IMF prescribes bitter medicine for Belize

A Belize Press Office release says a recent International Monetary Fund (IMF) report shows “positive economic growth in Belize”, but that amounts to finding a silver lining in what is really a rather gloomy report card. The IMF report, which was done by an IMF delegation led by Daniel Leigh, followed a consultative process in the country from Sept. 11 to Sept. 24. Leigh and his delegation met with Acting Prime Minister Hon. Patrick Faber, H.E. Joy Grant, Governor of the Central Bank of Belize; Joseph Waight, Financial Secretary; senior government officials, representatives of the opposition, private sector and public sector unions, before concluding their exercise.

In its release, the IMF describes the report as preliminary findings of its staff, and stresses that 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.” The release says that missions of the kind the IMF staff did 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, or as part of other staff monitoring of economic developments.”

The report said that “Belize’s economic recovery is strengthening, the government is making significant progress toward debt reduction, and the Central Bank of Belize (CBB) has taken resolute actions to improve financial soundness.” However, it said that “public debt is elevated, the external current account deficit remains large, and international reserves are just above 3 months of imports of goods and services.”

The IMF team concluded that our economic wellbeing depends on our “reducing debt to prudent levels” and that for us to build our reserves demand “additional fiscal consolidation alongside structural reforms that strengthen the business environment and promote inclusive economic growth.”

The report said we urgently need to build our “fiscal buffers”, and that we cannot keep operating with a high debt to GDP ratio of 94%.

The IMF team forwards a very tough prescription for the construction of these “fiscal buffers.” Leigh and his team say that government needs to reduce government debt “to below 60 percent of GDP in 10 years,” and to do this government must “raise the primary surplus to about 4 percent of GDP from the current projected level of 2 percent of GDP.”

The report says government can achieve this through “broadening the base of the GST by phasing out zero-rated items and exemptions; modernizing and further reinforcing the efficiency of tax administration; increasing the GST rate to the regional average over the medium term; and more closely monitoring activity in Commercial Free Zones.”

The IMF team says “civil service and pension reforms are needed to reduce Belize’s large wage and social security bills.” The IMF team calls for massive cutting of the public sector work force. Belize should implement “a 2-5 replacement ratio to gradually reduce the number of public sector employees,” the report says.

Pay cuts are in order too. Belize, the IMF team says, should also limit “salary increments to the rate of inflation,” make the “public-sector pension plan contributory,” and “raise pensions in line with inflation.”

But Belize shouldn’t be too wary about the bitter medicine because there are clear examples of success for countries that follow the “rules that target a reduction in public debt to 60 percent of GDP over the long term.” The IMF says there are “several cases in the region (for example, in Grenada and Jamaica)” where they have “had success in putting debt on a clear downward path,” with their prescription.