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BELIZE | Economy recovering with significant progress toward debt reduction says IMF

Featured BELIZE | Economy recovering with significant progress toward debt reduction says IMF
WASHINGTON DC, September 24, 2018 - Belize’s economic recovery is strengthening, the government is making significant progress toward debt reduction, and the Central Bank of Belize (CBB) has taken resolute actions to improve financial soundness.

This is the word from the International Monetary fund at the conclusion of its visit to  Belize from September 11-20 where it conducted discussions for the 2018 Article IV consultation with the Centrtal Bank of Belize, representatives of the government as well as representatives of the opposition, private sector, and public sector unions.

The IMF in its staff report, pointed out that "public debt is elevated, the external current account deficit remains large, and international reserves are just above 3 months of imports of goods and services."

"In the view of the team, policies to enhance Belize’s growth and resilience are essential for addressing these challenges and for improving economic wellbeing. Reducing debt to prudent levels and building reserves requires additional fiscal consolidation alongside structural reforms that strengthen the business environment and promote inclusive economic growth," the report said.

"Additional steps to fortify regulatory oversight, bank resolution, and the anti-money laundering (AML) and combating the financing of terrorism (CFT) framework would support the recovery of correspondent banking relationships (CBRs) and strengthen investor confidence," the bank said.

In outling the country's economic development and outlook, the IMF said :

Belize’s economic recovery is strengthening, supported by a favorable global environment.Real GDP grew by 1.4 percent in 2017, and recent data indicate an acceleration in economic activity, with growth in 2018Q2 estimated at 5.4 percent (y/y). Tourism arrivals were up 17.1 percent in January–June 2018 compared with a year earlier, reflecting economic expansion in Belize’s trade partners and an increased number of flights. The unemployment rate declined to 9.4 percent in April 2018 from 9.7 percent six months earlier, while inflation was below 1 percent (y/y).The current account deficit narrowed to 7.6 percent of GDP in 2017 from 8.4 percent of GDP in 2016, reflecting subdued imports and higher receipts from tourism.

The government delivered a significant fiscal adjustment in FY2017/18.The primary balance increased to a surplus of 1.3 percent of GDP in FY2017/18, excluding a one-off effect of a Caribbean Court of Justice (CCJ) ruling, implying a 3.2 percent of GDP turnaround from the FY2016/17 level.The adjustment occurred largely through a reduction of government investment, which affected growth. Tax measures raised revenues, although their yield was lower than anticipated.

The FY2018/19 budget approved by Parliament raises the primary fiscal surplus further, to just above 2 percent of GDP.The planned adjustment is mainly through higher revenues. Measures include broadening the base of the General Sales Tax (GST) by removing zero-rated items, higher excises on fuel, and higher import duties on selected items, supported by stronger tax administration and spending restraint. In his budget speech, the Prime Minister underscored the importance of raising the primary fiscal surplus to achieve a reduction in public debt to 60 percent of GDP over the long term.

Improving the business climate remains a central priority.Belize’s outlook of rising growth, especially in the agriculture, call-center, and tourism sectors, provides an opportunity to make progress on policies that will strengthen the recovery in the short term and raise long-term growth, without significant fiscal costs. Structural reform priorities include easing access to credit by establishing a Credit Bureau and collateral registry; accelerating and modernizing procedures for starting a business; amending labor legislation to allow greater flexibility in working hours; increasing support for technical training; improving governance in customs and public procurement; fighting corruption, including by implementing the asset declaration regime for senior public officials, strengthening the independence and capacity of the Integrity Commission, and bolstering enforcement against perpetrators of corruption; and amplifying support for crime prevention and juvenile rehabilitation, including community action programs.

The medium-term outlook remains challenging.Real GDP growth is projected at 2.2 percent in 2018 and just below 2 percent in the medium term, in line with recent trends. The current account deficit is projected to gradually narrow, but remain significant, reflecting structural weaknesses, with international reserves projected below 3 months of imports of goods and services over the medium term. A fiscal stance that is stronger than projected in the baseline scenario, which assumes no fiscal adjustment beyond FY2018/19, would be needed to reduce public debt from its end-2017 level (94 percent of GDP) to prudent levels over the medium to long term and build buffers against shocks.

The Bank however cautioned that: "Contested legacy claims, estimated at about 5 percent of GDP, could lead to large public and external financing needs. Reputational risks from potential financial misuse of the offshore sector’s complex entities, and governance concerns, could weaken investor confidence and renew pressures on CBRs, which would weaken banks.

"These vulnerabilities would be exacerbated by a growth slowdown among Belize’s main trading partners, higher international energy prices, and increasingly severe natural disasters associated with climate change. Such adverse developments could undermine public support for the government’s reforms and endanger debt sustainability. On the upside, additional foreign direct investment, including in connection with the tourism industry’s expansion, and a successful implementation of the Growth and Sustainable Development Strategy (GSDS) could result in a sustained rise in growth.

 

 

  • Countries: Belize

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