New York, April 11, 2017 -- Moody's Investors Service, ("Moody's") has today
upgraded the Government of Belize's long-term foreign- and
local-currency issuer and senior unsecured ratings to B3 from Caa2.
The outlook is stable.
The key drivers of the upgrade of Belize's senior unsecured and
long-term issuer ratings are:
1) The improvement in the government's debt service profile and
reduction in the risk of a subsequent credit event following the recent
restructuring of the government's debt.
2) Lingering macroeconomic and fiscal vulnerabilities and risks to debt
sustainability which constrain Belize's creditworthiness within
the low 'B' category.
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 through the outlook horizon, given the government's more
favorable debt payment schedule. However, fiscal and economic
challenges are likely to persist and Moody's believes 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.
Concurrent with today's rating action, Moody's has also raised Belize's
long-term foreign-currency bond ceiling to B1 from B2,
and the long-term foreign-currency bank deposit ceiling
to Caa1 from Caa3. The short-term foreign-currency
deposit and bond ceilings remain unchanged at Not Prime (NP). Finally,
the long-term local-currency bond and deposit ceilings have
been raised to B1 from B2.
RATINGS RATIONALE
RATIONALE FOR UPGRADE
-- FIRST DRIVER: EXTERNAL DEBT SERVICE FOLLOWING THE
RESTRUCTURING IS MORE MANAGEABLE FOR THE SOVEREIGN OVER THE MEDIUM-TERM
The first driver of the upgrade is the decreased likelihood that the Belizean
sovereign will undergo a subsequent credit event given a more benign debt
servicing schedule following the restructuring in March 2017.
The March 2017 restructuring constitutes the third such credit event since
2006 of the sovereign's sole external market bond. Under
the terms of this latest restructuring, amortization payments have
now been postponed to begin in 2030 rather than 2019 under the previous
terms.
This more benign debt service profile has reduced the risk of a subsequent
credit event and the expected loss on Belize's debt would be lower
than is consistent with a 'Caa' rating. Under the original
terms, the $529 million bond due in February 2038 carried
a 5% coupon rate scheduled to increase ("step-up")
to 6.767% in August 2017 and included 38 semi-annual
amortization payments beginning in August 2019. These have been
amended to a fixed 4.9375% coupon rate, five annual
amortization payments beginning in 2030 and a final maturity of February
2034. A principal haircut was never formally proposed throughout
the process.
Although less favorable than what the authorities initially sought based
on a Consent Solicitation Statement originally dated 12 January 2017 to
begin negotiations with bondholders, the debt service schedule delineated
by the restructuring still followed a very similar structure to what the
authorities had proposed. The new schedule represents a considerable
improvement in terms of providing liquidity relief relative to the original
terms of the 2038 instrument through the deferral of amortization payments
until the latter years of the instrument's new tenor.
Similar to the previous restructuring instances, the latest restructuring
was conducted under a broadly transparent process where the authorities'
initial proposal was not accepted by bondholders and yielded a more limited
net present value (NPV) loss to creditors than the authorities sought.
-- SECOND DRIVER: LINGERING ECONOMIC AND FISCAL CHALLENGES
WILL CONSTRAIN THE SOVEREIGN'S CREDIT PROFILE
The second driver is Moody's view that Belize's persistent
growth challenges and a high public debt burden will keep its susceptibility
to event risk elevated, limiting further improvements in the sovereign
credit profile beyond those obtained by liquidity relief from the debt
restructuring.
The March restructuring came amid multiple challenges facing the Belizean
economy. The economy's performance has fallen far short of
the growth path envisaged by official projections in 2012-13 at
the time of the previous restructuring negotiations. Rather than
2%-3% real annual average GDP growth envisaged then,
the economy grew by only 1% in 2015. During this period,
the effective exchange rate appreciated sharply both in nominal and real
terms, driven mostly by the strengthening of the US dollar to which
the currency is pegged, reducing competitiveness.
The fiscal position has weakened, pushing public debt higher.
In 2015, the overall fiscal deficit widened to nearly 8%
of GDP partly due to government payments related to the nationalization
of two public utilities: electric company Belize Electricity Limited
and telecom company Belize Telemedia Limited. The structural deficit,
which excludes one-off and cyclical factors, worsened as
well because of increases in public sector wages, transfers and
a large overrun in capital expenditures. The combination of these
factors has caused the central government to run recurrent primary deficits
since 2014. The central government's debt rose to 79% of
GDP in 2015 from 74% in 2014.
Moody's estimates that real GDP contracted 1.5% in
2016, that the fiscal deficit remained high at around 5%
of GDP and that central government debt likely reached 91% of GDP.
Given Belize's low potential growth (1.5%-2%),
a debt burden above 90% of GDP severely constrains the authorities'
room for policy maneuver and limits the economy's ability to absorb
shocks. In the absence of far-reaching structural reforms,
the weak growth and fiscal outlook constrains the sovereign's credit
profile.
WHAT COULD CHANGE THE RATING UP/DOWN
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 support higher government revenues,
boost competitiveness and attract large amounts of investment to significantly
increase potential growth rates such that debt sustainability is enhanced.
A substantial reduction of the public debt burden and an ability to sustain
high primary fiscal surpluses would also be credit positive.
Conversely, downward pressure on the sovereign's rating would
emerge if there was a deterioration in external liquidity and fiscal indicators,
potentially stemming from a large shock, that jeopardized the government's
ability to remain current on its debt payments.
GDP per capita (PPP basis, US$): 8,361 (2015
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -1.5% (2016
Estimate) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2% (2016
Estimate)
Gen. Gov. Financial Balance/GDP: -5.0%
(2016 Estimate) (also known as Fiscal Balance)
Current Account Balance/GDP: -10.6% (2016 Estimate)
(also known as External Balance)
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 10 April 2017, a rating committee was called to discuss the rating
of Government of Belize. The main points raised during the discussion
were: The issuer's fiscal or financial strength, including
its debt profile, has materially increased. The issuer has
become less susceptible to event risks.
The principal methodology used in these ratings was Sovereign Bond Ratings
published in December 2016. 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-Sr Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Atsi Sheth
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
