## wp18121

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**Canonical URL:** [wp18121](https://www.imf.org/-/media/files/publications/wp/2018/wp18121.pdf)

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---

### I. INTRODUCTION
- Belize undertook its third sovereign debt restructuring in late 2016 and early 2017, less than four years after its second restructuring and within ten years of its first.
- The restructuring targeted the same debt instrument three times in a row (Superbond series).
- Government announcement (November 9, 2016) cited “serious economic and financial challenges,” including low growth, rising fiscal deficits, U.S. dollar strength, Hurricane Earl damage, and higher-than-anticipated arbitration awards.
- Proposed amendments to the U.S. dollar-denominated 2038 bonds took effect on March 21, 2017 after negotiations with a bondholders’ committee.
- Paper objectives examined:
  - Causes: Why restructure external public debt for the third time in ten years?
  - Process: Key features of negotiations, creditor committee engagement clause, and effect of absence of an IMF-supported economic reform program.
  - Outcomes: Impacts on liquidity and solvency of public debt; creditors’ NPV reduction.
  - IMF engagement and evaluation: Role of IMF given no IMF-supported program was requested.
  - Comparative analysis and lessons: Differences across Belize’s three restructurings (2006–07, 2012–13, 2016–17) and comparison to Antigua and Barbuda, Grenada, and Jamaica.

### II. CAUSES — Macroeconomic developments
- IMF 2016 Article IV staff report (discussed September, published October 2016) warned of slowing economy and rising fiscal and external vulnerabilities.
- Hurricane Earl (August 2016) caused about 3-4 percent of GDP in estimated damage; growth pushed into negative territory in 2016.
- Report recommended raising the primary surplus to 4–5 percent of GDP, reducing banking vulnerabilities, and structural measures to boost growth.
- Debt Sustainability Analysis (DSA) projected public debt to remain high with significant downside risks (GDP growth, exchange rate, primary balance).
- Key numeric context on eve of third restructuring (November 2016):
  - Total public debt: about 100 percent of GDP (equivalent to about US$1.7 billion).
  - Superbond 2.0: US$526.5 million, about 30 percent of 2016 GDP, about 30 percent of total public debt.
  - Superbond 2.0 represented 44 percent of total external public debt.
  - Multilateral debt averaged 2.75 percent interest rate.
  - Bilateral debt averaged 1.5 percent interest rate.
  - Superbond average interest rate: 5 percent.
  - Original Superbond 2.0 size was US$530 million; about US$3.5 million was bought back by the GOB in interim years.
- Cash-flow pressure drivers:
  - Coupon step-up from 5 to 6.767 percent in August 2017.
  - Principal repayments scheduled to begin in 2019.
- Contract features intended to discourage subsequent restructurings:
  - Principal reinstatement clause: missed interest or principal before the tenth anniversary uncured 30 days after grace period requires issuing additional 2038 bonds equal to 11.11 percent of outstanding principal within 5 business days.
  - Creditor engagement clause: obligations to facilitate creation of any Holders’ Committee, negotiate in good faith, promptly provide information including DSA, and “pay any reasonable fees and expenses of any such Holders’ Committee.” In the 2013 restructuring Belize paid almost US$1.2 million in such expenses.

### III. PROCESS (2016–17)
- Restructuring undertaken preemptively; a coupon payment was deferred during negotiations (payment made within allowed grace period).
- Timeline and negotiation facts:
  - November 9, 2016: GOB announcement to seek restructuring.
  - One week later: Representative group formed a Coordinating Committee; formally recognized by authorities.
  - GOB retained Citigroup (financial) and Cleary Gottlieb Steen and Hamilton LLP (legal) as advisors.
  - January 12, 2017: GOB issued a consent solicitation (first solicitation):
    - Proposed coupon reduction to 4 percent.
    - Amortization deferred to 2036–38 (3 equal annual installments Feb 20, 2036–Feb 20, 2038).
    - Terms would have reduced NPV by 36-49 percent, depending on discount rate.
  - January 17, 2017: Bondholder committee rejected first solicitation as premature; sought medium-term program with fiscal and structural adjustment and delivery mechanisms.
  - February 21, 2017: GOB press release indicated February 20 coupon payment had been deferred pending consent solicitation.
  - March 3, 2017: GOB issued revised consent solicitation; bondholders’ committee supported revised solicitation:
    - Revised coupon: 4.9375 percent.
    - Revised amortization: five equal annual installments Feb 20, 2030–Feb 20, 2034.
    - Final maturity moved forward from 2038 to 2034.
    - Authorities conceded about 17 percentage points in NPV reduction relative to the original solicitation.
  - Revised solicitation included fiscal adjustment commitments:
    - Tighten fiscal stance by 3 percentage points in fiscal year 2017/18.
    - Maintain a primary surplus of 2 percent of GDP for fiscal years 2018/21.
    - If target missed, submit report to National Assembly and request IMF technical assistance mission; authorities committed to publishing findings of such IMF technical assistance. (IMF did not commit to provide such technical assistance.)
  - Bondholder committee initially represented about 60 percent of outstanding bonds and supported revised terms, but 75 percent consent was required to modify bond terms.
  - March 15: Consent solicitation was extended to bring remaining bondholders on board.
  - March 21: GOB announced holders of 88 percent had consented; revised terms effective; remaining 12 percent brought on board using collective action clause.
- Solicitation tables (as presented in source):
  - First Solicitation (January 6, 2017): Final maturity 2038; Repayment schedule 3 equal annual installments Feb 20, 2036–Feb 20, 2038; Coupon rate 4%; Maturity 2038.
  - Revised Solicitation (March 3, 2017): Final maturity 2034; Repayment schedule 5 equal annual installments Feb 20, 2030–Feb 20, 2034; Coupon rate 4.9375%; Maturity 2034.

