The International Monetary Fund (IMF) says Belize continues to face significant vulnerabilities and challenges driven by high public debt, large fiscal and external deficits, and declining international reserves.

The IMF executive directors, who met to discuss the September report of an IMF mission to the Caribbean Community (Caricom) country, said that the adverse weather conditions have also posed difficulties and emphasised that decisive policies are urgently needed to ensure macroeconomic stability and improve growth performance.

In September, the IMF mission warned that the Belize economy faced multiple challenges. It noted that gross domestic product (GDP) growth slowed to one per cent in 2015 due to falling oil production and reduced output in the primary commodity sectors, and turned to negative 1.5 per cent in the first half of 2016 relative to the same period in 2015.

The IMF said then that the decline in oil and other commodity prices led to deflation in 2015, but the inflation rate turned positive in early 2016 owing to higher food prices and the hike in the fuel tax.

It said Hurricane Earl, which hit Belize in early August, compounded the challenging economic environment.

“The fiscal position has weakened, pushing the public debt higher. The overall fiscal deficit expanded to 8 per cent of GDP in 2015.”

The executive directors noted that placing public debt on a downward path is a key priority.

“While noting that fiscal adjustment could initially impact growth, they emphasised that rigorous and sustained efforts, including both revenue and expenditure measures, are critical to ensuring fiscal sustainability and building investor confidence,” the IMF said in a statement.

It said that the directors welcomed the important steps taken by the authorities to contain public expenditures and increase revenue, but highlighted that additional measures, particularly raising the GST rate, reducing the public wage bill, reforming the pension plan for civil servants, and strengthening public financial management, will be important going forward.

“Directors noted the improvements in the financial sector and called for sustained efforts to tighten supervision and reduce vulnerabilities. They underscored the importance of continued careful assessment and monitoring financial sector risks and agreed that an asset quality review of all banks would dispel possible uncertainties about the size of their capital buffers.”

They warned that timely completion of financial stability reports, including stress tests that adjust banks’ capital buffers for shortfalls in provisioning, would further strengthen the financial sector supervision toolkit.”

The IMF directors noted that the loss of remaining Correspondent Banking Relationships (CBRs) could have a negative impact on the financial sector and the wider economy and will require action on multiple fronts, both domestically and internationally.

“They also highlighted that stronger implementation of the AML/CFT framework and improved transparency in the offshore sector, with technical assistance where needed, would help further improve compliance with international standards and understanding of money laundering and terrorist financing risks, and help address the withdrawal of CBRs,” the statement added.