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REPORT #400 September 2000
THE WORLD BANK GROUP'S COUNTRY LOAN STRATEGY
FOR BELIZE!
Produced by the Belize
Development Trust
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EXECUTIVE SUMMARY
i. Belize is the only anglophone country in Central
America. It is small and ethnically diverse, with a
sparsely distributed population of 240,000, and is
nestled between the Mexican Yucatan peninsula and
Guatemala. In spite of a substantial influx of poor
people migrating from strife-torn Central American
countries during the late 1980s to mid 1990s,
substantial progress in the social conditions has been
achieved in Belize. Nevertheless, Belize continues to
be faced with major development challenges, in part
due to its small size. Based on a 1996 survey, it was
estimated that about 33% of the population remained
below the poverty line, most of which lived in the
southern rural districts of Toledo and Cayo.
The Government estimates that the poverty situation
has changed little during 1996-99. The poor are
comprised mostly of indigenous Mayans, refugees and
migrant agricultural workers from neighboring Central
American countries, as well as small farmers and
manufacturing workers.
ii. Since the last Bank CAS of November 1993,
economic growth has declined from an average of over
9% a year during 1987-92 to around 3% during 1993-98.
Coupled with rising annual population growth, per
capita incomes have thus remained stagnant and
unemployment has risen. The underlying factors for
this economic slowdown are an expansive fiscal policy
which was compensated for by a tight monetary policy
that has kept domestic interest rates high, and eroded
the international competitiveness due to rising costs
of labor, electricity and water. The central
government savings (current revenue less current
expenditure) declined from 2.7% of GDP in March 1994
to 0.6% of GDP in March 2000. The overall public
sector deficits increased over the years and were
largely financed by external borrowing, often on
commercial terms, or by privatization proceeds.
External debt of the public sector has increased
rapidly in recent years. In addition, the constraints
of a small economy, such as small production volumes,
erosion of preferential market arrangements and
limited economic diversification, susceptibility to
natural disasters, oligopolistic structure in several
markets, limited human resource and administrative
capacity, and the high cost of public services have
compounded the difficulties.
iii. In the midst of these difficulties, the
Peoples United Party (PUP) came to power in August
1998 with an overwhelming parliamentary majority on an
ambitious platform of economic growth, social
development and poverty reduction. After almost a
two-year, nation-wide consultations with the civic
society, the Government recently formulated a
Five-year National Poverty Elimination Strategy and
Action Plan (NPESAP) with support from the Caribbean
Development Bank (CDB) and the UK Department for
International Development (DFID). This CAS for the
period 2001-2005, which builds on the NPESAP, was
initiated in June 1999 and has been prepared following
extensive consultations with the Government, key NGOs,
private sector groups, and multilateral and bilateral
agencies based in Belize.
iv. The overarching goal of the Government's
development agenda is to reduce poverty from about 33%
in 1999 to 28% by 2004. As a first step in its
commitment, the Government with DFID assistance plans
to prepare a poverty update in late-2000. The
following are the four main pillars of the
Government's poverty reduction strategy:
Enhancing economic growth. The gradual erosion of
preferential market arrangements is projected to
reduce real GDP growth by about 1-2% per year. The
economy has responded, albeit to a limited extent,
through diversification in tourism, financial
services, garment manufacturing and shrimp farming.
There is now a broad consensus in the country that
sustaining a real GDP growth of 5% per year (per
capita private consumption growth of about 3%)
requires prudent macroeconomic management, in
particular sustainable fiscal policy, trade
liberalization, broadening the economic base,
accelerating land titling and improving the regulatory
framework in critical sectors that is conducive for
private sector participation.
In this context, the Bank will be assisting the
Government by providing policy advice based on reviews
of public expenditures, including the prioritization
of the public sector investment program;
Improving Access to and Quality of Social Services.
The rural population, particularly in the poorer
districts of Toledo, Cayo and Stann Creek, has limited
access to basic education, health services, safe
water, sanitation, land and housing, and essential
transport and telecommunication services. The
Government strongly believes in the need for a
multi-pronged approach to the problem, based on
investment in education, health, land development and
housing for the low-income groups, along with a
facilitation of micro credits, and reform of safety
net programs to improve their efficiency and
effectiveness in terms of cost, outreach and
targeting. The Bank's involvement in Primary Education
and the Social Investment Fund has been critical in
supporting Government policy in these areas. Follow-up
operations in education and social protection along
with a review of the social safety nets are envisaged
in this CAS; Modernizing the State and Improving
Governance. Over time, the public sector has become
large with deteriorating systems of financial control
and accountability and falling standards of quality of
public services. The Government has embarked on an
ambitious program of political reform and is
encouraging more voice for diverse groups to ensure
better targeting and effectiveness of social and
economic investments and prevent corruption, money
laundering and drug trafficking. In order to attract
and qualified personnel, the Government has initiated
the reform of the civil service and is strengthening
public institutions, including decentralization to
local agencies and communities. While the laws and
mechanisms to deal with these problems are in place,
there is a need for greater monitoring and enforcement
capacity within the Government. The Bank has planned a
Procurement and Financial Management Review in FY03 to
provide needed advice in this area, which could be
advanced in timing should the Government accelerate
the pace of public sector reforms; and Environmentally
Sustainable Development.