### IV. OUTCOMES — Deal features announced March 21, 2017
- Deal structure highlights:
  - No principal haircut: Approximately US$526.5 million of new 2034 bonds issued without face-value reduction.
  - Coupon rate reduction: Fixed coupon rate set at 4.9375 percent; average coupon rate of the new bond over its life lowered by 1.83 percent.
  - Extension of grace period and maturity shortening: Grace period extended by 11 years with amortization starting from 2030, while final maturity was shortened by 4 years.
- Restructuring instruments and terms (selected exact figures)
  - Old Instrument: 2038 US bond ("Superbond 2.0")
    - Face value (US$ mil.): 530
    - Face value haircut: 0%
    - Maturity: 2038
    - Remaining maturity (years): 21
    - Coupon: 5% until 2017, 6.767% until maturity
    - Repayment profile: 2019-38
    - Present value on 3/2017 1/: 87.3%
    - NPV haircut 2/ 4/: 19.7 (17.5)
    - Market haircut 3/ 4/: 29.9 (28.0)
    - Pre-CACs participation rate (%): 88
    - Post-CACs participation rate (%): 100
    - CACs triggered: Yes
  - New Instrument: 2034 US bond ("Superbond 3.0")
    - Face value (US$ mil.): 526.5
    - Face value haircut: -
    - Maturity: 2034
    - Remaining maturity (years): 17
    - Coupon: 4.9375%
    - Repayment profile: 2030-34
    - Present value on 3/2017 1/: 70.1%
- Notes and definitions (as provided in-source)
  - 1/ Discount rate at 9.1 percent which was exit yield at completion of exchange (on 3/24/2017).
  - 2/ NPV haircut is defined as 1 - Present value of new debt/Present value of old debt as in Sturzenegger and Zettelmeyer (2006, 2008).
  - 3/ Market haircut is defined as 1 - Present value of new debt/Face value of old debt.
  - 4/ The effective (net) haircut including the fees paid in cash would be 17.5% (NPV) and 28.0% (market), respectively.

### V. INNOVATIONS AND INSTRUMENTS
- Fiscal-linked contractual provisions:
  - Fiscal targets: Failure to achieve a primary surplus equal to at least 2.0% of GDP in any of fiscal years 2018/19, 2019/20 or 2020/21 triggers:
    - Commencing on the first Interest Payment Date in the subsequent fiscal year, and lasting for 12 months thereafter, interest on the Securities shall be paid quarterly (instead of semi-annually).
    - The GOB will submit to the National Assembly a report explaining reasons the target was missed and request that the IMF send a technical assistance mission to Belize; this report is to be published.
  - Enactment of a budget reflecting fiscal consolidation: National Assembly to enact a public sector budget for fiscal year 2017/18 that includes fiscal measures projected to produce fiscal consolidation equal to 3.0% of GDP. Amendments automatically reversed on September 30, 2017 unless certification that such a budget has been enacted is received by the Trustee.
  - Statutory instrument commitments by the Prime Minister: (i) propose budgets projected to result in a primary surplus in each of fiscal years 2018/19, 2019/20 and 2020/21 equal to at least 2.0% of GDP, (ii) cooperate with the IMF in annual Article IV consultations, (iii) publish each year a Fiscal Strategy Statement, and (iv) publish periodic Fiscal Outlook and Mid-year Review Reports.
- Liability management:
  - Mandatory liability management: Belize will apply an amount equivalent to 25% of the gross proceeds of each incurrence of Specified Debt contracted by Belize after March 2, 2017 in excess of U.S.$50 million of each incurrence to repurchase in the open market, redeem, or otherwise reduce the outstanding principal.

### VI. OUTCOMES AND KEY STATISTICS
- Cash flow relief and haircuts:
  - The coupon reduction and deferral of principal repayments produced US$69 million (4 percent of 2017 GDP) in cash flow relief over 2018-2020.
  - This translated into an NPV haircut of 19.7 percent relative to market value and 30 percent relative to the face value.
  - Fees paid totaling US$10 million reduced the actual NPV haircut by 2 percent (effective NPV haircut: 17.5 percent; effective market haircut: 28.0 percent).
- Market reaction and yields:
  - Exit yield at completion: 9.1 percent (on 3/24/2017).
  - Resulting exit yield was similar to 2012–13 restructuring (9.1 percent).
  - After agreement announcement, bond prices and yields improved by about 300 basis points.
  - The difference between the exit yield and the maximum yield reached in November 2016 was 866 basis points.
- Credit rating actions:
  - S&P upgraded Belize to non-default rating (B-) on March 23 given completion of the debt exchange.
  - Moody’s upgraded Belize from Caa2 to B3 on April 11, reflecting an improvement in the government’s liquidity position.
- Market access:
  - After the transaction, Belize did not re-access the international capital markets. The last external bond or syndicated loan issuances were in 2003 and 2006, prior to the 2006–07 debt restructurings.

