Country UpdateJanuary 18, 2022
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Market Pricesbarbados sovereign
|BARBAD 6 1/2 10/01/29||100.15||100.65||-||-||0.00||2029-10-01|
Market Mapbarbados sovereign
Economic activity in the third quarter presented a strong 9.7% YoY recovery, however, the Barbadian economy accumulates a contraction of -3.2% during the first nine months of 2021.
Although tourism continued to be the largest contributor (3.7 p.p.) to the 9.7% GDP expansion during the 3Q21, we highlighted the contribution of 0.5 p.p. from government consumption to GDP.
We believe that the government will continue with the modest expansion in spending during the second half of the fiscal year.
Due to our low expectations about tourism recovery, we have lowered our growth forecast for 2021 from 1.4% to -0.7%.
Barbados showed a recovery of 5.5% YoY in 2Q21. However, GDP fell 9% YoY in 1H21.
The recovery in tourism in Barbados is lagging the rest of the region
Barbados government's commitment to maintaining fiscal discipline is remarkable, achieving a primary surplus of 1.5% during the first quarter of the FY 2021/2022
We estimate that debt burden will increase to USD 6,572.8 mn or 140.5% of GDP by the end of the FY2021/2022
HOLD: As Barbados recovers from the strong impact of the pandemic, the Delta variant is putting the recovery of tourism at risk. We expect activity to normalize in the medium-to-long term, hel...
All forecasters expect a hurricane season above normal.
NOAA estimate that there will be 13 to 20 named storms, of which 6 to 10 could become hurricanes, including 3 to 5 major hurricanes.
We generally believe that the tourism outlook is positive, as the current levels of tourist arrivals are much higher than those observed in 3Q20.
Under high uncertainty, we maintain our growth forecasts and believe that these could be adjusted upward given the higher-than-expected tourism recovery.
The economic impact of natural disasters adds a new wrinkle to the assessment of BAHAMA, BARBAD, and JAMAN bonds. Of those three, howe...
Among our sample of countries, The Bahamas showed the worst fiscal results in the pre-pandemic period
We estimate that Jamaica will improve its fiscal performance by registering a fiscal balance of -0.6% of GDP during FY 2021/2022 (from -3.6% in FY2020/2021).
Barbados would show a slight improvement in the primary deficit from -1% of GDP to -0.5% but would maintain the same level of fiscal deficit (5% of GDP)
The Bahamas will register a fiscal balance of -10.2% of GDP during FY 2021/2022 (from -13.5% of GDP in FY2020/2021)
We reaffirm our ratings for the bonds of The Bahamas (BUY), Barbados (HOLD), and Jamaica (SELL...
In 2020, Barbados’ economy fell -18%, Bahamas’ -16.3% and Jamaica’s -9.9%.
The Bahamas had the worst performance in our group with a decrease in exports of goods and services of -65.3%.
The Caribbean countries have an advantage because their main sources of tourists are advanced economies that will likely complete their vaccination programs in the 3Q21.
However, we believe that the Caribbean countries will experience a rebound of international tourism as of 4Q21 due to their slow vaccination process.
HOLD: The improved outlook for tourism in 2022 should open up opportunities in The Bahamas’ c...
In 2020, the Barbadian economy recorded the deepest single-year contraction in its history: -17.6%
There are strict internal mobility restrictions due to the increase in new cases and lower tourism due to the third wave of coronavirus in the UK
Economic activity will decline in the first quarter of the year compared to 4Q20
The recovery figures for tourism worldwide have worsened according to UNWTO experts
Barbados will become a republic in November. However, we believe that the close relationship with the UK will continue.
The primary deficit would end in FY 2020/21 at -1.0% of GDP and the fiscal deficit would close at -4.8% of GDP.
With the CAF and IDB recently approved loans, the financing gap would be fully covered.
The primary balance target proposed by the IMF is 2% of GDP in the FY2021/2022.
Considering the new internal mobility restrictions and the slow recovery of international tourism, we believe that Barbados' economy will grow 4.2% in 2021.
HOLD: Commitment to fiscal responsibility supports the a...
Emerging markets faced massive capital flight as a result of the COVID-19 crisis.
