Concluding Statement of IMF 2018 Article IV Mission
September 24, 2018
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions 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 authorities have consented to the publication of this statement. 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. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
An International Monetary Fund team led by Daniel Leigh visited Belize
from September 11-20 to conduct the discussions for the 2018 Article IV
consultation. The team met with the Honorable Mr. Patrick Faber, Acting
Prime Minister; Amb. Joy Grant, Governor of the Central Bank of Belize;
Mr. Joseph Waight, Financial Secretary; and other senior government
officials, representatives of the opposition, private sector, and
public sector unions.
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.
At the same time, 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. In the view of the team,
policies to enhance Belize’s growth and resilience are essential for
addressing these challenges and for improving economic wellbeing.
Reducing debt to prudent levels and building reserves requires
additional fiscal consolidation alongside structural reforms that
strengthen the business environment and promote inclusive economic
growth. Additional steps to fortify regulatory oversight, bank
resolution, and the anti-money laundering (AML) and combating the
financing of terrorism (CFT) framework would support the recovery of
correspondent banking relationships (CBRs) and strengthen investor
Recent Economic Developments and Outlook
Belize’s economic recovery is strengthening, supported by a favorable
Real GDP grew by 1.4 percent in 2017, and recent data indicate an
acceleration in economic activity, with growth in 2018Q2 estimated at 5.4
percent (y/y). Tourism arrivals were up 17.1 percent in January–June 2018
compared with a year earlier, reflecting economic expansion in Belize’s
trade partners and an increased number of flights. The unemployment rate
declined to 9.4 percent in April 2018 from 9.7 percent six months earlier,
while inflation was below 1 percent (y/y). The current
account deficit narrowed to 7.6 percent of GDP in 2017 from 8.4 percent of
GDP in 2016, reflecting subdued imports and higher receipts from tourism.
The government delivered a significant fiscal adjustment in FY2017/18.
The primary balance increased to a surplus of 1.3 percent of GDP in
FY2017/18, excluding a one-off effect of a Caribbean Court of Justice (CCJ)
ruling, implying a 3.2 percent of GDP turnaround from the FY2016/17 level.
The adjustment occurred largely through a reduction of government
investment, which affected growth. Tax measures raised revenues, although
their yield was lower than anticipated.
The FY2018/19 budget approved by Parliament raises the primary fiscal
surplus further, to just above 2 percent of GDP.
The planned adjustment is mainly through higher revenues. Measures include
broadening the base of the General Sales Tax (GST) by removing zero-rated
items, higher excises on fuel, and higher import duties on selected items,
supported by stronger tax administration and spending restraint. In his
budget speech, the Prime Minister underscored the importance of raising the
primary fiscal surplus to achieve a reduction in public debt to 60 percent
of GDP over the long term.
The financial sector is strengthening, supported by the authorities’
resolute actions to enhance financial soundness and reduce risks to
The overall domestic banks’ gross NPL-to-total loans ratio fell to 7.5
percent (1.4 percent net of provisions) at end-2017, from 10.4 percent (2.1
percent net of provisions) at end-2016, and bank profitability has
improved. All banks affected by the loss of CBRs during 2015-16 have found
some replacement CBRs and alternative ways of processing cross border
transactions. The CBB took resolute action to deal with a troubled offshore
bank. The CBB also conducted AML/CFT supervision of one domestic bank,
three offshore banks, and two credit unions in 2018. Parliament adopted
amendments to improve the transparency of International Business
Corporations (IBCs), by prohibiting the issuance of bearer shares and by
requiring beneficial ownership to be held in Belize.
The medium-term outlook remains challenging.
Real GDP growth is projected at 2.2 percent in 2018 and just below 2
percent in the medium term, in line with recent trends. The current account
deficit is projected to gradually narrow, but remain significant,
reflecting structural weaknesses, with international reserves projected
below 3 months of imports of goods and services over the medium term. A
fiscal stance that is stronger than projected in the baseline scenario,
which assumes no fiscal adjustment beyond FY2018/19, would be needed to
reduce public debt from its end-2017 level (94 percent of GDP) to prudent
levels over the medium to long term and build buffers against shocks.
Downside risks remain substantial.
Contested legacy claims, estimated at about 5 percent of GDP, could lead to
large public and external financing needs. Reputational risks from
potential financial misuse of the offshore sector’s complex entities, and
governance concerns, could weaken investor confidence and renew pressures
on CBRs, which would weaken banks. These vulnerabilities would be
exacerbated by a growth slowdown among Belize’s main trading partners,
higher international energy prices, and increasingly severe natural
disasters associated with climate change. Such adverse developments could
undermine public support for the government’s reforms and endanger debt
sustainability. On the upside, additional foreign direct investment,
including in connection with the tourism industry’s expansion, and a
successful implementation of the Growth and Sustainable Development
Strategy (GSDS) could result in a sustained rise in growth.
