Fundamentally, the Belize US-Dollar Bond 2038 (super bond) needs to be restructured based on several factors. Probably none more clear-cut than the simple reality that global and regional growth are not expected to be as robust as one may hope. But the bond restructuring is only but one part of a much more comprehensive “restructuring” that we need to look at, but we are yet to adequately address the underlining causes as to what brought us to this point.
The origins of the Super Bond could somewhat be well summarised as being a mix of expansionary fiscal policies that rapidly increased the average government deficit from 3% to 9% of GDP within a span of about six year; climbing public debt, much of which was sourced from external sources who, on account of our declining credit ratings, kept increasing the costs at which we borrowed; and widening current account deficits.
As was pointed out in the working paper “Sovereign Debt Restructurings in Belize: Achievements and Challenges Ahead” by Asonuma et. al (2014):
“At the same time, Belize’s external condition became more challenging owing in part to
high world oil prices, declining export prices, and rising external debt service costs.
Trade imbalances, coupled with surging debt service burden, led to significant current
account deficits, which averaged 17.3 percent of GDP during the period 2001 through 2005.
The large current account deficits were principally financed through a build-up of external public debt, which almost tripled from less than US$400 million in 1998 to US$1.1 billion in 2005.”
Without venturing into any in-depth analysis of the period between 1998 and the first restructuring in 2007, ideally, one key lesson here is the need for our government and people to take care on how we spend and increase our expenditures. That much, one could say, is within our control. And, it’s prudent to do so because we all know that there are factors such as global commodity prices, natural disasters, and even changes in the global and regional economy that are outside our control, to name a few.
A look at the Global and Regional Landscape
Speaking of factors outside of our control, this conversation would be incomplete without at least a brief look at developments in the global and regional economy.
In terms of the entire Latin America and Caribbean (LAC) region, average growth for 2016 and 2017 has been forecast at -0.6% and a meagre 1.6% growth for 2016 and 2017, respectively. The expectation is that the weakened global demand and trade that led to the negative outlook for 2016 would have tapered off by 2017. The International Monetary Fund (IMF), speaking on this point in its October 2016 Regional Economic Outlook Update, elucidated, “Growth is expected to rebound to 1.6 percent in 2017 (0.1 percentage point higher than in the April projections), as global demand gradually picks up and domestic policy uncertainty declines. Medium-term projections continue to be subdued, with the region expected to grow a mere 2.7 percent.” Continue reading