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.
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Belize: Selected Economic Indicators
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2012
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2013
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2014
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2015
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2016
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2017
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Prel.
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Proj.
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Proj.
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National income and prices
(percent change, unless otherwise indicated)
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Real GDP
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3.7
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1.3
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4.1
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1.0
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-1.5
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1.9
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GDP deflator
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1.9
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2.0
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1.5
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1.0
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2.1
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2.4
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Consumer prices (end of period)
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0.8
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1.6
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-0.2
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-0.6
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2.3
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2.4
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Consumer prices (average)
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1.2
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0.5
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1.2
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-0.9
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1.2
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2.4
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Nominal GDP (BZ$ millions)
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3,148
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3,252
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3,436
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3,506
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3,558
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3,727
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Money and credit
(percent change, unless otherwise indicated)
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Credit to the private sector
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1.1
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3.5
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4.7
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4.8
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4.0
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3.5
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Money and quasi-money (M2)
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11.0
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1.4
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7.9
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7.6
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2.8
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4.8
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Weighted average lending rate (in percent)
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12.0
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11.1
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10.3
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10.0
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…
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…
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Central government
(percent of GDP) 1/
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Revenue and grants
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26.4
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28.7
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29.0
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28.1
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29.2
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27.9
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Current expenditure
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22.1
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23.3
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24.1
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25.8
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28.6
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28.3
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Capital expenditure and net lending
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4.7
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7.0
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7.3
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10.3
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5.7
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5.2
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Primary balance
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1.4
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1.0
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0.3
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-5.6
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-2.0
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-2.2
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Overall balance
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-0.4
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-1.6
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-2.4
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-8.0
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-5.0
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-5.6
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Public and publicly guaranteed debt
(end-period, percent change)
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Stock of public and publicly guaranteed debt
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79.0
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79.4
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77.6
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82.1
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99.9
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95.7
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Domestic debt
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12.4
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11.9
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10.9
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14.1
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31.1
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29.3
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External debt
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66.6
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67.5
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66.6
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68.0
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68.8
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66.4
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Debt service (external public debt)
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4.4
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6.8
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4.2
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4.2
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4.8
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4.7
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In percent of exports of goods and services
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6.8
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10.5
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6.2
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6.7
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8.8
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8.6
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In percent of government current revenue
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17.3
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25.9
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15.3
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15.5
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17.0
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17.4
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External sector
(percent change, unless otherwise indicated)
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External current account, (percent of GDP) 2/
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-1.2
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-4.6
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-7.4
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-9.8
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-14.0
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-10.2
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Exports of goods and services
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8.9
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3.1
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8.9
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-3.7
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-14.0
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5.7
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Imports of goods and services
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6.2
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8.5
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11.8
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3.3
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-5.9
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-0.7
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Terms of trade (deterioration -)
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-1.0
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0.2
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-0.1
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-2.2
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2.6
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-0.2
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Nominal effective exchange rate
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3.2
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0.7
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1.6
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11.0
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…
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…
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Real effective exchange rate
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1.9
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-1.2
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0.7
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8.5
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…
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…
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Overall balance of payments, millions of U.S. dollars
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52
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114
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84
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-50
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-73
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-58
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Exports of goods and services, millions of U.S. dollars
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1,028
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1,060
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1,154
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1,112
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956
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1,011
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Imports of goods and services, millions of U.S. dollars
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1,004
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1,089
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1,218
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1,258
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1,184
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1,175
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Gross international reserves, millions of U.S. dollars 3/
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289
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403
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487
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437
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364
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306
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In percent of gross external financing needs
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478
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350
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289
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170
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124
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129
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In percent of next year's external public debt service
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260
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563
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655
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518
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421
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315
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In months of imports
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3.2
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4.0
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4.6
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4.4
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3.7
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3.1
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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).
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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.
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