BELMOPAN, Belize: Standard & Poor’s Ratings Services (S&P) has lowered this country’s long-term foreign- and local-currency sovereign credit ratings to ‘CCC+’ from ‘B-‘. The ‘C’ short-term credit ratings are unchanged, however, as the outlook is stable.
“The downgrade reflects signs of lower political willingness to service Belize’s external commercial debt obligations,” said S&P credit analyst, Kelli Bissett. “In addition, Belize faces external imbalances, limited access to external funding and rising costs of servicing general government debt.”
When he announced early elections for March 7, Prime Minister Dean Barrow made servicing the US$546.8 million bond (known locally as the superbond) an election issue.
The nature of the statement and Barrow’s prominent public office signals, from a credit perspective, doubts that the government will continue to service its external commercial debt.
Although a future United Democratic Party (UDP) government could ultimately back away from its leader’s campaign rhetoric, the injection of the superbond into the campaign follows increased policy unpredictability (including the nationalizations of Belize’s main electricity and telecom companies in the last two years) and raises questions about the political commitment to timely debt service.
This announcement comes amid low economic growth, a weak investment outlook, increased levels of crime and limited ability to raise government revenue, all of which weaken the government’s payment capacity.
Belize’s current account is weakening, and its external financing options are limited. Oil production, the government’s most import foreign exchange earner, is in structural decline, and tourism prospects appear lacklustre given the global economic slowdown.
S&P’s local- and foreign-currency ratings on Belize are ‘CCC+/C’, reflecting the country’s pegged exchange rate and limited monetary and fiscal flexibility. The transfer and convertibility assessment is ‘B-‘, one notch above the long-term foreign-currency sovereign rating, under the expectation that in the event of default, the government would not actively restrict access to foreign exchange for private debt service.
The stable outlook balances the possibility that the government will seek debt relief to reduce a rising external interest burden against the possibility that debt management will improve after the election.