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Grenada default elevates risk of spilling over into other Eastern Caribbean Currency Union states – Moody’s
It said that St. Kitts & Nevis defaulted on its debt in 2011, and Antigua & Barbuda restructured its debt in 2010.
Moody’s said both countries have active International Monetary Fund (IMF) stand-by programs “with embedded conditionality and structural reform requirements” while all six Eastern Caribbean Currency Union members, which also include St. Vincent & the Grenadines, St. Lucia and Dominica, “rely on emergency IMF credit facilities for financing reconstruction following the impact of hurricanes”.
The credit rating agency said government debt in the Eastern Caribbean Currency Union is “high,” adding that the regional average was 94 percent of Gross Domestic Product (GDP) in 2012, putting it “on par with distressed Euro area sovereigns”.
Moody’s said regional GDP contracted at an average rate of 2.1 percent between 2009 and 2012, adding that it expects “only a modest recovery in 2013”.
In addition to the debt overhang, it said Eastern Caribbean Currency Union sovereigns face elevated risks stemming from twin current account and fiscal deficits.
“Absent a currency devaluation or exit from the union, which are both unlikely options at this time, policy levers for addressing these imbalances and repairing sovereign balance sheets are limited to a severe domestic adjustment through fiscal consolidation and structural reforms to stimulate growth.
“For a number of sovereigns in the region, these reforms may not materialize fast enough to arrest rising sovereign financing needs, leading to liquidity crunches,” Moody’s said, adding that a sustained reduction in debt in the region over the next decade will require “some combination of aggressive fiscal consolidation and an improvement in growth”.
