IMF Report Brutal The IMF has released its report after its most recent Article IV consultations in Belize - and it is grim. The Fund is forecasting a very rough road to recovery for the country's economy over the next 10 years. They are suggesting that if the ballooning public debt is not brought under control, there is a very real risk of devaluation. Here's how they put it:
"...failure to restore debt sustainability would put the fiscal position and the currency peg at risk of disorderly adjustment." End quote. In case you missed it, "disorderly adjustment" is a euphemism for devaluation.
The report - published on the IMF website - states that the COVID induced economic slowdown hurt all commercial sectors that are contact sensitive, which resulted in a GDP contraction of 14.1%.
The increase in government spending to get the virus under control and the sharp fall in revenues led to an increase in the primary deficit from 1.4% of GDP in the financial year 2019/2020 to 8.3% in the financial year 2020/2021.
The IMF says that there was a rise in public debt from 98% of GDP in 2019 to 126% in 2020, and there are projections that it will increase to around 133% this year. The current account deficit has narrowed due to a sharp contraction of imports, and lower repatriation of profits from foreign-owned businesses.
And, the IMF team is projecting that recovery from the pandemic, back to pre-COVID levels in 2019, won't happen until the year 2025. Tourist arrivals are expected to remain low for this year given the high level of COVID in Belize's main trading partners. Tourist arrivals are expected to pick up in 2022, when vaccines are more widely available in the rest of the world. The IMF team thinks that real GDP is expected to grow by 1.9% in 2021, and then 6.4% in 2022. Potential growth of 2% will return over the medium term.
And then, the IMF team alludes to the dreaded "D" for devaluation.
That part of the statement says, quote, "The key policy imperative for Belize is to restore public debt sustainability and strengthen the currency peg. This will require a fine balancing act involving ambitious, yet realistic, fiscal consolidation, growth-enhancing structural reforms, and debt restructuring, all aimed at targeting [a] reduction of public debt to 60 percent of GDP by 2031. Such strategy would also improve reserve adequacy and strengthen the currency peg." End quote.
The IMF team mentions that the Briceno Government is strongly committed to strengthening the currency peg, and there is even a mention of the wage bill. As viewers are aware, that topic is a current sore point for teachers and public officers who are resisting the Government's proposal of a 10% pay cut and an increment freeze for savings of 80 million. The concluding statement says that GOB is, quote, "appropriately focusing on reducing the wage bill and purchases of goods and services" End quote.
GOB Says Don't Blame We, Blame The UDPThis evening, the Government issued a statement on the IMF's report - basically saying, "don't blame me, blame the UDP!".
Their statement says, quote, "...the previous government had borrowed some $700 million in the pre-election period of 2019/2020; and that the UDP left behind an economic and fiscal wasteland.
There should be no remaining doubts about what this new Administration inherited. The UDP borrowed for years to meet Government's operating costs, including salaries. Those borrowings have reached 130% of annual GDP or about $4.2 billion. The economy is sputtering. Unemployment is widespread. These conditions are clearly unsustainable�
According to the IMF report, the recovery 'will require a fine balancing act involving ambitious, yet realistic, fiscal consolidation, growth-enhancing structural reforms, and debt restructuring, all aimed at targeting [a] reduction of the public debt to 60 percent of GDP by 2031.'
The Government of Belize's Recovery Plan is just such a fine balancing act..." End quote.
The Prime Minister has warned that if they do not save 80 million dollars in wage cuts and increment freezes, the next step would be an IMF agreement which would result in retrenchment.
Channel 7============================
Government of Belize Comments on International Monetary Fund's Country ReviewThe Government of Belize acknowledges the publication today of the International Monetary Fund's (IMF) Concluding Statement for the recent Article 4 Country Review.
Prior to the November 2020 General Elections and thereafter, Prime Minister Hon. John Brice�o and officials of this new PUP Administration have repeatedly shone a bright light on the disastrous mismanagement of the economy and public finances by the past UDP Administration.
The IMF has now confirmed the grim assessment which Prime Minister Brice�o outlined to the House of Representatives and the public during his report of January 8, 2021: that the economy was in a prolonged recession starting well before COVID-19; that the previous government had borrowed some $700 million in the pre-election period of 2019/2020; and that the UDP left behind an economic and fiscal wasteland.
There should be no remaining doubts about what this new Administration inherited. The UDP borrowed for years to meet Government's operating costs, including salaries. Those borrowings have reached 130% of annual GDP or about $4.2 billion. The economy is sputtering. Unemployment is widespread. These conditions are clearly unsustainable.
The IMF report ratifies, therefore, the need for the urgent implementation of Government's Homegrown Economic Recovery Plan, the equitable pillars of which seek to first, restrain spending and rebuild revenue capacity; second, restructure debts by reducing principal and lowering interest payments; third, honing capital investments to only those with the highest social and productive premiums; and lastly, to incentivize and engender economic growth by facilitating bona fide foreign and domestic investments that prioritize jobs and exports.
According to the IMF Report, the recovery "will require a fine balancing act involving ambitious, yet realistic, fiscal consolidation, growth-enhancing structural reforms, and debt restructuring, all aimed at targeting reduction of the public debt to 60 percent of GDP by 2031."
The Government of Belize's Recovery Plan is just such a fine balancing act that will inspire confidence and provide relief for our poor, stimulate jobs and growth, restore health to the public finances and preserve the peg. In this endeavor, and empowered by massive mandates at the national and municipal levels, the Government will continue its active collaboration with social partners and the citizenry.
AmbergrisCaye.com 
