|
Ministry of
Finance and the Public Service
Belmopan - 02 March, 2007
Budget Presentation for Fiscal Year
2007/2008: FACING, FIXING, MOVING
ahead
The Rt. Hon. Said Musa,
PRIME MINISTER and Minister of finance and the Public Service
belmopan
march 2, 2007
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APPROVED ESTIMATES 2006/2007
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REVISED BUDGET 2006/2007
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DRAFT PROPOSED ESTIMATES 2007/2008
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TOTAL REVENUES AND GRANTS
|
598,648,177
|
626,885,289
|
678,522,913
|
|
RECURRENT REVENUE
|
|
|
|
|
TAX REVENUE
|
513,901,622
|
528,837,402
|
593,922,989
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|
Income and profits
|
135,067,420
|
136,279,526
|
170,256,298
|
|
Taxes on property
|
6,115,000
|
5,316,191
|
5,617,722
|
|
Ta Taxes on
international trade and transactions
|
170,427,516
|
164,281,950
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180,138,867
|
|
ax Taxes on goods and
service
prices
|
202,291,685
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222,959,735
|
237,910,103
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|
NON-TAX REVENUE
|
49,043,206
|
53,519,944
|
56,998,180
|
|
Property Income
|
4,500,000
|
4,500,000
|
7,700,000
|
|
Licenses
|
11,179,600
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10,248,700
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10,423,300
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Other
|
33,363,606
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38,771,244
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38,874,880
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TOTAL RECURRENT REVENUE
|
562,944,828
|
582,357,346
|
650,921,169
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CAPITAL REVENUES:
|
|
|
|
|
Sale
of Crown Lands
|
7,172,500
|
5,388,577
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6,797,524
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Return on Equity
|
-
|
4,292,698
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3,328,909
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TOTAL CAPITAL REVENUES
|
7,172,500
|
9,681,275
|
10,126,433
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GRANTS & DEBT SERVICE RECEIPTS
|
28,530,849
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34,846,668
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17,475,311
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TOTAL EXPENDITURES
|
667,901,273
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702,905,572
|
703,235,731
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RECURRENT EXPENDITURE
|
|
|
|
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Personal Emoluments
|
223,564,558
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220,259,920
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235,313,278
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Debt Service – Interest and Other Charges
|
145,571,920
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169,528,568
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107,938,208
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Pensions
|
39,802,215
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39,802,215
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39,019,482
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|
Goods Services
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152,746,569
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159,681,570
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202,965,322
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TOTAL RECURRENT EXPENDITURE
|
561,685,262
|
589,272,273
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585,236,290
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CAPITAL EXPENDITURES
|
|
|
|
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CAPITAL II EXPENDITURES
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54,157,460
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79,948,328
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49,956,293
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CAPITAL III EXPENDITURES
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48,850,551
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30,476,972
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64,835,148
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CAPITAL TRANSFER & NET LENDING
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3,208,000
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3,208,000
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3,208,000
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TOTAL CAPITAL EXPENDITURES
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106,216,011
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113,633,300
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117,999,441
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RECURRENT SURPLUS/[DEFICIT]
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1,259,566
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(6,914,926)
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65,684,879
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PRIMARY SURPLUS [DEFICIT]
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76,318,824
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93,508,285
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83,225,390
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OVERALL SURPLUS/[DEFICIT]
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(69,253,096)
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(76,020,283)
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(24,712,818)
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AMORTIZATION
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(122,982,893)
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(99,123,682)
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(61,653,891)
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FINANCING
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(192,235,989)
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(175,143,965)
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(86,366,709)
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GDP (in BZbillions)
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2.414
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2.428
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2.558
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Overall Surplus/Deficit (+/-) as a % of GDP
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-2.87%
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-3.13%
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-0.97%
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Primary Surplus/Deficit (+/-) as a % of GDP
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3.16%
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3.85%
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3.25%
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TOTAL REVENUES AND GRANTS
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598,648,177
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626,885,289
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678,522,913
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Budget
Presentation for Fiscal Year 2007/2008
Introduction
Madame Speaker,
I move the first reading of the General Revenue
Appropriation Bill for Fiscal Year 2007/2008.
Last year when we presented the budget proposals we
laid out certain policy undertakings which the Government intended to
pursue in the course of the year. Ambitious targets were set for
fiscal performance. We challenged ourselves to chart a new way
forward in order to achieve medium term stability and sustainability.
Overall performance for the year, I am pleased to
report, is generally good with the out turn expected to exceed the
targets set in most cases.
In this year’s budget proposals, Belizeans will see
that we are not only securing the gains we have made in our public
finances but also addressing the priority needs of our young growing
nation.
It is a Budget that ensures our country continues to
grow in a steady sustainable way:
- A Budget that will generate more and better paying jobs;
- A Budget that invests more in the human capital of Belize
through education and training for more productive living;
- A Budget that tackles the challenges facing families right
now by creating healthier and stronger communities;
- A Budget that invests in our nation’s economic
infrastructure; and
- A Budget that still ends the year with a much reduced
deficit and another primary surplus.
The Economy of Belize in 2006
The Central Bank and the Statistical Institute
estimate that real GDP growth was around 4% for 2006. The
combination of tight fiscal and monetary policies and strong performance
by exporters of goods and services led to a significant improvement in
the balance of payments position during the year.
The annual labour force survey showed that
unemployment fell from 11 to 9.4% largely due to the vibrancy of the
services sector, especially tourism.
The Consumer Price Index rose by 4.3%. All
major commodity groups were affected especially “Transport and
Communications” and “Rent, Water, Fuel and Power”.
Production and Exports of
Goods and Services
The primary sector performed well even though some
producers faced challenges in the form of unfavourable weather, disease
and financial constraints in 2006. There was a $145.4 million (36.6%)
increase in domestic exports to $543.1 million during 2006.
On the down side, marine export production fell,
mostly due to an 18% contraction in shrimp output. The value of
marine exports totaled $84.9 million down from $98 million the previous
year.
In the case of sugar, favourable
weather conditions during growing and harvesting pushed sugarcane
deliveries up by 26% to 1,173,469 long tons for the crop year and a total
of 111,394 long tons of sugar were produced. Molasses production
increased by 11.1% to 41,179 long tons. Papaya production rose by
20% to 76 million pounds. The petroleum industry, produced 811,199
barrels of crude oil, of which 715,872 barrels were exported and 45,692
barrels were sold locally.