### VII. COMPARATIVE AND CONTEXTUAL POINTS
- Superbond history:
  - 2006–07: Exchange into a single U.S. dollar-denominated bond (2029 bond or “Superbond 1.0”) with face value US$547 million (around 43 percent of 2007 GDP); lengthened maturity and lower coupons.
  - 2012–13: Second restructuring with modest face value haircut (10 percent) and cash-flow relief via coupon and maturity changes, resulting in U.S. dollar-denominated 2038 bond (“Superbond 2.0”) with face value US$530 million (33 percent of 2013 GDP).
  - 2016–17: Third restructuring of same instrument (Superbond 2.0 → 2034 terms described above).
- Debt trajectory and drivers:
  - Public debt remained high over two decades.
  - Repeated restructurings addressed short-term liquidity but did not resolve solvency.
  - Step-up coupons in 2006–07 and 2012–13 increased future debt-service burdens; 2016–17 avoided step-up coupon.
- Participation and CACs across episodes:
  - Participation rate (%, post/pre-CACs): 98 (87); 100 (86); 100 (88).
  - CACs were triggered in each restructuring; no litigation in any case.
- Comparison with other Caribbean restructurings:
  - Weakly preemptive restructurings (e.g., Belize, Grenada 2004–06, Jamaica 2010/2013): completed relatively quickly; outcomes: almost zero face-value reductions or moderate NPV haircuts (ranging from 23 to 34 percent).
  - Post-default restructurings (e.g., Antigua and Barbuda 2008–12, Grenada 2013–15): more protracted negotiations (32–39 months), larger face-value reductions (43.5 percent to 100 percent) and high NPV haircuts (50 and 100 percent).
  - Successful lasting debt repair in region combined sizable debt relief with strong reform efforts and IMF-supported programs (Grenada 2013–15; Jamaica 2013).

### VIII. IMF ENGAGEMENT, EVALUATION, AND POLICY RECOMMENDATIONS
- IMF involvement:
  - The IMF did not have a program in place supporting the authorities’ adjustment efforts during the restructuring, but Fund staff engaged with authorities.
  - IMF staff visited Belize from June 6–15, 2017 for discussions for the 2017 Article IV consultation.
  - IMF (2017) provides an assessment of Belize’s third restructuring and the understandings with bondholders on an economic adjustment program.
- IMF assessment and recommended policy stance:
  - IMF (2017) emphasized that the fiscal adjustment agreed with bondholders was not sufficient to put debt/GDP on a clear downward trajectory.
  - To secure durable gains, the restructuring needed to be supported by a medium-term strategy combining more ambitious and high-quality fiscal consolidation with structural measures to boost growth.
  - Further fiscal adjustment—targeting a primary surplus greater than 2 percent of GDP—would be necessary; the report called for a primary surplus target of 4–5 percent of GDP over the medium term.
  - Containing government spending on wages and pensions, already high by international standards and projected to increase, would be important.
  - Concrete steps to improve the business climate, including by making it easier to start a business and get credit, could help foster growth.
- Cautionary note:
  - IMF (2017) warned repeated restructurings to external private bondholders risked undermining Belize’s credibility and access to international capital markets for an extended period, harming prospects for strong and sustainable growth.

### IX. LESSONS LEARNT AND POLICY IMPLICATIONS
- Main lessons:
  - The 2016–17 restructuring produced meaningful cash flow relief and reduced the cost of servicing an expensive part of external debt; NPV gain described as significant (28 percent including fees and using an exit yield of 9.1 percent on March 15, 2017).
  - However, the overall level of public debt remained very high and the restructuring alone was insufficient; durable debt reduction required larger primary surpluses and structural reforms to raise growth.
  - Legal and contractual innovations (rapid creditor committee formation clause, creditor engagement provisions, effective CAC use, fiscal-linked provisions) improved execution efficiency but cannot substitute for meaningful fiscal adjustment and growth-supporting reforms.
  - Avoidance of step-up coupon designs can help reduce the risk of triggering future restructurings; bundling amortization without fiscal adjustment is insufficient to restore sustainability.
- Recommended fiscal and debt management actions:
  - Strengthen efforts to reduce the public debt stock and ensure debt sustainability over the medium to long term.
  - Require disciplined management of the public finances within a sound macroeconomic framework, through setting realistic debt-to-GDP ratio targets.
  - Introduce a fiscal rule that targets a reduced debt-to-GDP ratio over the medium to long run to help underpin fiscal consolidation and broaden support for it.
  - Develop a well-developed Medium-Term Debt Strategy (MTDS) to ensure consistency of goals and reduce the public debt burden by identifying appropriate financing strategies and funding sources.
  - Pay particular attention to minimizing debt portfolio risks, including refinancing risks, and regaining access to international capital markets.
  - Create fiscal buffers to secure financing for large future debt service obligations and/or realization of other contingent liabilities.
  - Maintain a macroeconomic policy setting that guarantees economic competitiveness and sustained growth over the medium term.
- Risk outlook:
  - Debt distress may occur in that period—unless Belize’s economic fortunes improve significantly over the next 10 or 12 years.
  - Market-based liability management operations, as conditions permit, may be needed to smooth the redemption profile.

