The 2010 IMF report cites concerns over public debt, banking sector and government deficit



The 2010 International Monetary Fund (IMF) report on Belize has been completed and the IMF released a public information notice on that report on Friday, October 22. However, the full country report is not available to the public on the IMF website, as is usually the case.

The three-page notice indicates that there continues to be concerns over the high rates of nonperforming loans in the commercial banking sector, as well as over the high public sector debt.

However, the country’s foreign reserve position is reportedly in a healthy state.

The report also forecasts 6% inflation for 2010, as fuel prices are high again and the General Sales Tax (GST) was increased at the passage of the last government budget.

The Belize economy is forecasted to grow only 2%, with an expansion in electricity generation, and the government’s deficit will widen, the report also indicates.

“Growth has resumed, albeit at a slow pace, and the external position has improved,” says the IMF notice. “Nevertheless, the Belize economy remains vulnerable to shocks, with weak public finances, limited external financing, and risks in the banking system.”

The report adds that this vulnerability highlights the urgency in strengthening macroeconomic and financial buffers, as well as the banking system. Belize also needs to promote an environment conducive to private sector-led growth, it added.

Fiscal Deficit

 

What Does Fiscal Deficit Mean?

         

When a government’s total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.

          (Source: http://www.investopedia.com/terms/f/fiscaldeficit.asp)

 

The GST rate was hiked from 10% to 12.5% effective April 1, 2010, to raise an additional $42 million from Belizean consumers.

Notwithstanding the tax increase imposed at the reading of the last national budget, the government will still have problems financing the budget, and the deficit is projected to be even wider than it was the previous year, according to the IMF notice, with the deficit expanding from 1.6% of GDP (Gross Domestic Product) to 2.2%—a difference of at least $15 million.

 

 “In FY2009/10 (April–March), the fiscal balance weakened by 2 percentage points of GDP, to a deficit of 1.6 percent of GDP, due to lower grants and higher current spending (mainly wages), despite a decline in investment,” the notice says.

It later adds that, “Despite tax revenue actions taken in April, the budgeted fiscal deficit is projected to widen to 2.2 percent of GDP in FY2010/11, due largely to lower grant disbursements and increased [government] investment.”

 

 

Public debt

 

Definition: The total of the nation’s debts: debts of local and state and national governments; an indicator of how much public spending is financed by borrowing instead of taxation.

   (Source: wordnetweb.princeton.edu/perl/webwn)

Belize’s public debt exceeds $2 billion.

“In 2007, debt restructuring eased external debt service, but public debt has remained high, limiting the policy capacity to respond to shocks,” says the IMF notice.

“The public debt is projected to decline slightly under 80 percent of GDP at year-end,” it added.

Total public sector debt is reported at 80.2% of Gross Domestic Product for 2009, and is projected to drop to 78.2% of GDP in 2010, the bulk of it being foreign or external debt.

 

Nonperforming loans

 

Definition: A non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms.

   (Source: en.wikipedia.org/wiki/Non-performing_loans)

 

In an earlier IMF press release on the 2010 consultation with Belize, the IMF had noted concerns about the high level of non-performing loans.

It restates in this October notice that, “In the banking system, nonperforming loans have risen sharply in the recent period, while provisioning remains low.”

IMF directors say that protecting the stability of the banking system is a priority. “This will require an agreement on recapitalization plans for a few banks and their early implementation,” it added.

 

Foreign reserves

 

Definition: A reserve of precious metals and foreign currencies kept by the Reserve Bank.

   (source: https://securities.standardbank.co.za/ost/nsp/Glossary/glossary.as)

 

“Helped by a lower external current account deficit and the SDR allocations [from the IMF], foreign reserves have strengthened substantially from the low levels seen in previous years to reach 3.2 months of imports of goods and services or 160 percent of the country’s external financing needs,” says the IMF report.

It expects that Belize’s foreign reserve position will improve slightly this year.

The report puts Belize’s foreign reserves at US$222.2 million, held by the Central Bank of Belize, and reports that it is projected to grow from 3.2 months of import cover to 3.4 months of import cover this year, 2010.

Amandala