However, there has been debate as to whether the severe initial shock was primarily the result of an interruption in liquidity flows and not the deterioration of macroeconomic variables.
Growth in emerging economies may have taken a permanent hit but, at the same time, emerging markets could become more attractive to those hunting for yield.
We believe that the deepness of the impact of the pandemic on EMs can be quantified.
Recently, a new Covid-19 variant was detected in the United Kingdom (UK)
Before the pandemic, the UK was the largest source of tourists to Barbados.
Although there is still much uncertainty about the new variant of covid-19, we do not believe there will be a significant impact on the Barbadian economy.
We take a comprehensive look at political risk indicators in a group of Emerging Market countries, trying to identify potential sources of conflict.
We analyze the electoral scenarios in the four Latin American nations that will have electoral processes during the end of 2020 and all of 2021.
We review the scenarios in the parliamentarians of Argentina and El Salvador, we comment on the electoral process that will take place in Venezuela, and we review the perspectives of the presidential elections in Ecuador.
We evaluated the World Bank’s governance indicators for our sample countries in 2019 and share our view of thes...
The government achieved a primary surplus of 1.7% of GDP in the 1H20 of the current fiscal year.
The government of Barbados and the IMF agreed to reduce the target of the FY 2020/21 primary balance from 1% of GDP to -1% of GDP.
The IMF staff proposed increasing the EFF by USD 66 mn (SDR 48 mn or 51% of its quota) in its next review in December.
The debt to GDP ratio increased from 120% at the end of 2019 to 131.5% in September.
HOLD: Barbados' fiscal responsibility reinforces IMF support and seems more than enough to compensate for the possibly slow economic recovery post-COVID-19.
In third quarter, Barbados' economy fell -18% YoY, driven by the negative impact of COVID-19 in tourism arrivals.
The government showed a primary balance surplus of 1.6% of GDP during the first half of FY 2020/21
In September, the government introduced the BEST Plan, a USD 150mn (3.2% of GDP) fiscal stimulus package to stimulate the tourism industry.
Although this program aims to improve the sustainability of public finances, it would not have a considerable impact in the short term.
At this point, we think caution on global market conditions is called for and we downgrade our recommendation to HOLD.
Total debt stood at 117% before the pandemic and we expect it to rise to 140% by the end of the fiscal year 2020-2021.
Between the 2018 restructuring and the 2020 pandemic, Barbados had been relying on official financing.
After COVID-19 hit, the authorities turned to domestic debt, particularly through a scheme under which public workers can invest a portion of their wages in government bonds.
In the Caribbean, Barbados' debt has recovered at lower levels than Dom Rep or Jamaica. A little further behind are the Bahamas and Belize
The PM Mia Mottley has begun to promote the idea of creating a Caribbean Liquidity and Resilience Fund.
The facility seeks to offset the risk of illiquidity of Caribbean bonds to reduce the financing costs.
We believe that financing costs are more related to fiscal discipline, economic performance, and the credit reputation of countries.
Barbados is not in a macroeconomic position to say that it’s been treated unfairly by investors or to demand lower interest rates.
The sensible fiscal stance is a good reason to keep Barbados as a BUY, even if solvency metrics look weak.
Revenues dropped -9.8% between April and June versus the same quarter of last year.
Current expenses grew by 7.8% y-o-y, driven by an increase of USD 20.2mn (60.2%) in interest payments due to the resumption of foreign debt payments
We estimate that primary surplus will reach 1.2% of GDP by the end of FY 2020/21 and the overall deficit will stand at -2.8% of GDP.
Up to July, the government had covered 57% of the financing needs of FY 2020/21.
BUY: Despite weak solvency metrics, we think Barbados still has room to recover on the back of strong fiscal results.
In the first semester, the Barbadian economy fell -14.9% YoY. The drop is mainly due to a 53.5% decrease in tourism-related activities
In the first semester of 2020, imports decreased by -11.9% but exports drop by -29.2%, which turned into a trade balance deficit of USD 64 million or -1.3% of GDP
The current account deficit reached -4.1% of GDP, the capital account deficit reached -0.1% and the financial account showed a surplus of 9.1% of GDP.
