Barbados Sovereign Debt Restructuring 2018-19 -- Like The Island, Small But Perfectly Formed

Abstract

The Caribbean is no stranger to sovereign debt restructurings. It is hard to imagine another region of the world with a higher ratio of GDRs per capita. In only the last ten years (a blink of an eye in sovereign debt years), each of Antigua and Barbuda, Belize, Grenada and St Kitts and Nevis have undergone debt restructurings and Jamaica has done so twice. So what is newsworthy about the debt restructuring just completed by Barbados? There are two significant “firsts”, as will be described in more detail in this article: - first use in the Caribbean of local law legislation to introduce a class voting system across exiting local law sovereign bonds, a la Greece ; and - first country to take advantage of a re-papering of the terms of its domestic and foreign sovereign debt to include a “natural disaster” clause to enable the deferral of debt service costs in the event of significant damage caused by a natural disaster. Barbados is, economically, in a relatively privileged position within the Caribbean. Its GDP per capita is in the same IMF bracket as Portugal and Mexico and three and four times than the GDP per capital of Dominica and Jamaica, respectively . Geographically too, Barbados is in a relatively privileged position. It stands out on its own, about 150kms east of the crescent of islands that make up the Windward Islands and Leeward Islands, known collectively as the Lesser Antilles. It’s latitude makes it one of the more southerly of the Lesser Antilles, which is believed to make the island less at risk of hurricane damage than more northerly islands. However, Barbados’ privileged position made it particularly vulnerable to the financial storm that followed the global financial crisis. As a service provider of higher end Caribbean vacations, Barbados was particularly impacted by the downturn in vacation spending by those in the UK, US and Europe whose disposable income had been constrained by the financial crisis. As one of the wealthier countries in the Caribbean, international private creditors had been keen to provide loans and buys bonds issued by Barbados in the boom years leading up to the financial crisis. Even before the fall in GDP per capita that coincided with the financial crisis, the debt to GDP of Barbados had been rising precipitously from 53.8% in 1999 to 100% in 2009. By the time prime minister Mia Mottley swept into government following a landslide election victory in May 2018 (in which her party won all 30 seats in the Barbados parliament), the island’s debt to GDP had reached 175% including arrears. With characteristic decisiveness, immediately on entering office Ms Mottley announced that there would be a restructuring of the country’s debts.