#213456 - 08/30/06 05:41 AM
IMF Concludes Annual Article IV Mission to Belize
GOVERNMENT OF BELIZE
TEL: 08-20092/4 FAX: 08-22671/20093
Ministry of Finance
IMF Concludes Annual Article IV Mission to Belize
Belmopan - 29 August, 2006
A Mission from the International Monetary Fund (IMF) led by Andreas Bauer today concluded a visit to Belize during which it conducted the discussions for the IMF’s Annual Article IV Review of Belize.
Staff members of the Caribbean Development Bank and the Inter-American Development Bank also participated in the review meetings.
During their visit to Belize, from 17 to 29 August, 2006, the Mission held discussions with the Belize Authorities including the Rt. Hon. Prime Minister and Minister of Finance, members of the Public Finance Committee, senior officials of Ministry of Finance and the Central Bank of Belize, representatives of the commercial banks, the business community, labor, and the Hon. Leader of the Opposition.
IMF Executive Director for Belize, Mr. Jonathan Fried, and Mrs. Yvette Alvarez, Advisor to the Executive Director, participated in the wrap-up meeting held today with the Belizean Authorities at the Central Bank of Belize.
At the end of the visit, the Mission issued a statement summarizing its preliminary conclusions, which has been posted on the IMF website, and can be accessed under http://www.imf.org/external/np/ms/2006/082906.htm
. This statement can also be accessed from the Central Bank of Belize Website, www.centralbank.org.bz
under section: Information for Belize’s Creditors.
The Article IV Report on Belize is scheduled to be considered by the IMF Executive Board in October 2006 after which the Report and related statements will be issued for public information on the IMF website.
#213457 - 08/30/06 02:43 PM
Re: IMF Concludes Annual Article IV Mission to Belize
Describes the preliminary findings of IMF staff at the conclusion of
certain missions (official staff visits, in most cases to member
countries). Missions are undertaken as part of regular (usually annual)
consultations under Article IV of the IMF's Articles of Agreement, in the
context of a request to use IMF resources (borrow from the IMF), as part of
discussions of staff monitored programs, and as part of other staff reviews
of economic developments.
Belize-2006 Article IV Consultation
Preliminary Conclusions of the Mission
Belize City, August 29, 2006
1. Belize's economy has reached a critical juncture. Over the past decade,
the country enjoyed better-than-average growth, as well as price and
currency stability. However, this performance rested to a large extent on
overly expansionary policies that pushed public borrowing and the external
current account deficit to unsustainable levels. The government has taken
commendable steps in the last year and a half to begin correcting these
imbalances, including through substantial fiscal adjustment and monetary
tightening. Yet, despite these efforts, important vulnerabilities still
remain and need to be addressed quickly to avert the risk of an external
payments crisis, protect the country's currency peg, and set the stage for
a durable recovery of growth and employment. The discussions with the
authorities focused on the development of a policy framework that would
achieve these objectives.
The remaining imbalances
2. Since the last Article IV consultation the authorities have tightened
macroeconomic policies substantially. During FY05/06 (April-March), revenue
measures and cuts in capital expenditures helped reduce the overall deficit
of the central government to about 3½ percent of GDP from almost 9 percent
of GDP in the previous year. The primary surplus rose to about 3 percent of
GDP, implying a cumulative improvement of almost 9 percent of GDP since
FY02/03. The Central Bank of Belize (CBB) also took additional steps to
contain the expansion of money and credit by channeling social security
deposits to the central bank and increasing the cash and liquid assets
reserve requirements by one percentage point each on three occasions.
3. However, these steps alone are not yet sufficient to place the economy
on a sustainable path. While bilateral financing, better-than-expected
exports, and foreign direct investment are helping to close the foreign
financing gap for the current year, international reserves remain very low
at less than one month of imports. Under current policies, the mission
estimates on a preliminary basis that in 2007 Belize's net balance of
payments financing needs will reach about 10 percent of GDP, and remain
high thereafter at about 6 percent of GDP during 2008-11 and more than 10
percent during 2012-15. Foreign financing of this magnitude may not be
forthcoming, given Belize's high external public debt burden; and, even if
it could be obtained, its high cost would worsen the debt dynamics and
leave the economy vulnerable to adverse shocks. At the same time, fully
closing such large financing gaps through further fiscal and monetary
tightening would not be feasible without severely disrupting economic
Returning to sustainability
4. The authorities have recognized the critical nature of their financial
situation and have expressed a firm commitment to restoring sustainability.