Gross international reserves increased in USD 214 mn, driven by a 24% increase in net foreign direct investment, which reached USD 141.6 million and by USD 292 million in external ...
The process of defaulting and restructuring usually involves a sharp spike in yields just before the credit event.
Then yields lose their economic meaning and only prices make sense, as they turn into a summary of market expectations for the recovery values.
This period ends when an exchange takes place and the old bonds are replaced by new bonds with a given exit yield
One year after the agreement, yields fall on average 4.1 pp from 12.6% to 8.5%.
This shows that there is potential to pick up price gains by entering a credit just after restructuring, and waiting for spread compression during the first year.
In April 2020, the total assets of the financial system amount to USD 12,604 mn or 250% of GDP. The size of the financial system is not a good or bad characteristic per se. We analyzed three criteria, looking for financial instability risks.
Credit to the private sector fell from 82.5% of GDP in 2015 to 78.2% of GDP in March 2020.
Liquid assets in commercial banks have increased from 12% in 2011 to 27% in April.
We calculate that the Barbadian banking sector concentration would be between 2200 and 2700 according to Herfindahl-Hirschman Index (HHI)
We can conclude that the financial system is in a stable situa...
Low interest rates and the hunt for yields of the last decade has left broad swaths of EMs overindebted and vulnerable.
The first half of 2020 is not yet over and we already have 3 countries in default.
The recent record of most defaults on Eurobonds on a single year was 4 in 2017, so 2020 is not far from setting new records.
Eurobond restructuring processes are usually among the most complicated due to the variety of holders and the different interests they represent.
Suriname, Zambia, Belize, Sri Lanka and Angola are in the most risk to engross the default-statistic for the year.
Prime Minister Mia Mottley proposed a USD 1 bn stimulus plan (19.8% of GDP) designed to support business and provide relief for the most vulnerable over the next two years.
It is a challenge for Barbados to obtain funds to financing the stimulus plan. We calculate that government can raise only USD 240 mn from different sources.
The Government of Barbados will issue bonds that will be offered to public sector workers
We see Mia Mottley’s government as unlikely to meet its stimulus fiscal proposal without using international reserves
We believe Barbados’ external obligations are not at risk. The mid-term ...
May was one of those months that feels like a year. We had a default in Argentina, a tense election in Suriname, a deadly pandemic still spreading around the world, and yet, it was a good month for emerging market debt
Our EMFI Core Index went up for the first time in 6 months. The biggest winners were Argentina, Angola and Ecuador, while Venezuela, Suriname and Sri Lanka were among the negative outliers that went against the general risk-on mood
The macro and fiscal situations deteriorated further for all countries covered, and we chronicled the dramatic economic crash in our Country Reports
We’ve been preparing fo...
As of May 22, 8 countries have at least one USD-denominated sovereign bond trading below 50 cents on the dollar.
The Covid-19 crisis could lead to a new wave of sovereign defaults from prolonged confinements.
We discuss the worst debt restructuring events so far this century.
Argentina 2005 remains at the forefront of these events if we exclude the exceptional cases of countries at war or leaving them.
The countries with the most compromised solvencies that could generate problems with their debt are Angola and somewhat behind, Sri Lanka, El Salvador, Egypt and Pakistan.
A pandemic year was on the cards, the dramatic magnitude of its effects was not.
The global economy is expected to shrink by 3% in 2020, but leading indicators are pointing to a deeper downturn.
Emerging countries with a history of volatile economic growth will show the worst results.
Some economies may experience a period of above-trend growth during the recovery, although the level of GDP will remain, in most cases, below the pre-virus level.
Pakistan is the weakest among the EMFI Countries, in terms of the spread of the virus. Lebanon, Sri Lanka and Barbados are the strongest, with a controlled increase rate and a persistent lockdown.
The countries that we evaluate with the worst economic performance year-to-date are Angola, Venezuela, Lebanon, Barbados, El Salvador, Ecuador, Sri Lanka, Argentina and Suriname.
Since the end of 2019, the local currency has depreciated -70.5% in Venezuela, -52.4% in Lebanon, -43.5% in Argentina and -40% in Suriname.
