IMF Insists on Raising Taxes to Overcome Economic Strain

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Updated: October 28, 2016

On September 29 we brought you the Article IV Consultation Report produced by a team from the International Monetary Fund that was in-country earlier this year.  This week, the Executive Directors of the IMF met in session and had reviewed the report in full and has insisted that measures are needed to strengthen the economy as Belize continues to face significant vulnerabilities and challenges due to its high public debt, large fiscal and external deficits and declining international reserves.  In that meeting with the Executive Directors, it was agreed that the adverse weather conditions have also posed difficulties to the country and with that compounding Belize’s challenges, an improvement in growth performance is crucial.  But with all this said in the report, just how much credence does the Government give to the IMF report?  We asked Dr Carla Barnett, the Minister of State in the Ministry of Finance.

 

The IMF 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.  The 84-page report by the IMF also noted, quote, “Growth is expected to average less than 2 percent in the medium-term. The envisaged fiscal adjustment would remain insufficient to significantly reduce the very high public debt. Large external imbalances, driven by large current account deficits, repayment of the super bond and remaining payments for the nationalized telecommunication company (BTL), would reduce international reserves to uncomfortable levels. The further withdrawal by global banks of correspondent relationships with Belizean banks and low capital buffers in some banks are key threats to financial stability. Insufficient fiscal adjustment and weaknesses in the banking system are significant risks.”  End of quote.  The Article IV Consultations are done annually and includes observations made via assessments as well as proposed solutions that would seek to remedy the challenges.  In the 2016 report it noted that very few of the recommendations of the 2015 Article IV Consultation have so far been implemented and the rising fiscal and external vulnerabilities in the context of worsening macroeconomic prospects only highlight the urgency of strong action to address them.  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.