The East Caribbean’s Spent Spearfishing
St. Kitts and Nevis exited its IMF program after commercial debt restructuring as another Eastern Caribbean Currency Union member Grenada attempted repeat operations on both fronts after the new government came to power a year ago unable to service the 110 percent of GDP in outstanding obligations on meager 1.5 percent growth. Tourism lagged versus neighbors with additional UK air passenger charges, with fishing, resort construction and the offshore medical school the main drivers. The current account deficit was over 25 percent of GDP, financed by external arrears accumulation as deflation also arrived on economic slack and negative credit extension. The bad loan ratio was 15 percent under local norms as capital also eroded on exposure to Trinidad and Tobago’s bankrupt CL Group. The primary budget gap was 4 percent of output and coupon payment for the 2025 step-up bond from the previous rescheduling was unmanageable as $650 million or 70 percent of total debt was targeted for official and private relief. A standstill has been in place since the request, which triggered a sovereign ratings downgrade to selective default as advisers were hired for creditor negotiations. Specialist funds hold $15 million and non-Paris Club export agencies in China and Taiwan are a big class, with the latter suing in New York under pari passu clauses where the judge rejected settlement interpretation as in Argentina’s case. The Fund document supporting a resumed $20 million facility projects medium term 2 percent growth and inflation and higher exports as nutmeg rebounds from hurricane damage. Commodity sectors will be liberalized under an “internal devaluation” cost and wage push alongside business climate and infrastructure modernization. Tax administration and social safety nets will be overhauled with World Bank and Caribbean Development Bank technical assistance, and an indicative 50 percent principal haircut was proposed for 2025 bondholders in April, with regional Treasury bills and central bank loans spared. The civil service pension and salary bill at 10 percent of GDP is to be cut under the agreement, and banks, credit unions and insurance companies will be stress tested for public debt vulnerabilities. The combined application and Article IV report commends the adjustment ambition offset by track record “weakness” as the last attempt derailed in 2013. It notes “satisfactory progress” with bond exchange discussions but reiterates the underlying sustainability need within the context of an overall strategy.
In Francophone Africa another serial defaulter Cote D’Ivoire re-tapped private markets after regular successful placements on the West African regional bourse. Senegal followed suit after a no-interest sukuk was launched as the largest Sub-Saharan effort to date. Zambia after a recent issue is in talks on a renewed IMF arrangement which may not be inked for several months. Ghana after a ratings downgrade has spurned that route for now but will also refrain from holding 5-year auctions with runaway deficits and inflation spoiling the catch.