El Salvador and Argentina launched the most ambitious fiscal program among our sample, which will cost 6% and 5.6...
The safest rung of EM hard-currency sovereign bonds fell on March but has already retraced all their losses.
Mid-quality EMs plunged over March and have risen somehow since, but haven’t fully recovered.
This segment has seen a 320 bps rise in average yield in 2020, going from an average 6.1% yield to 9.3%.
We believe high-yield bonds in our mid-quality group have significant upside if they avert a credit event.
After a dry March, markets are again open for fresh bonds, but only from relatively high-quality issuers.
US stocks rose 12.7% in April, while US investment grade bonds rose 4.6% and EM bonds 4.0%.
Our EMFI Core Index fell 0.9% over the month and is 27.1% down YTD.
The best performers of April were Egypt (+4.7%), Sri Lanka (+4.0%) and Turkey (+3.8%).
The worst performers were Suriname (-26.9%), Lebanon (-14.0%) and El Salvador (-11.3%).
The IMF has approved just over USD 16.0 bn for 61 countries.
Of the 16 countries we follow, 6 have already been granted financing for a combined USD 3.5 bn.
Lebanon and Argentina presented restructuring proposals asking for large debt relief but not offering much adjustment.<...
A Pandemic Solidarity Bond in local currency will be issued to provide cash for the National Insurance Scheme. Initially, the government intends to raise BBD 210 mn (USD 105 mn)
Considering the new issue and our estimate of nominal GDP, USD 5,044 mn, Barbados' debt-to-GDP ratio would reach 129.5% from 118.8% in 2019 or USD 6.4 bn at the end of 2020
Due to the coronavirus crisis, the Government of Barbados would obtain a primary deficit of -2.7% of GDP, while the overall balance would reach -6.2% of GDP in FY 2020/2021.
In total, principal payments during FY 2020/21 amounts USD 258 mn (5.1% of GDP).
On April 15, the G20 agreed on a standstill for bilateral debt service during 2020. Nonetheless, the agreement only applies to IDA-eligible countries. The suspension will be NPV-neutral and will involve repayment over 4 years, including a 1-year grace period.
Multilaterals haven’t found a way to implement a similar standstill. In fact, Fitch Ratings warned them that joining in on the G20 standstill could result in rating downgrades if not appropriately compensated by shareholder countries.
On aggregate, official creditors account for almost 90% of the debt of low-income, and 60% of that of lower middle-income countries, b...
Two weeks ago, we singled out some early calls for a generalized global debt moratorium in our Global Strategy Viewpoint: Force Majeure. The idea has gained significant traction and is becoming one of the main themes in economic and financial discussion.
While we don’t think a generalized moratorium on commercial bonded debt is likely to succeed, investors should be aware that it is a growing theme and bondholders will probably be under increased pressure to accept attempts at restructuring bond terms.
There are some indications that China is a significant roadblock for the IMF-World Bank initiative for a bilateral debt m...
The 2009 financial crisis, as the September 11 attacks, hit Barbados to a larger extend than international tourism.
Due to the COVID-19 outbreak, UNWTO expects international tourist arrivals in the whole world will be down by 20% to 30% in 2020 when compared with 2019 figures.
If we take as an antecedent the external shocks of 2001 and 2009, when Barbados overreacted to world performance, we can conclude that tourist arrivals could be reduced by 45% to 68%.
We estimate that if tourist arrivals drop 45%, tourism exports would drop by 33.8%, which would mean a loss of USD 392 mn
The oil import bill would be reduced by...
The COVID-19 crisis is raising a difficult question of public policy for emerging market economies with low fiscal space, which have to reconcile economic and social policy with debt service.
The relation between liquidity and solvency problems is not straight-forward: the COVID-19 shock, which presents liquidity challenges first and foremost, can unearth underlying solvency problems and can also turn liquidity problems into solvency ones if improperly managed.
We’re already seeing some early calls for an international debt holiday to exempt countries from paying during the COVID-19 crisis. Multilateral organizations are ...
The current crisis will translate into twin demand and supply shocks, with an oil price war on top of it.
The demand shock driven by declines in the world’s main trading partners will particularly affect emerging markets which are characterized by low diversification of exports and production.