In this context, they recently announced the intention to approach their
external private sector creditors to seek debt service relief.
5. In the mission's view, a credible plan for returning to fiscal and
external viability, safeguarding the currency peg, and creating conditions
for durable economic growth would have to contain at least three key elements:
Policies to address immediate risks: To mitigate the risk that external
payments difficulties arise while a medium term framework is being
formulated and consultations with creditors take place, ongoing efforts to
secure bilateral and multilateral lending should be combined with a
tightening of macroeconomic policies.
A sustainable medium-term framework: There is a need to design and
implement a macroeconomic framework, which-together with possible relief
from a debt operation-closes the large projected medium-term financing gaps
and reduces the public debt burden to safer levels.
Supportive structural reforms: A comprehensive package of fiscal, monetary
and financial sector reforms should be implemented to facilitate the
required medium-term effort and increase the resilience of the economy
against adverse shocks.
Addressing immediate risks
6. The low level of reserves warrants a tighter macroeconomic policy stance
in the short term. While the foreign financing gap for 2006 is largely
closed, further steps to contain demand and reduce balance of payments
pressures are still justified because of very large financing needs next
year and the importance to demonstrate policy commitment as creditors are
being approached. In this regard, the most recent increase in reserve
requirements (effective September 1) is welcome, although the authorities
need to monitor monetary developments closely and take additional action if
this proves insufficient to mop up excess liquidity. In the fiscal area,
the better-than-expected budget execution during March-June should be
maintained during the remainder of the fiscal year to achieve a primary
surplus of at least 3½ percent of GDP. To this end, restraint in current
and capital expenditures remains critical, along with a successful
implementation of the General Sales Tax (GST), which has so far been
satisfactory. The authorities should continue to resist pressures to dilute
the GST base and remain prepared to adopt corrective actions should its
revenue yield fall short of projections.
Developing a sustainable medium-term framework
7. The authorities' commitment to fiscal and balance of payments
sustainability should be reflected in a credible medium-term macroeconomic
framework. In this context, the framework should aim at eliminating balance
of payments and fiscal financing gaps over the next five years,
significantly reducing the debt burden, and allowing for a recovery of
8. The medium-term framework could build upon a combination of additional
fiscal effort, continued monetary restraint, and relief from the envisaged
debt operation. To illustrate this point, the mission simulated an active
scenario that comprises both a front-loaded fiscal effort to raise the
primary surplus to about 4½ percent of GDP during 2007-09 and about 4
percent of GDP thereafter, and monetary restraint to keep the expansion of
commercial bank credit below nominal GDP growth. This adjustment seems
feasible without compromising the prospects for economic growth, and would
require that the authorities save the bulk of currently projected petroleum
revenues. In addition, current government expenditure-particularly the
public wage bill-would need to rise at a significantly lower rate than
nominal GDP. On the assumption that debt service relief from private
creditors will become available, this package could achieve the goals of
filling the financing gaps, gradually reducing the public debt burden and
replenishing international reserves.
9. A swift and successful completion of the intended debt operation would
be a critical component of the outlined framework. The mission commends the
government for pursuing agreement on this matter in the context of a close
and constructive dialogue with its private creditors.