*Source: IMF working paper content (wp18121).*

### References _______________________________________________________________ 24

### wp18121 - References _______________________________________________________________ 24

### I. INTRODUCTION
- Belize undertook its third sovereign debt restructuring in late 2016 and early 2017, less than four years after its second restructuring and within ten years of its first.
- The restructuring targeted the same debt instrument three times in a row (Superbond series), a rare occurrence in sovereign restructurings.
- Government announcement (November 9, 2016) cited “serious economic and financial challenges,” including low growth, rising fiscal deficits, U.S. dollar strength, Hurricane Earl damage, and higher-than-anticipated arbitration awards.
- The proposed amendments to the U.S. dollar-denominated 2038 bonds took effect on March 21, 2017 after negotiations with a bondholders’ committee.
- Paper objectives (questions examined):
  - Causes: Why restructure external public debt for the third time in ten years?
  - Process: Key features of negotiations, creditor committee engagement clause, and the effect of absence of an IMF-supported economic reform program.
  - Outcomes: Impacts on liquidity and solvency of public debt; creditors’ NPV reduction.
  - IMF engagement and evaluation: Role of IMF given no IMF-supported program was requested.
  - Comparative analysis and lessons: Differences across Belize’s three restructurings (2006–07, 2012–13, 2016–17) and comparison to Antigua and Barbuda, Grenada, and Jamaica.

### II. BRIEF LITERATURE REVIEW
- Adds to empirical literature on sovereign debt restructurings, with focus on a recent and unique case of repeated restructuring.
- References to prior studies and surveys: Sturzenegger and Zettelmeyer (2006); Finger and Mecagni (2007); Diaz-Cassou, Erce, and Vazquez-Zamora (2008); Das, Papaioannou, and Trebesch (2012); Reinhart and Rogoff (2009); Panizza and others (2009); Duggar (2013); Benjamin and Wright (2009); Cruces and Trebesch (2013); Asonuma and Trebesch (2016); Asonuma and Joo (2017); Erce (2013); Tomz and Wright (2013).
- Caribbean-focused studies cited: IMF (2013a); Jahan (2013); Okwuokei and van Selm (2017); Asonuma and others (2017a, 2017b, 2018); Schipke, Cebotari, and Thacker (2013); Alleyne and others (2017).
- Empirical findings related to serial restructurings and debt intolerance: Reinhart, Rogoff and Savastano (2003); Reinhart and Rogoff (2005); Asonuma (2016); Eichengreen, Hausmann, and Panizza (2005a, 2005b); Catao, Fostel and Kapur (2009).

### III. BELIZE’S 2016–17 DEBT RESTRUCTURING

#### A. Causes — Macroeconomic developments
- IMF’s 2016 Article IV staff report (discussed September, published October 2016) warned of slowing economy and rising fiscal and external vulnerabilities.
- Hurricane Earl (August 2016) caused about 3-4 percent of GDP in estimated damage; growth pushed into negative territory in 2016.
- Report recommended raising the primary surplus to 4–5 percent of GDP, reducing banking vulnerabilities, and structural measures to boost growth.
- Debt Sustainability Analysis (DSA) projected public debt to remain high and highlighted significant downside risks (GDP growth, exchange rate, primary balance).
- Key numeric context on eve of third restructuring (November 2016):
  - Total public debt: about 100 percent of GDP (equivalent to about US$1.7 billion).
  - Superbond 2.0: US$526.5 million, about 30 percent of 2016 GDP, about 30 percent of total public debt.
  - Superbond 2.0 represented 44 percent of total external public debt.
  - Multilateral debt averaged 2.75 percent interest rate.
  - Bilateral debt averaged 1.5 percent interest rate.
  - Superbond average interest rate: 5 percent.
- Note: Original Superbond 2.0 size was US$530 million; about US$3.5 million was bought back by the GOB in interim years.
- Cash-flow pressure drivers:
  - Coupon step-up from 5 to 6.767 percent in August 2017.
  - Principal repayments scheduled to begin in 2019.
- Contract features intended to discourage subsequent restructurings:
  - Principal reinstatement clause: If interest or principal due before the tenth anniversary is missed and not cured 30 days after grace period, Belize must issue within 5 business days additional 2038 bonds equal to 11.11 percent of outstanding principal.
  - Creditor engagement clause: Belize obliged to take reasonable steps to facilitate creation of any Holders’ Committee, recognize it, negotiate in good faith, promptly provide information including DSA, and “pay any reasonable fees and expenses of any such Holders’ Committee.” In the 2013 restructuring Belize paid almost US$1.2 million in such expenses.