Supply chains around the world have been disrupted by factory closures, first in China and now in Europe and the US.
The markets most exposed to a potential slowdown are the major commodity exporters: Venezuela, Ecuador, Angola and the markets most reliant on Chinese and US tourism.
In most EMFI countries the tourism act...
Our EMFI Core Index has fallen 27.6% year-to-date (YTD), while Our EMFI Expanded Index has fallen 19.2%. The last two weeks have been particularly bad, with consecutive 10% declines.
Unsurprisingly, countries heavily reliant on oil have suffered the most. Among our 34-country group, almost every oil-reliant one has fallen more than the 18.3% median.
The second thing that jumps to the eye is that the riskier countries have fared proportionally worse than relatively safer countries, when excluding oil-dependent countries.
We’re also seeing several countries crossing the 10% yield threshold, usually associated with dis...
The outbreak of the Coronavirus, as well as the “oil price war” between Saudi Arabia and Russia have triggered almost complete certainty that a global recession is coming over the next quarter.
Some economists are expecting a 2-quarter rolling recession, but there is potential for the downturn to extend further if the virus reemerges after activity is unfrozen.
Emerging market debt is taking a beating in 2020 so far. The countries we cover registered a median 14.3% fall year-to-date, with the worst performer doing as bad as 60.3% down (Ecuador) and 38.5% down (Angola).
We compare indicators on 4 major categori...
On February 18, the cabinet approved the draft budget for the fiscal year 2020-2021 (from April 1 to March 31)
In the fiscal year 2020-2021, it is projected that revenues will be 20 bp lower than those of the previous fiscal year, reaching USD 1,571 mn.
The government estimates that the total expenditure for the financial year 2020-2021 will be USD 1,686.3 mn (6.9% more than the previous year).
Despite the deterioration of the fiscal balance, the fiscal deficit presented by the budget is at sustainable levels.
We see positively the increase in capital expenditure and goods and services expenses. We believe that Barb...
February was a bad month for EM debt, as the market went into risk-off mode pushing bonds to backtrack on the gains made over the previous two months. 11 out of the 15 countries in our EMFI Core Index fell on the month, while the weighted index itself fell 5.8%, retracing below December levels.
Our Expanded Index ex. Core confirms February’s sell-off, registering declines in 21 out of 25 countries and an aggregated fall of 0.9%. Nonetheless, this fall is significantly below that of our EMFI Core Index.
Our selection of countries is clearly biased towards some large and risky high-yielders, which translates to an expectabl...
Barbados has not yet managed to get out of the economic recession that began in 2018. In 2019, Barbados's real GDP would have fallen -0.1%, according to the latest estimate by the Central Bank. This figure represents a slowdown compared to the fall observed in 2018, -0.6%. Although it has recently recovered, the potential GDP growth of Barbados has been significantly low in the last 20 years.
Although the BERT plan allowed to solve several fiscal imbalances, through the increase of taxes, the reduction of subsidies to public companies and the restructuring of debt, these measures discouraged investment that decreased -5.4%, and p...
On October 18, the government of Mia Mottley and the Barbados External Creditor Committee issued a joint statement announcing an agreement on the restructuring of the country’s USD-denominated debt, with a face amount of USD 708 mn (13.5% of GDP).
The restructuring agreement implied a haircut of 25.2% on principals amount and accrued interest. Broadly speaking, the government postponed scheduled short-term principal payments (from 2018 to 2022) to the medium term (2025 to 2029), which represents a more sustainable debt path.
Taking into account the effect of external debt restructuring, we estimate that the gross pu...
On November 5, Finance Minister Ryan Straughn explained the terms and conditions of the debt swap accepted by external creditors on October18. Straughn explained to the Lower House that two instruments will be issued. The first with 6.5% coupons in US dollars expiring on February 1, 2021, and the second with semi-annual coupons of 6.5% in US dollars with expiration on October 1, 2029.
The finance minister explained that the economy has stabilized but was not yet out of danger. Straughn said: “We have taken this country from the edge (…) When trying to get out of a hole, we must first stop digging and then make sure that ...
