## 1blizea2019001

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### 1. Sustaining Growth of Tourism Sector

- Overview and recent developments
  - Tourist arrivals doubled since 2010 to 130 percent of Belize’s population.
  - Tourism directly contributes an estimated 15-20 percent to GDP.
  - Tourist arrival growth: exceeded 10 percent in 2016-18; slowed to growth of 4 percent (y/y; annualized rate) in the first 8 months of 2019, compared with 15 percent in 2018.
  - 2019 slowdown drivers: grounding of 737 MAX aircraft and weakening global expansion.
  - Staff projection: reforms addressing tourism bottlenecks could increase tourism arrivals by a further 60-70 percent (long term, relative to baseline), implying an increase in real GDP growth by about 1 percentage point.

- Key supply-side constraints and risks
  - Diversification of source markets and attractions
    - North America comprises 75 percent of arrivals.
    - Demand concentrated on a small number of attractions (especially reef-centered).
  - Damage from natural hazards: exceptional vulnerability to hurricanes; sargassum influxes caused cancellations and closures.
  - Infrastructure gaps: water and sanitation, coastal facilities, visitation centers, transport to national sites; need to expand ICT infrastructure.
  - Skill shortages: tight availability of appropriately skilled labor; recommendation to promote formal tourism degrees and tourism graduate programs.
  - Crime: safety and security risks are a priority concern.
  - Governance perceptions: need improvements in customs and public procurement.
  - Shared-economy effects: rent-share and peer-to-peer accommodation expansion may reduce per-visitor expenditure; promote “high-end” branding and higher-quality services.

- Implications and quantitative impacts
  - Tourism reforms could increase arrivals by 60-70 percent (long term, relative to baseline).
  - Implied macro effect: increase in real GDP growth by about 1 percentage point.
  - Tourism slowdown contributed to projected overall growth slowdown: growth for 2019 projected at 1½ percent.

- Policy priorities and recommended actions
  - Diversify source markets and attractions; broaden marketing; develop experiences beyond reef-centered attractions.
  - Strengthen disaster resilience and environmental management; mitigate hurricane and sargassum impacts.
  - Close infrastructure gaps: upgrade water and sanitation, coastal facilities, transportation links, and ICT.
  - Address skill shortages: promote formal tourism degrees, tourism graduate programs, and expand technical and “soft skill” vocational training.
  - Improve safety and governance: crime reduction, public-safety initiatives, improve customs and public procurement, enforce anti-corruption measures (asset declaration regimes, conflict-of-interest rules).
  - Enhance sectoral positioning and value capture: promote “high-end” branding and higher-quality service offerings.

- Near-term implementation considerations
  - Many reforms achievable with low fiscal cost (regulatory, marketing, training).
  - Infrastructure, ICT, and disaster-resilience measures need upfront investment and prioritization.
  - Complementary macro-fiscal policies: sustain a primary fiscal surplus larger than the FY2019/20 budget target to build buffers and support long-term debt reduction while enabling priority public investment for tourism.

### 12. To support the authorities’ poverty alleviation strategy, strengthening social programs

- Strengthening social programs and inclusion
  - Belize’s last poverty assessment is almost 10 years old; an update is needed.
  - 2009 assessment findings: poverty higher in rural areas with lower schooling; households where women work are far less likely to be poor.
  - Policies to encourage female labor force participation (LFP): tax credits/subsidies for childcare, improve transportation.
  - Campaigns to increase awareness of flagship programs: Building Opportunities for Our Social Transformation (BOOST); Food Pantry; Conditional Cash Transfer Program.
  - Reduce old-age poverty: ensure Non-contributory Pension (NCP) scheme provides sufficient benefits with strict age eligibility.
  - National Financial Inclusion Strategy launched to increase financial services access.

- Authorities’ views on social inclusion
  - Authorities concurred recovery slowed due to severe drought; expected growth rebound next year.
  - Noted historically low unemployment and flagship targeted social programs support poverty alleviation.
  - Agreed on reform priorities, including establishing a credit bureau; legislation expected by end of FY2019/20.
  - Welcomed National Financial Inclusion Strategy and determined to keep fighting crime with community-based prevention.

- Building resilience to natural disasters and climate change
  - Focus areas: structural resilience, financial resilience, post-disaster resilience.
  - Recommendation: prepare a Disaster Resilience Strategy (DRS) based on a multi-year macro-fiscal framework with stakeholder input.

- Structural resilience
  - Investments guided by 2013 National Climate Resilience Investment Plan (NCRIP) are underway.
  - About 40 percent of investment projects in FY2018/19 budget (1.6 percent of GDP) focused on adaptation infrastructure; more than 80 percent foreign-financed on concessional terms.
  - Maintaining this investment level would cover the bulk of NCRIP needs for future climate scenarios; financing will require continued efforts.
  - Authorities developing investment promotion strategy to increase access to grants and climate funds.
  - Stronger implementation of building codes and land use regulations recommended.

- Financial resilience
  - Layered approach recommended.
  - Natural disaster reserve fund needed: about US$20 million (1 percent of GDP) to accelerate financing of immediate recovery and response costs associated with projected average annual loss (AAL) from flood and hurricane hazards.
  - World Bank TA provided for contingency fund capacity building.
  - Medium- to high-severity events: mix of risk-retention and risk-transfer instruments (ex-ante contingent lines of credit, optimized regional insurance).
  - Authorities reached agreement with IDB in 2019 on a US$10 million Contingent Credit Facility for Natural Disaster Emergencies and a Contingent Emergency Response Component (CERC) in World Bank projects.
  - Belize participates in CCRIF SPC.
  - Total buffer needed to finance disasters without endangering debt sustainability estimated at about 7 percent of GDP (CCPA), inclusive of natural disaster fund and risk management instruments.

- Post-disaster resilience
  - Institutions coordinated by NEMO exist for physical emergency responses.
  - Reforms to social protection programs to allow rapid scale-up after disasters recommended.
  - Strengthen data management at NEMO and Ministry of Finance; reform budget classification to capture disaster events and associated damages/expenditures.

### Balanced and sustained medium-term fiscal consolidation

- Authorities’ objective: reduce public debt to below 80 percent of GDP in five years, and below 60 percent of GDP over the long term.
- Baseline scenario assumptions
  - Primary fiscal surplus returns to 2 percent of GDP target by 2022 (government Fiscal Strategy Statement).
  - GST and Income Tax department merger (August 2019) expected to raise tax revenue by about ⅓ percent of GDP by FY2021/22.
  - Expected recovery from recent growth slowdown.
- Staff projection: public debt will decline slower than planned if primary surplus below 2 percent during 2020-2021; public debt-to-GDP projected to decline to about 85 percent in 5 years instead of 80 percent target.