#### B. Process
- Restructuring undertaken preemptively; a coupon payment was deferred during negotiations (payment made within allowed grace period).
- Timeline and negotiation facts:
  - November 9, 2016: GOB announcement to seek restructuring.
  - One week later: Representative group of key holders formed a Coordinating Committee; formally recognized by authorities.
  - GOB retained Citigroup (financial) and Cleary Gottlieb Steen and Hamilton LLP (legal) as advisors.
  - January 12, 2017: GOB issued a consent solicitation (first solicitation).
    - Proposed coupon reduction to 4 percent.
    - Amortization deferred to 2036–38 (3 equal annual installments Feb 20, 2036–Feb 20, 2038).
    - Terms would have reduced NPV by 36-49 percent, depending on discount rate.
  - January 17, 2017: Bondholder committee rejected first solicitation as premature; argued debt relief should be part of a medium-term program with fiscal and structural adjustment and mechanisms to assure delivery.
  - February 21, 2017: GOB press release indicated February 20 coupon payment had been deferred pending consent solicitation.
  - March 3, 2017: GOB issued revised consent solicitation; bondholders’ committee supported revised solicitation.
    - Revised coupon: 4.9375 percent.
    - Revised amortization: five equal annual installments Feb 20, 2030–Feb 20, 2034.
    - Final maturity moved forward from 2038 to 2034.
    - Authorities conceded about 17 percentage points in NPV reduction relative to the original solicitation.
  - Revised solicitation included fiscal adjustment commitments:
    - Tighten fiscal stance by 3 percentage points in fiscal year 2017/18.
    - Maintain a primary surplus of 2 percent of GDP for fiscal years 2018/21.
    - If target missed, submit report to National Assembly and request IMF technical assistance mission to determine causes and recommend remedial measures; authorities committed to publishing findings of such IMF technical assistance.
    - Note: The IMF did not commit to provide such technical assistance.
  - Bondholder committee initially represented about 60 percent of outstanding bonds and supported revised terms, but required 75 percent to modify bond terms.
  - March 15: Consent solicitation was extended to bring remaining bondholders on board.
  - March 21: GOB announced holders of 88 percent had consented; revised terms effective; remaining 12 percent brought on board using collective action clause.
- Tables and solicitations (as presented in source):
  - First Solicitation (January 6, 2017): Final maturity 2038; Repayment schedule 3 equal annual installments Feb 20, 2036–Feb 20, 2038; Coupon rate 4%; Maturity 2038.
  - Revised Solicitation (March 3, 2017): Final maturity 2034; Repayment schedule 5 equal annual installments Feb 20, 2030–Feb 20, 2034; Coupon rate 4.9375%; Maturity 2034.

#### C. Outcomes (deal features announced March 21, 2017)
- Deal structure highlights:
  - No principal haircut: Approximately US$526.5 million of new 2034 bonds issued without face-value reduction.
  - Coupon rate reduction: Fixed coupon rate set at 4.9375 percent; average coupon rate of the new bond over its life lowered by 1.83 percent.
  - Extension of grace period and maturity shortening: Grace period extended by 11 years with amortization starting from 2030, while final maturity was shortened by 4 years.
  - NPV and market haircuts: (Text truncated in source; numeric NPV haircut discussion begins but is incomplete in provided content.)

### IV. COMPARATIVE AND CONTEXTUAL POINTS (as presented)
- Superbond history:
  - 2006–07: Exchange into a single U.S. dollar-denominated bond (2029 bond or “Superbond 1.0”) with face value US$547 million (around 43 percent of 2007 GDP); lengthened maturity and lower coupons.
  - 2012–13: Second restructuring with modest face value haircut (10 percent) and cash-flow relief via coupon and maturity changes, resulting in U.S. dollar-denominated 2038 bond (“Superbond 2.0”) with face value US$530 million (33 percent of 2013 GDP).
  - 2016–17: Third restructuring of same instrument (Superbond 2.0 → 2034 terms described above).
- Public debt remained high over two decades (referenced Figures 1 and 2 in source).
- Comparisons to other Caribbean countries and sequential restructurings are objectives of the paper (Antigua and Barbuda, Grenada, Jamaica), with further analysis presented in later sections (not included in provided excerpt).

*Italic: Source: wp18121 - References _______________________________________________________________ 24 (excerpt provided).*

### 19.7 percent, while the market haircut was 30 percent.

### wp18121 - 19.7 percent, while the market haircut was 30 percent.

### Restructuring instruments and terms
- Old Instrument: 2038 US bond ("Superbond 2.0")
  - Face value (US$ mil.): 530
  - Face value haircut: 0%
  - Maturity: 2038
  - Remaining maturity (years): 21
  - Coupon: 5% until 2017, 6.767% until maturity
  - Repayment profile: 2019-38
  - Present value on 3/2017 1/: 87.3%
  - NPV haircut 2/ 4/: 19.7 (17.5)
  - Market haircut 3/ 4/: 29.9 (28.0)
  - Pre-CACs participation rate (%): 88
  - Post-CACs participation rate (%): 100
  - CACs triggered: Yes

- New Instrument: 2034 US bond ("Superbond 3.0")
  - Face value (US$ mil.): 526.5
  - Face value haircut: -
  - Maturity: 2034
  - Remaining maturity (years): 17
  - Coupon: 4.9375%
  - Repayment profile: 2030-34
  - Present value on 3/2017 1/: 70.1%
  - NPV haircut 2/ 4/: -
  - Market haircut 3/ 4/: -
  - Pre-CACs participation rate (%): -
  - Post-CACs participation rate (%): -
  - CACs triggered: -

- Notes and definitions provided in-source:
  - 1/ Discount rate at 9.1 percent which was exit yield at completion of exchange (on 3/24/2017 - the first transaction day when yields were recorded after completion of restructuring).
  - 2/ NPV haircut is defined as 1 - Present value of new debt/Present value of old debt as in Sturzenegger and Zettelmeyer (2006, 2008). Present value of new debt and old debt is computed with the same discount rate.
  - 3/ Market haircut is defined as 1 - Present value of new debt/Face value of old debt.
  - 4/ The effective (net) haircut including the fees paid in cash would be 17.5% (NPV) and 28.0% (market), respectively.

