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Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo
The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.
Anthony Myrvin, Gregorio Impavido, and Mr. Bert van Selm

Front Matter Page Western Hemisphere Department Contents I. INTRODUCTION II. FROM INVESTMENT GRADE TO SELECTIVE DEFAULT A. Credit Rating Downgrades III. RESTRUCTURING THE DEBT: PERIMETER AND PROCESS A. Domestic Debt Restructuring B. Retrofitted Collective Action Mechanism C. Bilateral Debt D. External Debt Restructuring E. Natural Disaster Clause IV. BARBADOS’ IMF-SUPPORTED ECONOMIC REFORM PROGRAM A. The BERT plan B. Fiscal Adjustment C. Structural Reforms D. BERT Monitoring Committee V. RESTRUCTURING THE DEBT: OUTCOMES

International Monetary Fund. Western Hemisphere Dept.

contingent credit facility instrument in case of a natural disaster. Given the high cost of insurance, the authorities recently hosted an Insurance Colloquium bringing together regional leaders, multilateral institutions, and the industry to discuss options to scale-up insurance coverage in the Caribbean, including potentially by pooling risks with other regions. Our authorities encourage the Fund to work with its partners to offer thought leadership in this area. The authorities wish to highlight the inclusion of natural disaster clauses in their new debt instruments

Charles Cohen, S. M. Ali Abbas, Anthony Myrvin, Tom Best, Mr. Peter Breuer, Hui Miao, Ms. Alla Myrvoda, and Eriko Togo

restructurings, where the use of such instruments is common. (2) How can SCDIs which offer only “downside” protection to sovereigns, be used during restructurings to embed longer-term resilience in debt structures? Recent restructurings in the Caribbean have provided opportunities to include “natural disasterclauses that allow for maturity extensions and interest forbearance following severe shocks. The use of such clauses in future restructurings would likely be beneficial, as they provide valuable insurance at low cost against exogenous shocks in ways that are not

International Monetary Fund. Secretary's Department

, natural disaster clauses in state-contingent debt instruments, and the impact of climate change on macroeconomic and financial stability. Climate-related risks are also being integrated into stress testing and financial stability monitoring as part of the IMF-World Bank Financial Sector Assessment Program (FSAP). Furthermore, work is ongoing to integrate climate considerations into the public financial management cycle (“green budgeting”) and into infrastructure governance. The IMF, in collaboration with other international organizations, country

International Monetary Fund. Western Hemisphere Dept.

Barbados economy. They welcomed the inclusion of natural disaster clauses into new debt instruments, noting it will help strengthen Barbados’ protection against natural disasters. Directors stressed the importance of structural reforms to strengthen competitiveness and unlock Barbados’ growth potential. They encouraged the authorities to continue ongoing efforts to improve the business environment by streamlining regulations and addressing key obstacles to growth. Deeper regional integration would also help increase Barbados’ growth prospects. Table 1. Barbados

International Monetary Fund. Western Hemisphere Dept.

/34. “An improved governance framework of the Central Bank of Barbados would facilitate limiting monetary financing to the government, and strengthening the central bank’s mandate, autonomy, and decision-making structure. Measures to strengthen the AML/CFT regime would also be helpful. “Strengthening disaster resilience is key to boosting medium-term economic prospects. Climate change is likely to increase Barbados’ vulnerability to weather-related events that could have a major impact on its economy. With the inclusion of natural disaster clauses into new domestic and

Anthony Myrvin, Gregorio Impavido, and Mr. Bert van Selm
This paper examines the causes, processes, and outcomes of Barbados’ 2018–19 sovereign debt restructuring—its first ever. The restructuring was comprehensive, featuring several rarely used approaches, including the restructuring of treasury bills, and the use of a retrofitted collective action mechanism. The debt restructuring has helped to set Barbados’ public debt on a clear downward trajectory. A sustained reform effort, maintaining high primary surpluses and ambitious structural reforms, will be needed to gradually reduce public debt from about 160 percent of GDP before the restructuring to the country’s 60 percent debt-to-GDP target.
Anthony Myrvin, Gregorio Impavido, and Mr. Bert van Selm

). Importantly, the participation rate in the Credit Suisse facility came in at 100 percent (investors in this facility had been represented in the creditor committee)—see Box 1 . On December 11, 2019, the transaction closed with full creditor participation. On the same day, and in response to the completion of the debt exchange, Standard and Poor’s upgraded Barbados’ foreign currency sovereign credit rating from Selective Default to B-. E. Natural Disaster Clause Barbados is at risk of extreme weather events, as well as earthquakes, and the government of Barbados

International Monetary Fund. Western Hemisphere Dept.

identified parameters that would provide debt relief without jeopardizing financial stability, and an exchange offer for domestic debt (Barbados dollar-denominated) to private creditors was launched on September 7, 2018. The proposed debt restructuring includes features, including a natural disaster clause, that are expected to help the authorities stay current on their future debt obligations. It is important to continue good faith negotiations with domestic and external creditors. “Bold structural reforms are needed to improve Barbados’s growth potential and