ReutersFrom (left), Belize's prime minister Said Musa; El Salvador's President Elias Antonio Saca; Honduran President Manuel Zelaya and Mexico's President Vicente Fox attend the inauguration of a new electrical supply power plant in Panama City, Panama on July 1.
Belize said Wednesday it would 'rearrange' external debt of US$960 million, which analysts immediately cautioned might spell default.
Despite reigning in on spending, largely on capital expenditures, and tightening its fiscal policy, resulting in a stripping of its deficit by almost five percentage points - from eight per cent to 3.1 per cent last fiscal year - the government continues to be squeezed by a lack of foreign inflows to cover its liabilities.
The debt rearrangement will affect mainly commercial debt of its public agencies, according to the country's finance ministry. A statement from Belmopan said the Belizean Government would be heading into talks "immediately" with creditors.
"The Government of Belize is simultaneously approaching its official sector creditors to solicit their assistance in addressing the country's currently unsustainable debt burden," said the press office.
The country is struggling with a 90 per cent debt to GDP ratio.
"Servicing of the Belizean external public sector debt stock on its existing terms is no longer a viable option," said Said Musa, Prime Minister and Minister of Finance of Belize. "We must urgently ask the cooperation of our creditors to help put this debt stock on a sustainable financial footing."
Belize has retained investment bankers Hooligan Lokey Howard and Zukin as financial adviser for the talks. The American firm's expertise is in mergers and acquisitions, financial restructuring and advisory services.
Belize hopes to conclude the debt rearrangement by the fourth quarter of 2006.
Belmopan started reigning in its spending in October 2004. The government said one result of the new fiscal policy was the expansion of revenues, but disappointing performance on its balance of payment that set out the business it does with other countries, limited its foreign exchange earnings.
The country spends more than a quarter - approximately 27 per cent - of revenues to cover interest payments alone on its debt.
The limitations on spending were implemented alongside a tightening up on liquidity, "on three separate occasions", by the central bank to contain demand for limited foreign exchange.
Now, Belize projects that it will slim its deficit even further this year. But its medium term outlook is not as optimistic, with the government saying the BOP performance could worsen and that "significant fiscal deficits" would persist over the medium term.
"Considerable shortfalls in the balance of payments are also expected to persist, exacerbated by Belize's very low level of international monetary reserves," said the press office.
