IMF Says Economic Outlook Has Worsened

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Updated: September 26, 2016

The International Monetary Fund (IMF) concluded its Article IV Consultations with Belize on September 21, 2016.  It is a report whose executive summary speaks of a weakened fiscal position and the country’s public debt going higher.  It also speaks of multiple challenges being faced in the country and a worsened economic outlook since their last Article IV consultation in 2015.  The positive notes in the report is where it speaks of the banking systems’ weaknesses appearing to have somewhat diminished despite the loss of correspondent banking which has taken a toll on the economy; the strong performance of the tourism sector and the decline in unemployment over the period April 2015 to April 2016.  Under the issue of challenges, the IMF has noted that the GDP growth has slowed to one percent in 2015 due to falling oil production and reduced output in the primary commodity sectors whilst in 2016 it has turned to negative one point five percent.  The deflation in 2015 was as a result of the decline in oil and other commodity prices but the inflation rate came about due to increase in food prices and the hike in fuel tax.  The report went on to speak of the shocks in the export sector that has taken the current account deficit to nine point eight percent of GDP in 2015 and a further decline of the export sector in 2016 coupled with the servicing of debts relating to the nationalization of BEL and BTL which has reduced international reserves to four point four months of imports in late August 2016.  Hurricane Earl was also cited as a challenge to the economic environment.  With a reported fiscal deficit expanded to eight percent of GDP in 2015, the report attributes this to a one-off payment related to the settlement of one of the nationalized utility companies although there are concerns over an increase in public sector wages and a large overrun in capital expenditure.  The report noted that this deficit and partial settlement of liabilities related to the nationalized companies pushed the public sector debt to 82 percent of GDP in 2015. As it relates to the banking sector, the report notes that the banks have lost a significant number of correspondent banking relationships (CBRs), which has led to significant increase in transactions costs and a winding down of deposits in international banks.  A portion of the Article IV report states, quote, “The economic outlook has worsened further since the 2015 Article IV. GDP is projected to decline by one point five percent in 2016, in part due to the damage inflicted by hurricane Earl, and average less than two percent in the medium-term, reflecting declining productivity, competitiveness and public investment. In the absence of a radical change in policies, rigid current fiscal spending, particularly the public sector wage bill, would fuel high fiscal deficits and add to the already high debt burden. Financing constraints would reduce public investment. The current account deficit would slowly improve due to a gradual recovery in major commodity exports, but would remain high, indicating a weak external position. This deficit, combined with remaining payments for nationalized companies and increased debt service, would reduce international reserves to uncomfortable levels.”  End of quote.  In its assessment, the Executive Board of the IMF emphasized that decisive policies are urgently needed to ensure macroeconomic stability and improve growth performance.  Directors stressed that placing public debt on a downward path is a key priority and they have welcomed the important steps taken by the authorities to contain public expenditures and increase revenue.  They, however, recommend that the GST rate be increased; that the public wage bill be reduced and there be a reform of the pension plan for civil servants, and strengthening public financial management.