With f.o.b. earnings of approximately $81.2 million,
petroleum accounted for more than half of the increase in export
earnings.
In spite of a decline in production, the volume of
citrus exports rose by 19.9% as stocks were drawn down. Citrus
export earnings rose by 55.0% to $120.1 million, breaking all previous
records.
Higher sugar sales to preferential markets in the US
and EU pushed sugar export earnings up by 43.2% to $100.1 million.
The vigorous growth in domestic exports exceeded an
11.0% rise in imports, causing the trade deficit to narrow. Much of
the rise in imports was due to substantial capital investment by export
processing zones and an increase in the cross border trade from the
commercial free zone. The trade statistics show that the EPZ’s and
the CFZ accounted for some 41.0% of the increase in imports during the
first three quarters of 2006.
Fuel imports were up due to higher acquisition
costs, while other substantial increases were recorded in imports of
vehicles and intermediate inputs such as construction materials.
The performance of tourism was mixed.
Stay-over visitor arrivals rose by an estimated 4.7% to 237,716, but
there was a decline in the number of cruise ship calls that contributed
to a fall in cruise ship visitor arrivals to 590,336. However,
earnings from tourism increased by 23.7% because the increase in
overnight visitors resulted in a higher average daily expenditure.
Balance of Payments
The combination of a reduction in the trade deficit,
higher foreign exchange earnings from tourism and other services, and
inflows of remittances, substantially offset an increase in outflows for
interest payments and profit repatriation. The result was a marked
improvement in the current account deficit of the balance of payments
from $235.7 million during the first nine months of 2005 to $58.4 million
for the comparable period of 2006. This was an impressive
turnaround.
Money Supply and
Credit
An expansion in net domestic credit to meet the
demands of the private sector plus foreign inflows from loan
disbursements and earnings by exporters of goods and services contributed
to a 13.3% rise in broad money supply in 2006. The net foreign
assets of the banking system expanded by $127.0 million (94.6%) with the
net foreign asset holdings of the Central Bank and commercial banks
registering increases of $65.8 million and $61.2 million,
respectively. At the end of December, the official foreign reserves
stood at $208.9 million, equivalent to 2.2 months worth of merchandise
imports.
The Central Bank sought, during the year, to address
the rapid expansion in domestic liquidity so as to restrain credit
expansion and avoid excess demand for foreign exchange. After
implementing a 1% increase in statutory reserve requirements at the start
of 2006 and overseeing the removal of offshore deposits that had been
artificially inflating domestic liquidity, the Central Bank intervened
again with a further 1% increase in the cash and secondary reserve
requirements that took effect at the beginning of September.
Notwithstanding these interventions, bank liquidity
remained at high levels and credit grew twice as fast than in 2005.
In 2006, the 11.1% expansion in net domestic credit
reflected a $151 million rise in loans to the private sector and a $38
million increase in net credit to Central Government. Credit to the
primary and tertiary sectors expanded while the secondary sector
experienced net repayments.
There was a slight narrowing of the commercial
banks’ interest rate spread during the year as a result of a 30 basis
points increase in the weighted average deposit rate to 5.8%, and a 10
basis points decline in the weighted average lending rate to 14.2%.
Madame Speaker, I now turn to the Government’s
fiscal performance for the current fiscal year, 2006/2007.
BUDGET
PERFORMANCE IN FISCAL YEAR 2006/2007
Expected Outturn
for the Fiscal Year 2006/2007 - The Approved and Revised Estimates
This year, the Government of Belize continued on its
programme to achieve medium term stability and sustainability in its
fiscal and debt operations. Over the past several years, this
programme has resulted in a sharp decline in the overall deficit from
over 8% of GDP to 3.3% of GDP last year. At the same time, the
primary balance moved into surplus, an achievement that came from strong
fiscal discipline and firm commitment to the objective of securing
stability and sustainability in Government finances.
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Summary of Approved Budget
and
Expected Outturn for FY
2006/2007 - $BZ mn
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Approved
Estimates
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Projected
Outturn
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Total Revenue and Grants
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598.6
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626.9
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Total Expenditure
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667.9
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702.9
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Primary Surplus
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76.3
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93.5
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Overall Deficit
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(69.3)
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(76.0)
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Amortization
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123.0
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99.1
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Financing Requirement
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-192.2
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-175.1
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Overall Deficit as a % of GDP
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-2.87%
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-3.13%
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Primary Surplus as a % of GDP
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3.16%
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3.85%
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GDP (in BZ $billions)
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2.414
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2.428
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At the start of this fiscal year, the Government set
ambitious targets for fiscal performance. The objectives of the
budget for 2006/2007 reflected an overall deficit of $69 million [2.9% of
GDP] and a primary surplus of $76.3 million [3.2% of GDP]. In most
cases, outturn is expected to exceed the targets set, which reflects
continued improvements in fiscal performance over last year.
For fiscal year 2006/2007, total revenue and grants
were approved at $598.6 million. By the end of the fiscal year
total revenue and grants are expected to amount to $626.9 million.
Total Expenditure was budgeted at $667.9 million. By the end of the
current fiscal year, total expenditures are expected to reach $702.9
million. As a result the overall deficit, at $76 million, is
expected to be $6.8 million larger than was budgeted. However, the
primary surplus, which was budgeted at $76.3 million, is expected to
reach $93.5 million by the end of the fiscal year. Moreover, the
financing requirement [the overall deficit plus amortization] which was
budgeted at $192.2 million, will be $17.1 million less at $175.1 million.
Revenue
Performance
Revenue collections for the current fiscal year are
expected to exceed targets in all major revenue categories. This
reflects two major factors. First, economic activity, as measured
by nominal GDP, grew faster than was projected at the start of the budget
year. This is reflected in a revised projection of nominal GDP of
$2.428 billion as compared with the original projection of $2.414 billion.
This improvement had a positive impact on revenue collections.
Secondly, strengthened tax administration also improved revenue
performance.
Total recurrent revenue was budgeted at $562.9
million. By the end of the fiscal year, total recurrent revenue is
expected to reach $582.4 million – almost $20 million above target.
Tax revenue is projected to exceed targets by $14.9
million. Of this, taxes on income and profits, at $136.3 million,
are expected to be close to the approved budget of $135.1 million and
taxes on property, at $5.3 million will be just below the approved budget
of $6.1 million.
