New York, March 05, 2019 -- Moody's Investors Service ("Moody's") has today
affirmed Government of Belize's B3 long-term foreign and
local-currency issuer ratings, and the government's
B3 foreign and local-currency senior unsecured bond ratings.
The outlook remains stable.
The affirmation of Belize's B3 rating is based on the following
key rating drivers:
1) A forceful fiscal adjustment was enacted in 2017/18 and continued in
2018/19, while the economic recovery has strengthened, supporting
debt sustainability,
2) Despite decreased fiscal pressures, lingering credit challenges
including structurally low growth and vulnerability to climate shocks,
remain substantial.
The stable outlook reflects the balanced risks to Belize's credit profile
at the B3 rating level. The risk of a subsequent credit event remains
low over the next 12 to 18 months given the government's more favorable
debt repayment schedule. However, fiscal and economic challenges
are likely to persist and we believe that, despite the liquidity
relief provided by the debt restructuring, there is a low likelihood
that upward pressure on Belize's creditworthiness will develop.
Belize's long-term country ceilings for local and foreign-currency
bonds remain unchanged at B1, while the local and foreign-currency
bank deposit ceilings remain unchanged at B1 and Caa1, respectively.
Its short-term country ceilings for foreign-currency bonds
and bank deposits remain unchanged at Not Prime (NP).
RATINGS RATIONALE
RATIONALE FOR THE AFFIRMATION OF THE B3 RATING
FIRST DRIVER: THE ONGOING FISCAL ADJUSTMENT AND ECONOMIC RECOVERY
SUPPORT DEBT SUSTAINABILITY
The authorities consolidated the fiscal accounts to a primary surplus
of 1.4% of GDP in fiscal year (FY) 2017/18 (overall fiscal
deficit of 1.7% of GDP). This was a 2.5 percentage
point adjustment compared to the prior fiscal year. The fiscal
adjustment was underpinned by revenue-enhancing measures that included
decreasing the amount of goods exempted from the general sales tax and
by raising excise taxes (particularly on fuel), but the bulk of
the fiscal adjustment was achieved through a strong decrease in public
investment, which will likely be sustained. Public debt stabilized
at the end of 2017 at 95.4% of GDP.
Fiscal performance has remained strong in FY 2018/19 as the budget aimed
to raise the primary surplus to 2% of GDP. The authorities
have expanded the revenue measures by further reducing exemptions,
broadening the general sales tax, and by continuing to increase
fuel surcharges. These measures amount to approximately 0.5%
of GDP. Public investment has continued to decline through the
end of 2018 as a result of the government's consolidation measures
and a lower availability of financing. Moody's estimates
that the overall fiscal deficit will decline to 1.1% of
GDP in FY 2018/19 and that public debt will decrease marginally to around
94% of GDP.
Moreover, the economic recovery strengthened in 2018, on the
back of a further increase in tourism inflows. Economic growth
in the first three quarters of 2018 averaged 3.6% year-on-year
and Moody's forecasts full-year growth at 3.3%.
Despite favorable external conditions that include a robust expansion
in the US that has supported increased tourism arrivals and remittances,
Moody's projects economic growth in Belize will gradually ease to
2.4% in 2019, 2.0% in 2020, and
1.7% over the medium-term. This dynamism will
support continued reductions in the sovereign's debt burden in 2019
and beyond, barring any unforeseen shocks.
SECOND DRIVER: LINGERING CREDIT CHALLENGES LIMIT UPWARD MOBILITY
FOR THE SOVEREIGN'S CREDITWORTHINESS
Belize's potential growth remains constrained at below 2%,
partly as a reflection of negative total factor productivity that prevents
faster convergence with higher income economies. Obstacles to raising
productivity include labor market rigidities and skill shortages,
significant barriers to investment, limited access to finance (due
to a very large informal sector of the economy and related challenges),
low population density and a large infrastructure gap.
The economy remains vulnerable to a slowdown in tourism activity,
and more importantly, climate shocks, despite a relatively
high share of renewables in the country's energy matrix.
Economic activity, especially in the primary sectors, and
basic infrastructure remain key areas of vulnerability to weather shocks.
High public debt levels and the need to maintain a restrictive fiscal
stance to meet targets committed to bondholders under the terms of the
March 2017 restructuring agreement crowd out resources available to invest
in infrastructure.
Adopting policies to enhance growth and resilience remain a fundamental
credit challenge. Although the authorities have achieved significant
progress on consolidating the fiscal position, this is just one
element of a more comprehensive effort to lift Belize out of high debt
and low structural growth. At the moment, given the proximity
of national elections (due by November 2020) there has been little impetus
for a strong reform push. In the absence of extensive structural
reforms, weak growth and the country's vulnerability to shocks
constrain the sovereign's credit profile.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the balanced risks to Belize's credit profile
at the B3 rating level. The risk of a subsequent credit event remains
low in the coming two years given the government's more favorable
debt repayment schedule. However, fiscal and economic challenges
are likely to persist and we believe that, despite the liquidity
relief provided by the debt restructuring, there is a low likelihood
that upward pressure on Belize's creditworthiness will develop over
the next 12 to 18 months.
WHAT COULD CHANGE THE RATING UP
Although the stable outlook indicates that rating changes are unlikely
in the near future, upward pressure on the rating could come from
the adoption of extensive structural reforms that enhance productivity,
boost competitiveness and attract sizable investment to significantly
increase potential growth and improve the sustainability of external finances.
A substantial reduction of the public debt burden as a result of sustained
high primary fiscal surpluses would also be credit positive.
WHAT COULD CHANGE THE RATING DOWN
Conversely, downward pressure on the sovereign's rating would
emerge if there was a deterioration in growth prospects, due to
the materialization of a large shock, that derails the progress
achieved in maintaining low fiscal deficits such that the government's
ability to remain current on its debt payments is jeopardized.
GDP per capita (PPP basis, US$): 8,342 (2017
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.4% (2017 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.1%
(2017 Actual)
Gen. Gov. Financial Balance/GDP: -1.7%
(2017 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -7.1% (2017 Actual)
(also known as External Balance)
External debt/GDP: 73.5% [2017 Actual]
Level of economic development: Low level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 28 February 2019, a rating committee was called to discuss the
rating of the Belize, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have decreased. The issuer's
fiscal or financial strength, including its debt profile,
has decreased. The issuer has become less susceptible to event
risks.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in November 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Jaime Reusche
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
