Public Information Notice: IMF Concludes Article IV Consultation with Belize

May 25, 2000

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On May 19, 2000, the Executive Board concluded the Article IV consultation with Belize.1


After a period of sluggish economic growth in the mid-1990s, the current government, which took office in August 1998, has designed its economic policies with the intention of achieving high rates of economic growth and reducing poverty. It has opted for a policy mix of initially boosting public spending on infrastructure and housing, reducing taxes, and promoting tourism and foreign direct investment. To restrain the growth in public external debt, which had increased sharply between 1995 and 1997, the government has begun to privatize the remaining public enterprises to help finance the additional public spending and raise economic efficiency. The authorities are also committed to maintaining the exchange rate peg at BZ$2 per US$1 (its level since 1976) to limit inflation and to preserve confidence.

In 1999, economic growth is estimated to have picked up to more than 6 percent from 1.5 percent in 1998, while consumer prices declined by 1 percent. The public sector borrowing requirement is projected to have narrowed from 6 percent of GDP in 1998/99 (April-March) to 2.6 percent of GDP in 1999/2000, reflecting a surge in privatization proceeds and grants. Real interest rates remained high, with nominal deposit interest rates averaging about 6 percent and nominal lending rates staying around 16 percent. The current account deficit rose from 6 percent of GDP in 1998 to an estimated 8 percent of GDP in 1999, based on strong growth in imports of machinery and fuel. Net international reserves increased by US$28 million (4 percent of GDP) in large part due to privatization proceeds and other external financing to the public sector. Nonetheless, gross international reserves amounted to one and a half months of imports of goods and services, and the central bank continued its policy of rationing foreign exchange.

In 2000, the authorities expect real economic growth to remain at 6 percent, while consumer prices would rise by 2 percent. Fiscal policy is designed to reduce the public sector borrowing requirement to about 1 percent of GDP in 2000/01. The privatization program will continue both as a means to generate resources for the government's investment program as well as to strengthen the economy's competitiveness by reducing costs of key services over time. The stronger fiscal position will help the central bank maintain a tight credit policy and continue to accumulate net international reserves.

Executive Board Assessment

Executive Directors noted that the economy performed well in 1999, with strong economic growth, little inflation, an accumulation of net international reserves, and a slowdown in the expansion of the external public debt. They considered that the prospects for 2000 appeared favorable, but underscored the importance of reducing the public sector borrowing requirement. A few Directors considered it important to take into account the characteristics of a small economy in assessing economic performance and policies.

Directors expressed concern about the sustainability of the authorities' fiscal approach. They noted that the privatization process will come to an end in one or two years, leaving a sizable fiscal gap. In this regard, Directors encouraged the authorities to base their medium-term fiscal projections on cautious assumptions about real GDP growth, and to aim for a much stronger public saving position and a rationalization of the public investment program. Possible measures to strengthen the fiscal position might include a tighter wage policy in the public sector and revenue-raising measures. The authorities could also consider scaling back the public investment program and eliminating projects with relatively low rates of return, while preserving efficient social spending and aiming at a more even distribution of social services to assist in the authorities' efforts to reduce poverty.

A stronger fiscal position would promote a healthy rate of economic growth through several channels. It would strengthen the central bank's net international reserves, thus facilitating the elimination of foreign exchange rationing, and would allow for a gradual reduction in the liquid asset requirement and a lowering of interest rates. Directors also noted that fiscal improvement, together with the completion of the privatization program and wage restraint, is essential to allow the exchange rate peg to remain at its current level and to improve competitiveness and efficiency in the economy.

Directors felt that the government's plan to help finance the construction of as many as 10,000 houses carried risks. The intention to sell securitized mortgages on the regional secondary market will add significantly to the economy's external liabilities, and the government's guarantee of the underlying mortgages adds to concerns about the overall fiscal policy stance. Public support for housing should be limited to a well-targeted, low-income housing program that can be sustained over a period of time without adverse effects on public finances.

Directors urged the authorities to strengthen the central bank's capacity to supervise commercial banks, and welcomed the authorities' interest in receiving technical assistance in this area. Expanding the central bank's supervisory authority over credit unions and other nonbank financial intermediaries would also be useful. Directors welcomed the legislation on money laundering, and stressed that the authorities should remain vigilant about the activities of offshore financial centers and exercise closer supervision of them.

While welcoming the recent reduction in the CARICOM maximum tariff rate from 25 percent to 20 percent, Directors noted that the trade system remains restrictive and that further trade liberalization will be necessary to support strong economic growth.

The weakness of Belize's statistical information is a matter of concern. Directors welcomed the authorities' interest in receiving technical assistance in this area.

Belize: Selected Economic Indicators

          Prel. Proj.
  1995 1996 1997 1998 1999 2000

Real economy (annual percentage change)            
Real GDP at factor cost 3.8 1.4 3.2 1.5 6.2 6.0
CPI (end of period) 3.9 6.4 -0.6 -0.8 -1.0 2.0
Public Finances (in percent of GDP) 1/            
Nonfinancial public sector savings 4.1 4.0 5.5 4.6 2.2 2.7
Nonfinancial public sector capital expenditures 7.7 8.2 11.9 13.0 11.1 8.7
Nonfinancial public sector borrowing requirement 2/ 2.7 2.2 4.2 6.0 2.6 1.2
Money and credit (annual percentage change)            
Money and quasi money 17.2 4.2 8.3 10.3 12.3 8.5
Credit to the private sector 7.0 8.7 13.7 12.3 7.1 12.3
Interest rates (end of period in percent)            
Average deposit rate 7.2 6.3 6.7 6.4 5.7 ...
Average lending rate 16.3 16.2 16.6 16.5 16.3 ...
Balance of payments (in percent of GDP)            
Current account balance -1.7 -1.1 -3.5 -6.2 -8.0 -7.7
Gross official reserves 3/ 4/ 1.0 1.5 1.5 1.0 1.6 1.9
Public external debt 4/ 30.3 34.9 37.2 38.2 37.4 37.5
External rate and terms of trade            
Real effective exchange rate
(depreciation -) 4/
1.1 4.2 3.1 -4.3 -0.3 ...
Terms of trade (deterioration -) 3.3 2.2 -5.9 1.9 -5.6 ...

Source: Central Bank of Belize; Central Statistical Office; Ministry of Finance; and IMF staff estimates.

1/ Fiscal year starts on April 1.
2/ Privatization proceeds equivalent to 2.5 percent of GDP in FY 1999/2000 and 2.2 percent of GDP
FY 2000/01 were included as capital revenues.
3/ In months of imports (over the next 12 months) of goods and services.
4/ End of period.

1Under 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. 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. In this PIN, the main features of the Board's discussion are described.


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