IMF 2005 Country Report on Belize

....has been published and can be downloaded here:

http://www.imf.org/external/pubs/ft/scr/2005/cr05352.pdf

This is an Adobe Acrobat PDF file - about 3/4 of a megabyte so those
on dial up will take some time to download.

I've gone through it and selected some portions that attracted my interest:

EXECUTIVE SUMMARY

• Recent Developments. The economy grew at a relatively robust pace in
2004, supported
by strength in the tourism, agriculture, and fisheries sectors.
However, the fiscal and
external current account deficits remained at unsustainable levels,
public debt reached
100 percent of GDP, and the authorities failed to achieve the
envisaged fiscal policy
adjustment.

• The authorities began to tighten policies in 2005 in response to
growing concern
regarding the risks of a balance of payments crisis. In May, the
authorities announced
fiscal measures aimed at reducing the deficit to 3 percent of GDP and
also tightened
monetary policy to contain credit expansion.

• A stronger adjustment effort appears necessary. The magnitude of
adjustment, delays
in policy implementation, and new spending commitments mean that the
FY05/06 fiscal
target will not be achieved. Moreover, the substantial external
financing gap that is likely
to emerge in 2006 means that additional and sustained fiscal measures
will be required.

• The authorities see only limited scope for additional fiscal
measures. They argued
that there is only limited room for a stronger fiscal adjustment
effort given the severity of
the measures already taken and the contractionary impact on the economy.

• There is a need to deal expeditiously with the insolvent Development Finance
Corporation (DFC). The assets of the failed DFC continue to
deteriorate and budget
support is necessary to sustain its operations. The authorities have
taken steps to
restructure the DFC, but key policy elements are yet to be defined.

• The authorities have announced their intention to seek debt-service
relief from
external creditors. It is essential that this be carried out early and
in a transparent and
orderly manner, and will most likely be successful if undertaken
within a medium-term
framework aimed at restoring debt sustainability and a resilience to shocks.

17. Although the authorities were unwilling to discuss amendments to
the exchange
rate system, they saw little immediate scope for additional measures
to support the peg.
This reflected concern that further adjustment would trigger an
excessively large economic
contraction or a resurgence of social tensions. While the authorities
remained committed to a tight macroeconomic stance during 2005–06,
they recognized the need to approach their external creditors to seek
their assistance in closing the financing gap, possibly through relief
of debt service in 2006.

23. The staff team emphasized that substantial risks would remain under the
medium-term scenario. Achieving and sustaining a primary surplus for
such an extended
period would not be easy, particularly in light of the social and
political pressures that had
emerged in the past year. Moreover, the country would continue to be
highly vulnerable to
exogenous shocks. In particular, Belize's banana, citrus, and shrimp
exports faced significant price or output volatility, while the sugar
and banana industries will have to cope with the erosion of EU
preferences beginning in 2006. Moreover, regional trade agreements
such as CAFTA would also weaken Belize's relative competitiveness in
U.S. markets. This
underscored the importance of achieving and maintaining a sustainable
macroeconomic
framework and lowering levels of debt in order to restore a level of
resilience to exogenous
shocks.

Taxable fuel imports have remained stable in recent years, owing to
widespread tax exemptions. Total imports of premium gasoline fell by
12 percent in 2004 and are expected to fall by 8 percent in 2005. Most
of the decline is related to the collapse of the fuel re-export
market, reflecting a change in petroleum taxation and pricing in
neighboring Mexico in 2004.

29. The team called for a swift closure of the DFC and an orderly
disposal of its
assets in line with the recommendations presented in a recently
completed IDB study.
The corporation continued to make losses and was in no position to
service its debt to the
central government, implying a fiscal revenue shortfall of close to 2
percent of GDP in
FY05/06. At the same time, the value of its physical assets and loan
portfolio continued to
deteriorate. It would be important to minimize the government's losses
through a wellmanaged and transparent disposal of the DFC's portfolio.
The staff expressed concern that no supervisory audit of the DFC had
been completed to date.

32. The authorities agreed on the need to contain credit growth and reduce
pressures on the foreign exchange market. The CBB noted that private
sector credit
growth was slowing, but conditions could be tightened further if
necessary. Although interest rates tended to be sticky in Belize and
were not expected to move significantly in response to changes in
liquidity conditions, the officials expressed confidence that changes
in cash reserve requirements and shifts in public sector deposits from
the commercial banking system to the CBB were effective instruments
for containing credit growth.

41. The team cautioned that Belize's trade regime remains somewhat
restrictive and
nontariff barriers are pervasive. Belize has implemented the CARICOM
tariff schedule
and has an average tariff of around 11 percent, but nontariff barriers
such as nonautomatic
licensing requirements cover 30 groups of mainly agricultural goods.
Recent policy actions
had increased the goods subjected to protectionist nonautomatic
licensing, such as soft
drinks, or minimum pricing, such as beer. However, the authorities did
not agree with the
staff's assessment that import restrictions should be phased out in
favor of tariffs with a view to improving resource allocation and
widening the tax base, citing food security concerns, smuggling, and
the possibility of severe price volatility.