Caribbean: More Credit Crises Only A Matter Of Time
The Caribbean region continues to face a heightened risk of additional debt restructurings, with three sovereigns having already technically defaulted in 2013. Signs of waning commitments to debt servicing obligations in the absence of stronger economic growth suggest that another credit event is only a matter of time. While formal IMF deals may offer some solace, we identify economies with a currency peg as being particularly at risk.
Left reeling from the aftermath of the 2008-2009 global financial crisis, the Caribbean region remains at high risk of sovereign credit events. With only limited options for addressing mostly unsustainable external positions and with some of the highest average external public debt loads as a percentage of national output among emerging markets, debt restructurings are fast proving to be a popular policy in reducing the principal on public debt. Indeed, this year alone has seen three formal debt restructurings in the Caribbean region: Belize, Grenada, and Jamaica.
We believe that it may only be a matter of time before another sovereign in the region begins debt restructuring negotiations with international creditors.
Dominica and Grenada are particularly at risk in restructuring talks, and in the case of the latter, an orderly default may prove unattainable in light of poor macroeconomic fundamentals. In addition, we highlight that Caribbean economies with fixed exchange rates, such as those which use the East Caribbean dollar, are ill placed to correct unsustainable debt dynamics in the foreseeable future.