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#517853 - 09/27/16 04:51 AM IMF Says Economic Outlook Has Worsened  
Joined: Oct 1999
Posts: 53,337
Marty Offline
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IMF Executive Board Concludes 2016 Article IV Consultation with Belize

On September 21, 2016 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.

The economy of Belize is facing multiple challenges. GDP growth slowed to 1 percent in 2015 due to falling oil production and reduced output in the primary commodity sectors, and turned to negative 1.5 percent in the first half of 2016 relative to the same period in 2015. 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. The effective exchange rate appreciated sharply both in nominal and real terms, driven mostly by the strengthening of the US dollar to which the currency is pegged, reducing competitiveness. The shocks in the export sector have widened the current account deficit to 9.8 percent of GDP in 2015. Further decline in exports in the first half of 2016, combined with settling liabilities related to the two nationalized companies, reduced international reserves to 4.4 months of imports in late August 2016. Hurricane Earl, which hit Belize in early August, compounded the challenging economic environment. On the positive side, the performance of the tourism sector in the first half of 2016 has been strong, and the unemployment rate declined from 10.1 percent in April 2015 to 8 percent in April 2016.

The fiscal position has weakened, pushing the public debt higher. The overall fiscal deficit expanded to 8 percent of GDP in 2015. The sharp deterioration was explained by a one-off payment related to the settlement of liabilities for one of the nationalized companies (2.8 percent of GDP), although the structural deficit, which excludes one-off and cyclical factors, worsened as well on account of an increase in public sector wages and transfers and a large overrun in capital expenditure. This deficit and partial settlement of liabilities related to the nationalized companies pushed the public sector debt to 82 percent of GDP in 2015. As a fiscal measure, the authorities have increased their fuel tax, which is expected to increase revenues by close to 1½ percent of GDP.

Banking system’s weaknesses appear to have somewhat diminished, although the loss of correspondent banking relationships experienced by the largest banks is posing significant challenges for the economy. The system’s ratio of non-performing loans to total loans fell to 15.8 percent (5.7 percent net of provisions) at end-March 2016, and the reported capital adequacy ratio increased to 25 percent. However, important vulnerabilities continue to linger. The banks have lost a significant number of correspondent banking relationships (CBRs), which has led to significant increase in transactions costs and a winding down of deposits in international banks.

The economic outlook has worsened further since the 2015 Article IV. GDP is projected to decline by 1.5 percent in 2016, in part due to the damage inflicted by hurricane Earl, and average less than 2 percent in the medium-term, reflecting declining productivity, competitiveness and public investment. In the absence of a radical change in policies, rigid current fiscal spending, particularly the public sector wage bill, would fuel high fiscal deficits and add to the already high debt burden. Financing constraints would reduce public investment. The current account deficit would slowly improve due to a gradual recovery in major commodity exports, but would remain high, indicating a weak external position. This deficit, combined with remaining payments for nationalized companies and increased debt service, would reduce international reserves to uncomfortable levels.

Executive Board Assessment

The Executive Directors noted that Belize continues to face significant vulnerabilities and challenges driven by high public debt, large fiscal and external deficits, and declining international reserves. Adverse weather conditions have also posed difficulties. Directors emphasized that decisive policies are urgently needed to ensure macroeconomic stability and improve growth performance.

Directors stressed that placing public debt on a downward path is a key priority. While noting that fiscal adjustment could initially impact growth, they emphasized that rigorous and sustained efforts, including both revenue and expenditure measures, are critical to ensuring fiscal sustainability and building investor confidence. 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. 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.

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.

Directors emphasized that broad‑based structural reforms aimed at improving the business climate, boosting productivity, and increasing competitiveness are critical to reducing vulnerabilities and promoting growth. They welcomed the adoption of the Growth and Sustainable Development Strategy and called for its vigorous implementation, using non‑debt‑creating financing options, such as well‑designed public‑private partnerships. Labor market reforms will also be important going forward.

Belize: Selected Economic Indicators

2012

2013

2014

2015

2016

2017

Prel.

Proj.

Proj.

National income and prices (percent change, unless otherwise indicated)

Real GDP

3.7

1.3

4.1

1.0

-1.5

1.9

GDP deflator

1.9

2.0

1.5

1.0

2.1

2.4

Consumer prices (end of period)

0.8

1.6

-0.2

-0.6

2.3

2.4

Consumer prices (average)

1.2

0.5

1.2

-0.9

1.2

2.4

Nominal GDP (BZ$ millions)

3,148

3,252

3,436

3,506

3,558

3,727

Money and credit (percent change, unless otherwise indicated)

Credit to the private sector

1.1

3.5

4.7

4.8

4.0

3.5

Money and quasi-money (M2)

11.0

1.4

7.9

7.6

2.8

4.8

Weighted average lending rate (in percent)

12.0

11.1

10.3

10.0

Central government (percent of GDP) 1/

Revenue and grants

26.4

28.7

29.0

28.1

29.2

27.9

Current expenditure

22.1

23.3

24.1

25.8

28.6

28.3

Capital expenditure and net lending

4.7

7.0

7.3

10.3

5.7

5.2

Primary balance

1.4

1.0

0.3

-5.6

-2.0

-2.2

Overall balance

-0.4

-1.6

-2.4

-8.0

-5.0

-5.6

Public and publicly guaranteed debt (end-period, percent change)

Stock of public and publicly guaranteed debt

79.0

79.4

77.6

82.1

99.9

95.7

Domestic debt

12.4

11.9

10.9

14.1

31.1

29.3

External debt

66.6

67.5

66.6

68.0

68.8

66.4

Debt service (external public debt)

4.4

6.8

4.2

4.2

4.8

4.7

In percent of exports of goods and services

6.8

10.5

6.2

6.7

8.8

8.6

In percent of government current revenue

17.3

25.9

15.3

15.5

17.0

17.4

External sector (percent change, unless otherwise indicated)

External current account, (percent of GDP) 2/

-1.2

-4.6

-7.4

-9.8

-14.0

-10.2

Exports of goods and services

8.9

3.1

8.9

-3.7

-14.0

5.7

Imports of goods and services

6.2

8.5

11.8

3.3

-5.9

-0.7

Terms of trade (deterioration -)

-1.0

0.2

-0.1

-2.2

2.6

-0.2

Nominal effective exchange rate

3.2

0.7

1.6

11.0

Real effective exchange rate

1.9

-1.2

0.7

8.5

Overall balance of payments, millions of U.S. dollars

52

114

84

-50

-73

-58

Exports of goods and services, millions of U.S. dollars

1,028

1,060

1,154

1,112

956

1,011

Imports of goods and services, millions of U.S. dollars

1,004

1,089

1,218

1,258

1,184

1,175

Gross international reserves, millions of U.S. dollars 3/

289

403

487

437

364

306

In percent of gross external financing needs

478

350

289

170

124

129

In percent of next year's external public debt service

260

563

655

518

421

315

In months of imports

3.2

4.0

4.6

4.4

3.7

3.1

Sources: Belize authorities; and IMF staff estimates and projections.

1/ Fiscal year (April to March).

2/ Includes official grants.

3/ From 2009, includes the share of Belize in the special and general SDR allocations in the equivalent of SDR 18 million (US$28 million).




1. Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.


#517877 - 09/28/16 04:34 AM Re: IMF Says Economic Outlook Has Worsened [Re: Marty]  
Joined: Oct 1999
Posts: 53,337
Marty Offline
Marty  Offline

IMF: Serious Economic Times Call For Serious Measures


IMF Directors insists on moves to improve Belize’s economic stability



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