### Innovations in the 2016–17 exchange offer
- Fiscal-linked contractual provisions:
  - Fiscal targets: If Belize fails to achieve a primary surplus equal to at least 2.0% of GDP in any of fiscal years 2018/19, 2019/20 or 2020/21 then:
    - Commencing on the first Interest Payment Date in the subsequent fiscal year, and lasting for 12 months thereafter, interest on the Securities shall be paid quarterly (instead of semi-annually).
    - The GOB will submit to the National Assembly a report explaining the reasons the target was missed and request that the IMF send a technical assistance mission to Belize to determine reasons and recommend measures to restore a primary surplus equal to at least 2.0% of GDP; this report is to be published.
  - Enactment of a budget reflecting fiscal consolidation: The National Assembly will enact a public sector budget for fiscal year 2017/18 that includes fiscal measures projected to produce a fiscal consolidation for that fiscal year equal to 3.0% of GDP. The amendments to the Consent Solicitation will automatically be reversed on September 30, 2017, unless certification that such a budget has been enacted is received by the Trustee.
  - Statutory instrument: The Prime Minister shall issue a Statutory Instrument committing to (i) propose budgets projected to result in a primary surplus in each of fiscal years 2018/19, 2019/20 and 2020/21 equal to at least 2.0% of GDP, (ii) cooperate with the IMF in its preparation of annual Article IV consultations, (iii) publish each year a Fiscal Strategy Statement, and (iv) publish periodic Fiscal Outlook and Mid-year Review Reports.
- Liability management:
  - Mandatory liability management: Belize will apply an amount equivalent to 25% of the gross proceeds of each incurrence of Specified Debt contracted by Belize after March 2, 2017 in excess of U.S.$50 million of each incurrence to repurchase in the open market, redeem, or otherwise reduce the outstanding principal.

### Outcomes and key statistics
- Cash flow relief and haircuts:
  - The coupon reduction and deferral of principal repayments produced US$69 million (4 percent of 2017 GDP) in cash flow relief over 2018-2020.
  - This translated into an NPV haircut of 19.7 percent relative to market value and 30 percent relative to the face value.
  - Fees paid totaling US$10 million reduced the actual NPV haircut by 2 percent (effective NPV haircut: 17.5 percent; effective market haircut: 28.0 percent).
- Market reaction and yields:
  - Exit yield at completion: 9.1 percent (on 3/24/2017).
  - Resulting exit yield was similar to 2012–13 restructuring (9.1 percent).
  - After agreement announcement, bond prices and yields improved by about 300 basis points.
  - The difference between the exit yield and the maximum yield reached in November 2016 was 866 basis points.
- Credit rating actions:
  - S&P upgraded Belize to non-default rating (B-) on March 23 given completion of the debt exchange.
  - Moody’s upgraded Belize from Caa2 to B3 on April 11, reflecting an improvement in the government’s liquidity position.
- Market access:
  - After the transaction, Belize did not re-access the international capital markets. The last external bond or syndicated loan issuances were in 2003 and 2006, prior to the 2006–07 debt restructurings.

### IMF engagement, evaluation, and policy recommendations
- IMF involvement:
  - The IMF did not have a program in place supporting the authorities’ adjustment efforts during the restructuring, but Fund staff engaged with authorities.
  - IMF staff visited Belize from June 6–15, 2017 for discussions for the 2017 Article IV consultation.
  - IMF (2017) provides an assessment of Belize’s third restructuring and the understandings with bondholders on an economic adjustment program.
- IMF assessment and recommended policy stance:
  - IMF (2017) emphasized that the fiscal adjustment agreed with bondholders was not sufficient to put debt/GDP on a clear downward trajectory.
  - To secure durable gains, the restructuring needed to be supported by a medium-term strategy combining more ambitious and high-quality fiscal consolidation with structural measures to boost growth.
  - Further fiscal adjustment—targeting a primary surplus greater than 2 percent of GDP—would be necessary to put debt on a clear downward trajectory; the report called for a primary surplus target of 4–5 percent of GDP over the medium term.
  - Containing government spending on wages and pensions, which was already high by international standards and projected to increase over the medium term, would be important.
  - Concrete steps to improve the business climate, including by making it easier to start a business and get credit, could help foster growth.
- Cautionary note:
  - IMF (2017) warned that repeated restructurings to external private bondholders risked undermining Belize’s credibility and access to international capital markets for an extended period, harming prospects for strong and sustainable growth.

### Lessons learnt from Belize’s 2016–17 restructuring (summary)
- The 2016–17 debt restructuring produced meaningful cash flow relief and reduced the cost of servicing an expensive part of external debt, yielding an NPV gain described as significant (28 percent including fees and using an exit yield of 9.1 percent on March 15, 2017).
- However, the overall level of public debt remained very high and the restructuring alone was insufficient; durable debt reduction required larger primary surpluses and structural reforms to raise growth.
- Use of CACs: A CAC was triggered and no exit consent was used (consistent with prior restructurings).
- Repeated restructurings highlight risks to market access and credibility absent stronger fiscal and growth-oriented measures.

