IMF Executive Board Concludes 2017 Article IV Consultation with Belize

September 19, 2017

On September 11, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1] with Belize. 

Adverse developments negatively impacted the Belizean economy in 2016, with strong expansion of tourism the only bright spot. Output is estimated to have contracted by 0.8 percent in 2016, reflecting a continued slowdown in oil production and agriculture. Fish and citrus production were hit by diseases, and in August Hurricane Earl caused destruction of crops. Growth in tourism was facilitated by improved airlift, marketing and new FDI projects. Unemployment increased to 11.1 percent in September 2016, from 10.2 percent a year earlier. 

The economy continues to face multiple challenges. The macroeconomic outlook remains weak. Public debt remains elevated, at around 100 percent of GDP, despite a recent debt restructuring agreement with private external bondholders. Growth is projected at just under 2 percent over the medium term. The envisaged tightening of the fiscal stance reflected in the budget for FY2017/18, of 4 percentage points of GDP, is an important first step toward fiscal consolidation, but would not be sufficient to put public debt on a decisive downward trajectory. Withdrawal of Correspondent Banking Relationships (CBRs) and low capital buffers in the banking system are key threats to financial stability. 

Executive Board Assessment[2]

Executive Directors noted that while Belize’s economic growth is expected to rebound, the medium‑term outlook is relatively weak with high debt, and large external imbalances. Directors encouraged the authorities to take advantage of the cash flow relief provided by the recent restructuring of public debt to private external bondholders to focus on restoring fiscal and debt sustainability, strengthening the financial sector, and raising Belize’s growth potential. 

Directors welcomed the envisaged fiscal tightening reflected in the FY 2017/18 budget, and the effort to raise additional revenue. However, they noted that the adjustment effort on the expenditure side relies on reducing capital spending. While recognizing the difficulties of a more ambitious fiscal adjustment, Directors underscored that further consolidation is necessary to put the debt level on a decisive downward trajectory and mitigate risks, particularly since repeated debt restructurings carry a reputational cost. They highlighted that additional measures should focus on both the revenue and the expenditure side, including a broadening of the base of the General Sales Tax, and reform of the civil service to help stabilize employee headcount and to contain the wage bill. Directors encouraged the authorities to support the fiscal consolidation effort with a well–designed fiscal rule. They also called for steps to improve public financial management. 

Directors noted that the financial sector continues to show improvements but emphasized the need for sustained tight supervision. They encouraged the authorities to maintain current restrictions on the banks until they are in a sound financial position, raise provisioning requirements on loan losses, and undertake a review of asset quality for all banks. 

Directors recognized that there are multiple factors behind the loss of Correspondent Banking Relationships (CBRs) in Belize and that challenges remain. They welcomed recent progress to strengthen the AML/CFT framework and emphasized that further efforts, in line with best international practices, would help reduce the risk of further CBR losses. 

To raise Belize’s growth potential, Directors highlighted the importance of carefully prioritizing the projects under the Growth and Sustainable Development Strategy, in close collaboration with development partners. Directors also called for the implementation of key structural reforms to improve the business climate and lay the foundation for private sector–led growth. They also recommended steps to address statistical weaknesses.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.