Jun 2018 Financial News

(BN) Barbados Suspends Payment on "Unsustainably High" Debt Load (2)

Jun 06, 2018

Barbados Suspends Payment on ‘Unsustainably High’ Debt Load (2)

2018-06-01 23:33:11.641 GMT

By Ezra Fieser

 (Bloomberg) -- Barbados is suspending payments to foreign creditors and plans to restructure local and global debt that has become “unsustainably high.”

Prime Minister Mia Mottley, who took office this week, said the eastern Caribbean island of 300,000 is suffering with dwindling foreign reserves, slow economic growth, and crumbling public infrastructure.
 “I ask our domestic and external creditors to accompany us on this journey of rescue, rebuilding and transformation,” said Mottley, who won office in a landslide election last month, in a statement on a government website.

The tourism-dependent $4.5 billion economy has barely grown over the last decade, as its currency pegged to the dollar made it hard to compete against from the Dominican Republic, Mexico and elsewhere. As the economy stagnated, debt ballooned to more than 100 percent of gross domestic product, according to the International Monetary Fund.
Mottley asked for support from the IMF, which said it is sending a team to Bridgetown. The island has more than $600 million in outstanding U.S. dollar-denominated bonds.
 “The government will endeavor to make scheduled domestic interest payments, but domestic creditors will be asked to roll over principal maturities until restructuring agreements are concluded,” Mottley said.

 Deeper cuts

Caribbean countries have defaulted at least five times on global debt since 2010, according to an S&P Global Ratings report. The island of Grenada restructured in 2015 in a deal in which foreign creditors received 50 percent of the face value on $262 million in defaulted bonds. Barbados bondholders may face even deeper cuts, said Eric LeCompte, executive director of Jubilee USA, a nonprofit group that advocates for debt relief for small economies and which was involved in the Grenada negotiations.
 “The situation in Barbados is even more severe than it was in Grenada,” he said, adding that Barbados owes more in local debt than in foreign. “If they’re not going to restructure domestic debt, they really need to look at deeper haircuts on external.”
Barbados said international reserves fell to $220 million as of late May. Before the announcement, which came after markets had closed, the yield on the nation’s dollar bonds due in 2035 rose 4 basis points to 9.37 percent.
“Broadly, I would say none of it is unexpected,” said Marla Dukharan, chief economist at Barbados-based Bitt Inc. Reserves had fallen to their lowest level in more than two decades, and upcoming debt payments would have depleted them still further, leaving the island in “a very vulnerable position,” she said.

To contact the reporter on this story:

Ezra Fieser in Bogota at efieser@bloomberg.net To contact the editor responsible for this story:

Matthew Bristow at mbristow5@bloomberg.net