*Source: IMF working paper content (wp18121).*

### 1.2 percent—half of what was projected for these years in the IMF’s 2008 Article IV report

### 1.2 percent—half of what was projected for these years in the IMF’s 2008 Article IV report

### Macroeconomic shocks and fiscal context
- Growth and production shocks
  - Oil production from a single small oil field (discovered in Belize in 2005) peaked in 2009 and declined steadily thereafter.
  - Weather-related events with estimated damage to GDP:
    - Hurricane Dean (August 2007): damage estimated at about 6-8 percent of GDP.
    - Hurricane Richard (October 2010): damage estimated at about 3-4 percent of GDP.
    - Hurricane Earl (August 2016): damage estimated at about 3-4 percent of GDP; pushed growth into negative territory in 2016.
- Contingent liabilities and fiscal impact
  - State interventions in utilities created financial costs for the government.
  - Belize Telemedia Limited (BTL): Permanent Court of Arbitration award totaled US$275 million, or more than 15 percent of 2016 GDP.
  - Belize Electricity Limited (BEL): compensation of US$35 million paid in 2015.
- Fiscal stance and absence of an IMF-supported program
  - Over 2007–16, a small primary surplus was maintained in most years (1.2 percent on average), corresponding to a small overall deficit (1.9 percent of GDP).
  - Belize did not request an IMF-supported program (Belize’s most recent IMF-supported program expired in 1986).

### Debt restructuring approach — common features across 2006–07, 2012–13, 2016–17
- Key common features
  - Restructuring strategies: Weakly preemptive in all three restructurings.
  - Targeted debt instruments: Primarily external private debt (2006–07: External bonds/bank loans; 2012–13: External bond; 2016–17: External bond).
  - IMF-supported program: No in all three cases.
  - Missed payments: Yes - only temporarily during negotiation in all three cases.
  - Creditor committee/representation:
    - 2006–07: Creditor representation formed.
    - 2012–13: Creditor committee formed.
    - 2016–17: Creditor committee formed (rapidly formed based on creditor engagement clause in 2038 bond).
- Exchange methods and contract changes
  - 2006–07: Exchange of 22 instruments against one bond.
  - 2012–13: Exchange of one bond against one bond.
  - 2016–17: Change of terms of existing bond via consent solicitation (no exchange).
  - Changes in remaining maturity and grace periods varied across episodes (examples: 2006–07 significant maturity extension; 2012–13 further maturity extension without change in grace period; 2016–17 extension of grace periods with shortening of maturity).
  - Change in coupon rate: All three had reduction in coupon rate on average; step-up coupons present in 2006–07 and 2012–13 but avoided in 2016–17.
- Participation, CACs, holdouts, litigation
  - Participation rate (%, post/pre-CACs): 98 (87 - pre-CACs); 100 (86 - pre-CACs); 100 (88 - pre-CACs).
  - CACs triggered: Yes in each case (one external note in 2006–07; yes in 2012–13 and 2016–17).
  - Hold-out creditors: Yes in 2006–07; No in 2012–13 and 2016–17.
  - Litigation: No in all cases.

### Innovations in legal clauses and negotiation process
- Creditor committee formation procedure
  - 2016–17: Clause in the 2038 bond allowed a rapid Holder’s Committee formation: “The holders of a Majority of the Outstanding aggregate principal amount may appoint any persons as a committed to represent the interest of the holders”. The appointment became effective as of December 23, 2016; Trustee recognition announced January 9 (BroadSpan 2017).
- Creditor engagement provision
  - 2012–13 included an extensive bondholders committee engagement provision to reinforce good faith negotiations and information sharing.
- Effective use of CACs
  - 2006–07: CACs smoothed negotiations and yielded high participation despite holdouts; no litigation.
  - 2012–13 and 2016–17: Creditor committee familiarity helped reach consensus and secure necessary quorum to invoke CACs; no holdout investors and no litigation.
- Principal reinstatement clause
  - In the first two restructurings missed coupon payments were capitalized in new bonds. In 2016–17 a missed coupon payment was paid within the grace period; the principal reinstatement clause (which would have increased outstanding value by 11.11 percent) helped ensure timely payment.
- Inclusion of fiscal targets
  - 2016–17 introduced fiscal targets in the absence of an IMF program to emulate features of an IMF-supported adjustment framework.

### Outcomes: liquidity relief vs. solvency
- General assessment
  - All three restructurings addressed short-term liquidity constraints but did not resolve solvency issues or sustainably reduce the debt burden.
  - Over-optimistic macro projections and lack of decisive fiscal adjustment contributed to repeated restructurings.
- Present-value and market outcomes (selected figures)
  - NPV haircut, average (%) reported examples: 29 (for one episode), 19.7 (third restructuring).
  - Market haircut, average examples: 33, 29.9 (definitions: market haircut = 1 - Present value of new debt/Face value of old debt).
  - In the 2012–13 restructuring:
    - Face value haircut: 10-percent reduction.
    - Overdue interest was added to face value of new bond (approximately 7 percent of the original principal) → “net” face value haircut about 3 percent.
  - Exit yields and market prices:
    - Exit yield used for discount in one computation: 9.1 percent (exit yield at completion of exchange on 3/24/2017).
    - Both second and third restructurings saw bonds reach a low market price of 33; yields at those moments differed at 26 percent and 18 percent respectively due to differing cash flow profiles.
  - Result: Lower effective NPV haircut (investor loss) in third restructuring (19.7 percent) compared to second restructuring (29 percent).
- Design features affecting recurrence risk
  - Step-up coupons in 2006–07 and 2012–13 increased debt-service future burden and likely contributed to subsequent restructurings (timing coincided with coupon step-ups).
  - 2016–17 avoided step-up coupon but bundled amortization payments over 2030- (text truncates here).