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Summary
of Revenue Collections 2006/2007 - $BZ mn
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Approved Estimates
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Projected Outturn
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Total Revenues and Grants
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598.6
|
626.9
|
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Recurrent Revenue
|
562.9
|
582.4
|
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Tax Revenue:
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513.9
|
528.8
|
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|
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Income and profits
|
135.1
|
136.3
|
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Taxes on property
|
6.1
|
5.3
|
|
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Taxes on international trade & transactions
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170.4
|
164.3
|
|
|
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Taxes on goods and services
|
202.3
|
223.0
|
|
|
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Non-tax Revenue:
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49.0
|
53.5
|
|
|
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Property Income
|
4.5
|
4.5
|
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Licenses
|
11.2
|
10.2
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Other
|
33.4
|
38.8
|
|
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Capital Revenue
|
7.2
|
9.7
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Grants and Debt Service Receipts
|
28.5
|
34.8
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Taxes on international trade and transactions will
show a shortfall of $6.1 million against the budgeted amount of $170.4
million. This reflects the fact that upon the introduction of the
General Sales Tax [GST] in July 2006, the price formula for petroleum
products was adjusted to reduce the element of Revenue Replacement Duty
[RRD]. This was with the intention that the introduction of the
GST, which is calculated on a different basis than the previous Sales
Tax, would not have had the effect of increasing petroleum prices.
As a result, RRD collections, which is included in international trade
and transactions taxes, declined but this was offset by the resulting
increase in GST collections.
Taken together, collections of revenue from taxes on
international trade and transactions and taxes on goods and services will
exceed approved estimates by $14.6 million.
Non-tax revenue is expected to total $53.5 million
by the end of this fiscal year, $4.5 million above the approved
estimates. This largely reflects the commencement of collections of
royalties on petroleum, which is estimated to total $6.0 million this
year.
Petroleum income taxes will be collected with effect
from assessment year 2006, but will factor into revenues for fiscal year
2007/2008.
Grant receipts are expected to total $34.8
million. Grants were boosted this fiscal year with significant
contributions of $21 million from the Republic of China Taiwan, which was
included in the approved estimates, and $11.8 million from the Bolivarian Republic
of Venezuela
which was negotiated during the fiscal year.
Expenditure
Performance
Total expenditure is expected to reach $702.9
million by the end of the current fiscal year. This will be
comprised of $589.3 million in recurrent expenditure and $113.6 million
in capital expenditure.
In recurrent expenditure, personal emoluments are
expected to total $220.3 million, $3.3 million less than the approved
estimates of $223.6 million. This reflects the impact of the staff
containment policy of Government which is intended to restrain growth in
staff costs while allowing for the filling of critical vacancies,
particularly in the health and education sectors.
Pension payments are expected to be right on target
with the budgeted amount.
Expenditure on goods and services exceeded the
budgeted amount of $152.7 million by $7.0 million. This reflected
increased fuel costs as well as additional allocations for purchases of
medical supplies, school textbooks and commitments to grant aided primary
and secondary schools.
Debt service payments of $169.5 million will exceed
the budgeted amount of $145.6 million. This reflects the decision
taken by the Government, during the recent debt restructuring process,
not to capitalize any accrued interest on the affected debt – which would
have had the effect of increasing the total amount of principal
owed. As a result, creditors were paid out the full amount of all
interest accrued as of the effective date of the restructuring – February
20, 2007. Some of this accrued interest had payment dates in the
upcoming fiscal year and therefore payment in the current fiscal year had
the effect of increasing debt service payments beyond the original allocation
for the year.
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Summary
of Expenditure 2006/2007 - $BZ mn
|
|
|
|
|
Approved
Estimates
|
Projected
Outturn
|
|
Total
Expenditure
|
667.9
|
702.9
|
|
|
Recurrent
Expenditure:
|
561.7
|
589.3
|
|
|
Personal
Emoluments
|
223.6
|
220.3
|
|
|
Debt
Service
|
145.6
|
169.5
|
|
|
Pensions
|
39.8
|
39.8
|
|
|
Goods
and Services
|
152.7
|
159.7
|
|
|
Capital
Expenditure:
|
106.2
|
113.6
|
|
|
Capital
II Expenditure
|
54.2
|
79.9
|
|
|
Capital
III Expenditure
|
48.9
|
30.5
|
|
|
Capital
Transfer and Net Lending
|
3.2
|
3.2
|
|
Amortisation
|
123.0
|
99.1
|
The debt restructuring had the opposite effect on
amortization which was budgeted at $123.0 million but is expected to
total $99.1 million this year. Principal repayments were halted on
the announcement of the exchange offer in December 2006 and the
outstanding principal balances of that date were eligible to be tendered
into the exchange offer.
Capital expenditure is expected to total $113.6
million by the end of the fiscal year, as compared to the budgeted amount
of $106.2 million. Capital II [locally funded] projects exceeded
the budgeted allocation and the additional allocations were largely met
from Venezuela
grant funding. Capital III [externally funded] projects experienced
slow rates of implementation and therefore lagged behind the budgeted
allocation. This reflected both capacity constraints as well as
delays in the approval processes of funding agencies. As a result, a
number of activities that were to take place this year have been carried
over to the upcoming fiscal year 2007/2008. Capital projects for
which additional allocations were made during the year included:
·
$3.0
million for repairs to school buildings countrywide
·
$1.5
million for housing
·
$2
million for the National Health Insurance Scheme
·
$1.8
million for emergency road and street repair
·
$1.0
million for refurbishment of the Karl Heusner
Memorial Hospital
Financing the Deficit
The approved budget provided for a financing
requirement of $192.2 million for the current fiscal year. The
outturn, at $175.1 million is significantly better and is comprised of an
overall deficit of $76 million and amortization of $99.1 million.
This financing requirement has been fulfilled primarily through
non-project related loans from international financial institutions and
bi-lateral partners as follows:
·
The
Inter-american Development Bank approved a US$25 million Policy Based
Loan [PBL] of which the first disbursement of US$10 million was received in
December 2006.
·
The
Republic of China Taiwan provided a loan of US$15 million which was fully
disbursed during the fiscal year.
·
The
Bolivarian Republic
of Venezuela
provided loans of US$50 million which were fully disbursed during the
fiscal year.
·
The
Caribbean Development Bank has also approved a PBL loan of US$25 million
to be disbursed during the upcoming fiscal year.
