Belize: Prime Minister & Minister of Finance, Economic Development & Investment, John Briceno, discussed the breakdown of public debt in his declaration.
His statement was as follows:
For purposes of full disclosure and for the record, let me elaborate on this most important subject of public debt. For the last 13 years, during three UDP administrations, our country has been hurtling toward a debt crisis, heedless to the grave perils of over-borrowing, impervious to the generational poverty trap that unsustainable public debt lays for our people.
Except for the Opposition, very few sounded the alarm, even as the then Government was obviously borrowing to fund regular wages, wage increases and increments.
The scale of just how much the Government owes today is breath-taking: the equal to $10,000 for every man, woman and child; $50,000 in debt for each family of five members; the inconceivable total sum of $4.2 billion -– that’s the number 4 followed by nine digits.
For the average Belizean resident, whose annual income under the UDP withered to $5,800, a level not observed since 1992, such unearthly indebtedness is unconscionable.
For the country state of Belize, this magnitude of public debt, some 130 percent of the country’s entire annual economic output, places us, as I indicated earlier, as the sixth most indebted country in the world. Of all countries, only Japan, Greece, Venezuela, The Sudan and Lebanon have a higher public debt ratio than Belize.
Like a member of a family who returns home to discover that his or her sibling who was in charge of handling the family finances has not only squandered the savings but owes every bank and loan shark in town, my Administration took office inheriting a public debt position that has us teetering on the brink of sovereign delinquency, our assets mortgaged or sold, our precious currency peg perilously at risk.
As it now towers over us, here is a breakdown of the public debt:
$872 million is owed to our bilateral lenders, 55 percent of which was borrowed under the Petro Caribe Program with Venezuela, while 34 percent of this amount is owed to the Republic of China on Taiwan and the small remainder to other friendly countries.
$794 million is owed to multilateral lenders, with 36 percent owed each to the Inter-American Development Bank and the Caribbean Development Bank, 17 percent to OPEC, 7 percent to the World Bank and the balance to international financial institutions such as CABEI and the EIB.
$1.168 billion is owed to external commercial creditors, 97 percent of which represents the so-called Superbond, while the remaining $60 million is a domestic US dollar bond issued by the Central Bank of Belize in 2020.
And finally, some $1.35 billion is owed to domestic creditors; the largest portion, about $561 million or 41 percent, is owed to the Central Bank of Belize, while domestic banks are owed some 28 percent of the Government’s local debt stock.
At present, therefore, two-thirds of Belize’s public debt, approximately $2.8 billion, represents external loans that must be repaid-with foreign currency.
The average interest rate-on external debt is 4.2 percent and on domestic debt is 2.7 percent.
Looking forward, this Government has assigned the highest priority to debt sustainability, with a goal of reducing the debt to GDP ratio to 85 percent by 2025 and to below 70 percent by 2030. To achieve this ambitious and necessary goal, my Administration is already taking the following steps:
First, a Debt Management Unit comprised of external and domestic advisors, with participation at the highest levels of the Ministry of Finance and the Central Bank of Belize, has been mobilized.
During the recent Article IV discussions with the IMF, the Unit outlined the debt management elements of the Government’s Medium-Term Recovery Plan, laying out its roadmap for achieving sustainability and for restoring prudence to the public debt, some of which I will now highlight.
Second, negotiations to restructure the Superbond have commenced. In good faith, Belize invited the formation of a Creditor Committee on 19th March and proposed new terms for this obligation, which at US$556.5 million, represents 28 percent of outstanding overall debt and 40 percent of external debt.
More importantly, the current interest payments, set at a coupon rate of 4.9375 percent, or $55 million annually, constitute 45 cents of every dollar budgeted for debt service in the Approved Budget for FY 2020/2021.
In the proposed Budget for FY 2021/2022, there is a provision for the payment of a coupon consistent with the offer we have made to bondholders. That next coupon is due on 20th May 2021, by which time I would expect that negotiations would have been concluded.
Last year, as Leader of the Opposition, I expressed the view that capitalizing this year’s interest payments, thereby increasing the amount of debt outstanding, was a self-defeating approach.
To ‘extend and to pretend,’ as our predecessors did on three occasions during their debt negotiations in 2013 and 2017 and with last year’s capitalization, is, in our considered opinion, both unwise and unviable.
This was also the unanimous verdict of a recent Debt Sustainability Analysis conducted by the IMF. Therefore, securing near-term cash flow relief, as well as an overall principal reduction, is the unambiguous basis upon which the current negotiations must, in our view, climax.
Third, an active review is ongoing with regard to other classes of public debt, with the exception of the already concessionary multilateral loans, so as to carve out for the country some short-term fiscal space, whether by means of write-offs, payment deferments, coupon reduction or discounted buyouts.
And fourth, the Government’s gross financing needs –- the amount of financing support required over the next 5 years within the construct of our Active Recovery Plan -– is projected to be about $1 billion.
Diligent debt management will ensure this deficit funding is sourced on optimal terms. Already, with the support of our exceptional ally, the Republic of China on Taiwan, a new, 4-year Memorandum of Understanding has been formalized between our two countries, guaranteeing critical grant and loan budget support, commencing with the first payment of $80 million for this Fiscal Year.
Now let me quote the words of the IMF in its recent Article IV Concluding Statement: “The key policy imperative for Belize is to restore public debt sustainability and strengthen the currency peg.” This recommendation by the IMF could just as well have been taken from our Government’s home-crafted Recovery Plan.
In the same fashion that Belizean families and businesses must be discerning in managing debt, borrowing only as an end resort and for the most urgent purposes, restricting themselves to loan amounts that can comfortably be paid back and to terms they can meet, and most crucially, leaving some room to borrow when the inevitable emergencies arise, so too must the Government approach its constitutional privilege to borrow in the name of its citizens.