Belize Seeks Debt Relief From Private Sector Lenders

by Mike Godfrey, Tax-News.com, Washington

07 August 2006

The government of Belize is attempting to seek the cooperation of the country’s private sector creditors in a rearrangement of Belize’s approximately US$1 billion external debt stock.

The government expects that most of the external commercial debts of Belize and its public sector entities will be affected by this debt rearrangement. The government of Belize is simultaneously approaching its official-sector creditors to solicit their assistance in addressing the country’s currently unsustainable debt burden.

In October 2004, the government of Belize began implementing a significant tightening of fiscal policy. This tightening has seen a major reduction in capital expenditure and expansion in government revenue. As a result, the country’s overall deficit has declined from over 8% of GDP in fiscal year 2004/2005 to 3.1% in fiscal year 2005/2006. The budget enacted earlier this year for fiscal year 2006/2007 is also very tight and is expected to reduce the deficit even further.

In this same period, the Central Bank tightened liquidity in the banking system on three separate occasions in order to dampen the demand for foreign exchange and thereby ease the pressure on the balance of payments.

Even with these belt-tightening measures, however, Belize is projecting significant fiscal deficits over the medium term. Considerable shortfalls in the balance-of-payments are also expected to persist, exacerbated by Belize’s very low level of international monetary reserves. Belize’s ratio of debt to GDP is just over 90%. The country spends - on interest payments alone - more than 27% of the Government’s fiscal revenue.

“Servicing of the Belizean external public sector debt stock on its existing terms is no longer a viable option,” explained Said Musa, 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.

Belize has retained Houlihan, Lokey, Howard & Zukin as financial advisers, and in this role, the firm will be assisting the government in its consultations with the affected creditors. Those consultations will commence immediately. Belize would like to conclude the debt rearrangement by the fourth quarter of 2006.

According to a government report leaked by the opposition United Democratic Party, Belize has some $1 billion of public sector debt, of which $574 million is owed to private-sector creditors. This includes seven sets of overseas bonds and commercial loans.

Much of this debt has accrued as the government repaired damage caused by a spate of hurricanes between 1998 and 2002.

Musa also reportedly travelled to Washington DC this week for talks with multilateral lenders, according to Dow Jones Newswires.

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