These loans reflected the support of the financial
institutions for Belize’s
programme to stabilize fiscal and debt operations and achieve medium term
sustainability. This support has been a critical component of the
success we have achieved with the debt restructuring.
In addition to non-project related financing, there
also were net disbursements on project loans amounting to about $16
million. As a result of the success in raising concessional
external loans this year, Government’s call on financing from domestic
sources was less than $11 million.
The Public Debt
At
the end of December 2006, the external public debt approximated $1,911
million and the domestic public debt amounted to $299.8 million, the
latter including a new issue of Treasury Notes, valued at $31.0 million.
By
the end of the 2006/2007 fiscal year, Government expects to pay $170.6
million in interest and $99.1 million in principal on the domestic and
external debt.
In
view of the heavy burden of servicing the external debt, the Government
undertook a detailed analysis of its debt profile and repayment capacity
and, in August of 2006, announced its intention to seek a comprehensive
restructuring of its private commercial debt. The specific
objectives of the restructuring were to:
·
Smooth
out the sharp fluctuations in Belize’s debt service
profile;
·
Generate
cash flow savings so as to eliminate the projected medium term financing
shortfalls; and
·
Place
Belize’s
debt firmly on a sustainable footing;
The
financing shortfalls which Government sought to close via the
restructuring were projected in the context of medium term fiscal and
balance of payment projections which were calculated on the assumption
that government would continue the implementation of the ongoing fiscal
reform programme.
The
underlying objectives were to prevent an eventual balance of payment
crisis from emerging and threatening the fixed exchange rate and to
improve Belize’s
general economic outlook and investment climate.
|
Results of the Debt Restructuring by
Instrument
|
|
Instrument
|
Restructured
|
|
Bear Stearns 9.50% Note due 2012
|
91.5%
|
|
Bear Stearns 9.75% Note due 2015
|
100.0%
|
|
RBTT 9.95% Fixed Rate Bonds due 2014
|
100.0%
|
|
RBTT 9.50% Fixed Rate Bonds due 2010
|
100.0%
|
|
Citicorp 8.95% Fixed Rate Bonds due
2013
|
100.0%
|
|
Citicorp 9.75% Fixed Rate Bonds due
2008
|
100.0%
|
|
Citicorp 9.75% Fixed Rate Bonds due
2007
|
100.0%
|
|
IBOM 10% Note due 2012
|
100.0%
|
|
IBOM 9.25% Note due 2011
|
100.0%
|
|
IBOM Tranche Note due 2010
|
100.0%
|
|
Belize Sovereign Investments I due 2015
|
100.0%
|
|
Belize Sovereign Investments II due 2010
|
100.0%
|
The results are
in. The Government of Belize has successfully restructured the
commercial debt of Belize.
An overwhelming majority of our creditors agreed to exchange their
existing instruments for a new US Dollar bond with the following terms
and conditions:
·
A
duration of 22 years with a final maturity in February 2029;
·
Principal
repayments in equal semi-annual installments beginning in August 2019;
·
A
step-up interest rate structure with 4.25% payable in years 1-3; 6.00%
payable in years 4-5; and 8.50% payable from year 6 through to maturity;
·
Government may redeem the bonds at face
value at any point after the end of the grace period.
In total, 98.1%
of the total commercial debt has been restructured. This success
rate is virtually unprecedented in the history of sovereign debt
restructurings.
The restructuring
has resulted in an improved outlook for the future. Belize’s
debt service profile has
been transformed from one that was unsustainable to one that is certainly
sustainable. There are no more spikes reflecting imminent bullet
payments or put options.
The
new debt service profile provides Belize with considerable net
cash flow relief between 2007 and 2015 amounting to US$481.5
million. And because government can redeem the bonds at par at any
time after the grace period, this Government, or indeed any future
Government, can opt to pay off the debt early, taking into consideration
cash flow and the implications for fiscal and macroeconomic
developments. There will be no penalties for early payment.
The
success of the restructuring has already begun to reap benefits for Belize
in the international financial markets:
·
Standard and Poors has upgraded Belize’s credit rating into
the B category with a stable outlook;
·
Moody’s Investor Services has also upgraded Belize’s
credit ratings, into the Caa category;
·
Bear Stearns, after expressing some doubts in the run-up to
the exchange offer, has now offered its congratulations and is already
making a market in the new bonds, signalling that no long term damage has
been done to Belize’s relations with its creditors as a result of the
restructuring;
·
Creditors have acknowledged that Belize restructuring process
was very transparent and consultative; and
·
The innovative approach taken by Belize is fast becoming the
standard by which emerging market debt restructurings will be judged in
the future.
At the
end of the day, however, servicing Belize’s debt will, in fact,
be sustainable as long as prudent policies continue to be
maintained. This Government has therefore pledged to our creditors
and to the Belizean people that it will continue to manage its finances
in a responsible manner. This will be reflected in the draft
estimates put before this honourable house today.
The Development Finance Corporation
Almost
2 years ago, in July 2005, a new Board of Directors was appointed to
manage the affairs of the Development Finance Corporation (DFC). That
Board found that DFC had outstanding debt of $529 million and a portfolio
of 8,900 loans totalling $324 million of which 48% were non-performing.
DFC’s
debt, all of which are guaranteed by the Government of Belize, included:
·
$78.5 million to the Belize Mortgage Company
·
$50 million to the Belize Social Security Board,
·
$42 million to the Caribbean Development Bank, and
·
$259 million to the Government of Belize.
DFC
was also under the threat of “Immediate Liquidation”.
The
Board approached the DFC situation with a view that the liquidation
should be focused on DFC’s proper management of the debt and not
exclusively on the sale of the assets. The objectives were, then, and
still are as follows:
·
To repay DFC’s debt and therefore reduce Belize’s debt exposure
·
To minimize any subsidy from the Government of Belize and,
therefore, the people of Belize
·
To collect on the
outstanding loans in an orderly manner.
Restructuring DFC’s Portfolio:
DFC’s
outstanding debt has been reduced from $529 million in December 2004 to
about $180 million as of February 2007, a 60% reduction.
|
|
Balance Outstanding BZ$ mn
|
|
DFC's Creditors
|
Dec-04
|
Feb-07
|
|
Belize Mortgage Company
|
78.4
|
66.2
|
|
Belize
Social Security Board
|
50.0
|
13.5
|
|
Caribbean Development Bank
|
42.0
|
34.8
|
|
Government of Belize
|
259.4
|
60.7
|
DFC
has prepaid most of the debt owed to the Belize Social Security Board and
plans to fully pay-off the remaining balances by the end of 2007. The
debt reduction has been accomplished by aggressive collection of all
loans and receivables. In the case of the debt owed to the
Government of Belize, the reduction has been accomplished by netting off
amounts owed to Government against amounts due from Government.
