End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. This mission will result in a Board discussion.

An International Monetary Fund (IMF) team led by Jacques Bouhga-Hagbe visited Belize during May 11-25 to hold discussions in the context of the country's 2016 Article IV Consultation. At the conclusion of the visit, Mr. Bouhga-Hagbe issued the following statement:

'The economy is slowing and fiscal and external vulnerabilities are rising. Falling oil production and multiple shocks in the primary sector reduced GDP growth to 1 percent in 2015. The decline in prices of energy and other commodities led to deflation in 2015, although the increase in fuel tax restored positive inflation, at 0.1 percent in March. The current account deficit widened to 9.8 percent of GDP as exports fell by 9 percent (mainly oil and marine products) and imports continued to grow, partly due to investment projects. Following partial compensation payments for the two nationalized companies, international reserves fell to 4.6 months of imports in March 2016. The fiscal deficit widened to 8 percent of GDP due to a one-off payment related to a settlement of a loan to one of the nationalized companies, an increase in public sector wages and transfers, and a large overrun in capital expenditure. As a result, the stock of public debt climbed to 82 percent of GDP. The banking system continued to strengthen, although the challenges posed by loss of correspondent banking relationships with international banks have increased since the 2015 Article IV Consultation.

'The economic outlook has worsened further since the 2015 Article IV Consultation and is subject to significant downside risks. Growth is projected to decline further to 0.5 percent in 2016 and average less than 2 percent in the medium term. In the absence of fiscal measures, rigid current spending would fuel high fiscal deficits and add to the already high public debt burden. The current account deficit would slowly improve due to recovery of exports, but would still remain high, putting downward pressure on international reserves. These vulnerabilities could be exacerbated by both domestic and external risks, such as a the end of PetroCaribe financing, protracted period of weak growth in trading partners, and challenges posed by withdrawal of correspondent banking relationships.

'Sustained fiscal consolidation, supported by strong structural reforms, is required to put public finances on a more sustainable footing. Placing public debt path firmly on the downward path is the foremost priority, which requires raising the primary fiscal surplus to 4-5 percent of GDP by 2021. This can be achieved by a combination of strong revenue and expenditure measures, including broadening the tax base and implementing other tax reforms, containing the public sector wage bill, initiating a parametric reform of the public pension system and strengthening controls in multiple areas of public financial management system.

'The authorities' determination to keep the financial system under tight supervision is welcome. The mission supports the authorities' prudent provisioning requirements and recommends raising them to 100 percent given uncertainties on the collateral values. Further strengthening the Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) framework may assist in preventing further loss of correspondent relationships with global banks. This particularly includes strengthening AML/CFT risk-based supervision of banks, registered agents, and company service providers, and enhancing the transparency of legal persons and arrangements.

'The structural reforms are needed to improve potential growth and improve competitiveness, which are needed to reduce the external vulnerabilities. The adoption of the Growth and Sustainable Development strategy is a welcome development. It should be complemented by reforms increasing labor market flexibility, further development of the financial markets, and developing a well-designed framework for public private partnerships. There is also room for improvement in areas such as starting a business, getting credit, cross-border trade, timely resolution of contract disputes, and strengthening small business.'

During its visit, the IMF team met with Prime Minister Dean Barrow, Financial Secretary Joseph Waight, Central Bank Governor Glenford Ysaguirre, other government and central bank officials, representatives of the private sector and members of the opposition. The mission thanks the authorities for their cooperation and openness.



IMF Says Belize Needs to ‘Put Public Debt on the Downward Path’

Following a two week working visit in Belize, the findings documented by the staff of the International Monetary Fund (IMF) are alarming when it comes to the economy and the country’s vulnerabilities. While the document is not a final report from the IMF’s Executive Board, it is a preliminary report put together by the team that was in Belize conducting the assessments. The report cited several cause for concern, starting with the slowing of the economy and the increase of the country’s fiscal and external vulnerabilities.

There was the mention of the fall in oil production and the multiple shocks in the reduced 2015 GDP in the primary sector. When it comes to the 2015 deflation, the IMF has contributed that to the decline in the prices of energy and other commodities but did note that the increase in the fuel tax did restore positive inflation, putting it at point one percent for the month of March. When it comes to the current account deficit that was reportedly widened to nine point eight percent of the Gross Domestic Product (GDP) since exports fell by nine percent, primarily in the oil and marine products; however, because of the investment projects the rate of imports remains on the rise. With the move for nationalization of the utility companies and subsequent part payments, the country’s international reserves fell to four point six months of imports in as recent as March 2016. The fiscal deficit has widened to about eight percent of GDP and that was due to a one-off payment of a settlement of a loan to one of the nationalized companies as well as due to an increase in public sector wages and transfers and a large over run in capital expenditure.