- Belize: Baseline and Active scenarios, selected figures (2018–2029)
  - Baseline (selected indicators)
    - Growth (percent): 2018: 3.2; 2019: 1.5; 2020: 2.5; 2021: 1.8; 2022: 1.7; 2023: 1.7; 2024: 1.7; 2029: 1.7
    - Inflation (percent, period average): 2018: 0.3; 2019: 0.4; 2020: 1.2; 2021: 1.7; 2022: 1.8; 2023: 2.0; 2024: 2.0; 2029: 2.0
    - Primary fiscal balance (percent of GDP): 2018: 2.1; 2019: 1.5; 2020: 1.7; 2021: 1.9; 2022: 2.0; 2023: 2.0; 2024: 2.0; 2029: 2.0
    - Overall fiscal balance (percent of GDP): 2018: -1.0; 2019: -1.7; 2020: -1.5; 2021: -1.3; 2022: -1.1; 2023: -1.0; 2024: -1.0; 2029: -0.6
    - Public debt (percent of GDP): 2018: 94; 2019: 94; 2020: 94; 2021: 92; 2022: 90; 2023: 88; 2024: 85; 2029: 74
    - External current account balance (percent of GDP): 2018: -7.9; 2019: -8.0; 2020: -8.1; 2021: -7.6; 2022: -7.4; 2023: -7.0; 2024: -6.7; 2029: -6.7
    - Gross official reserves (US$ million): 2018: 294; 2019: 286; 2020: 315; 2021: 326; 2022: 339; 2023: 349; 2024: 360; 2029: 432
    - Gross official reserves (months of imports): 2018: 3.0; 2019: 2.8; 2020: 3.0; 2021: 3.0; 2022: 3.0; 2023: 3.0; 2024: 3.0; 2029: 3.0
  - Active scenario (selected indicators)
    - Growth (percent): 2018: 3.2; 2019: 1.5; 2020: 2.3; 2021: 1.7; 2022: 1.8; 2023: 1.9; 2024: 2.1; 2029: 2.7
    - Inflation (percent, period average): 2018: 0.3; 2019: 0.4; 2020: 1.1; 2021: 1.5; 2022: 1.8; 2023: 2.0; 2024: 2.0; 2029: 2.0
    - Primary fiscal balance (percent of GDP): 2018: 2.1; 2019: 1.5; 2020: 2.1; 2021: 2.7; 2022: 3.0; 2023: 3.4; 2024: 3.7; 2029: 4.0
    - Overall fiscal balance (percent of GDP): 2018: -1.0; 2019: -1.7; 2020: -1.0; 2021: -0.4; 2022: 0.0; 2023: 0.4; 2024: 0.8; 2029: 2.0
    - Public debt (percent of GDP): 2018: 94; 2019: 94; 2020: 94; 2021: 92; 2022: 89; 2023: 85; 2024: 80; 2029: 55
    - External current account balance (percent of GDP): 2018: -7.9; 2019: -8.0; 2020: -7.9; 2021: -7.2; 2022: -6.9; 2023: -6.2; 2024: -5.8; 2029: -5.3
    - Gross official reserves (US$ million): 2018: 294; 2019: 286; 2020: 320; 2021: 340; 2022: 365; 2023: 391; 2024: 424; 2029: 674
    - Gross official reserves (months of imports): 2018: 3.0; 2019: 2.9; 2020: 3.1; 2021: 3.2; 2022: 3.3; 2023: 3.4; 2024: 3.5; 2029: 4.5
    - Natural Disaster Reserve Fund (percent of GDP): 2018: 0.0; 2019: 0.0; 2020: 0.2; 2021: 0.4; 2022: 0.6; 2023: 0.8; 2024: 1.0; 2029: -0.2

- Government debt reduction under uncertainty
  - A primary fiscal surplus of 4 percent of GDP would reduce debt to below 80 percent of GDP within 5 years with a probability of 85 percent.
  - For 60 percent debt ceiling compliance with shocks: a safety buffer of 5 percent of GDP, consistent with debt-to-GDP of about 55 percent, would comply with probability of 95 percent over the medium term.

- Policy options to achieve sustained debt reduction
  - Enhance government revenue: phase out exemptions on GST and excises; tighten tax incentives.
    - Less than 10 percent of registered taxpayers file or pay taxes electronically.
    - These reforms could raise revenues by more than 2 percent of GDP over time.
  - Restrain current spending:
    - Wages, pensions, and transfers rose from about 40 percent of the budget in 2000 to about 60 percent in 2018.
    - Implement a 2–5 replacement ratio to reduce public sector employees; limit salary increments to inflation — could reduce wage bill by about 1 percent of GDP over medium term.
    - Unfunded noncontributory defined-benefit Pension Plans for Public Officials (budgetary cost reached 2.5 percent of GDP in FY2018/19) should be made contributory and retirement age gradually rise from 55 to 65 years.
    - For GSSS: raise minimum retirement age of 60 years and consider removing mandatory retirement age of 65.
    - These parametric reforms could yield savings of 1-2 percent of GDP over medium term.

- Fiscal consolidation sequencing and priorities (staff active scenario)
  - Medium-term consolidation measures estimated to total 3 percent of GDP.
  - Offset by additional priority spending of 1 percent of GDP → net 2 percent of GDP rise in primary fiscal surplus above baseline.
  - Active scenario assumes gradual expansion in resilience-building investment by ½ percent of GDP over medium term to meet NCRIP needs.
  - Remaining ½ percent of GDP of priority spending to finance poverty alleviation, education, and safety reforms.
  - Fiscal contingency plans warranted given implementation constraints and downside risks.

- Rules-based fiscal framework and PFM reforms
  - Proposed FRL central features:
    - Debt anchor: target government debt below 60 percent of GDP in 10 years.
    - Primary balance target: increase primary fiscal surplus to 4 percent of GDP in 5 years and maintain until debt <60 percent; thereafter an expenditure rule linked to long-run nominal GDP growth.
    - Escape clauses limited to major adverse shocks with Parliamentary approval.
    - Automatic correction mechanism for substantial cumulative deviations.
    - Oversight: independent fiscal council; Minister of Finance to explain deviations in mid-term budget review.
  - PFM reforms:
    - Adopt multi-year budget frameworks; require parliamentary approval for spending increases beyond ceilings.
    - Adopt CARICOM model procurement legislation.
    - Fund staff-conducted PIMA requested.
    - Establish PPP framework with safeguards.
    - Publish financial accounts of parastatal agencies (e.g., Belize Tourism Board).

### Government reaction and tax/financial sector measures (chapter 26 highlights)

- Authorities welcomed recognition of significant fiscal adjustment but found staff-proposed adjustment challenging.
  - FY2019/20 budget targeted a 2 percent of GDP primary fiscal balance; authorities view this as sufficient.
  - Authorities do not plan to raise primary fiscal surplus to 4 percent of GDP as staff recommended.
  - Authorities expect strengthening revenue administration and projected growth rebound will restore primary surplus to 2 percent of GDP within three years.

- Tax reform objectives and key measures
  - GST tax expenditures: zero-rated/exempt products amount to about 2 percent of GDP in foregone revenue.
  - Recommendation: broaden GST base.
  - Business tax inefficiency: turnover-based business tax inefficient; recommendation to introduce Corporate Income Tax (CIT) over medium term, initially applied to a small number of large companies.
  - Preconditions for CIT: anti-avoidance legislation, transfer pricing regulations, taxpayer education.
  - Special regimes: IBCs and DPAs create revenue leakage; near-term priority to raise tax rates for IBCs undertaking international activities; tighten DPA eligibility; publish tax expenditure estimates from special regimes.
  - Digitalization: tighten taxation for digital transactions; remove low-value import thresholds to support GST and excise revenues.

- Financial system safety and AML/CFT
  - Strengthen bank supervision and resolution framework; CBB shortened examination schedule to 18-24 months.
  - Restrict and phase out drought-related regulatory forbearance to explicit categories with timeframes and supervisory plans.
  - Fortify bank resolution legal framework to designate CBB as sole resolution authority and enable irreversible resolution actions.
  - Crisis preparedness: require recovery plans from banks; CBB to develop resolution plans for systemic banks; legislative amendments for extraordinary crisis actions.
  - Asset quality review of all banks recommended.
  - CBB implemented cybersecurity framework; strengthen AML/CFT supervisory capacity and enforcement.
  - International financial services sector:
    - About 36,000 IBCs registered; need in-depth assessment of reputational risks and costs, including virtual asset-related services.
    - FATF (2019) standards require market entry controls for virtual asset service providers and AML/CFT coverage.
    - Policy priorities: increase IFSC resources; legal reforms on virtual assets; sanction unauthorized virtual asset services; ensure accurate, up-to-date, centralized beneficial ownership information.

- Staff appraisal (key findings)
  - Real GDP grew by 3.2 percent in 2018; unemployment at historic low; near-zero inflation.
  - 2019 slowdown due to severe drought; growth expected to average about 2 percent during 2019-20.
  - Financial system stable; banks well-capitalized; NPLs declined.
  - Primary fiscal surplus expected to narrow and remain below 2 percent of GDP for following two years.
  - Medium-term outlook challenging: real GDP growth projected just below 2 percent; public debt elevated; current account deficit large; international reserves below adequacy metrics.
  - Downside risks substantial: weaker U.S. growth, higher oil prices, weather disasters, violent crime, loss of CBRs, contested legacy claims.
  - Upside potential: intensification of structural reform could raise investment, income, and employment.