The
collections strategy has resulted in a reduction in the number of
outstanding loans from 8,900 to 4000; and a reduction in the number of
non-performing loans from 4,500 to 800.
On its
present path, and on the assumption that the DFC will continue to pursue
collections aggressively, the DFC will continue to see its debt reduced
to approximately $70 million by 2012, when the Belize Mortgage Company
Bonds mature. At that point, the outstanding debt would be only to
the CDB and the Government of Belize.
Financial Support from the Government of Belize
Government
last provided for an allocation to cover DFC’s projected cash deficit in
the budget of 2005/2006. The amount, which was $20 million, was not
utilised and DFC has not had to call on the Government of Belize for any
subsidy since then. Based on current projections, DFC would not have
to call for financial support from Government for the next 5 years.
Orderly Liquidation
The
DFC was operating in 2005 and 2006 under the constant threat of
liquidation. After much debate and discussion internally and with the
IDB, it was agreed that DFC be liquidated in orderly manner so as to
maximize collections and maximize payment of its debts. In November
2006, the DFC Act was amended to limit DFC to managing the Belize
Mortgage Company and its other obligations. The Belize Mortgage Company
has non-callable Bonds until 2012.
The Future:
As the
operations of the DFC are reduced, Government has been planning for the
new development financing mechanism to provide credit for small, medium
and micro enterprises in the productive sector. With the assistance
of the CDB, a study is about to commence which will inform the scope and
the structure of the new mechanism. This study will be completed by
mid-year and it is expected that the recommendations will be considered
immediately and implementation will be fast tracked to ensure that the
gap resulting from the absence of a development financing mechanism is
effectively addressed.
This
ongoing study also has implications for the housing sector, particularly
Government’s stated intention to establish a national housing corporation
to manage the existing public sector housing stock and to facilitate
financing for home construction.
Budget Proposals for Fiscal Year 2007/2008
Background
Last
year when I tabled the budget proposals for fiscal year 2006/2007, I had
laid out certain policy undertakings which the Government intended to
pursue during the financial year. I now wish to provide on update
on what has been done so far in pursuit of these undertakings.
The
undertaking to continue to improve financial management and
accountability has been substantially pursued:
·
The
process of reviewing and streamlining the budget to conform to
international standards is now largely completed with the
reclassification this year of $25 million in expenditure from Capital II
to Recurrent Expenditure. These include all contributions to
statutory boards and grants to organizations, which were previously
included in Capital II and are now properly classified as recurrent
expenditure.
·
The
Accountant General has submitted financial statements to the Office of
the Auditor General for all outstanding years, including 2005/2006.
These statements are under audit review, but there will be need for
additional time, for which the approval of the National Assembly will be
sought as required by the Finance and Audit (Reform) Act. The fact
is, that some of the un-audited statements go back to the 1990’s and this
is presenting some major challenges to the audit process.
·
The
Central Statistics Office [CSO] has been legally transformed into the
autonomous Statistical Institute of Belize and that organization is in
the transition process. Much planning has been done to ensure that
the new Statistical Institute has access to the financial and technical
resources needed to ensure autonomy and quality.
·
Belize has also formally joined the General Data
Dissemination System of the IMF in the interest of international
comparability and transparency of statistical methodology.
In the upcoming
fiscal year, the Government will continue to improve financial management and
accountability by modernising the Financial Orders, Stores Orders and
Control of Public Expenditure handbook. We will be assisted in this
effort by the Caribbean Development Bank through the provision of
Technical Assistance Resources. In this process, the Finance and
Audit (Reform) Act of 2005 will also be reviewed for strengthening.
We
made an undertaking last year to facilitate the strengthening of Oversight
Institutions. So far we have supported
the Office of the
Auditor General through staff upgrading and training. We have also
improved the office accommodations for the Integrity Commission and are
providing, for the first time, full time support staff to that Office.
We undertook last
year to consult with the people to define the Poverty Elimination
Strategy. After
broad consultations across districts, communities and sectors, an updated
Poverty Elimination Strategy and Action Plan was recently launched.
This Strategy and Action Plan has informed the spending proposals for
next year as well as the sectoral policies of the relevant ministries.
Last year we
undertook to continue the process of tax reform and strengthening revenue
administration. The GST was successfully implemented in July.
Government and the private sector continued to collaborate in the fight
against contraband activities and a project was prepared to modernize the
Customs Department. This project will implement the newest version
of the ASYCUDA system and will transform the way the Customs Department
operates internally and relates with importers and exporters. It
will speed up the processing of Customs Declarations, lower the cost of
business to the private sector and reduce the scope for corrupt
practices. Funding for this project will be provided by the Caribbean
Development Bank.
In the upcoming
year, the work on revenue reform must continue apace. Government
will shortly be re-convening the Tax Reform Committee to advise on
several matters.
First, the Tax
Reform Committee will be asked to review proposals to increase the
threshold of income tax to $24,000 and reintroduce tax exemptions for
charitable contributions to registered organizations, schools and
athletic organizations.
Secondly,
Government will ask the Committee to review the Excise Tax regime to
remove the perverse incentives to engage in contraband activities.
Although there has been some success in enforcement and interdiction,
contraband activities continue to exist in flagrant contravention of the
laws and at great cost to revenue.
Thirdly,
Government will ask the Tax Reform Committee to review the GST with a
view to making recommendations for improvements which may be necessary.
The Tax Reform
Committee will be asked to make its recommendations on these 3 matters by
June 30, 2007.
During this year,
Government will also review the petroleum price formula to remove the RRD
and fix the taxes per gallon of petroleum so that when prices fall, there
is a full and immediate pass through to the consumer.
Madam Speaker, I
now turn to the specific revenue and expenditure proposals for the
upcoming fiscal year.
