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IMF Concludes Assessment of Belize

The International Monetary Fund (IMF) has concluded their Article IV Consultation with Belize.  The Article IV Consultation is where a member-country is assessed by a team of economists as it relates to economic and financial developments as well as the economic and financial policies.  Following their working visit to Belize, the IMF team brought forth several points; one of them being the status of the economy and the country’s Gross Domestic Product.  The report confirms that there was a one point five percent increase in real GDP Growth from 2013 to 2014 and has also indicated that the GDP had reached well above the five year average of two point nine percent.  While the assessment speaks of a significant decline in oil related activities, it carries on by saying that the rebound in agriculture, the strong performance in tourism, electricity, construction and services has all played a role in offsetting the fall in oil revenues.  Belize’s external current account deficit has widened, however, to a seven point six percent in 2014, going up from the four point four percent it was in 2013.  This widening of the deficit, according to IMF, is due to fall in exports and relatively strong imports and is currently being financed by PetroCaribe and other sources and at the same time, building international reserves.  The last year, however, 2014/2015, the IMF has noted that Belize’s fiscal stance has deteriorated significantly as the fiscal deficit was recorded at one point five percent while in 2013/2014, the deficit stood at point two percent of the GDP.As it relates to revenue and spending, the IMF has indicated that the collection of revenues has remained within targets but the spending continues to increase well above the budgeted figures.  As was mentioned by the Prime Minister, Dean Barrow, the fiscal deficit was financed via a drawdown from PetroCaribe deposits and other external loans, adding that public debt has been maintained at around seventy six percent due to the strong GDP growth.  As for the Banking System in Belize, the IMF has described it as being highly liquid while noting a drop in non-performing loans.  With the recent issues surrounding correspondent banking, the report from the IMF notes that the termination of major correspondent banking relationships with Belizean banks has so far had a limited impact on the financial system and economic activity. The report reads, in part, quote, “Growth over the short-to-medium term would hover around 2.5 percent, in line with the assessment made during the 2014 Article IV Consultation. Inflation would remain subdued owing to the exchange rate peg and moderate inflation in trading partners. However, the fiscal outlook could be worse due to excess spending. The primary fiscal balance would remain in deficit for a while as the political climate further exacerbates spending pressures and hinders revenue-enhancing reforms.”  End of quote.   The IMF team has applauded the fact that a settlement has been reached with the two nationalized companies, namely, BTL and BEL but were cautious and noted that there remains significant contingent liabilities and that could lead to a rise in the already elevated debt levels.  The IMF Directors have called for prompt and credible fiscal efforts that would boost investor confidence and private investment.  Keeping in line with this, the directors are pushing for Belize’s Government to begin to progressively raise the primary balance to levels consistent with debt sustainability; meaning the removal of exemptions and zero-ratings from GST, building a stronger revenue administration that contains leakages, and limiting current spending, including through reform of the public officers’ pension scheme.  Belize’s Government is also being urged to keep the banking system under tight supervision, and reiterated the call for an asset quality review of all banks to fully assess their true strength. On a positive note, the IMF Directors did note that most of the deficiencies identified by the Caribbean Financial Action Task Force (CFATF) have been addressed, taking Belize off the  CFATF follow-up and monitoring process. Important reforms are still needed to ensure effective implementation of Belize’s AML/CFT regime in line with recent Financial Action Task Force (FATF) standards. IMF Directors have also concurred that the recent termination of corresponding banking relationships with Belizean banks and banks in many other countries could have a significant impact on financial stability and economic activity in the affected countries. They urged the authorities regulating international banks that are terminating correspondent banking relationships to better clarify their expectations of how these international banks should deal with local banks they perceive as “high risk.”