Supportive structural reforms
10. To help maintain the required fiscal effort over a prolonged period of
time, the authorities should undertake a broad set of supportive structural
fiscal reforms, including:
o Modernizing tax administration: After the GST-implementation phase is
completed, the authorities should seek to strengthen their tax
administration, including through a reorganization away from tax types and
toward business processes and common functions, such as taxpayer services,
audit, and collection enforcement.
o Tax reform: To support the buoyancy of the tax system in the medium term,
the authorities should streamline their system of fiscal incentives,
including by eliminating business tax holidays under the Fiscal Incentives
Act, terminating import duty exemptions for specific organizations, and
converting import licenses into tariffs. To ensure a more stable level of
revenues, the authorities should also substitute the revenue replacement
duty on fuels with a specific excise tax, and establish an automatic
adjustment mechanism for fuel prices.
o Pension reform: The non-contributory pension plan for public servants
(PSP) harbors substantial liabilities for the government budget in the
future, and the authorities should consider a phase-out of the PSP for new
entrants (who would still be covered by the general social security system)
and parametric adjustments, such as introducing a contribution from
beneficiaries, increasing the years of required service, and/or raising the
11. A further strengthening of governance and transparency is also needed
to control contingent liabilities. The mission welcomes recent steps in
this area, including the reform of the Finance and Audit Act, greater
dissemination of economic and fiscal data, and inquiries into the dealings
of the Social Security Board (SSB) and the Development Finance Corporation
(DFC). Priority actions in the immediate future should include improving
risk management at the SSB, avoiding financial slippage at Belize Water
Services, and winding down the activities of the DFC in an orderly way. To
avoid further liabilities to the government, the DFC should be allowed to
collect without interference on its loan portfolio.
12. In the monetary area, the authorities should strengthen their
capability to implement monetary policy. Currently, the principal
instruments of credit policy are the cash reserve and liquid assets
requirements, which have not always been effective in curbing excess
liquidity. This suggests that the CBB might benefit from broadening its
monetary instruments, possibly with technical assistance from the IMF. To
increase monetary control, the authorities should also consider
eliminating-in due course-the government's overdraft at the CBB.
13. Significant progress has been made in strengthening bank supervision,
but further steps to foster a sound and resilient financial sector should
be taken. Several of the recommendations of the IMF's 2003 assessment have
been implemented, including a significant increase in resources to conduct
bank supervision. However, the authorities still need to strengthen the
operational independence of the supervisors and must urgently increase the
resources for insurance supervision. In addition, loan-loss provisions in
the banking system are too low by international standards and should be
raised through regulatory action.
From challenge to opportunity
14. Belize's economic and financial situation will leave little room for
slippage in implementing the outlined policy framework. Even in the
mission's illustrative active policy scenario international reserves would
remain low and the debt burden high for several years, and substantial
vulnerabilities and risks would persist in the event of adverse shocks.
Revenue estimates from oil are also subject to a wide margin of error
because they depend on a large number of uncertain technical and policy
parameters. More generally, there is some risk that unreasonable
expectations of oil revenue develop, notwithstanding the fact that the
reserves that have been proven so far and the envisaged production levels
are relatively limited. In the circumstances, it will be critical for
policymakers to manage these risks and to stay "ahead of the curve" by
adjusting early to any changes in the domestic and external environments.
15. The mission believes that the authorities-and more broadly the
country-can rise to the challenge and achieve a return to sustainability
and durable growth. During the consultation, the authorities shared the
thrust of the suggested policy framework and reforms. Given the importance
of strong ownership for encouraging creditor support and maintaining policy
discipline and commitment over a prolonged period of time, the mission
encourages the authorities to promote a broad social and political
consensus on the basic tenants of their policy approach.