The Draft Estimates for Fiscal Year 2007/2008
As in the past
two years, the draft budget for the coming fiscal year continues to
emphasize health, education and poverty alleviation. In addition,
however, this budget gives greater priority to the implementation and
maintenance of economic infrastructure than in previous years.
|
Summary
of Draft Estimates for 2007/2008 and Expected Outturn for FY 2006/2007
-$BZ mn
|
|
|
Projected
Outturn 2006/2007
|
Draft
Estimates 2007/2008
|
|
Total
Revenue and Grants
|
626.9
|
678.5
|
|
Total
Expenditure
|
702.9
|
703.2
|
|
Primary
Surplus
|
93.5
|
83.2
|
|
Overall
Deficit
|
(76.0)
|
(24.7)
|
|
Amortization
|
99.1
|
61.7
|
|
Financing
Requirement
|
-175.1
|
-86.4
|
|
Overall
Deficit as a % of GDP
|
-3.13%
|
-.97%
|
|
Primary
Surplus as a % of GDP
|
3.85%
|
3.25%
|
|
GDP
(in BZ$ billions)
|
2.428
|
2.558
|
The draft budget
is prepared on the assumption that real GDP will grow by between 1.5% and
2% in 2007 and that nominal GDP will grow by about 6%. On this
basis, there should be natural growth in tax revenue of at least 6% with
incremental increases accruing because of improvements in revenue
administration.
As in previous
years, emphasis will continue to be placed on expenditure control in
order to achieve the targets for the primary and overall balances.
The underlying objective is to ensure that the primary surplus remains
above 3% of GDP and the overall deficit declines towards 1% of GDP. And
without any increases in taxes.
Summary of the Draft Estimates for 2007/2008
The Draft
Estimates propose Total Revenue and Grants of $678.5 million, an increase
of almost $51.6 million over the expected outturn of 2006/2007. It also
proposes Total Expenditure of $703.2 million, resulting in an overall
deficit of $24.7 million. The overall deficit is estimated to
decline to 0.97% of GDP next year and the primary surplus to GDP ratio is
estimated to decline slightly to 3.25% of GDP.
After declining
to $99.1 million in fiscal 2006/2007, amortization payments are estimated
to decline further to $61.7 million, reflecting
the impact of the debt restructuring. As a result, the financing
requirement [the overall deficit plus amortization] is estimated at $86.4
million.
Financing the
Deficit
This financing
requirement of $86.4.1 million will be met from confirmed disbursements
of $93 million under concessional loans as follows:
·
The
second disbursement, of US$15 million, under the PBL from the IDB;
·
The
first disbursement under the PBL from the CDB of US$12.5 million
·
Disbursements
on Project loans - $40.8 million.
There will,
therefore, be no recourse to domestic financing in 2007/2008 and, in
fact, there should be some reserve accumulation in keeping with the
medium term projections.
Estimates of
Revenue 2007/2008
The Draft
Estimates of Revenue and Grants include $650.9 million in Recurrent
Revenue, $10.1 million in Capital Revenue and $17.5 million in Grants.
Recurrent Revenue
is comprised of $593.9 million in Tax Revenue and $57 million in non-tax
revenue. The strong growth in Tax Revenue reflects the following:
A $34.0 million increase in collections of taxes on
income and profits of which $20 million is a contribution from the
Petroleum Fund which is soon to be established to receive all the
revenues from the Petroleum Industry – the remaining $14 million increase
reflects natural growth in line with economic expansion.
·
Property
Taxes will see a marginal increase of $0.3 million next year
|
|
Projected
Outturn 2006/2007
|
Draft
Estimates 2007/2008
|
|
Total
Revenue and Grants
|
626.9
|
678.5
|
|
Recurrent
Revenue
|
582.4
|
650.9
|
|
|
Tax
Revenue:
|
528.8
|
593.9
|
|
|
Income
and profits
|
136.3
|
170.3
|
|
|
Taxes
on property
|
5.3
|
5.6
|
|
|
Taxes
on international trade and transactions
|
164.3
|
180.1
|
|
|
Taxes
on goods and services
|
223.0
|
237.9
|
|
|
Non-Tax
Revenue
|
53.5
|
57.0
|
|
|
Property
Income
|
4.5
|
7.7
|
|
|
Licenses
|
10.2
|
10.4
|
|
|
Other
|
38.8
|
38.9
|
|
Capital
Revenue
|
9.7
|
10.1
|
|
Grants
& Debt Service Receipts
|
34.8
|
17.5
|
·
International
Trade and Transactions Taxes will increase by $15.9 million
·
Taxes
on goods and services will increase by $15 million.
Non-tax revenue
is estimated to increase by $3.5 million and Capital Revenue by $0.4
million.
Grants are
expected to decline by $17.4 million.
Estimates of
Recurrent Expenditure
2007/2008
|
|
Projected Outturn 2060/2007
|
Draft Estimates 2007/2008
|
|
Total Expenditures
|
702.9
|
703.2
|
|
Total Recurrent Expenditure:
|
590.8
|
585.2
|
|
|
Personal Emoluments
|
220.3
|
235.3
|
|
|
Debt Service
|
169.5
|
107.9
|
|
|
Pensions
|
39.8
|
39.0
|
The Draft
Estimates of Recurrent Expenditure propose a total of $585.2 million, a
reduction over the expected outturn for fiscal year 2006/2007. This
reduction largely reflects the decline in debt service payments following
the successful debt restructuring operations.
Proposed
provisions include:
·
235
million for Personal Emoluments, which provides for essential staff
primarily in the health, education and security sectors, as well as
salary increments following the implementation of the new performance
appraisal system.
·
Pension
payments will remain steady at about $39 million.
·
Debt
service payments will decline by $61.6 million from $169.5 million to
$107.9.
·
Payments
for goods and services will increase from $159.7 million to $203
million. It must be borne in mind, however, that $25 million of
this increase is the result of the reclassification of expenditure from
Capital II to Recurrent Expenditure. Other sources of increases in
provision for goods and services include: increases in utility rates, street
lighting and additional maintenance requirements after 2 years of delayed
repair and maintenance of furniture and equipment.
Estimates of
Capital Expenditure
2007/2008
Capital
Expenditure is proposed to increase slightly to $118.0 million.
Capital II expenditures are expected to decline from $79.9 million to
$50.0 million. This primarily reflects the previously mentioned
reclassification of capital expenditures to “recurrent”. Capital
III expenditure is proposed to total $64.8 million, an increase of $34.4 million,
as a number of major projects are commencing while several are already
ongoing.