- Staff policy recommendations (summary)
  - Growth and structural reforms: improve business environment (credit bureau, collateral registry), streamline business start procedures, expand training, fight corruption, expand youth programs to reduce crime exposure.
  - Disaster resilience: invest in climate-resilient infrastructure; establish natural disaster fund, ex-ante contingent lines of credit, optimized regional insurance; prepare DRS with multi-year macro-fiscal framework.
  - Fiscal consolidation: raise primary surplus to 2 percent next year and to about 4 percent of GDP gradually over medium term; broaden tax base; restrain wages and pursue pension reform.
  - Financial sector and AML/CFT: asset quality review of banks; fortify resolution framework; strengthen CBB AML/CFT capacity; intensify IFSC supervision and enforcement.

### Annex II — External Stability Assessment (highlights)

- Overall assessment
  - External position weaker than level consistent with medium-term fundamentals.
  - International reserves around 3 months of imports; below risk-weighted adequacy metrics.
  - Vulnerabilities: adverse global shocks, weather damages, contingent liabilities.
  - Policy priorities: fiscal adjustment, banking reforms, structural measures, disaster risk mitigation.

- External Sustainability (ES) approach
  - NFA adjustment assumptions:
    - From -135.9 percent of GDP at end-2018 to -95 percent of GDP by 2028 (first scenario).
    - From -135.9 percent of GDP at end-2018 to -90 percent of GDP by 2028 (alternative scenario).
  - Required current account deficits to achieve these NFA levels:
    - 2.3 percent of GDP (first scenario).
    - 1.9 percent of GDP (alternative scenario).
  - REER gap estimates:
    - Peak REER gap 2019: 14.5 percent (first scenario) and 15.4 percent (alternative).
    - Decline to about 11 percent and 11.9 percent by end-2024, respectively.

- EBA-lite results
  - Current account gap: 3.6 percent (of GDP)
    - Policy gap: 1.8 percent (of GDP)
    - Residual (structural gap): 1.8 percent (of GDP)
  - EBA-lite implied REER gap: 9.0 percent

- Reserves and adequacy metrics
  - Reserves at end-2018: around 3 months of imports (declined from 3.3 months at end-2017).
  - Legacy claims contested by government: about US$117 million (5.9 percent of GDP).
  - Adequacy in baseline:
    - Reserves fall slightly below 3 months in 2019 and 2020 due to severe drought.
    - Risk-weighted metric 1: reserves 69 percent of adequate level at end-2019 and 75 percent by 2024.
    - SIDS metric: reserves at 48 percent of adequacy threshold at end-2019 and 50 percent at end-2024.
    - 20 percent of broad money: reserves at 97 percent of adequate level at end-2019 and 94 percent by 2024.

### Annex III — Risk Assessment Matrix (selected risks and policy responses)

- Weaker-than-expected global growth; U.S. slowdown
  - Likelihood: Medium; Impact: High
  - Response: Build fiscal and external buffers; accelerate structural reforms.

- Sharp rise in risk premia; market sentiment deterioration
  - Likelihood: High; Impact: Medium
  - Response: Tighten financial supervision; strengthen AML/CFT; reduce external imbalances.

- Large swings in energy prices
  - Likelihood: Medium; Impact: Medium
  - Response: Reprioritize spending to support vulnerable individuals.

- Higher frequency/severity of natural disasters
  - Likelihood: Medium; Impact: High
  - Response: Invest in climate-resilient infrastructure; set up natural disaster reserve fund; optimize risk management.

- Further pressure on CBRs
  - Likelihood: High; Impact: High
  - Response: Monitor CBRs; communicate with global banks/standard setters; strengthen AML/CFT.

- Higher-than-expected contingent liabilities; legacy claims
  - Likelihood: Medium; Impact: High
  - Response: Build fiscal buffers through consolidation.

### Annex IV — Debt Sustainability Analysis (highlights)

- Baseline framework
  - Baseline real GDP growth projection: average 1.9 percent during 2020-2024.
  - DSA assumption: no new issuance of external commercial debt given recent restructuring.
  - Nominal interest rates expected to gradually rise over medium term.
  - Gross financing needs expected to remain below 2016–17 level.
  - Forecast errors (median forecast error, MFE):
    - GDP MFE: -0.07 percentage point (67th percentile).
    - Inflation MFE: -0.58 percentage point (39th percentile).
    - Primary fiscal balance MFE: -1.37 (25th percentile).

- Public debt projections and risks
  - Historical/projected public debt:
    - 2019 public debt: 94.2 percent of GDP.
    - 2020 public debt: 92.8 percent of GDP.
    - By end-2024 public debt: projected to fall to 84.8.2 percent of GDP (text preserves numeric expression as presented).
  - Debt dynamics: 2017 restructuring provided cash flow relief and NPV reductions, but not face value reductions; debt projected to decline to about 85 percent over medium term from 94 percent at end-2018.
  - Risks: high sensitivity to growth, interest rates, fiscal stance; stress tests show probability >25 percent debt >100 percent in medium term under shocks.

- Public debt vulnerabilities (stress tests)
  - Almost 70 percent of total public debt denominated in foreign currency.
  - 10 percent real depreciation → total public debt 97.9 percent of GDP in first year; ~5 percentage points higher than baseline over medium term.
  - Decline in GDP growth by one standard deviation → total public debt ~4.5 percentage points higher than baseline over medium term.
  - Financial sector contingent liability shock (government spending = 10 percent of banking sector’s assets) → total public debt 99.6 percent of GDP.
  - Legacy claims estimated ~US$100 million (about 5.4 percent of GDP).

- Natural disaster stress scenario (assumptions & impacts)
  - Natural disaster causing 6 percent of GDP in damages.
  - Real GDP assumed to decline by 3 percent in year of disaster, by further 1 percent next year, then accelerate by ½ percentage point in each of following two years.
  - Government cost assumed ⅔ of economic damage = 4 percent of GDP.
  - Government recovery/reconstruction expenditure spread over 3 years: 2 percent of GDP (first year), 1 percent (each of next two years).
  - Shock shifts government debt trajectory up ~6 percent of GDP above baseline; government debt at 90 percent of GDP by end-2024.

- External debt sensitivity
  - External debt-to-GDP projected to decline from 67 percent in 2018 to 62 percent by 2024.
  - 30 percent depreciation in 2019 → external debt rises to 99 percent of GDP in 2020 and remains 88 percent over medium term.
  - Extreme two-standard deviation reduction in growth → external debt 70 percent of GDP by 2024.

### Annex V — Statistical Issues (data adequacy and priorities)

- Assessment
  - "Data provision has some shortcomings, but is broadly adequate for surveillance."
  - Social indicators (poverty, literacy) available with large lags; GDP by expenditure only annual and with significant lag.
  - Consolidated operations of public sector data unavailable; priority to prepare comprehensive list of public institutions.
  - Current accounting practices follow neither cash nor accrual basis; domestic debt recording needs improvement.
  - Very limited data on non-bank financial institutions, especially offshore sector.
  - Trade data published monthly with one-month lag but do not cover services; recommend expanding to services and international investment position.
  - SIB participant in GDDS since September 27, 2006; no data ROSC available.
  - No fiscal data reported for the Government Finance Statistics Yearbook or IFS.

