IMF mission notes Belize’s slowed growth and massive public debt

The International Monetary Fund (IMF) has just completed its annual country visit to Belize in accordance with its Article IV consultation and published its preliminary findings on October 7 on its website. Daniel Leigh was the leader of the IMF team, which visited Belize from September 23 to October 4.

The IMF team met with Prime Minister Dean Barrow, Central Bank Governor Joy Grant, Financial Secretary Joseph Waight and other senior government officials. The team also met with representatives of the Opposition, the private sector and public sector unions.

The IMF said that Belize’s economic recovery is slowing down and real GDP grew by a mere 3.2 percent in 2018.

The IMF stated, “…recent data indicate a slowdown in economic activity, with a minor contraction in 2019 in Q2, reflecting a severe drought. Growth for 2019 as a whole is projected at 1½ percent. The current account deficit widened to 7.9 percent of GDP in 2018 from 7.7 percent in 2017, despite higher tourism earnings.”

Belize’s primary surplus reached 2.1 percent of GDP, the IMF noted, but recent data indicate more spending on wages and public investment and weaker revenue than expected, putting the budget target at risk, the IMF report said.

The report went on to say that real GDP growth is projected to be just under 2 percent. “The current account deficit is projected to remain large, reflecting structural weaknesses, with international reserves projected at about 3 months of imports of goods and services over the medium term,” the IMF said.

The IMF said the external factors that would affect Belize are a weaker US growth, which would impact tourism, and higher oil prices, and natural disasters, to which Belize is prone.

“Elevated rates of crime pose risks to growth and competitiveness. Reputational risks from potential financial misuse of the international financial services sector’s entities, and governance concerns, could weaken investor confidence and renew pressures on correspondent banking relationships (CBRs),” the report said.

“Belize’s listing as a non-cooperative tax jurisdiction and uncertainty regarding standard setters’ expectations could disrupt investment and trade flows. The government continues to contest legacy claims which could lead to large public and external financing needs,” said the European Union after recently blacklisting Belize.

The IMF pointed out that “Improving Belize’s economic growth hinges on improving the business environment. Reform priorities include facilitating access to credit by establishing credit bureau and collateral registry; streamlining regulations for starting business, expanding technical and vocational training programs; fighting corruption by implementing and enforcing the asset declaration regime through the Integrity Commission and strengthening the rules on conflict of interest; and ensuring public safety, including through community programs and steering youth toward formal employment and away from crime…”

The IMF said Belize’s last poverty assessment is almost 10 years old and an update is needed for improving the targeting and effectiveness of social policies.

Belize needs to reform its tax system to make it more equitable and less distortionary and to mobilize additional revenues, said the IMF. The IMF said the turnover, based on business tax, is inefficient, and inequitable, and discourages investment, and a more efficient corporate income tax should be introduced over the medium term.

The IMF said it will discuss the Belize Article IV report in November.