Make debt climate-resilient, says Barbados PM after restructuring agreement
As part of a debt restructuring, Barbados has included a natural disaster clause — something its prime minister Mia Mottley hopes will be adopted by other vulnerable nations
Barbados’ prime minister Mia Mottley told GlobalMarkets that she hoped more nations vulnerable to climate change would take steps to make their debt more resilient after the Caribbean nation included a “natural disaster” clause in a restructuring agreement with international bondholders.
The external creditor committee, which together holds more than half of Barbados’ US dollar debt, and the government yesterday announced an agreement to exchange bonds maturing between 2019 and 2035 for one new bond maturing in October 2029.
The “natural disaster clause” will enable the government to capitalise interest and defer principal maturities on the new bonds for two years in the event that Barbados is adversely affected by an earthquake, tropical cyclone or floods. Its Caribbean Catastrophe Risk Insurance Facility (CCRIF) coverage will determine whether there has been an event.
“When a small island faces a climate catastrophe, this can bring a real risk of default,” Mottley told GlobalMarkets. “Rather than being seen as an extra risk for creditors, this clause gives them greater certainty.
“It makes the debt more resilient to future climate events, and small island states, especially, need to protect themselves as much as possible.”
Barbados will approach the Caribbean Development Bank and Inter-American Development Bank to show its work, said the PM.
Around 80% of Barbados' total debt now has this clause, and the government’s bond will be the only one in the JP Morgan Emerging Market Bond Index to have the clause.
A small portion of Grenada’s debt — product of a 2015 restructuring also led by Barbados’ advisor, White Oak Advisory— has a similar clause.
“We small island nations are not major contributors to the climate crisis, but we are at the forefront when it comes to feeling the effects,” the prime minister told GlobalMarkets.
Eaton Vance, Greylock, Teachers Advisors and the Guyana Bank for Trade and Industry were the core members of the committee.
With a domestic debt restructuring completed last year, Barbados’ debt to GDP ratio has now fallen from 176% of GDP when Mottley took office in May 2018 to 114%.