The main sources of growth in Belize - tourism, sugar,
bananas, citrus, forestry and aquaculture - are based
on natural resources. Using the natural capital in a
sustainable manner is therefore critical. As detailed
in the 1996 National Environmental Action Plan (NEAP),
the poor are affected by inadequate land and waste
management, water pollution, and natural disasters.
Protection of historical sites in Belize is crucial
for preserving the cultural heritage and the
livelihood of the Mayans. As painfully reconfirmed by
Hurricane Mitch in late 1998, natural disaster
management is imperative because Belize lies in the
hurricane belt and much of the coastal land is below
sea level, thus prone to frequent flooding. The Bank
is committed to financing critical road and drainage
works which will enable small farmers to access the
regional markets and reduce flooding in six rural
areas through the proposed Roads and Municipal
Drainage Project.
V. The Bank's Assistance Strategy. Against this
background, the Bank will seek close coordination and
burden sharing within the overall efforts of the
development community to maximize its value added and
utilize its global knowledge. Since the last CAS, the
Bank has had limited success in influencing
successive governments in following a consistently
prudent fiscal policy. Consequently, the Bank has
identified a smaller program with emphasis on
non-lending services, in particular to clarify its
understanding of the difficult issues ahead of project
preparation and to generate open discussion of such
issues. Bank projects would be small, ranging between
US$7-13 million per project, and well-focused to
minimize risks. Further, the Bank will manage and
mitigate these risks by monitoring, together with the
IMF, the fiscal situation, helping strengthen project
execution capacity, and maintaining an intensified
portfolio monitoring effort.
Vi. The three triggers for the Base Case Lending
Scenario are: [a] satisfactory implementation of the
Bank-financed projects as measured by realism and
proactivity indices (para. 58); and [b] improvement in
the macroeconomic management (by generating central
government savings of at least 3% of GDP on a
consistent basis and containing the ratio of external
debt service to government revenues at no higher than
25%); and [c] move towards a regular monitoring of
poverty and social conditions and increase the net
enrollment rates in primary and secondary schools.
Should the Government fail to comply with [a] or [b]
or [c] as mentioned above, the Bank will move to a
zero lending scenario by halting the preparation of
pipeline projects until there is a demonstrable
improvement in complying with the triggers. In such a
scenario, the Bank would continue to engage the
Government through non-lending activities and donor
coordination.
vii. Risks. Belize is a stable democracy. While the
incumbent Government has an overwhelming majority in
the Parliament and broad support in the local Town
Boards, it faces three main risks over the medium
term relating to external economic and natural shocks,
macroeconomic management, and implementation capacity.
First, although to a large extent Belize has
successfully absorbed the erosion in preferential
trade arrangements of its main agricultural exports
since the late 1980s, it is likely to experience low
growth or even a recession during this decade if there
is further erosion in the said arrangements as well as
a slowdown in the highly competitive tourism and
garment industries due to further appreciation of the
real exchange rate. Fortunately, Belize has good
relationships with the European Union, the CDB and the
IDB, and with bilateral donors, in particular the UK,
Canada, the USA, and Taiwan, China, which stand ready
to provide assistance during this economic transition
and some of them have large programs, spread over
several areas -- highways and roads, land and
agricultural development, water and sewerage, power
development, basic needs, huff icane reconstruction,
disaster preparedness, environment. Second, fiscal
performance may not improve or may even worsen, which
could lead to higher external borrowing and
difficulties in the availability of foreign exchange
and counterpart funds for projects. The large current
account deficit in the balance of payments, low
foreign exchange reserves holding, and recent
commercial borrowings by the Government coupled with
financial sector vulnerabilities pose additional
risks. Third, Belize has limited human resources
capacity and the recently initiated changes in the
civil service have to be well managed by the
Government so as to maintain its capacity to implement
policies and projects.
viii. Issues for Executive Directors' Discussion.
Given the above mentioned risks, are the Bank's
triggers on fiscal deficits and project implementation
identified in Section IV adequate for the lending
scenarios? Does the resulting lending program and
non-lending services for the next five years represent
most appropriate role the Bank can perform to support
the Government's development efforts? The Government
would like to ensure the continuity of the Bank's
support. Do the Bank instruments and program as
spelled out in the CAS provide for flexibility in the
Bank's response to a changing environment and the
associated
Source: World Bank web site
QUICK SUPERFICIAL COMMENTARY FROM THE EDITOR OF THE BELIZE DEVELOPMENT TRUST follows!
1) A problem with Belize is a political oligarchy. Political geographical electoral reform is needed here.
2) The World Bank Report mentions reform of the civil service. I take that to mean 'out with the dead wood' and increases in educational levels for the bureaucracy. Minimum Bachelors Degrees required for the Belize Civil Service now that the local University is providing an academically educated source.
3) Belize is lacking in statistical numbers in all departments. Belize also is lacking in work performance, and ordinary quarterly and annual reports for each civil service department.
4) World Bank mentions the failure of successive governments to follow prudent fiscal policies.
5) Belize Government needs more SAVINGS. About $1700 million to be more appropriate. Recommended is a deposit of 3% of GDP by the World Bank. I presume that to mean an untouchable SAVINGS of Foreign Reserves until the goal of $1700 million is reached.
6) The external DEBT SERVICE should be no larger than 25 % the World Bank says of annual revenue. Currently, it is estimated to be 465% of annual revenue, but no one knows for sure because of SECRECY by the Ministry of Finance. I think 25 % is too large a trigger even as suggested by the World Bank, it should be about 12 % to 20% maximum.
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