- Key data-frequency and availability notes (selected dates)
  - Exchange Rates: Date of Latest Observation 9/23/2019; Date Received 9/23/2019; Frequency of Data D
  - International Reserve Assets and Liabilities of the Monetary Authorities 1/: Date of Latest Observation 9/23/2019; Frequency W
  - Central Bank Balance Sheet: Date of Latest Observation 8/31/2019; Date Received 9/23/2019; Frequency M
  - Banking System Balance Sheet: Date of Latest Observation 6/30/2019; Date Received 9/1/2019; Frequency M
  - Consumer Price Index: Date of Latest Observation 7/31/2019; Date Received 9/1/2019; Frequency M
  - Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of Latest Observation 6/30/2019; Date Received 9/23/2019; Frequency Q
  - GDP/GNP: Date of Latest Observation 2019Q2; Date Received 9/1/2019; Frequency Q
  - International Investment Position: Not available (NA)
  - Revenue, Expenditure, Balance and Composition of Financing — General Government: Not available (NA)

*Source: IMF staff report ("1. Sustaining Growth of Tourism Sector"; chapter titled “12. To support the authorities’ poverty alleviation strategy, strengthening social programs.”; annexes and chapters as provided in 1blizea2019001).*

### 1. Sustaining Growth of Tourism Sector __________________________________________________________ 11

### 1. Sustaining Growth of Tourism Sector

### Overview and recent developments
- Belize’s tourism sector has driven much of the recent economic expansion; tourist arrivals doubled since 2010 to 130 percent of Belize’s population.
- Tourism now directly contributes an estimated 15-20 percent to GDP.
- Tourist arrival growth exceeded 10 percent in 2016-18 but slowed to growth of 4 percent (y/y; annualized rate) in the first 8 months of 2019, compared with 15 percent in 2018.
- Slower tourism growth in 2019 reflected the grounding of 737 MAX aircraft and the weakening global expansion.
- Staff analysis projects that reforms addressing tourism bottlenecks could increase the level of tourism arrivals by a further 60-70 percent over the long term compared to baseline, implying an increase in real GDP growth by about 1 percentage point.

### Key supply-side constraints and risks for tourism (summarized from Box 1)
- Diversification of source markets and attractions
  - North America comprises 75 percent of arrivals, creating saturation and concentration risks.
  - Tourist demand focuses on a small number of attractions (especially those centered on the reef).
- Damage from natural hazards
  - Belize is exceptionally vulnerable to hurricanes and weather-induced damage; sargassum seaweed influxes have led to travel cancellations and closures.
- Infrastructure gaps
  - Water and sanitation infrastructure and coastal facilities are currently stretched.
  - Enhancements needed to visitation centers, presentation of tourism resources, and transportation to national tourism sites.
  - Expanding ICT infrastructure is necessary to cater to changing tourist demographics.
- Skill shortages
  - Availability of appropriately skilled labor in the tourism industry is tight; replacement staff are difficult to find.
  - Promoting formal tourism degrees and tourism graduate programs recommended to mitigate shortages.
- Crime
  - Safety and security risks to tourism are a priority concern.
- Governance perceptions
  - Enhancing the business environment and governance perceptions (including customs and public procurement) is important for diversification.
- Shared-economy effects
  - The expanding presence of rent-share and peer-to-peer accommodation may be reducing expenditure levels per visitor; “high-end” branding and higher-quality services and adequate infrastructure could alleviate this risk.

### Implications and quantitative impacts
- Reforms that address bottlenecks could increase tourism arrivals by 60-70 percent (long term, relative to baseline).
- The implied macroeconomic effect of such tourism reforms is an increase in real GDP growth by about 1 percentage point.
- Tourism growth slowdown contributed to a projected slowdown in overall growth: growth for 2019 as a whole is projected at 1½ percent (IMF staff projection noted elsewhere in the chapter).

### Policy priorities and recommended actions to sustain tourism growth
- Diversify source markets and attractions
  - Broaden marketing to reduce concentration risk tied to North American arrivals.
  - Develop a wider variety of tourism experiences beyond reef-centered attractions.
- Strengthen disaster resilience and environmental management
  - Invest in measures to mitigate hurricane and weather-related damage and address sargassum impacts.
- Close infrastructure gaps with targeted investments and improvements
  - Upgrade water and sanitation systems and coastal facilities serving tourism sites.
  - Improve transportation links to national tourism sites.
  - Expand ICT infrastructure to meet changing tourist needs.
- Address skill shortages through education and training
  - Promote formal tourism degrees and tourism graduate programs.
  - Expand technical and “soft skill” vocational training programs.
- Improve safety and governance to enhance tourism competitiveness
  - Prioritize crime reduction and public-safety initiatives that protect tourists and at-risk youth.
  - Strengthen governance perceptions by improving customs and public procurement processes and enforcing anti-corruption measures (including asset declaration regimes and conflict-of-interest rules).
- Enhance sectoral positioning and value capture
  - Promote “high-end” branding and higher-quality service offerings to offset lower per-visitor expenditure from the shared-economy accommodation expansion.

### Near-term implementation considerations
- Many reforms can be implemented in the near term without significant fiscal costs (e.g., regulatory, marketing, training, and programmatic interventions).
- Some measures will require upfront investment (infrastructure, ICT, disaster-resilience measures) and should be prioritized to maximize return to tourism capacity and resilience.
- Complementary macro-fiscal policies: sustaining a primary fiscal surplus larger than the FY2019/20 budget target is needed to build buffers and support long-term debt reduction while enabling priority public investment that supports tourism.

*Source: IMF staff report, “1. Sustaining Growth of Tourism Sector.”*

### 12. To support the authorities’ poverty alleviation strategy, strengthening social programs

### 12. To support the authorities’ poverty alleviation strategy, strengthening social programs

### Strengthening social programs and inclusion
- Belize’s last poverty assessment is almost 10 years old and an update is needed to improve the effectiveness of social policies.
- The 2009 assessment suggested:
  - Poverty is higher in rural areas characterized by lower levels of schooling.
  - Households where women work are far less likely to be poor.
- Efforts to encourage female labor force participation (LFP) could include:
  - Tax credits or subsidies for childcare payments.
  - Improving transportation infrastructure.
- Campaigns to increase awareness of Belize’s flagship targeted social protection programs are warranted, including:
  - Building Opportunities for Our Social Transformation (BOOST).
  - Food Pantry.
  - Conditional Cash Transfer Program.
- To reduce poverty in old age:
  - Ensuring the Non-contributory Pension (NCP) scheme continues to provide sufficient benefits, subject to strict eligibility criteria in terms of age, is important.
- Belize’s recently launched National Financial Inclusion Strategy is a step toward making growth inclusive by increasing the share of the population with access to financial services.

### Authorities’ views on social inclusion
- The authorities concurred that Belize’s economic recovery has slowed due to the severe drought, following rapid growth in 2018, and expected growth to rebound next year.
- They noted that the historically low unemployment rate together with Belize’s flagship targeted social programs are supporting poverty alleviation.
- They agreed with the need to further improve the business climate and broadly concurred with staff’s assessment of reform priorities, including establishing a credit bureau.
- They noted legislative workload related to international standard setters affected the pace of structural reform but expected legislation for establishing a credit bureau to be submitted to Parliament by the end of FY2019/20.
- The authorities welcomed the National Financial Inclusion Strategy and indicated determination to keep fighting crime, including through community-based prevention initiatives.

### Building resilience to natural disasters and climate change
- Belize has stepped up resilience efforts; resilience-building and engagement with development partners on environmental reforms have been central to policymaking, as recognized in the 2018 Belize Climate Change Policy Assessment (CCPA).
- Efforts to limit disruption from natural disasters should continue to focus on three areas:
  - Structural resilience.
  - Financial resilience.
  - Post-disaster resilience.
- Preparing a Disaster Resilience Strategy (DRS) based on a multi-year macro-fiscal framework, with stakeholder input, could guide development partner coordination.

### Structural resilience
- Investments guided by Belize’s 2013 National Climate Resilience Investment Plan (NCRIP) are underway.
- About 40 percent of the investment projects in the FY2018/19 budget (1.6 percent of GDP) focused on adaptation infrastructure, including retrofitting roads and bridges to higher climate resilience, with more than 80 percent foreign-financed on concessional terms.
- Maintaining this level of investment would allow Belize to cover the bulk of NCRIP needs for future climate scenarios, although financing will require continued efforts.
- Costing and prioritization of resilience-building projects are underway; further technical support from development partners could help.
- The authorities are developing an investment promotion strategy to increase access to grants and climate funds.
- Stronger implementation of building codes and land use regulations would further reduce exposure to weather shocks.

