IMF Executive Board Concludes 2009 Article IV Consultation with Belize

Public Information Notice (PIN) No. 09/58
May 14, 2009

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 8, 2009 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.1


Belize, a small open economy with a narrow export base, remains vulnerable to exogenous shocks. Since 2005, growth in the traditional sectors of the economy has decelerated, reflecting in part the impact of severe weather-related shocks during 2007–08. Starting in 2006, petroleum extraction has been a major factor contributing to growth, accounting for approximately 5 percent of GDP in 2008. A debt restructuring agreement in February 2007 provided a substantial reduction in the net present value of the debt owed to private creditors. Over the past year, a renewed commitment to prudent macroeconomic policies and to improving governance has elicited increased support from official creditors.

Macroeconomic performance was broadly favorable during 2008. Despite losses from two tropical storms, real GDP increased by about 3 percent. Domestic price inflation, which has been low historically, rose to nearly 10 percent by mid-2008, driven largely by food and fuel prices. By February 2009, inflation declined to 1½ percent. The current account deficit widened sharply to 10 percent of GDP in 2008, reflecting a surge in FDI-related imports and higher prices of imported food and fuel. Gross international reserves of the Central Bank of Belize rose to US$166 million at end-2008, the equivalent of two months of imports.

The accounts of the central government are estimated to have registered an overall surplus of 1¼ percent of GDP in FY 2008/09 (April–March). However, the underlying fiscal position has weakened, as recurrent expenditure has been growing rapidly at a time of rising dependence on volatile revenue sources, such as petroleum and grants. Belize’s financial system appears so far largely insulated from the global downturn. However, commercial bank credit to the private sector expanded rapidly in recent years, reaching the equivalent of 70 percent of GDP, and the nonperforming loan ratio doubled in 2008.

Belize’s economy is projected to decelerate in 2009 due to the global downturn. Real GDP growth is projected at 1 percent, reflecting the impact of declining tourism, remittances, and FDI inflows. Twelve-month inflation is projected to ease to 2½ percent by year-end. The external current account deficit would contract significantly, as imports are projected to decline more than exports, mirroring an expected fall in private capital inflows. In FY 2009/10, the overall balance of the central government is projected to shift from a surplus to a deficit of 1¾ percent of GDP, on account of a budgeted increase in recurrent spending, while tax revenue is projected to increase at a slower pace.

Executive Board Assessment

Executive Directors welcomed the broadly favorable economic performance in 2008, and commended the authorities’ commitment to pursue sound macroeconomic and financial sector policies to manage near-term risks and reinvigorate growth potential over the medium term. Against the backdrop of the global downturn, they noted that Belize, as a small, open economy with a fixed exchange rate system, a low level of reserves, and a high debt level, remains vulnerable. Looking ahead, Directors welcomed the authorities’ aim to pursue a medium-term economic strategy centered on sustained fiscal consolidation, while strengthening their international reserve position and oversight of the financial sector.

Directors noted that the exchange rate peg has served Belize well, providing an important anchor for macroeconomic policies. They also noted the staff’s assessment that the exchange rate appears to be broadly in line with fundamentals. Directors emphasized that strong macroeconomic policies are necessary to underpin this exchange rate regime and help raise international reserves to a comfortable level. They also encouraged the authorities to access additional external financing to contain the risk of a sharper-than-anticipated external deterioration.

Directors agreed that a more cautious fiscal stance would help protect Belize’s external position and enhance public debt sustainability by lowering debt ratios over the medium term. They encouraged the authorities to restrain the growth in public expenditure, including through wage moderation, while boosting tax revenue aimed at raising the primary surplus and helping reduce the budget’s reliance on volatile revenue sources. At the same time, they considered as important protecting outlays for reconstruction and other investment, given their positive supply-side effects.

Directors underscored the need to ensure the medium-term financial viability of key public sector programs to help secure fiscal sustainability. They considered that the Social Security Board and the pension plan for civil servants should be reformed to put them on a sound financial footing. Directors agreed that the proposed extension of the National Health Insurance scheme should await adequate funding and that the mandate of the newly reactivated Development Finance Corporation needs to be clarified and financing identified to cover its operating costs. They considered that petroleum revenues should remain integrated in the budget, with related information published and subject to regular audits to ensure transparency.

Noting the increase in non-performing loans, Directors encouraged the authorities to further strengthen oversight of the financial system. They underscored the importance of developing contingency plans for the financial system and devising a framework for the provision of liquidity. Directors welcomed the strengthening of the Anti-Money Laundering legislation, and recommended that adequate resources be provided for the Financial Intelligence Unit to allow its implementation.

Directors endorsed the authorities’ focus on a development strategy to raise Belize’s medium-term growth potential, which should draw upon private sector as well as donor financing. They underscored that the public investment program should be consistent with the authorities’ prudent fiscal strategy. Directors commended the authorities’ commitment to good governance, the rule of law, and contract enforcement, which are important for improving the investment climate.

Belize: Selected Economic Indicators, 2004–08

  2004 2005 2006 2007 2008
  (Annual percentage change, unless otherwise indicated)

National income and prices


GDP at constant prices

4.6 3.0 4.7 1.2 3.0

Nominal GDP (US$ millions)

1,056 1,115 1,213 1,277 1,381

Gross domestic investment 1/ 2/

18.9 21.6 17.7 16.9 25.6

Gross national savings 1/

4.2 8.0 15.6 12.9 15.6

Consumer prices (end of period)

3.1 4.2 2.9 4.1 4.4

Real effective exchange rate

-2.4 -1.3 0.9 -2.8 0.5

Money and credit


Credit to the private sector

9.6 11.3 13.1 13.9 11.6

Money and quasi-money (M2)

7.5 5.9 17.3 15.0 14.0
  (In percent of GDP)    

Central government 3/


Revenue and grants

22.8 23.4 25.3 27.4 28.8

Current expenditure

22.6 24.7 22.9 23.3 23.0

Capital expenditure and net lending

6.5 4.1 4.4 5.1 5.0

Primary balance

0.8 2.1 3.8 3.9 4.7

Overall balance

-6.4 -5.4 -2.0 -1.1 0.8

External sector


External current account 4/

-14.7 -13.6 -2.1 -4.0 -10.0

Overall balance of payments (US$ millions)

-31.2 -12.2 49.8 22.9 57.0

Public and publicly guaranteed debt

100.1 98.4 92.2 88.6 77.3

Domestic debt

9.0 7.3 8.3 9.0 7.8

External debt

91.1 90.9 83.9 79.5 69.5

Gross usable official reserves

48.0 35.8 85.6 108.8 165.8

In months of imports

0.9 0.6 1.3 1.6 2.1

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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