The Caribbean’s Debt Shoal Shuffle
Tiny Eastern Caribbean Currency Union member St. Kitts and Nevis became the latest defaulter on public debt at almost 200 percent of GDP, with only Treasury bills to be excluded from a $1 billion restructuring after “sharp” tourism and FDI falls, according to the prime minister’s office. Medium-term government finance reforms will be supported by a $85 million 3-year IMF standby loan as officials work with creditors toward a “credible and definitive solution” to the immediate crunch. In the region in the past few years Grenada, Dominica and Belize followed this path, while Jamaica narrowly avoided the fate with a comprehensive local bond swap emphasizing maturity extension. The blow came as the Fund hailed the islands’ “turning the corner” from recession in its April Western Hemisphere economic outlook. Two percent average GDP growth is forecast on better visitor and remittance numbers and fiscal consolidation. High commodity import prices remain an obstacle with limited scope for subsidy cushions, and labor productivity and overall competitiveness lag. Cross-border contagion lingers from the collapse of the Trinidad and Tobago-based CL Financial Group where contingent liabilities could reach 10 percent of output there and insurance subsidiaries in Barbados and elsewhere struggle with outstanding claims. The report urged export diversification and cited the importance of meeting international prudential, tax and anti-money laundering standards in the area’s 15 offshore financial centers. Only Montserrat is on the FATF “grey” list, with the other jurisdictions now all with “white” status including half a dozen UK overseas territories. With improved domestic and global standing, rater Moody’s recently issued a “favorable” prognosis for major banks with some caveats for Jamaican players with high government paper asset concentration.
National income turned positive in Q1 as an aluminum plant reopened but the primary budget surplus target was missed under Jamaica’s IMF arrangement although the overall deficit was constant. Remittances from North America and Europe were up double-digits, bringing foreign reserves to a record $2.5 billion. The local dollar has been stable even as the current account gap could approach 10 percent of GDP on imported petroleum costs. Both the stock and bond markets were LAC outperformers in the first half, although momentum has started to flag. Trinidad and Tobago securities have not fared as well on 10 percent inflation and a 6 percent of GDP fiscal deficit despite hydrocarbon exporter rebound, while in Barbados additional domestic placement sent the island’s debt level to near 105 percent of output to overshadow sunnier tourist diversification progress.
