New York, May 12, 2020 -- Moody's Investors Service, ("Moody's") has
today downgraded the long-term foreign-currency and local-currency
issuer and senior unsecured debt ratings of the Government of Belize to
Caa1 from B3 and changed the outlook to negative from stable.
Moody's decision to downgrade Belize's rating reflects the increased
and now very high probability of a deferral on interest payments or distressed
exchange on Belize's market debt as a result of the severe economic
shock the country is experiencing due to the coronavirus outbreak that
has collapsed the country's tourism receipts. The rating
agency believes that the sovereign's liquidity and funding position
will deteriorate to such an extent that the government is likely to request
interest payment deferrals that will lead to moderate losses for investors.
The negative outlook on the Caa1 rating reflects the downside risk that
losses could exceed levels consistent with a Caa1 rating, which
typically captures losses of up to 10%, in the event of more
significant relief on interest payments, or if interest payments
are not deferred and the risk of a more extensive restructuring of Belize's
market debt rises and ultimately leads to increased losses.
Belize's long-term foreign-currency bond ceiling was
changed to B2 from B1 and the foreign-currency deposit ceiling
changed to Caa2 from Caa1. The short-term foreign-currency
bond ceiling and the short-term foreign-currency bank deposit
ceilings remain unchanged at Not Prime (NP). The local-currency
bond and deposit ceilings were changed to B2 from B1.
RATINGS RATIONALE
RATIONALE FOR THE DOWNGRADE TO Caa1
The unprecedented deterioration in the global economic outlook resulting
from the rapid and widening spread of the coronavirus outbreak,
which Moody's considers a social factor under its ESG framework,
has resulted in a severe shock to tourism arrivals and the overall Belizean
economy. Tourism directly accounts for 14% of gross value
added, while its indirect contribution has been measured as high
as 40%. Tourism receipts make up 42% of total exports
of goods and services, highlighting the economy's increased
reliance on what has been a key growth sector that has sustained overall
activity. As such, the closure of borders has halted the
flow of visitors to Belize, damaging economic activity and export
receipts. Moreover, the government has imposed other lockdown
measures, including shuttering businesses and schools, restricting
domestic transportation, and placing the western-side of
the country into a highly restrictive quarantine. Although these
measures have so far been successful in containing the spread of the virus,
the effect on economic activity has been severe.
Moody's estimates that Belize's real GDP could contract by
as much as 15% in 2020, depending on the duration of the
outbreak and on global financial conditions. By mid-April,
the authorities report that 72,000 applications for unemployment
benefits were received, accounting for over 28% of the entire
country's labor force. This would be the first time the economy
would record a full-year contraction since at least 1995.
Although Moody's expects a more favorable performance in 2021 with
real GDP expanding by 8.1%, the rebound in economic
activity will be driven entirely by a favorable base effect.
The economic shock is putting substantial pressure on government finances.
The fiscal year 2020-21 (April-March) budget, which
was published prior to the pandemic, targets a primary surplus of
around 1% of GDP, but Moody's believes that the primary
balance will likely fall into a deficit of around 10% of GDP.
This is likely to push public debt ratios above 130% of GDP in
2020 rather than to stabilize at 98% of GDP as previously estimated.
As a result, the government has petitioned multilateral development
banks and official international institutions for financial support.
Despite the possibility of fresh official financing, the deterioration
of Belize's economic and fiscal strength has been severe,
and its financing needs are likely to increase substantially as a result
of a widening fiscal deficit.
Based on the severe shock and the substantial tightening of the government's
liquidity position, Moody's believes that before the next
$13 million interest payment on the sovereign's sole external
bond comes due in mid-August, the authorities will likely
ask for interest payment deferrals rather than a deeper debt restructuring
given that no principal is due on the bond until 2030. A potential
deferral of interest payments, depending of the modalities,
would lead to some but still relatively contained losses to investors
that is likely to be commensurate with a Caa1 rating, according
to the rating agency.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook on the Caa1 rating reflects the downside risk that
losses could exceed levels consistent with a Caa1 rating, which
typically captures losses of up to 10%, in the event of more
significant relief on interest payments, or if interest payments
are not deferred and the risk of a more extensive restructuring of Belize's
marketable bond rises and ultimately leads to increased losses.
ENVIRONMENTAL SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental considerations are a key concern for Belize, as the
country's infrastructure gap, low lying areas near the coast,
and location make it vulnerable to climate events like hurricanes and
tropical storms that have had negative economic and fiscal implications
for Belize's credit profile.
Social considerations are somewhat of a concern for Belize. An
onerous pension scheme with a retirement age of 55 is weighing on public
finances. However, the dependency ratios are low and are
expected to remain low relative to other countries in Central America
and the Caribbean. Moody's also regards the coronavirus outbreak
to be a social risk under its ESG framework given the substantial implications
for public health and safety.
Moody's does not consider governance risks to be a material constraint
to Belize's credit profile. The country showcases a stable political
environment, underpinned by a general consensus around key policy
issues. The government's small size limits policy implementation,
as does the large size of the informal economy, which Moody's
has considered into its assessment of institutions and governance strength.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Evidence of a substantial amount of multilateral financing flows at highly
affordable rates that fully cover the sovereign's funding needs
over the medium-term would decrease the likelihood of losses to
bondholders and be supportive of stabilizing the outlook. Upward
pressure on the rating could come over time 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.
The rating could be downgraded if Moody's were to conclude that losses
to investors from a possible suspension of payments on debt would not
be consistent with a Caa1 rating. In the event that an agreement
is not reached with bondholders to defer interest payments, a missed
payment could prompt a restructuring process that could result in further
losses to investors and would result in a lower rating.
GDP per capita (PPP basis, US$): 8,504 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.1% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): -0.1%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: -1%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -8.3% (2018 Actual)
(also known as External Balance)
External debt/GDP: 71.9 (2018 Actual)
Economic resiliency: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 07 May 2020, 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 materially decreased. The issuer's
fiscal or financial strength, including its debt profile,
has materially decreased. The issuer has become increasingly susceptible
to event risks.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, 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 further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
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