IMF EXTERNAL RELATIONS DEPARTMENT
Public Affairs Media Relations
Phone: 202-623-7300 Phone: 202-623-7100
Fax: 202-623-6278 Fax: 202-623-6772
#213459 - 08/31/06 02:56 AM
Re: IMF Concludes Annual Article IV Mission to Belize
IMF CONCLUDES VISIT TO BELIZE
August 30, 2006
A mission from the International Monetary Fund concluded a visit to Belize yesterday. During the visit, it conducted discussions for the I-M-F’s Annual Article Four Review of Belize. Staff members of the Caribbean Development Bank and the Inter-American Development Bank also took part in the review meetings. The Mission also held discussions with Belizean authorities, including Prime Minister and Finance Minister, Said Musa, members of the Public Finance Committee, the Leader of the Opposition, senior officials of the Ministry of Finance and the Central Bank, the commercial banks, and the business community. At the end of the visit yesterday, the I-M-F issued a statement summarizing its preliminary conclusions. Those are that: one, Belize 's economy has reached a critical juncture, and that o ver the past ten years, Belize enjoyed better-than-average growth, as well as price and currency stability. However, this performance rested to a large extent on overly expansionary policies that pushed public borrowing and the external current account deficit to unsustainable levels. The I-M-F concludes that government has taken commendable steps in the last year and a half to begin correcting these imbalances, including through substantial fiscal adjustment and monetary tightening. Yet, despite these efforts, important vulnerabilities still remain and need to be addressed quickly to avert the risk of an external payments crisis, protect the country's currency peg, and set the stage for a durable recovery of growth and employment. The discussions focused on the development of a policy framework that would achieve several objectives. Under current policies, the mission estimates on a preliminary basis that in 2007 Belize's net balance of payments financing needs will reach about 10 percent of the Gross Domestic Product, and remain high thereafter at about six percent of the G-D-P during 2008 to 2011. It also projects it to be more than 10 percent during 2012 to 2015. The Belizean government has expressed a firm commitment to restoring sustainability. In the mission's view, a credible plan for returning to fiscal and external viability, safeguarding the currency peg, and creating conditions for durable economic growth would have to contain at least three key elements. These include policies to address immediate risks; supportive structural reforms; and developing a sustainable medium-term framework. The full report can be viewed at the Central Bank’s website at www.centralbank.bz.org.
T he I-M-F Executive Board will consider the Article Four Report on Belize in October.
#213460 - 08/31/06 02:59 AM
Re: IMF Concludes Annual Article IV Mission to Belize
Debt Restructuring Critical For Belize Econ Recovery -IMF
Wednesday August 30th, 2006 / 16h50
NEW YORK -(Dow Jones)- The International Monetary Fund Wednesday said Belize's proposed debt restructuring is a "critical component" of a plan to recover the country's finances, and it prescribed its standard medicine for an ailing economy: orthodox fiscal policies.
Belize recently told creditors it plans to undertake a voluntary restructuring of its overseas debt, which it said has become unmanageable. The government has proposed creating a formal creditors committee to facilitate its planned restructuring of about $960 million in overseas private-sector debt.
An IMF team led by Andreas Bauer was in Belize Aug. 17 to Tuesday to carry out the fund's regular Article IV review of the economy, the Belize finance ministry said in a statement.
In its own press release, the IMF painted a bleak picture of the Belizean economy, saying "overly expansionary policies" had "pushed public borrowing and the external current account deficit to unsustainable levels." International reserves remain "very low," at less than one month of imports.
The problems stretch into the future.
In 2007, Belize's net balance of payments financing needs will reach about 10% of gross domestic product "and remain high thereafter at about 6% of GDP during 2008-11 and more than 10% during 2012-15," the IMF said.
The government is unlikely to be able to secure foreign financing to cover this gap, and even if it could the high cost would likely compound the country's problems, the IMF said. Yet "further fiscal and monetary tightening would not be feasible without severely disrupting economic activity," it said.
As the government moved to reign in spending, the central government deficit fell to about 3.5% of gross domestic product in the financial year through March 2006, from almost 9% in the previous year, the IMF said. The primary surplus rose to about 3% of GDP, and the central bank took steps to contain the expansion of money and credit, it added.
To tide it over in the short-term, the government should secure bilateral and multilateral loans and maintain a tight reign on spending, with a primary surplus target of "at least" 3.5% of GDP in 2006-2007, the fund said.
For the longer-term, the IMF suggested its standard package of fiscal, monetary and financial sector reforms including strengthening and streamlining the tax system, reforming public-sector pensions and overhauling the central bank's monetary policy tools.
The government should also save all of its projected oil revenues and slow the pace of public-sector wage hikes, the IMF said.
Recovery in the tiny Caribbean nation of about 290,000 people will take several years, according to the IMF.
"Belize's economic and financial situation will leave little room for slippage in implementing the outlined policy framework," the IMF said.
-By Matthew Cowley, Dow Jones Newswires; 201 938 5692; email@example.com
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