IMF in Belize: hard economic times continueAuthor: Adele Ramos - [email protected]
Restrain current spending
Place pension system on a strong and sustainable footing
Improve tax and customs administration
The latest update on Belize’s economic landscape was released this afternoon by the Washington-based International Monetary Fund (IMF), and it indicates that despite the tax measures introduced in April, the government will continue to grapple with a major budget deficit. Also, performances on loans are a rising concern, as even more debtors face challenges in meeting their commitments.
The IMF announced today that it is concluding its 2010 mission to Belize, having met since Monday, June 21, with Prime Minister Dean Barrow, the government’s economic team, the private sector, and civil society.
Mario Garza, chief of the International Monetary Fund mission to Belize, noted that: “Economic activity stagnated in 2009, as a result of the global slowdown and the lingering effects from the floods in 2008.
“Growth has resumed since late 2009, but the recovery is still narrowly based, while inflation appears to be picking up somewhat, driven by the rise in fuel prices.”
Garza noted that for 2010, growth may resume modestly, while export prices and tourist receipts may be slow to recover. Foreign reserves are forecast to stabilize at just over three months of imports of goods and services – deemed a healthy level of reserves.
“Despite the recent tax revenue actions, the overall fiscal deficit is likely to widen in FY2010/11, owing largely to upward pressure on primary current spending and increased investment, while the public debt would remain high,” the chief’s report continues.
As for the Belize banking system, it appears liquid and well capitalized, said Garza, noting, however, concerns about the rise in nonperforming loans (NPLs).
“The consultation discussions centered on strategies to promote sustainable growth and reduce poverty. The mission underscored the need to strengthen fiscal and external buffers to deal with future shocks. Building on the recent revenue measures, and in order to put the public debt-to-GDP ratio on a firm downward path, the primary fiscal surplus would need to be raised significantly over the medium term, by restraining the growth in current spending; prioritizing investment; and placing the pension system on a strong and sustainable footing.
“The mission also encouraged the authorities to press ahead with current plans to improve tax and customs administration,” the IMF report detailed.
“In the monetary and banking area,” it added, “the mission welcomed recent reforms to improve the conduct of monetary policy, by relying more on market-based monetary instruments and further reducing non-remunerated reserve requirements.
“It encouraged the authorities to advance these reforms, which should help reduce intermediation spreads, while maintaining a disciplined monetary stance. The mission also advised the authorities to remain vigilant in their supervision of domestic and offshore banks, ensure that sufficient provisioning is made to cover NPLs, and further strengthen prudential regulations.”
IMF Executive Board should discuss the full staff report in early September, and the final document would be published shortly thereafter.
The increase in General Sales Tax (GST) from 10% to 12.5% this April was one of the recommendations made in the report released in May 2009, following last year’s annual consultation.