IMF Concludes Article IV Consultation Mission to BelizePress Release No.13/132
April 18, 2013
An International Monetary Fund (IMF) mission led by Mr. Gerardo Peraza, visited Belize from April 8-18, to conduct its yearly review of the country’s economy in the context of the IMF’s Article IV consultation, which began in November last year.1 Mr. Peraza released the following statement in Belmopan at the conclusion of the meetings today:
“This year’s Article IV consultation mission took place after the completion of an external public debt exchange. The mission welcomes the collaborative dialogue between the government of Belize and the Creditors Committee to achieve a consensual debt restructuring.
“In 2012, economic activity accelerated thanks to a strong rebound in agriculture and services, despite a sharp decline in crude oil production. Output growth is estimated at 5.3 percent of Gross Domestic Product (GDP), led by a recovery from the 2011 effects of weather-related damages to commodity exports. Inflation averaged 1.4 percent in 2012, as commodity price pressures abated. The external current account deficit widened to about 1.7 percent of GDP, up from 1.1 percent of GDP in 2011, due to a steep drop in crude oil exports and higher imports of fuel and electricity. The fiscal primary surplus for FY2012/13 is expected to decline to 1.3 percent of GDP from 2.3 percent of GDP in FY2011/12. After two years of decline, credit to the private sector recovered in 2012. For 2013, output growth is expected to moderate to about 2.5 percent as the main export crops stabilize and crude oil production continues to contract.
“In this context, the discussions focused on how to take advantage of the breathing room provided by the debt exchange to adopt a fully articulated macroeconomic framework to address existing vulnerabilities and emerging risks. The mission recommended that such framework should include robust fiscal consolidation, active debt management, steady financial sector reform, and measures to buttress external sector resilience. These efforts need to be complemented by structural reforms to enhance competitiveness and growth prospects.
“Further improvement in the primary surplus is warranted to place debt and financing needs on a faster downward trajectory. To that end, in the short term, the focus of fiscal policy should be on spending restraint—especially moderating wage pressures—and reversing the erosion of the tax revenue base. Over the medium term, priority should be given to the implementation of a strategic tax reform with a view to promoting growth, achieving fairness, and enhancing revenues.
“The mission acknowledges the government’s plans to revamp the debt management framework in line with the recommendations of the November 2012 IMF technical assistance mission on debt management. Given the anticipated increase in gross financing needs going forward, an active debt management framework and a robust medium-term debt management strategy should be developed.
“Staff welcomes the authorities’ commitment to press ahead with the remaining recommendations of the Financial Sector Assessment Program. The revised Domestic Banking and Financial Institutions Act, which became effective in January 2013, established the legal basis for consolidated supervision and strengthened the rules to prevent high loan concentration and limit related party transactions. Nonetheless, Belize’s banking sector continues to face challenges due to a high (albeit declining) level of nonperforming loans (NPLs) – which require close and continuing monitoring by the central bank.
“The authorities need to strengthen Belize’s external position in light of the projected widening current account deficit, and limited access to external financing. In addition to a more ambitious fiscal consolidation, the mission recommends tackling major impediments to doing business in order to better attract investment, expand exports, and bolster external sustainability.
“Upon its return to Washington, the mission will prepare a staff report that is scheduled to be discussed by the IMF Executive Board in early June. The mission is especially grateful for the open communication and close collaboration over the past two weeks with government officials and other stakeholders, with whom it had the privilege of exchanging views.”
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 or territory, 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.