The Plan of
Action for the Future
Education
In this new
fiscal year, education accounts for 25% or $143 million of the recurrent
budget with an increase of $17.3 million over last year’s
expenditure. We are indeed a nation unquestionably committed to
education. The goal is for every child to have access to primary
and secondary education. This year we are going further.
Government will provide free basic primary school textbooks in
Mathematics, Science, English and Social Studies to all needy children.
With the building
of the new State of the Art Technical and Vocational schools in the
districts, we are expanding choice and relevance in our educational
system and training our young people for jobs in new or expanding sectors
such as tourism and information technology.
The building of
more class-rooms and the training and hiring of more teachers
continues. The teaching of African and Maya history is being extended
to the high schools.
More pre-schools
are opening. More sixth forms established. This September,
Escuela México, which is presently ongoing a major expansion in
classrooms and work-shops, expects to launch a Sixth Form programme which
will cater mainly to high school graduates from the rural communities of
the Corozal district.
The budget
provides $8.5 million in support to the University of Belize.
Youth and Sports
Work on the
design and plans for building a world class indoor sports auditorium at
the Marion Jones stadium is now completed and construction will soon be
put out to tender.
The Dangriga
Sports facility will also be undertaken.
Support for
semi-pro and amateur sports continues. So too is our government’s
support for physical education in schools and promotion of fitness and
wellness programmes.
We are expanding
the facilities for the Youth Cadet Services Corp. Our commitment to
the Youth for the Future programmes as well as for other young people
organizations like the Guides and Scouts, YWCA and YMCA is reflected in
the budget.
Playing fields
with adequate lighting in villages across the country continue to receive
our attention.
Affordable Health
Care
The recurrent
budget for the Ministry of Health has been increased from $62 million to
$76.7 million - a 24% increase. This includes an allocation of $4.0
million to allow the expansion of NHI to the rest of the country.
The IDB-CDB
funded Health Reform project which is now scheduled for completion in
mid-2008, has constructed and or renovated a number of health centers and
polyclinics across the country.
The Health Reform
Project will receive new impetus in this budget year with the upgrading
of Regional Hospitals and the expansion of the National Health Insurance
Programme to the rest of the country.
Construction of
the new San Ignacio Community Hospital is programmed in this new
budget. The building of a new Mental Health Facility in Belmopan and a Community Polyclinic in San Antonio, Toledo
as well as improvements to the Belmopan
and Corozal
Town hospitals will
also be carried out as part of the Capital Budget of the Ministry of
Health.
Home Ownership
and Quality of Life
Belize City, the old capital, is the commercial and most highly
populated centre of the country. It is a city of contrasts – with
areas having some of the most opulent homes while other areas have some
of the most deplorable conditions for human habitation.
The building of
more low-income houses with repayments not exceeding $200.00 per
month will be stepped up. Further steps will also be made to reduce
mortgage payments on all social housing i.e. low income houses, to an
affordable rate not exceeding $200.00 for month.
The programme to
provide 30,000 house lots for first time Belizean families is proceeding
apace.
We have abolished
the stamp duty on land valued under $20,000.00
We remain
committed to working with municipal bodies and village councils to
providing space for more parks, playgrounds and sporting facilities.
Government is
presently working on a project at Mile 12 Northern Road to provide 1,000
more house lots.
Removal of the
$10 service charge on electricity bills by BEL will be effected by the
end of the first quarter of the fiscal year.
Rural Development
and Poverty Elimination
The Social Investment Fund will continue its programme of
providing funding for the classrooms, health centers, water systems,
training and capacity building for poorer areas of rural and urban
communities.
Today more than
90% of rural communities throughout the country have good running
drinking water. Our task now is to complete this major success
story.
In addition more
community projects will be undertaken through the EU funded Rural
Development Project, the Sugar Adaptation Fund and the Banana Support
Programme.
The Southside
Poverty Improvement Project has been designed to address urban poverty in
a significant way. The planning phase has taken longer than was
expected, but we are now at the stage where tenders will soon be
awarded. The construction of streets and drains in the southside of
Belize City will soon begin.
Economic Infrastructure
To further
improve the quality of life for all Belizeans while serving as a solid
foundation to attract new investments, improve transport and
communication, create jobs and increase economic growth and development,
the budget plan of action will see the implementation of the following
infrastructure projects:
- A new international bridge at the
Belize/Mexico border
- The paving of the Placencia Road
- A major upgrading of the road from Blue Creek to Orange Walk Town
- The paving of the road from San Estevan to Progresso Village and upgrading the
road to Sarteneja
- The upgrading of the Old Northern Highway
- The rebuilding of the Crooked Tree Causeway
- The completion of the paving of the Southern Highway and
thereafter the road from Julian Cho High School junction to the
village of San Antonio on to Jalacte in the Toledo District
- A $3.8 million contribution to the Cobble Stone Street
Project in San Pedro Ambergris, which is beginning this year and
will be completed next year.
All this, in
addition to several bridges, feeder roads, village streets and drains as
well as maintenance work of existing highways.
The roads and
bridges programme already carried out by the government is impressive.
The list is long. To mention a few:
·
Most
of the Southern Highway is completely paved. New bridges have been
built on the Hummingbird
Highway at Caves Branch
Sibun River
and Silver Creek. Also built were the Moho
River bridge, the Valley of Peace
(Agripino Cawich) bridge, the new Beaver Dam bridge, the Jordan
bridge.
·
We
completed the paving of the Orange Walk Town Bypass and the Burrel
Boom-Hattieville road. The road to Rancho Dolores, the road to
Barranco; 15 miles of road to Caracol, the road to Jaguar Paw, the Caye
Caulker airstrip were all upgraded.
·
The
municipal drainage projects in the district towns have been completed.
·
A
new bridge at Middlesex is planned for construction this year.
·
And
now, well underway and nearing completion, is the expansion of the runway
at the Phillip
Goldson International
Airport, with
private sector investment.
Conclusion
This Plan of
Action is designed to create fundamental and positive changes in the way
we live and work together. It is designed to improve our security
as a nation and our safety as a people. It strengthens the capacity
and the capability of our security forces – the police and the BDF.
It also
recognizes that long term solutions to crime and violence lie not only in
law enforcement but in strengthening our system of justice with an
independent judiciary under the rule of law.
This Plan of
Action, the policies and programmes presented today, aim to solidify the
gains we have made through prudent financial stewardship and the hard
work of the Belizean people – our professionals in the public service,
our teachers, our health workers, our security forces, our farmers,
fisherfolk and other producers and workers in the services sector, our
artists and cultural workers – all who believe in Belize and work to
create a better life for themselves, their families, their communities
and their country.
