IMF Executive Board Concludes 2008 Article IV Consultation with Belize

Public Information Notice (PIN) No. 08/29
March 6, 2008

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. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2008 Article IV Consultation with Belize is also available.

On February 22, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.1


Following an upturn in 2006, economic growth weakened in 2007, reflecting the impact of Hurricane Dean on agricultural output and tourism, closures in garment and aquaculture industries, and a leveling off in oil production. However, inflation remained low at 3 percent, and international reserves increased further, to US$108 million by end-2007.

The debt restructuring agreement in February 2007 provided significant liquidity relief for the government and has opened the path toward restoring fiscal and external stability. The nearly full participation contributed to a 21 percent debt reduction in net present value terms and provided significant liquidity relief for the government. Nevertheless, Belize's debt burden remains large, external reserves are relatively low, and the fiscal position is vulnerable.

The overall budget deficit for the 2007/08 fiscal year is projected at 2 percent of GDP, significantly above the original target. Although revenues have been boosted by the successful implementation of the General Sales Tax, expenditures are also expected to exceed the originally approved budget, and the primary surplus is projected to fall short of the approved budgetary target by 1 percent of GDP. Starting in FY 2008/09 (April to March) oil revenue will be transferred to the petroleum management fund. Under the new rules, transfers to the budget will be limited to only real returns on the present value of oil savings, resulting in a loss of current revenue of about 2 percent of GDP next year.

Regarding structural reforms, progress has been made in consolidating the operations of the Development Finance Corporation, in computerizing the revenue departments, and strengthening government revenue departments. However, several important structural issues are yet to be addressed, such as establishing a sound funding scheme for the National Health Insurance and the pension fund for public servants.

Belize's near-term macroeconomic outlook is broadly favorable, despite some deterioration in fiscal and external balances. For 2008, real GDP growth is projected to pick up and inflation is projected to ease. Under unchanged fiscal policies, and following the implementation of the new oil revenue management fund, the primary surplus of the central government would decline to 1.5 percent of GDP. The external current account deficit is projected to be about 4 percent of GDP, although with anticipated capital flows, international reserves are expected to remain broadly unchanged.

Executive Board Assessment

Executive Directors welcomed the improvement in Belize's near-term macroeconomic prospects, with economic growth being boosted by oil discoveries and inflation expected to remain low. Progress has also been made on structural reforms, and the debt restructuring agreement, completed in February 2007, has opened the path to restoring fiscal and external sustainability. Directors nevertheless noted that significant challenges remain. In particular, continued consolidation of public sector finances and fiscal reforms will be needed to address risks to Belize's growth and financial stability, including those associated with a deterioration in the global outlook.

Directors agreed that Belize's exchange rate peg provides an important anchor for macroeconomic policies and expectations. They noted the assessment that the exchange rate appears to be broadly in line with fundamentals, while recognizing that data limitations constrain exchange rate analysis. Directors stressed that, going forward, the stability of the exchange regime will be buttressed by the implementation of a medium-term fiscal strategy that substantially reduces the public debt burden. A further buildup in international reserves would also enhance external stability.

Directors welcomed the new Belize authorities' commitment to fiscal discipline, and encouraged a front-loaded adjustment that would reverse the recent weakening of budget performance and send a clear signal on their intention to lower the public debt ratio. They observed that a fiscal adjustment aimed at sustaining increased primary surpluses over the medium-term would reduce fiscal and external vulnerabilities, and provide space for increased public investment and countercyclical economic policies in the face of external shocks. Lower debt ratios would also improve access to market financing on favorable terms. Directors welcomed the authorities' intention to review the framework for managing oil revenues, with the objective of increasing its flexibility and better integrating it with the medium-term fiscal strategy.

Directors viewed that fiscal structural reforms would contribute importantly to strengthening revenue collection and enhancing the quality of spending. Reorganization of revenue collection into a unified agency and computerization of tax administration would improve revenue collection, while the establishment of a multi-year budget planning process and a debt management office would support more efficient fiscal planning. Directors underscored the importance of putting the pension fund for public servants on a solid footing to assure sound finances. Timely audits of government financial statements and the maintenance of transparent accounting for government revenue from petroleum production, and of contracts in the oil and other economic sectors will also contribute importantly to this effort.

Directors considered that the introduction of market-based monetary policy instruments would improve the efficiency of domestic liquidity management. They noted that the effectiveness of the cash and liquid reserve requirements currently used as instruments of monetary control is limited. Directors welcomed the authorities' intention to advance with monetary reform and looked forward to the development of an action plan, drawing on Fund technical assistance and on regional experience. Directors advised continued vigilance in monitoring the strength of financial institutions.

Directors encouraged further improvements in the coverage and timeliness of data provided to the Fund for surveillance.

Belize: Selected Economic Indicators, 2003-07
  2003 2004 2005 2006 2007
  (Annual percentage change, unless otherwise indicated)

National income and prices


GDP at constant prices

9.3 4.6 3.1 5.6 2.2

Nominal GDP (US$ millions)

988 1,055 1,115 1,214 1,274

Gross domestic investment 1/ 2/

21.5 19.0 22.7 19.6 18.0

Gross national savings 1/

3.3 4.2 8.3 17.3 14.1

Consumer prices (end of period)

2.3 3.1 4.2 3.0 3.0

Real effective exchange rate

-2.5 -2.4 -1.3 0.4 ...

Money and credit


Credit to the private sector

13.2 9.6 11.3 13.1 13.9

Money and quasi-money (M2)

4.7 7.5 5.9 17.3 22.5
  (In percent of GDP)

Central government 3/


Revenue and grants

21.4 22.8 23.4 25.3 28.0

Current expenditure

19.9 22.7 24.8 22.9 24.3

Capital expenditure and net lending

12.1 6.5 4.4 4.4 6.1

Primary balance

-5.9 0.8 2.0 3.8 2.7

Overall balance

-10.6 -6.4 -5.5 -2.0 -2.4

External sector


External current account 4/

-18.2 -14.8 -14.4 -2.2 -4.0

Overall balance of payments (US$ millions)

-30.1 -31.2 18.3 49.9 22.5

Public and publicly guaranteed debt

102.3 100.2 98.4 92.1 90.2

Domestic debt

5.7 9.0 7.3 8.3 9.1

External debt

96.7 91.2 90.9 83.8 81.1

Gross usable official reserves (US$ millions)

58.3 27.1 36.0 85.7 108.2

In months of imports

1.1 0.3 0.6 1.3 1.6

Sources: Belize authorities; and IMF staff estimates and projections.
1/ In percent of GDP.
2/ Including inventory accumulation.
3/ Calendar year.
4/ Including official grants.

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. 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.


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