### Comparison with other Caribbean restructurings
- Two broad restructuring strategies and outcomes
  - Weakly/strictly preemptive restructurings (e.g., Belize, Grenada 2004–06, Jamaica 2010/2013):
    - Typically involve formal or informal negotiations, exchanges with no or only temporary missed payments.
    - Restructurings completed relatively quickly (about a year at most).
    - Outcomes: almost zero face-value reductions or moderate NPV haircuts (ranging from 23 to 34 percent in cited examples).
  - Post-default restructurings (e.g., Antigua and Barbuda 2008–12, Grenada 2013–15 in some cases):
    - Missed payments unilaterally; negotiations more protracted (32–39 months).
    - Outcomes: sizable face-value reductions (43.5 percent to 100 percent) and high NPV haircuts (50 and 100 percent), but with extended uncertainty and loss of market access.
- Role of IMF-supported programs and reform
  - Successful, lasting debt repair in the region (Grenada 2013–15; Jamaica 2013) combined sizable debt relief with strong reform efforts and IMF-supported programs, putting public debt-to-GDP ratios on a clear downward trajectory from 2013 onwards.
  - Belize’s restructurings were selective (private-external only) and undertaken without IMF programs, focusing on immediate liquidity relief rather than comprehensive solvency restoration.

### Policy implications and recommendations
- To achieve lasting debt sustainability and restore market access, debt restructuring should be:
  - Underpinned by a credible and sustained program of ambitious fiscal consolidation.
  - Combined with structural reforms to boost growth.
- Legal and contractual innovations improve execution efficiency (faster creditor committee formation, creditor engagement provisions, effective CAC use), but are not substitutes for meaningful fiscal adjustment and growth-supporting reforms.
- Avoidance of step-up coupon designs can help reduce the risk of triggering future restructurings; bundling of amortization without accompanying fiscal adjustment is insufficient to restore sustainability.
- In the absence of decisive fiscal consolidation and ambitious structural reforms, risk of another debt restructuring remains high.

*Source: IMF working paper content (wp18121).*

### 34. This may lead to debt distress in that period—unless Belize’s economic fortunes improve

### 34. This may lead to debt distress in that period—unless Belize’s economic fortunes improve 

### Restructuring process (2016–17)
- The 2016-17 restructuring process proceeded relatively smoothly, taking just over 4 months.
- Factors contributing to the smooth process:
  - Only one instrument was targeted for restructuring.
  - Existence of a creditor engagement clause and a principal reinstatement clause included in previous restructurings.
  - With only two coupon payments per year on its external debt to private creditors, the February 20, 2017 coupon became a focal point guiding the negotiations.
  - Key creditors had gained experience in previous operations; key actors had dealt with the Belizean government in the past, as well as with each other.
  - Collective action clauses were important in helping to bring on board all creditors at the end of the process.

### Fiscal targets and monitoring mechanism (2016–17 operation)
- The fiscal targets and accompanying monitoring mechanism put in place in the 2016–17 operation are described as interesting innovations.
- Intended effects:
  - May help in putting public finances on a more sustainable footing.
  - The targeted primary surplus—2 percent of GDP over three years, 2018–21—would not be sufficient to put public debt on a clear downward trajectory.
- Monitoring and compliance features:
  - Agreement between creditors and the government of Belize includes a switch from semi-annual to quarterly interest payments if a target is missed.
  - This mechanism may provide a limited incentive to the government of Belize to adhere to these targets.

### Risks and recommended policy actions to avoid future debt distress
- Risk summary:
  - Debt distress may occur in that period—unless Belize’s economic fortunes improve significantly over the next 10 or 12 years.
  - Market-based liability management operations, as conditions permit, may be needed to smooth the redemption profile.
- Recommended fiscal and debt management actions:
  - Strengthen efforts to reduce the public debt stock and ensure debt sustainability over the medium to long term.
  - Require disciplined management of the public finances within a sound macroeconomic framework, through setting realistic debt-to-GDP ratio targets.
  - Introduce a fiscal rule that targets a reduced debt-to-GDP ratio over the medium to long run to help underpin fiscal consolidation and broaden support for it.
  - Develop a well-developed Medium-Term Debt Strategy (MTDS) to ensure consistency of goals and reduce the public debt burden by identifying appropriate financing strategies and funding sources.
  - Pay particular attention to minimizing debt portfolio risks, including refinancing risks, and regaining access to international capital markets.
  - Create fiscal buffers to secure financing for large future debt service obligations and/or realization of other contingent liabilities.
  - Maintain a macroeconomic policy setting that guarantees economic competitiveness and sustained growth over the medium term.

*Source: wp18121 - 34. This may lead to debt distress in that period—unless Belize’s economic fortunes improve*

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_Source: https://www.imf.org/-/media/files/publications/wp/2018/wp18121.pdf_