IMF Says Belize Needs to ‘Put Public Debt on the Downward Path’

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Updated: May 26, 2016

Following a two week working visit in Belize, the findings documented by the staff of the International Monetary Fund (IMF) are alarming when it comes to the economy and the country’s vulnerabilities.  While the document is not a final report from the IMF’s Executive Board, it is a preliminary report put together by the team that was in Belize conducting the assessments.  The report cited several cause for concern, starting with the slowing of the economy and the increase of the country’s fiscal and external vulnerabilities.  There was the mention of the fall in oil production and the multiple shocks in the reduced 2015 GDP in the primary sector.  When it comes to the 2015 deflation, the IMF has contributed that to the decline in the prices of energy and other commodities but did note that the increase in the fuel tax did restore positive inflation, putting it at point one percent for the month of March.  When it comes to the current account deficit that was reportedly widened to nine point eight percent of the Gross Domestic Product (GDP) since exports fell by nine percent, primarily in the oil and marine products; however, because of the investment projects the rate of imports remains on the rise.  With the move for nationalization of the utility companies and subsequent part payments, the country’s international reserves fell to four point six months of imports in as recent as March 2016.  The fiscal deficit has widened to about eight percent of GDP and that was due to a one-off payment of a settlement of a loan to one of the nationalized companies as well as due to an increase in public sector wages and transfers and a large over run in capital expenditure.  The report spoke of public debt as well, saying its stock has climbed to eighty two percent of GDP.  There is some fairly decent news, among all this.  According to the IMF, the banking system, despite the recent challenges of correspondent banking has continued to strengthen.  “The economic outlook”, according to the report, “has worsened further since the 2015 Article IV Consultation and is subject to significant downside risks. Growth is projected to decline further to 0.5 percent in 2016 and average less than 2 percent in the medium term. In the absence of fiscal measures, rigid current spending would fuel high fiscal deficits and add to the already high public debt burden. The current account deficit would slowly improve due to recovery of exports, but would still remain high, putting downward pressure on international reserves. These vulnerabilities could be exacerbated by both domestic and external risks, such as a the end of PetroCaribe financing, protracted period of weak growth in trading partners, and challenges posed by withdrawal of correspondent banking relationships.”  End of quote.  These points of concern pointed out in the IMF preliminary report were complemented by several recommendations geared at keeping the economy on a stable footing.  In that section of the document, it is noted that placing the public debt path firmly on the downward path is the foremost priority and that would require raising the primary fiscal surplus to four to five percent of the GDP by the year, 2021.  That is being recommended to be achieved via a combination of strong revenue and expenditure measures, including broadening the tax base and implementing other tax reforms, containing the public sector wage bill, initiating a parametric reform of the public pension system and strengthening controls in multiple areas of public financial management system.  Additional recommendations include the further strengthening the Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) framework may assist in preventing further loss of correspondent relationships with global banks.  The IMF staff has declared that the structural reforms are needed to improve potential growth and improve competitiveness, which are needed to reduce the external vulnerabilities.  The IMF team was in Belize from May 11 through to the twenty fifth and had met with the Prime Minister, Dean Barrow, the Financial Secretary, Joseph Waight and Central Bank Governor, GlenfordYsaguirre as well as members of the private sector and the main opposition.