s says that, “While these targets send a positive signal, they must be viewed against Belize’s very poor track record of meeting fiscal objectives and the fact that this is an election year. Regarding the latter, there is a considerable amount of uncertainty regarding whether the outgoing administration will preserve the objectives of the program or attempt to salvage some popularity by incurring additional expenses.”
(Most recently, Government has announced plans for a $6.5 million free textbook program, as well as subsidies of $100 a month for 1,624 people mortgaging low income homes whose loans are under $35,000. Both of these programs were mentioned when the Prime Minister read his budget speech in March, suggesting that they would have been factored into the current year’s budget.)
The Moody’s report indicates that the country’s debt burden of over a billion US dollars “remains onerous,” and Belize is not doing so well when compared with its peers, such as Nicaragua. The public debt stock was still 90% at the end of 2006 and four times the value of the debt in 1997. As much as 60% of the country’s debt is owed to commercial creditors.
On the upside, the report comments that Belize’s macroeconomic performance was rather favorable in 2006, despite Government’s financial challenges. The discovery of oil and multi-million-dollar loans from “friendly countries” worked very much in Government’s favor, which helped to avert the infamous “d” word – devaluation.
“The most surprising element of last year’s macroeconomic performances was the ability of the authorities to avert a full balance of payments crisis and a devaluation. This is mostly explained by the unexpected build-up in FX [foreign exchange] reserves due to an unusual confluence of positive factors, including the discovery of oil and loans from Venezuela and Taiwan,” the report said.
One of the key issues is sustainability, however, and whether a new administration would continue the so-called “home grown” adjustment program of the present Musa administration.
“Assuming that the next administration is keen on restoring fiscal responsibility (regardless of the availability of funding), its efforts in sticking to the very tight fiscal framework…are likely to be challenged by a variety of factors,” Moody’s opines. “Among others, these include ‘adjustment fatigue’ on the part of the electorate and the possibility of exogenous shocks that would require additional expenditures.”
The report points to recent events that signal deterioration in governance, particularly finance issues relating to the Development Finance Corporation, the Belize Telecommunications Limited and the Universal Health Services.
“Thus far, little has been achieved in terms of ensuring accountability, thus reinforcing the perception that poor governance could become a chronic issue in Belize,” the Moody’s report cautions.