### Financial resilience
- A layered approach is recommended for building buffers and managing financial risk from natural disasters.
- A natural disaster reserve fund of about US$20 million (1 percent of GDP) is needed to accelerate financing of immediate recovery and response costs associated with the projected average annual loss (AAL) arising from flood and hurricane hazards.
- The authorities are receiving World Bank TA to build capacity for establishing and administering a contingency fund.
- To manage medium- to high-severity events, a mix of risk-retention and risk-transfer instruments is needed, such as ex-ante contingent lines of credit and optimized participation in regional insurance options.
- The authorities reached agreement with the IDB in 2019 on a US$10 million Contingent Credit Facility for Natural Disaster Emergencies and a Contingent Emergency Response Component (CERC) incorporated into World Bank-financed climate resilient infrastructure projects.
- Belize participates in the Caribbean Catastrophe Risk Insurance Facility Segregated Portfolio Company (CCRIF SPC).
- Addressing the under-insurance of public and private assets is needed.
- The total buffer needed to finance disasters without endangering debt sustainability is estimated at about 7 percent of GDP (CCPA), inclusive of the natural disaster fund and risk management instruments.

### Post-disaster resilience
- Belize has institutions for physical emergency responses coordinated by the National Emergency Management Organization (NEMO).
- Reforms to existing social protection programs to allow rapid scale-up after a disaster would enhance early humanitarian response capability.
- Strengthening post-disaster responses requires:
  - Improving data management at NEMO and the Ministry of Finance.
  - Reforming budget classification to capture disaster events of all magnitudes and associated damages and expenditures for better tracking and design of relief and reconstruction interventions.

### Authorities’ views on resilience
- The authorities expressed commitment to continue investing in climate-resilient infrastructure and recognized the need to expand natural disaster risk management instruments.
- They welcomed preparing a DRS to guide resilience-building investments and risk management, and intended to build capacity for a natural disaster reserve fund.
- They welcomed the IDB Contingent Credit Facility and agreed that specifying plans to rapidly scale up flagship social programs in the event of a natural disaster would support early humanitarian needs response.

### Balanced and sustained medium-term fiscal consolidation
- Authorities’ objective: reduce public debt to below 80 percent of GDP in five years, and below 60 percent of GDP over the long term.
- Achieving this requires additional fiscal consolidation alongside reforms that enhance potential growth.
- Baseline scenario assumptions:
  - Primary fiscal surplus gradually returns to the 2 percent of GDP target specified in the government’s Fiscal Strategy Statement by 2022.
  - Stronger tax administration enabled by the August 2019 merger of the General Sales Tax (GST) and Income Tax departments is expected to raise tax revenue by about ⅓ percent of GDP by FY2021/22.
  - Expected recovery from the recent growth slowdown.
- Staff projects public debt will decline slower than planned if the primary fiscal surplus is below the 2 percent target during 2020-2021; staff now projects public debt-to-GDP will decline to about 85 percent in 5 years instead of to the targeted 80 percent.

### Belize: Baseline and Active scenarios, selected figures (2018–2029)
- Baseline scenario (selected years and indicators):
  - Growth (percent): 2018: 3.2; 2019: 1.5; 2020: 2.5; 2021: 1.8; 2022: 1.7; 2023: 1.7; 2024: 1.7; 2029: 1.7
  - Inflation (percent, period average): 2018: 0.3; 2019: 0.4; 2020: 1.2; 2021: 1.7; 2022: 1.8; 2023: 2.0; 2024: 2.0; 2029: 2.0
  - Primary fiscal balance (percent of GDP): 2018: 2.1; 2019: 1.5; 2020: 1.7; 2021: 1.9; 2022: 2.0; 2023: 2.0; 2024: 2.0; 2029: 2.0
  - Overall fiscal balance (percent of GDP): 2018: -1.0; 2019: -1.7; 2020: -1.5; 2021: -1.3; 2022: -1.1; 2023: -1.0; 2024: -1.0; 2029: -0.6
  - Public debt (percent of GDP): 2018: 94; 2019: 94; 2020: 94; 2021: 92; 2022: 90; 2023: 88; 2024: 85; 2029: 74
  - External current account balance (percent of GDP): 2018: -7.9; 2019: -8.0; 2020: -8.1; 2021: -7.6; 2022: -7.4; 2023: -7.0; 2024: -6.7; 2029: -6.7
  - Gross official reserves (US$ million): 2018: 294; 2019: 286; 2020: 315; 2021: 326; 2022: 339; 2023: 349; 2024: 360; 2029: 432
  - Gross official reserves (months of imports): 2018: 3.0; 2019: 2.8; 2020: 3.0; 2021: 3.0; 2022: 3.0; 2023: 3.0; 2024: 3.0; 2029: 3.0
- Active scenario (selected years and indicators):
  - Growth (percent): 2018: 3.2; 2019: 1.5; 2020: 2.3; 2021: 1.7; 2022: 1.8; 2023: 1.9; 2024: 2.1; 2029: 2.7
  - Inflation (percent, period average): 2018: 0.3; 2019: 0.4; 2020: 1.1; 2021: 1.5; 2022: 1.8; 2023: 2.0; 2024: 2.0; 2029: 2.0
  - Primary fiscal balance (percent of GDP): 2018: 2.1; 2019: 1.5; 2020: 2.1; 2021: 2.7; 2022: 3.0; 2023: 3.4; 2024: 3.7; 2029: 4.0
  - Overall fiscal balance (percent of GDP): 2018: -1.0; 2019: -1.7; 2020: -1.0; 2021: -0.4; 2022: 0.0; 2023: 0.4; 2024: 0.8; 2029: 2.0
  - Public debt (percent of GDP): 2018: 94; 2019: 94; 2020: 94; 2021: 92; 2022: 89; 2023: 85; 2024: 80; 2029: 55
  - External current account balance (percent of GDP): 2018: -7.9; 2019: -8.0; 2020: -7.9; 2021: -7.2; 2022: -6.9; 2023: -6.2; 2024: -5.8; 2029: -5.3
  - Gross official reserves (US$ million): 2018: 294; 2019: 286; 2020: 320; 2021: 340; 2022: 365; 2023: 391; 2024: 424; 2029: 674
  - Gross official reserves (months of imports): 2018: 3.0; 2019: 2.9; 2020: 3.1; 2021: 3.2; 2022: 3.3; 2023: 3.4; 2024: 3.5; 2029: 4.5
  - Natural Disaster Reserve Fund (percent of GDP): 2018: 0.0; 2019: 0.0; 2020: 0.2; 2021: 0.4; 2022: 0.6; 2023: 0.8; 2024: 1.0; 2029: -0.2

### Government debt reduction under uncertainty
- Belize’s debt reduction goal (below 80 percent in 5 years; below 60 percent over the long term) is prudent and consistent with regional debt ceilings.
- Stochastic simulations based on Belize’s historical distribution of macroeconomic and fiscal shocks indicate:
  - A primary fiscal surplus of 4 percent of GDP would reduce debt to below 80 percent of GDP within 5 years with a probability of 85 percent.
- For long-term compliance with a 60 percent debt ceiling in the presence of shocks:
  - A safety buffer of 5 percent of GDP, consistent with a debt-to-GDP ratio of about 55 percent, would comply with the debt ceiling with a probability of 95 percent over the medium term.

