Moody’s downgrades Belize ratings We sink from B3 to Caa 3

From The Reporter

New York, October 26, 2005

Moody’s Investors Service has downgraded Belize’s ceilings for foreign-currency bonds to Caa3 from B3 in light of persistent concerns about external liquidity and a macroeconomic framework that is inconsistent with debt sustainability.

Moody’s has also changed the country ceiling for foreign-currency deposits to Caa3 from Caa1. The government’s local-currency rating was also downgraded to Caa3 from B3. The outlook on all of the ratings is stable.

Attempts to correct the large fiscal and external imbalances have proven to be insufficient to avert potentially severe pressure on the balance of payments, said Moody’s. This, in turn, could threaten macroeconomic stability, including the sustainability of the country’s fixed exchange rate regime.

The downgraded ratings reflect heightened risks that Belize will need to restructure its debt obligations in a manner that would inflict considerable losses to creditors. Even under the most optimistic assumptions, Moody’s concluded that an external funding gap could lead to a rapid reduction of foreign-exchange reserves, which might lead to a disorderly restructuring of obligations.

Moody’s said that it will continue to monitor the government’s progress toward fiscal consolidation and its announced intentions to improve the external debt profile through negotiations with private creditors.