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Rating Action:

Moody's downgrades Belize's ratings to Caa3; changes outlook to stable

24 Nov 2020

New York, November 24, 2020 -- Moody's Investors Service, ("Moody's") has today downgraded the long-term foreign-currency and local-currency issuer ratings and the foreign-currency senior unsecured debt rating of the Government of Belize to Caa3 from Caa1 and changed the outlook to stable from negative.

Moody's decision to downgrade Belize's ratings reflects the structural deterioration in government finances that is likely to push debt ratios to very high levels of over 130% of GDP, and the continued liquidity pressures the sovereign is facing due to its constrained financing options. There is a very high probability of a missed interest payment or a distressed exchange on Belize's market debt as a result of very weak economic activity and the uncertainty surrounding a recovery of the tourism sector for Belize. In Moody's opinion, the sovereign's liquidity and funding position will remain strained to such an extent that the government formed following the November 2020 general election is likely to seek liquidity relief that will lead to renewed losses for investors.

The stable outlook on the Caa3 rating reflects a materially lower risk that future losses will exceed those implicitly incorporated in a Caa3 rating, balancing the risk that a full restructuring of external market debt that leads to extensive losses as a result of a substantial haircut on principal is mitigated in part by a favorable maturity profile and that, should a full restructuring be avoided, losses from a renewed deferral of interest payments would be moderate.

Belize's long-term foreign-currency bond ceiling was changed to Caa1 from B2 and the foreign-currency deposit ceiling changed to Caa3 from Caa2. 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 B3 from B2.

RATINGS RATIONALE

RATIONALE FOR THE DOWNGRADE TO Caa3

The recent interest payment deferral on Belize's sole external market bond, implemented following an agreement with bondholders in August 2020 that Moody's considered a distressed exchange, provided short-term liquidity relief. Interest payments due from August 2020 to May 2021 on Belize's 2034 bond were deferred and capitalized providing $27 million (1.7% of 2020 GDP) in payment relief. The liquidity relief avoided a broader restructuring of the bond, but did not address solvency concerns that will be exacerbated as Moody's forecasts that government debt levels will exceed 130% of GDP by the end of 2020. The economic shock will continue to exert substantial pressure on government finances, such that the government's liquidity position will remain under significant pressure by the time interest payments on the external bond resume next year. As such, Moody's believes that the risk of renewed losses to bondholders has increased substantially.

Moody's estimates that Belize's real GDP will contract 14% in 2020. In the first half of the year, preliminary GDP figures show a year-on-year contraction of 15% as a result of the coronavirus pandemic, which has greatly affected economic activity via a government-mandated lockdown that began in early March and affected both domestic economic activity and tourism flows. The tourism sector has been particularly hard hit. Arrivals in January-August 2020 were 66% lower than those registered in January-August 2019. Moody's expects an economic rebound of 8.1% in 2021 driven entirely by a favorable base effect. Output levels will remain below 2019 through at least 2024, suggesting the recovery of government revenues will be tenuous, such that fulfilling 2021 financing needs will be a severe challenge.

The economic shock and the decrease in tourism receipts will cause the widest fiscal deficit on record for Belize at around 15.9% of GDP that is likely to narrow marginally to 11.3% in 2021. This is likely to push public debt ratios above 130% of GDP in 2020, and Moody's estimates that Belize's government financing needs for 2020 and 2021 will be 19.3% and 14.7% of GDP, respectively. Fulfilling these large financing needs remains a major challenge. The government has petitioned multilateral development banks and official international institutions for financial support, but the sovereign has also needed to rely on financing from the central bank. Although this has temporarily contained excessive liquidity pressures through August 2020, continued reliance on central bank financing suggests that liquidity pressures will persist through 2021.

Based on the severe shock and the substantial tightening of the government's liquidity position, Moody's believes that there is a very high probability of a renewed deferral on interest payments or a distressed exchange on Belize's market debt in the coming years. A potential deferral of interest payments, depending of the modalities, would compound losses to investors from the earlier interest payment deferral. The new government formed following the 11 November 2020 election could seek to reduce government debt to more sustainable levels through a restructuring of Belize's public debt. The losses to private creditors that could stem from these actions are likely to be commensurate with a Caa3 rating, according to the rating agency.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook on the Caa3 rating reflects a materially lower risk that future losses will exceed those implicitly incorporated in a Caa3 rating, balancing the risk that a full restructuring of external market debt that leads to extensive losses as a result of a substantial haircut on principal is mitigated in part by a favorable maturity profile and that, should a full restructuring be avoided, losses from a renewed deferral of interest payments would be moderate.

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 considers governance risks to be a constraint to Belize's credit profile. This assessment incorporates what Moody's perceives as core institutional deficiencies in Belize, including an evolving set of economic policymaking tools, limited capacity for effective policy implementation, and importantly, multiple defaults on market debt with four distressed exchanges in the past 15 years.

GDP per capita (PPP basis, US$): 6,819 (2019 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 0.3% (2019 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.2% (2019 Actual)

Gen. Gov. Financial Balance/GDP: -4.7% (2019 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -9.4% (2019 Actual) (also known as External Balance)

External debt/GDP: 74.1%

Economic resiliency: b3

Default history: At least one default event (on bonds and/or loans) has been recorded since 1983.

On 20 November 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.

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 eases liquidity pressures on government and external finances over the medium term could support a higher rating. 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, or from a restructuring of the sovereign's debt, would not be consistent with a Caa3 rating. A further accumulation of government debt as a result of an inability to curb the sovereign's large fiscal deficit could further exacerbate solvency concerns and increase the risk of larger losses to bondholders and would likely lead to a lower rating.

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.

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/Sub Sovereign
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

No Related Data.
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