### Policy options to achieve sustained debt reduction
- Enhancing government revenue:
  - Further broaden the tax base by phasing out exemptions on GST and excises and tightening tax incentives.
  - Electronic tax filing and payment should be enhanced; less than 10 percent of registered taxpayers file or pay their taxes electronically.
  - Together, these reforms could, over time, raise revenues by more than 2 percent of GDP.
- Restraining current spending:
  - Wages, pensions, and transfers rose from about 40 percent of the budget in 2000 to about 60 percent in 2018.
  - Civil service reforms such as implementing a 2–5 replacement ratio to gradually reduce the number of public sector employees and limiting salary increments to the rate of inflation could reduce the wage bill by about 1 percent of GDP over the medium term.
  - The unfunded, noncontributory defined-benefit Pension Plans for Public Officials (budgetary cost reached 2.5 percent of GDP in FY2018/19) should be made contributory and the retirement age should gradually rise from 55 to 65 years.
  - For the GSSS, the minimum retirement age of 60 years should also be raised and the mandatory retirement age of 65 could be removed.
  - These additional parametric reforms could yield savings of 1-2 percent of GDP over the medium term.

### Fiscal consolidation sequencing and priorities
- In the staff’s active scenario:
  - Medium-term fiscal consolidation measures are conservatively estimated to total 3 percent of GDP.
  - These are offset by additional priority spending of 1 percent of GDP, resulting in a 2 percent of GDP rise in the primary fiscal surplus above the baseline projection.
  - The active scenario assumes a gradual expansion in resilience-building investment by ½ percent of GDP over the medium term to meet NCRIP needs.
  - The remaining ½ percent of GDP of additional priority spending could finance reforms to alleviate poverty, improve education, and enhance safety.
- Fiscal consolidation and competitiveness-enhancing reforms would contribute to addressing Belize’s external imbalance by bringing the current account closer to surplus, raising international reserves, and reinforcing exchange rate peg sustainability.
- Given implementation constraints, significant downside economic risks, and possibly large contingent liabilities, preparing fiscal contingency plans is warranted.

### Rules-based fiscal framework and PFM reforms
- A fiscal responsibility law (FRL) with explicit rules could guide debt reduction, enhance transparency and predictability, and create public oversight. Central features could include:
  - Debt anchor: target government debt below 60 percent of GDP in 10 years.
  - Primary balance target: increase primary fiscal surplus to 4 percent of GDP in 5 years and maintain it until debt ratio declines below 60 percent of GDP; thereafter an expenditure rule linked to long-run nominal GDP growth to avoid procyclicality.
  - Escape clauses: limited to major adverse shocks, triggered only with Parliamentary approval, with a pre-defined list of events and measurable conditions for triggering.
  - Automatic correction mechanism: triggered by substantial cumulative deviations from the annual primary fiscal balance target; additional fiscal adjustment required if deviations exceed a pre-specified threshold.
  - Oversight, transparency, and accountability: an independent fiscal council to produce unbiased projections and evaluate compliance; Minister of Finance required to explain deviations in a mid-term budget review and outline corrective steps; consider a public-private forum to monitor fiscal policy (e.g., similar to Jamaica’s EPOC).
- Public financial management (PFM) reforms to support adjustment and efficiency:
  - Adopt multi-year budget frameworks alongside annual appropriations; require parliamentary approval for increases in overall spending beyond approved ceilings.
  - Adopt CARICOM model procurement legislation to support systematic tendering, increase competition, and achieve savings.
  - A Fund staff-conducted Public Investment Management Assessment (PIMA) has been requested by the authorities.
  - Establish a framework for public-private partnerships (PPPs) with well-defined safeguards to mobilize private funding for infrastructure and manage fiscal risks.
  - Publish financial accounts of parastatal agencies, such as the Belize Tourism Board, as part of the annual budget documentation to enhance fiscal transparency.

*Source: IMF staff report chapter titled “12. To support the authorities’ poverty alleviation strategy, strengthening social programs.”*

### 26. The authorities welcomed the recognition of the significant fiscal adjustment achieved

### 1blizea2019001 - 26. The authorities welcomed the recognition of the significant fiscal adjustment achieved

### Fiscal stance and authorities' views
- Authorities welcomed recognition of the significant fiscal adjustment achieved over the past two years and concurred with the need for balanced medium-term consolidation but found the staff-proposed adjustment challenging.
- FY2019/20 budget targeted a 2 percent of GDP primary fiscal balance, which the authorities viewed as sufficient to place public debt on a steady downward trajectory.
- Authorities recognized staff-highlighted risks to achieving the budget’s target given: a severe drought–triggered economic slowdown and significant approved priority spending.
- A smaller-than-planned primary fiscal surplus would imply a slower pace of debt reduction.
- Any additional fiscal adjustment should be gradual to maintain social consensus and leave room for priority investments.
- Authorities expect that strengthening revenue administration, together with a projected growth rebound, will restore the primary fiscal surplus to 2 percent of GDP within three years.
- Authorities do not plan to raise the primary fiscal surplus to 4 percent of GDP over the medium term as recommended by staff.
- Authorities welcomed discussion of the region’s experience with fiscal rules and fiscal councils and remained open to learning how such rules could be adapted to Belize’s context.

### Tax reform: objectives and key measures
- Objective: make the tax system more equitable, less distortionary, and mobilize additional revenue given still elevated debt and resources needed for priority investments.
- GST tax expenditures:
  - Numerous products remain zero-rated or exempt from GST, amounting to about 2 percent of GDP in foregone revenue and creating administrative challenges.
  - Exemptions are not well targeted to protect low-income groups and small businesses.
  - Recommendation: further broaden the GST base to enhance revenue and level the playing field.
- Business tax inefficiency:
  - Current turnover-based business tax is inefficient, discourages investment, and is inequitable with tax rates differing widely across sectors.
  - Recommendation: introduce a more efficient Corporate Income Tax (CIT) over the medium term; initially apply CIT to a small number of large companies that account for most revenues.
  - Preconditions for introducing CIT: anti-avoidance legislation, transfer pricing regulations, and taxpayer education.
- Revenue leakage from special regimes:
  - Special tax regimes constitute a parallel tax system with much lower tax rates and potential for significant domestic revenue losses (including International Business Company (IBC) status and Designated Processing Areas (DPAs)).
  - For IBCs undertaking international activities, low tax rates are of little relevance given Belize’s territorial system; raising tax rates is a near-term priority.
  - Economic Substance Act may constrain purely international activities.
  - For DPAs, eligibility criteria should be tightened and more effective incentives (e.g., investment allowances) used instead of reduced rates.
  - Recommendation: publish estimates of tax expenditures due to special regimes to enhance transparency.
- Digitalization:
  - Recommendation: tighten taxation for digital transactions, including importation of goods through digital platforms and purchases of digital services in Belize.
  - Given prevalence of low-value imports in the digital economy, removing existing low-value import thresholds would support GST and excise revenues on such transactions.

### Special tax regimes — features and table summary (as reported)
- IBC (previous IBC): Income tax rate 1.75-3 (0); Exemption Yes; Dividend and interest cross-border withholding Yes; Customs duties, excises, and property taxes No.
- Public Investment Company: Income tax rate 0 for 30 years, renewable; Exemption Yes; Dividend and interest cross-border withholding Yes; Customs duties, excises, and property taxes Yes, also stamp duties.
- DPA (previous EPZ): Income tax rate 1.75-3 (0); Exemption Yes; Dividend and interest cross-border withholding Yes; Customs duties, excises, and property taxes Yes (also stamp duties), for 10 (20) years.
- CFZ: Income tax rate 0 for 10 years; Exemption No; Dividend and interest cross-border withholding No; Customs duties, excises, and property taxes Yes.
- Fiscal Incentives Act: Rate Standard; Exemption No; Dividend and interest cross-border withholding No; Customs duties, excises, and property taxes Yes.
- Note: Table reports tax regime, rules, and tax rates applicable before December 2018 (in parentheses).

### Authorities’ views on tax issues and recent actions
- Authorities welcomed staff analysis on enhancing efficiency, fairness, and revenue mobilization.
- They saw merit in broadening the tax base while preserving certain limited exemptions on indirect taxation to ensure affordability of household staples.
- Concern about evolving demands of multilateral standard setters regarding international taxation; committed to amending tax laws as needed by end-2019.
- Recognized need to avoid risks to domestic revenues from special tax regimes and importance of reducing tax incentives over time.
- Shortly after Article IV discussions, a package of laws relating to the international financial service sector was enacted; authorities welcomed EU Economic and Financial Affairs Council decision to remove Belize from list of non-cooperative jurisdictions.