Raising Economic Growth and Resilience
Policies to enhance Belize’s growth and resilience are essential for
addressing these challenges and risks and for improving the economic
wellbeing of all Belizeans.
Improving the business climate remains a central priority.
Belize’s outlook of rising growth, especially in the agriculture,
call-center, and tourism sectors, provides an opportunity to make progress
on policies that will strengthen the recovery in the short term and raise
long-term growth, without significant fiscal costs. Structural reform
priorities include easing access to credit by establishing a Credit Bureau
and collateral registry; accelerating and modernizing procedures for
starting a business; amending labor legislation to allow greater
flexibility in working hours; increasing support for technical training;
improving governance in customs and public procurement; fighting
corruption, including by implementing the asset declaration regime for
senior public officials, strengthening the independence and capacity of the
Integrity Commission, and bolstering enforcement against perpetrators of
corruption; and amplifying support for crime prevention and juvenile
rehabilitation, including community action programs.
Intensifying Belize’s ongoing efforts to build
resilience to climate change and natural disasters would reduce
economic volatility and raise growth over the medium term.
Belize’s National Climate Resilience Investment Plan and GSDS prescribe
resilience-building projects, such as more robust roads, bridges, and
seawalls. Costing and prioritizing these plans and developing an investment
promotion strategy to increase access to grants and climate funds is a
Belize also needs more self-insurance through a natural disaster
reserve fund, to facilitate immediate recovery and response efforts
floods and hurricanes. Natural disaster risks should also be
cost-effectively managed through contingent lines of credit and optimized
participation in regional insurance options, as both public and private
assets are under-insured.
To support the authorities’ poverty alleviation strategy, reforms to
Belize’s social safety net are warranted.
Belize already has a number of social safety net programs, such as the High
School Subsidy Program, Building Opportunities for Our Social
Transformation (BOOST), Food Pantry, and the Conditional Cash Transfer
(CCT) Program. Increasing the use of formal targeting mechanisms, informed
by an updated country poverty assessment, would increase the programs’
effectiveness at reaching the most vulnerable individuals, an important
consideration given the distributional implications of fiscal and
Building Fiscal Buffers
Reducing public debt to prudent levels requires additional fiscal
consolidation alongside structural reforms that enhance potential
Reducing government debt to below 60 percent of GDP in 10 years would
require measures that gradually raise the primary surplus to about 4
percent of GDP from the current projected level of 2 percent of GDP.
Revenue measures could include further 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. In addition, civil service and pension
reforms are needed to reduce Belize’s large wage and social security bills
and create space for priority spending. Measures include implementing a 2-5
replacement ratio to gradually reduce the number of public sector
limiting salary increments to the rate of inflation; making the
public-sector pension plan contributory; and raising pensions in line
Reforms that increase potential growth would reduce the primary fiscal
surplus needed to achieve the targeted debt reduction and increase space
for priority investments and social spending.
A well-designed fiscal rule based on a debt anchor could, if
underpinned by a public consensus, support the fiscal adjustment.
Rules that target a reduction in public debt to 60 percent of GDP over the
long term have had success in putting debt on a clear downward path in
several cases in the region (for example, in Grenada and Jamaica). In
Belize, adoption by Parliament of such a fiscal rule could help guide the
fiscal consolidation effort.
Further Strengthening the Financial System
The financial system should remain under tight supervision.
Regulations on provisioning should be strengthened, taking into
consideration the types of lending and minimum operational requirements for
collateral. An asset quality review would help assess banks’ capital
buffers. The bank resolution legal framework should be fortified, including
with more effective tools that the CBB could deploy at an early juncture,
with greater operational autonomy. CBB financing of government spending
should be phased out to prevent risks of exchange rate and inflation
pressure and be replaced by more regular government debt auctions.
Further steps are needed to strengthen the effectiveness of the AML/CFT
framework and support the recovery of CBRs.
The regulatory powers of the International Financial Services Commission
(IFSC) should be strengthened, along with its capacity to properly license,
supervise, and, when necessary, enforce sanctions against licensed
registered agents and financial services providers. Requiring a physical
presence of IFSC licensed institutions is essential. To further reduce
money laundering and terrorism financing risks, the authorities should
ensure that up-to-date beneficial owner information is made available and
easily accessible without impediments. The CBB should further develop its
capacity to conduct AML/CFT risk-based supervision of banks and impose
strict and prompt sanctions when necessary. Conducting a study on the
overall benefits as well as the costs and risks of the offshore center is
The mission thanks the authorities for their hospitality,
cooperation and willingness to engage in extensive and frank policy
In November 2017, the CCJ ruled that the government must pay a
guaranteed debt contracted by Universal Health Services to a
commercial bank creditor. This ruling implied a 2.5 percent of GDP
increase in government debt.