Sovereign Debt Restructurings in Grenada: Causes, Processes, Outcomes, and Lessons Learned
IMF Working Papers, July 24, 2017
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- Sovereign Debt Restructurings in Grenada: Causes, Processes, Outcomes, and Lessons Learned
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Bibliographic details
- Authors: Tamon Asonuma, Xin Li, Michael G. Papaioannou, Saji Thomas, Eriko Togo
- Published: July 24, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484311035.001
Summary
- Documents two debt restructurings that Grenada undertook in 2004–06 and 2013–15.
- Both restructurings emerged as a consequence of weak fiscal and debt situations, which became unsustainable soon after external shocks hit the island economy.
- Both restructurings provided liquidity relief; the second restructuring involved a principal haircut.
- The first restructuring was not able to secure long-term debt sustainability.
- Highlights the importance of: (1) establishing appropriate debt restructuring objectives; (2) committing to policy reforms and maintaining ownership of the restructuring goals; and (3) engaging closely and having clear communications with creditors.
Major findings
- Two restructurings: 2004–06 and 2013–15.
- Liquidity relief achieved in both restructurings.
- Principal haircut implemented in the 2013–15 restructuring.
- The 2004–06 restructuring did not secure long-term debt sustainability.
- Causes: weak fiscal and debt situations that became unsustainable after external shocks.
Restructuring processes (as described)
- Restructurings arose as responses to unsustainable fiscal and debt positions following external shocks.
- Instruments and actions included bond restructuring and bond exchange mechanisms (keywords in source: bond contract, bond exchange, bond restructuring, exchange offer, US$ bond, US$-denominated bond).
- Involvement of private sector creditors and use of bond-related legal and contractual elements (keywords in source: Disaster Clause, grace period, interest rate, foreign currency).
Outcomes and implications
- Short-term liquidity relief was achieved in both episodes.
- Only the second episode (2013–15) included a principal haircut, implying deeper debt reduction.
- The limited success of the 2004–06 restructuring in securing long-term sustainability underscores the need for complementary policy measures and stronger commitment to reforms.
Lessons learned and policy recommendations
- Establish clear and appropriate debt restructuring objectives at the outset.
- Commit to policy reforms and maintain ownership of restructuring goals to improve prospects for sustainable outcomes.
- Engage closely with creditors and ensure clear communications throughout the restructuring process.