The report spoke of public debt as well, saying its stock has climbed to eighty two percent of GDP. There is some fairly decent news, among all this. According to the IMF, the banking system, despite the recent challenges of correspondent banking has continued to strengthen. “The economic outlook”, according to the report, “has worsened further since the 2015 Article IV Consultation and is subject to significant downside risks. Growth is projected to decline further to 0.5 percent in 2016 and average less than 2 percent in the medium term. In the absence of fiscal measures, rigid current spending would fuel high fiscal deficits and add to the already high public debt burden. The current account deficit would slowly improve due to recovery of exports, but would still remain high, putting downward pressure on international reserves.

These vulnerabilities could be exacerbated by both domestic and external risks, such as a the end of PetroCaribe financing, protracted period of weak growth in trading partners, and challenges posed by withdrawal of correspondent banking relationships.” End of quote. These points of concern pointed out in the IMF preliminary report were complemented by several recommendations geared at keeping the economy on a stable footing. In that section of the document, it is noted that placing the public debt path firmly on the downward path is the foremost priority and that would require raising the primary fiscal surplus to four to five percent of the GDP by the year, 2021. That is being recommended to be achieved via a combination of strong revenue and expenditure measures, including broadening the tax base and implementing other tax reforms, containing the public sector wage bill, initiating a parametric reform of the public pension system and strengthening controls in multiple areas of public financial management system.

Additional recommendations include the further strengthening the Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) framework may assist in preventing further loss of correspondent relationships with global banks. The IMF staff has declared that the structural reforms are needed to improve potential growth and improve competitiveness, which are needed to reduce the external vulnerabilities. The IMF team was in Belize from May 11 through to the twenty fifth and had met with the Prime Minister, Dean Barrow, the Financial Secretary, Joseph Waight and Central Bank Governor, Glenford Ysaguirre as well as members of the private sector and the main opposition.

LOVEFM


IMF says Belize’s economic outlook has worsened since 2015

The International Monetary Fund (IMF) announced today that it had just concluded its two-week mission to Belize which began on Wednesday, May 11. Jacques Bouhga-Hagbe, who led the IMF team, has issued a statement conveying the preliminary findings.

Bouhga-Hagbe said that, “The economic outlook has worsened further since the 2015 Article IV Consultation and is subject to significant downside risks.”

Bouhga-Hagbe added that while the banking system continued to strengthen, “the challenges posed by loss of correspondent banking relationships with international banks have increased since the 2015 Article IV Consultation.”

He noted that the Belize economy is slowing and fiscal and external vulnerabilities are rising. Falling oil production and multiple shocks in the primary sector reduced the growth of the country’s gross domestic product to only 1% in 2015, the IMF rep said, pointing to a worsening forecast as, “GDP growth is projected to decline further to 0.5 percent in 2016 and average less than 2 percent in the medium term.”

“In the absence of fiscal measures, rigid current spending would fuel high fiscal deficits and add to the already high public debt burden,” the IMF report said.

According to the report, the current stock of public debt has climbed to 82 percent of GDP. In his budget presentation delivered this March, Prime Minister and Minister of Finance Dean Barrow said that the total, public debt, external and domestic, then stood at 79% of GDP.

“Following partial compensation payments for the two nationalized companies, international reserves fell to 4.6 months of imports in March 2016,” the IMF report also said.

The vulnerabilities facing the Belize economy “could be exacerbated by both domestic and external risks, such as the end of PetroCaribe financing, protracted period of weak growth in trading partners, and challenges posed by withdrawal of correspondent banking relationships,” the IMF report said.

It recommends that, “Sustained fiscal consolidation, supported by strong structural reforms, is required to put public finances on a more sustainable footing.”

It added that the determination of Belizean authorities “to keep the financial system under tight supervision is welcome.”

The IMF also said that, “The adoption of the Growth and Sustainable Development strategy is a welcome development,” but added that, “It should be complemented by reforms increasing labor market flexibility, further development of the financial markets, and developing a well-designed framework for public private partnerships.”

It said that there is also room for improvement in providing the right climate and mechanisms for starting a business, getting credit, cross-border trade, timely resolution of contract disputes, and strengthening small business.

Amandala