Belize Close To Debt Default

by Mike Godfrey, Tax-News.com, Washington

26 September 2006

Although Belize has undertaken savage fiscal cut-backs under Prime Minister Said Musa, reducing a deficit of 9% of GDP to 3% in just two years according to the IMF, the government had to admit last week that it was close to default, and will have to restructure its debt.

Mr Musa denied that he is planning a devaluation, but market rumours suggest a 'haircut' for existing debt holders of 25% to 50% of their loans. Standard & Poor's recently lowered Belize's sovereign credit rating from CCC- to CC and said that a punitive debt swap would reduce the rating to SD, for Selective Default.

Currently, Belize has six outstanding international bonds totaling $338 million and $253 million in commercial loans. A further $116 million is accounted for by domestic debt. It is thought likely that all external debt will be swapped for a new bond issue.

Belize bonds were trading at 72 cents on the dollar last week, and bond yields on the 9.75% coupon bond due in 2015 reached nearly 16%.

“Servicing of the Belizean external public sector debt stock on its existing terms is no longer a viable option,” explained the Prime Minister and Minister of Finance. “We must urgently ask the cooperation of our creditors to help put this debt stock on a sustainable financial footing," he added.

Musa blamed four tropical storms which hit Belize between 1999 and 2003 for the country's woes, also mentioning a major infrastructure investment programme and rising oil prices.

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