In the third quarter economic report, the Central Bank of Barbados (BCB), projects a flat GDP growth for 2019, a reduction with respect to the projection of the previous report, in which the bank projected a growth between 0% and 0.25%.
Real GDP fell 0.2% year to date, due to lower private investment and lower public capital expenditure. The BCB expects that the cuts in personal income taxes and tax refunds will allow domestic consumption to pickup in the fourth quarter of the year.
In the second quarter of 2020, the payment of interest to foreign creditors will resume. As mentioned above, it is essential for the government to ...
On October 18, the government of Mia Mottley and the Barbados External Creditor Committee issued a joint statement announcing an agreement on the restructuring of the country’s USD-denominated debt. The deal involves a haircut of 26.3% over the sum of principal amount, past due and accrued interest as of October 1, 2019.
Eligible securities include the BARBAD 7.8 2019, 7.25 2021, 7.00 2022, and 6.625 2035 bonds, as well as a floating rate loan with final maturity in 2019. These bonds will be exchanged for a bond with 6.5% fixed coupon bond with final maturity in October 1, 2029, amortizable in 10 equal semi-annual installments ...
On October 1st, a year from the start of the Economic Recovery and Transformation Program of Barbados (BERT), the Prime Minister Mia Mottley declared the program a success. The government is still in the process of restructuring, franchising, recycling and training of the program, as well as in the digitalization of public sector processes. On October 2, during the Sustainable Energy Conference, Mottley said: "Yesterday was the first anniversary of the program and we have met all the objectives while trying to keep the social fabric of this country together."
The tourist arrivals to Barbados increased by 4.18% in this year’s first eight months compared to the same period last year. 484,020 tourist arrivals have been totaled with respect to the 464,593 previous arrivals. However, the print published for August shows a reduction of 2.4% (1,238 people) compared to the same month in 2018. August is the only month of 2019 that has had a negative behavior compared to the last year. Most of the tourists came from the United Kingdom, followed by the United States and the countries belonging to the Caribbean Community (CARICOM).
On September 22, during the the official start of the 2019 Tour...
On September 6, the International Monetary Fund (IMF) mission headed by Bert van Selm concluded a four-day visit to Barbados. The purpose of the visit was to discuss the implementation of the Barbados Economic Recovery and Transformation (BERT) plan, under the Extended Fund Facility (EFF).
The IMF mission should return to Barbados in November to carry out the difficulties of Article IV and the second review under the EFF.
On June 1st, 2018, Prime Minister Mia Mottley – who took office in May 2018 – announced that her administration would default on its external commercial debt and would seek a restructuring agreement with domestic creditors (although it would continue serving domestic debt while it negotiated). Rating agencies respondend by downgrading the country’s long- and short-term foreign and local currency sovereign debt to “selective default” (SD). The government has restructured its domestic debt and is undergoing a restructuration process with foreign creditors.
USD 703 mn in external commercial debt ...
On June 1st, 2018, Prime Minister Mia Mottley – who took office in May 2018 – announced that her administration would default on its external commercial debt and would seek a restructuring agreement with domestic creditors (although it would continue serving domestic debt while it negotiated). Rating agencies respondend by downgrading the country’s long- and short-term foreign and local currency sovereign debt to “selective default” (SD). Curretnly, the Government has restructures its domestic debt and is under going a reestructration process with foreign creditors.
USD 703 mn in external commercial debt...
As of August 2, Barbadians can open accounts in foreign currency with minimal restrictions. The Central Bank of Barbados determined that "Residents and non-residents may open accounts in foreign currency once they meet the requirements established by the banks as well as the anti-money laundering procedures." In addition, the BCB eliminated an important restriction that required 70% of the dollar funds to be exchanged in local currency.
On July 2, the rating agency, Moody's, upgraded Caa1 to Barbados' local and foreign currency debt rating, two levels above its previous Caa3 rating. With this rating, Barbados continues to be considered a high risk issuer. However, the upgrade responds to the fact that the island has substantially improved its capacity to service the debt incurred and its future debt. .
Despite advances in debt sustainability, the government of Barbados has been slow to reach an agreement with external creditors to restructure payments for upcoming maturities. The government of Barbados will have to accelerate the pace of the negotiations, du...