### Financial system safety: supervision, resolution, and AML/CFT
- Steps needed to further strengthen bank supervision and resolution framework, building on actions addressing two troubled international banks during 2018-19.
- Recommended actions to enhance supervision, resolution, and preparedness:
  - Intrusive monitoring and supervision: CBB shortened bank examination schedule to 18-24 months; CBB should remain prepared to take enforcement actions for non-compliance.
  - Restricting and phasing out forbearance: regulatory forbearance introduced for drought relief should be restricted to explicit categories with a specific timeframe for phasing out, supervisory action plan, and close monitoring.
  - Resolution: fortify bank resolution legal framework to designate CBB as sole resolution authority, enable irreversible resolution actions, and introduce broader resolution tools.
  - Crisis preparedness: require all banks to prepare recovery plans; CBB to develop resolution plans for systemic banks; legislative amendments to authorize extraordinary actions during a crisis, including providing official support with safeguards and protecting depositors and creditors.
- Additional supervisory priorities:
  - Conduct an asset quality review of all banks (risk-focused loan portfolio examination) to assess credit exposures and capital buffers.
  - CBB implemented a cybersecurity framework; should strengthen capacity and resources to conduct AML/CFT supervision and enhance enforcement.
- International financial services sector:
  - Need to intensify supervision and enforcement to bolster investor confidence and prevent loss of commercial banking relationships (CBRs).
  - About 36,000 IBCs are registered; an in-depth assessment of reputational risks and costs associated with the sector, including virtual asset-related services, is needed.
  - Recent FATF (2019) standards require market entry controls for virtual asset service providers located or incorporated in Belize and coverage under AML/CFT regime if authorized.
  - Policy priorities:
    - Increase resources and capacity of the International Financial Services Commission (IFSC) to properly license, regulate, and supervise international financial service providers; impose dissuasive and proportionate penalties for breaches.
    - Legal reforms informed by risk assessment to implement international standards on virtual assets.
    - Identify and sanction IFSC licensees providing virtual asset-related services without authorization.
    - Ensure beneficial ownership information of legal persons and arrangements established by registered agents is accurate, up-to-date, and available without impediment; centralize such information and limit reliance on third-party intermediaries except where FATF criteria are met.

### Staff appraisal — key findings and medium-term outlook
- Real GDP grew by 3.2 percent in 2018; unemployment reached a historic low; near-zero inflation.
- Recent data indicate a slowdown due to severe drought; growth expected to average about 2 percent during 2019-20.
- Financial system stable; banks well-capitalized and NPLs have declined; authorities took resolute steps to enhance financial soundness and reduce risks to CBRs.
- Government implemented significant fiscal consolidation over past two years, but the primary fiscal surplus is expected to narrow this year and remain below 2 percent of GDP for the following two years.
  - Approved FY2019/20 budget targeted a primary fiscal surplus of just above 2 percent of GDP, but recent data show more spending on wages and public investment and weaker revenue, putting the budget target at risk.
- Medium-term outlook challenging:
  - Real GDP growth projected at just below 2 percent in the medium term.
  - Public debt remains elevated.
  - Current account deficit expected to remain large over the medium term.
  - International reserves projected below standard adequacy metrics.
  - Staff assesses external position as weaker than level consistent with medium-term fundamentals and desirable policy settings.
- Downside risks substantial: weaker U.S. growth affecting tourism, higher oil prices, weather-induced natural disasters, violent crime, vulnerability to loss of CBRs, ongoing contested legacy claims that could lead to large public financing needs.
- Upside potential: intensification of structural reform could raise investment, income, and employment.

### Policy recommendations and priorities
- Growth and structural reforms:
  - Improve business environment: establish a credit bureau and collateral registry; streamline procedures for starting a business; expand training programs; fight corruption; expand support for programs minimizing youth exposure to crime.
  - Consider enhancing social programs to support poverty alleviation strategy.
- Disaster resilience:
  - Continue substantial investments in climate-resilient infrastructure.
  - Strengthen risk management via a natural disaster fund, ex-ante contingent lines of credit, and optimized participation in regional insurance options.
  - Prepare a Disaster Resilience Strategy based on a multi-year macro-fiscal framework with stakeholder input to guide development partners and facilitate donor coordination.
- Fiscal consolidation to reduce public debt:
  - To reduce government debt to below 60 percent of GDP in 10 years and build buffers against shocks, raise the primary surplus to 2 percent next year and to about 4 percent of GDP gradually over the medium term.
  - Revenue measures: further broaden the tax base by phasing out exemptions and tax incentives; reinforce tax administration.
  - Spending measures: restrain the wage bill and pursue pension reform to make space for priority investments.
  - Consider a rule-based fiscal framework with a debt anchor, underpinned by public consensus.
- Financial sector and AML/CFT:
  - Conduct asset quality review of all banks and fortify bank resolution legal framework to designate CBB as sole resolution authority and enable irreversible resolution actions.
  - Strengthen CBB capacity for AML/CFT supervision and enforcement.
  - Intensify supervision and enforcement in the international financial services sector; prioritize IFSC resourcing, legal reforms on virtual assets, sanctioning unauthorized virtual asset services, and ensuring accurate, accessible beneficial ownership information.

*Source: 1blizea2019001 - 26. The authorities welcomed the recognition of the significant fiscal adjustment achieved*

### 47. It is recommended that the next Article IV consultation take place on the standard 12-

### 1blizea2019001 - 47. It is recommended that the next Article IV consultation take place on the standard 12-

### Recommendation
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Selected social and economic indicators (high-level)
- Area (sq.km.): 22,860
- Population (thousands), June 2019: 408.5
- GDP per capita, (current US$), 2018: 5,025
- Life expectancy at birth (years), 2017: 70.6
- Human development index (rank), 2017: 106
- Under-five mortality rate (per thousand), 2017: 14
- Unemployment rate (percent), April, 2019: 7.6
- Poverty (percent of total population), 2009: 42.0

### National income, prices, and growth (annual changes / projections)
- GDP at constant prices (annual percent changes): 3.4; -0.6; 1.4; 3.2; 1.5; 2.5; 1.8; 1.7; 1.7; 1.7
- Consumer prices (average): -0.9; 0.7; 1.1; 0.3; 0.4; 1.2; 1.7; 1.8; 2.0; 2.0
- Real effective exchange rate (+ = depreciation): 6.5; 1.7; -1.7; ............; ...; ...... (data truncated in source)

### Central government fiscal indicators (percent of fiscal year GDP unless otherwise noted)
- Revenue and grants: 28.2; 28.9; 29.5; 30.6; 30.5; 30.7; 30.8; 31.0; 31.0; 31.0
- Current non-interest expenditure: 23.1; 23.8; 24.1; 24.2; 24.4; 24.4; 24.4; 24.4; 24.4; 24.4
- Interest payment: 2.5; 3.3; 3.1; 3.1; 3.2; 3.1; 3.1; 3.1; 3.0; 2.9
  - Domestic interest: 0.4; 0.5; 0.9; 0.9; 0.9; 0.8; 0.8; 0.8; 0.8; 0.9
  - External interest: 2.1; 2.8; 2.2; 2.2; 2.3; 2.3; 2.3; 2.2; 2.0
- Capital expenditure and net lending: 10.2; 7.0; 6.5; 4.3; 4.6; 4.6; 4.6; 4.6; 4.6; 4.6
  - Capital expenditure: 7.3; 6.9; 4.0; 4.0; 4.4; 4.4; 4.4; 4.4; 4.4; 4.4
  - Net lending: 2.8; 0.1; 2.5; 0.3; 0.2; 0.2; 0.2; 0.2; 0.2; 0.2
- Primary balance: -5.1; -1.9; -1.1; 2.1; 1.5; 1.7; 1.9; 2.0; 2.0; 2.0
- Overall balance: -7.5; -4.2; -3.9; -1.0; -1.7; -1.5; -1.3; -1.1; -1.0; -1.0

