The International Monetary Fund has released its official report following its Article Four consultation with Belize back in February of this year. Among the policy points Belizeans would be most concerned about are the recommended cuts to government spending and increases in taxes, including the General Sales Tax. The report acknowledges Belize has been hard hit by COVID-19. In fact, the report says Belize has had one of the highest numbers of cases and deaths per capita in the Caribbean. In 2020, tourism fell by seventy-two percent. Belize’s Gross Domestic Product contracted by fourteen percent that year and public debt increased from ninety-seven percent in 2019 to almost one hundred and thirty percent in 2020. Because the IMF says Belize’s recovery from the pandemic will be protracted with only sluggish tourism growth for most of 2021, and public debt likely to remain high, the fund says Belize’s economic outlook is “subject to substantial downside risks, including from a resurgence of the pandemic and natural disasters.” The Fund directors say there is an urgent need to restore debt sustainability, provide support to the most vulnerable and implement structural reforms. The directors recommended broadening the tax base, strengthening revenue administration, and reprioritizing expenditures. A major priority is restoring debt sustainability to reduce external imbalances and strengthen the currency peg. They called on the authorities to limit central bank financing of the government, which together with fiscal consolidation, would help reduce the current account deficit, improve access to external financing, and boost reserves. But they also called for increasing tax rates, including that of the GST. News Five spoke with Financial Secretary Joseph Waight about IMF’s latest report.
Joseph Waight, Financial Secretary
“The thing is this. Nobody knows for sure what the future holds. The government is putting in place what it thinks are credible and adequate goals to try to resume growth and bring our debt back to sustainable levels. We have taken difficult actions. We have reached out to our partners, including Labour and the private sector, everybody working together. But, it needs a sustained effort. And we are hoping that in eighteen months or another two years, we look back in the rear view mirror and we see that we have climbed out of this hole. The IMF is conservative by nature. And there are risks, downside risks. So, climate change we have to consider, things we don’t know. Prices on our commodities can sometimes be volatile, so there are a number of unknowns. But I think we are taking the correct steps to stabilize ourselves, put ourselves back in a sustainable path. And hopefully in three years’ time, with sustained effort, we will be able to say that we are back on solid ground you know.”
“God forbid, but we are to have a natural disaster, or a second wave in the COVID-19 pandemic, that would set those projections back substantially. Can this risk be mitigated by broadening the tax base?”
“The idea is to try to improve your administration and widen the base of course. Rather than increase the rates you widen the base. And indeed, if we have a big economic shock we would have to go back to the drawing board.”
A closer look at the work of the IMF and recommendations made to Belize
Better Business Climate, Crime Reduction and Infrastructure for Agriculture among IMF Structural Reforms
When looking at long term solutions to Belize’s crisis, the I.M.F. recommends several growth enhancement structural reforms. According to Doctor Guajardo, these are changes Belize can implement to boost the nation’s economic activity over time. I.M.F. recommendations include improving the business climate to promote investment, addressing crime, and building resilience to climate change.
Dr. Jaime Guajardo, I.M.F. Mission Chief of Belize “The first one is the need to improve the business climate to promote private investment. Here the key initiative is improved access to credit, also lowering barrier to enter the produce market. So, if someone wants to create a new company and wants to produce, they should be able to do it quickly and bring competition. There is also need to invest in key infrastructure. For example, another discussion that we had during the mission, it was mentioned that the agricultural sector gets affected because infrastructure is not adequate. Not only is the development of the agriculture is being harmed by this, but also the connectiveness between tourism sector and agriculture. Hotels, for example, are importing products because they do not have the assurance local products are going to be distributed in their due date with the quality that is required. Part of that is because of infrastructure. Then for the medium term there is a social need to improve education and the human capital, and that will lead to high growth. The last point on improving the business climate. Something that we also have mentioned for several years now is the need to implement policies to reduce crime.”
Specific Wage Cuts Not Part of I.M.F. Recommendations, but Reduction of Wage Bill Was
When it comes to the government’s decision to implement a wage cut, the I.M.F. says this was not a part of its recommendation to local authorities in its 2021 country report. According to Guajardo, mention was only made that there needs to be a reduction in the wage bill. Doctor Guajardo says this is a difference in views between the I.M.F. and the Government of Belize.
Dr. Jaime Guajardo, I.M.F. Mission Chief of Belize “In this article four, we did not do a specific recommendation on how to cut the age bill. We did mention that it needs to be reduced. It is one of the items that sticks out as being too high in Belize when compared to other countries, as we have mentioned before. However, if you look at article four in the 2018 consultation, there we have more specific recommendation on how to cut the wage bill. The recommendation there was to do a combination of a freeze on the wage, also a reduction on public service employment through attrition. In other words, when people start retiring from public sector, not everyone that retires gets replaced. Now, the government took a bit of a different approach. I think the logic is twofold. The first one is that the economy is not doing great, so there is not a lot of opportunities if you start reducing the size of public sector employment. So, they decided to address the issue of wage bill through wages. The second consideration that went through their minds, they need to do these adjustments are credible as possible. Especially, they need to get the credibility from the market and the creditors, because they are engaging them in restricting negotiations. The way to do that is to show they are willing to make sure they are going to provide significant savings, even though they may be difficult and costly in such times.”