Twsco Swot

Weak external liquidity. The liquidity position of the public sector is especially dire in 2005, hampered by the massive amortization needs (as compared to the available assets) and limited ability to access external financing. The public sector's amortization for 2005 is estimated at US$150 million (including the amortization of US$79 million of notes arranged by the Capital Markets Financial Services, Inc. in November 2004) compared with gross international reserves of US$139 million. The actual financing gap is even higher, as the public sector finances larger part of Belize's high current account deficit. At the same time, the available (usable) reserves are lower, at roughly US$90 million, since the international reserves must cover at least 40% of the monetary base in support of the Belizean peg. The access to the external financing is limited and continues to suffer due to the unstable political situation. On a country level, the financing gap in 2005 (current account deficit + principal amortization + short-term debt) is estimated at US$524 million, or 580% of usable reserves, one of the highest ratios among the rated sovereigns. Specifically, this estimate includes the current account deficit (US$184 million); amortization payments of the public sector (US$150 million), and private sector financing needs (US$190 million).

* High general government debt with a deteriorating profile. The government debt upward trajectory has been difficult to reverse due to persistent fiscal slippages and more recently, government's assumption of Development Finance Corporation's (DFC) debt as a result of the bank's financial collapse. DFC-related liabilities (including mortgage-backed securities (MBS) transactions initiated by DFC) are estimated at 9% of GDP and are considered (starting in 2004) the government's direct, rather than contingent liability. As a result, the general government debt has increased to 97% of GDP in 2004 (91% on a net basis), up from 85% in 2003. More than 85% of the general government debt is external, and more than 64% of the external public debt is owed to the commercial creditors. Such debt positions are not sustainable, especially in the framework of the fixed exchange rate regime.

* Vulnerability to adverse external developments. Rising oil prices and imminent price cuts for sugar exports (15% of Belize's merchandise exports) are putting strain on the already soaring external current account deficit (at 20% of GDP on average in the past four years). Belize is also prone to weather-related disasters (hurricanes and tropical storms). The most recent hurricanes caused damages amounting to 34% and 19% of GDP in 2000 and 2001, respectively.

On a positive side, the ratings reflect:

* Strong real economy, as evidenced by the healthy growth in most sectors, continuous private investment despite political turbulences, and improving (albeit still narrow) economic and export structure, reflecting ongoing diversification efforts.

Outlook: Negative

The negative outlook reflects increasing risk of default given Belize's tight external liquidity position and the persistent difficulties to secure much needed financing. The features of the recent financing transactions (need for a financial guarantee, put options,