Belize is back on track. The path ahead is clear
now. The horizon has the glow of hope and the promise of a brighter
future. As in life there will be new challenges to face; the work
of reform must continue. Embracing change and seizing opportunities
for innovation and progress must be our guiding principles.
Some people may
say “sorry that’s too ambitious. Sorry that is just rhetoric.
Sorry it can’t be done.” I say: Belize is not a sorry
country, we are not a sorry people. It can be done if you have the
will, the vision, the courage and the determination to do it.
Together we can. After all, we are living in a good country.
Let us continue
our journey to build a fairer, gentler society – a people committed to
economic and social justice where the fruits of development are shared
more equitably. Respect, compassion, dignity will crown our efforts
when all Belizeans have a seat at the table of God’s bounteous gifts to
this land of the free by the Carib
Sea.
BELIZE: MAJOR ECONOMIC INDICATORS 2006
|
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006P
|
|
POPULATION AND EMPLOYMENT
|
|
|
|
|
|
|
|
Population (Thousands)
|
257.3
|
265.2
|
273.7
|
281.1
|
289.9
|
299.8
|
|
Annual Population Growth
|
3.0%
|
3.1%
|
3.2%
|
2.7%
|
3.1%
|
3.4%
|
|
Employed Labour Force (Thousands)
|
85.9
|
84.7
|
89.2
|
95.9
|
98.6
|
102.2
|
|
Unemployment Rate (%)
|
9.1
|
10.0
|
12.9
|
11.6
|
11.0
|
9.4
|
|
INCOME
|
|
|
|
|
|
|
|
GDP at Current Market Prices ($mn)
|
1,737.6
|
1,853.0
|
1,961.6
|
2,071.2
|
2,214.0
|
n.a.
|
|
Per Capita GDP ($, Current Mkt.
Prices)
|
6,753
|
6,987
|
7,167
|
7,368
|
7,637
|
n.a.
|
|
Real GDP Growth (%)
|
4.9
|
5.1
|
9.3
|
4.6
|
3.3
|
2.9(1)
|
|
MONEY AND PRICES ($mn)
|
|
|
|
|
|
|
|
Inflation (Annual average percentage
change)
|
1.1
|
2.2
|
2.6
|
3.1
|
3.7
|
4.3
|
|
Currency and Demand deposits (M1)
|
364.8
|
358.1
|
365.1
|
406.7
|
423.1
|
463.1
|
|
Quasi-Money (Savings and Time
deposits)
|
676.0
|
705.3
|
740.0
|
841.5
|
906.8
|
1041.8
|
|
Money Supply (M2)
|
1,040.8
|
1,063.4
|
1,105.1
|
1,248.2
|
1,329.9
|
1,504.9
|
|
Ratio of M2 to GDP (%)
|
59.9
|
57.4
|
56.3
|
60.3
|
60.1
|
n.a.
|
|
CREDIT ($mn)
|
|
|
|
|
|
|
|
Commercial Bank Loans and Advances
|
788.5
|
904.5
|
1,041.7
|
1,176.6
|
1,254.7
|
1390.5
|
|
Public Sector
|
12.9
|
15.9
|
26.4
|
46.3
|
62.2
|
27.9
|
|
Private Sector
|
775.6
|
888.6
|
1015.3
|
1,129.7
|
1,193.0
|
1362.6
|
|
INTEREST RATES (%)
|
|
|
|
|
|
|
|
Weighted Average Lending Rate (WALR)
|
15.4
|
14.5
|
14.2
|
14.0
|
14.3
|
14.2
|
|
Weighted Average Deposit Rate
|
4.3
|
4.5
|
4.9
|
5.2
|
5.5
|
5.8
|
|
Weighted Average Spread
|
11.1
|
10.0
|
9.3
|
8.8
|
8.8
|
8.5
|
|
|
|
|
|
|
|
|
|
EXTERNAL TRADE TRANSACTIONS (US $mn)
|
|
|
|
|
|
|
|
Domestic Exports f.o.b.
|
161.2
|
148.4
|
179.8
|
187.8
|
198.9
|
276.6
|
|
Merchandise Exports f.o.b.
|
269.1
|
309.7
|
315.5
|
307.5
|
324.4
|
318.9(1)
|
|
Merchandise Imports f.o.b.
|
477.7
|
496.9
|
522.3
|
480.7
|
556.2
|
449.6(1)
|
|
Trade Balance
|
-208.6
|
-187.2
|
-206.8
|
-173.2
|
-231.8
|
-130.7(1)
|
|
Tourism (inflows)
|
110.5
|
121.5
|
149.7
|
168.1
|
204.2
|
179.0(1)
|
|
Services (net)
|
44.0
|
42.3
|
74.9
|
89.3
|
139.9
|
145.4(1)
|
|
Gross Official International Reserves
|
120.1
|
114.7
|
84.6
|
53.4
|
71.8
|
104.4
|
|
Import Cover of Reserves (in months)
|
3.2
|
3.2
|
2.1
|
1.4
|
1.7
|
2.2
|
|
|
|
|
|
|
|
|
|
PUBLIC SECTOR DEBT
|
|
|
|
|
|
|
|
Disbursed Outstanding External Debt
(US $mn)
|
473.6
|
587.3
|
761.4
|
856.3
|
936.0
|
955.6
|
|
Ratio of Outstanding Debt to GDP at
Mkt. Prices (%)
|
54.5
|
63.4
|
77.6
|
82.7
|
84.6
|
n.a.
|
|
External Debt Service Payments (US
$mn)
|
76.9
|
73.0
|
75.6
|
89.9
|
218.6
|
126.9
|
|
External Debt Service Ratio (%)
|
17.4
|
15.6
|
14.3
|
16.6
|
35.3
|
n.a.
|
|
Disbursed Outstanding Domestic Debt
($ mn)
|
208.8
|
172.2
|
256.4
|
278.6
|
279.5
|
299.8
|
|
Domestic Debt Service Payments ($ mn)
|
17.7
|
19.2
|
13.7
|
18.8
|
23.1
|
25.8
|
|
Sources:
Central Bank of Belize,
Ministry of Finance, Central Statistical Office
|
|
P – Provisional
|
|
(1) Data for January to September 2006
|
|
n.a. Not available
|
|