ST. JOHN’S — An international investment-rating agency has suggested that Caribbean territories should devalue the Eastern Caribbean currency or adopt the US dollar in an effort to address what it deems to be a “debt crisis” in the region.
In a recently published report, Moody’s Investor Services said currency devaluation and the dissolution of the Eastern Caribbean Currency Union, while unlikely, could enhance the region’s competitiveness.
“We do not see policymakers voluntarily choosing these options because they would sacrifice price stability and risk political upheaval,” the report read.
“Only a balance of payments crisis (similar to what happened in 1989 in Trinidad, when it abandoned its currency peg and subsequently defaulted on its sovereign debt) could force policymakers to choose these options.”
Admitting that currency devaluation is unlikely to happen, the New-York based agency said “severe domestic adjustments” through deficit reduction and structural reforms intended to stimulate growth, are the only options that remain.
In its weekly Credit Outlook report, dated May 20, Moody’s presented a negative outlook on the future of regional debt, noting that Caribbean countries remain “unable and unwilling” to service arrears.
“We see the defaults of Belize, Jamaica and Grenada over the past year as being part of a broader debt crisis in the Caribbean,” the credit rating body said.
“At the moment, we see a high probability that Belize and Jamaica will relapse into default. In addition, Grenada is currently restructuring its debt for the second time since 2004, which mirrors broader distress in the ECCU.”
The report noted that St. Kitts & Nevis defaulted on its debt in 2011 and that Antigua & Barbuda restructured its debt in 2010. It posited that despite these restructurings, ECCU members remain among “the most heavily indebted” nations in the world.
“A sustained reduction in debt in the region over the next decade will require a combination of aggressive fiscal consolidation and increased economic growth. However, both goals are increasingly out of reach,” the report stated.
It said that budgets in the region are largely inflexible, because of high and rising interest costs and expenditure on wages and social benefit schemes.
Moody’s added that debt restructuring, while an attractive tool, has done little to address the threat of insolvency posed by unmanageable debt burdens.
Moody’s Investor Services provides credit ratings and research on debt instruments and the countries or companies that offer them. (Antigua Observer)