### Public debt (percent of GDP)
- Central government debt: 78.5; 84.8; 92.3; 90.4; 89.8; 89.1; 87.7; 85.0; 80.9; 76.4
- Public debt 2/: 80.8; 94.7; 94.5; 93.8; 94.2; 93.6; 92.4; 90.0; 87.6; 84.8
- Domestic debt: 14.0; 28.3; 27.1; 27.1; 26.6; 24.8; 23.2; 22.2; 22.4; 23.1
- External debt: 66.8; 66.4; 67.4; 66.7; 67.6; 68.8; 69.2; 67.9; 65.2; 61.7
- Principal payment (percent of GDP): 2.1; 2.2; 2.4; 2.2; 2.4; 3.4; 3.6; 4.7; 4.8; 4.6
  - Domestic amortization: 0.0; 0.0; 0.0; 0.0; 0.0; 0.8; 0.7; 1.7; 1.8; 1.7
  - External amortization: 2.1; 2.1; 2.4; 2.2; 2.4; 2.5; 2.9; 3.0; 3.0; 2.9

### Money, credit, and reserves
- Credit to the private sector (annual percent changes): 4.8; -3.0; 3.9; 3.2; 1.9; 3.7; 3.5; 3.6; 3.8; 3.8
- Money and quasi-money (M2) growth: 7.3; 2.6; -0.3; 2.6; 1.9; 3.7; 3.5; 3.6; 3.8; 3.8
- Gross international reserves (US$ millions): 437; 377; 312; 294; 286; 315; 326; 339; 349; 360
- Gross international reserves (in months of imports): 4.8; 4.2; 3.3; 3.0; 2.8; 3.0; 3.0; 3.0; 3.0; 3.0

### External sector and balance of payments (selected)
- External current account (percent of GDP): -9.8; -8.4; -7.7; -7.9; -8.0; -8.1; -7.6; -7.4; -7.0; -6.7
- Trade balance (US$ millions): -423; -432; -391; -445; -479; -515; -528; -529; -526; -548
- Total exports, f.o.b. (US$ millions): 538; 443; 457; 451; 463; 445; 462; 497; 537; 555
  - Of which: Oil (US$ millions): 1; 8; 11; 4; 13; 8; 4; 1; 1; 1 (source table contains formatting artifacts)
- Total imports, f.o.b. (US$ millions): 961; 875; 848; 897; 942; 960; 990; 1,026; 1,063; 1,103
  - Of which: Fuel and lubricants (US$ millions): 134; 107; 130; 174; 159; 153; 149; 149; 152; 157
- Services (US$ millions): 276; 293; 300; 397; 402; 426; 449; 451; 456; 480
- Income (US$ millions): -95; -111; -125; -182; -174; -175; -181; -185; -190; -193
  - Of which: Public sector interest payments (US$ millions): -37; -51; -40; -42; -46; -48; -49; -50; -50; -48
- Current transfers (US$ millions): 70; 98; 72; 78; 94; 98; 99; 101; 102; 103
  - Private (net): 73; 95; 78; 90; 101; 101; 103; 104; 105; 107
  - Official (net): -4; -3; -5; -11; -6; -4; -4; -4; -4; -4
- Capital and financial account balance (US$ millions): 124; 75; 67; 136; 149; 195; 171; 176; 168; 170
- Overall balance (US$ millions): -50; -60; -65; -18; -9; 30; 11; 13; 10; 11
- Change in reserves (- increase) (percent of GDP): 2.8; 3.3; 3.5; 0.9; 0.4; -1.4; -0.5; -0.6; -0.5; -0.5

### Operations of the central government (BZ$ millions; selected years and items)
- Revenue and grants (levels, selected): 1,000; 1,052; 1,111; 1,183; 1,187; 1,208; 1,261; 1,314; 1,367; 1,418; 1,472
- Revenue (levels): 980; 1,006; 1,081; 1,138; 1,150; 1,178; 1,230; 1,277; 1,326; 1,376; 1,428
  - Current revenue (levels): 974; 1,004; 1,079; 1,135; 1,144; 1,176; 1,227; 1,274; 1,323; 1,373; 1,425
  - Tax revenue (levels): 864; 925; 967; 1,023; 1,034; 1,063; 1,110; 1,153; 1,198; 1,243; 1,290
    - Income and profits (levels): 256; 262; 270; 277; 288; 310; 321; 333; 345; 358; 372
    - Goods and services (levels): 354; 489; 533; 569; 577; 583; 615; 641; 667; 693; 719
    - General Sales Tax (levels): 270; 292; 292; ...; 317; 329; 352; 368; 385; 399; 414
    - Taxes on international trade (levels): 249; 167; 158; 170; 164; 161; 164; 169; 175; 181; 188
  - Nontax revenue (levels): 109; 79; 112; 112; 110; 113; 117; 121; 125; 130; 135
- Grants (levels): 20; 45; 30; 45; 37; 30; 31; 37; 41; 42; 44
- Total expenditure (levels): 1,264; 1,206; 1,258; 1,209; 1,225; 1,276; 1,322; 1,367; 1,415; 1,466; 1,519
  - Current expenditure (levels): 904; 953; 1,013; 1,051; 1,057; 1,093; 1,131; 1,171; 1,211; 1,255; 1,300
  - Interest payments (levels): 85; 87; 105; 112; 120; 126; 129; 133; 135; 138; 141
  - Capital expenditure and net lending (levels): 360; 253; 245; 157; 168; 183; 190; 197; 204; 212; 220
    - Capital expenditure (levels): 260; 251; 151; 155; 155; 175; 181; 188; 195; 202; 210
- Primary balance (levels): -179; -68; -42; 87; 81; 58; 68; 79; 87; 90; 93
- Overall balance (levels): -264; -155; -147; -25; -39; -68; -61; -54; -49; -48; -47
- Financing (levels): 264; 155; 147; -25; 39; 68; 61; 54; 49; 48; 47

### Banking system (selected levels, growth rates, and ratios)
- Net foreign assets (Monetary survey, BZ$ millions): 1,051; 890; 757; 755; 794; 858; 885; 916; 942; 969
- Net domestic assets (Monetary survey): 2,282; 2,514; 2,657; 2,749; 2,769; 2,838; 2,945; 3,052; 3,174; 3,303
- Credit to the private sector (by commercial banks, BZ$ millions): 2,224; 2,158; 2,241; 2,313; 2,357; 2,445; 2,531; 2,623; 2,722; 2,825
- Liabilities to the private sector (BZ$ millions): 3,333; 3,404; 3,415; 3,504; 3,563; 3,696; 3,830; 3,967; 4,116; 4,272
- M2 (money and quasi-money, BZ$ millions): 2,924; 2,998; 2,990; 3,067; 3,125; 3,242; 3,356; 3,477; 3,609; 3,745
- Private sector local currency deposits (growth, percent): 6.1; 2.2; -0.9; 2.6; 0.7; 2.5; 2.3; 2.4; 2.5; 2.5
- Base money (growth, percent): 22.6; -1.3; -12.3; -8.4; 1.9; 3.7; 3.5; 3.6; 3.8; 3.8
- Required cash reserve ratio (percent): 8.5; 8.5; 8.5; 8.5; 8.5; 8.5; 8.5; 8.5; 8.5; 8.5
- Loan-deposit ratio (percent): 82.5; 78.7; 82.6; 83.3; 84.2; 85.2; 86.2; 87.3; 88.3; 89.4

### Baseline medium-term outlook (selected projections, percent of GDP unless otherwise noted)
- GDP at constant prices (annual percent change): 3.4; -0.6; 1.4; 3.2; 1.5; 2.5; 1.8; 1.7; 1.7; 1.7
- GDP at current market prices (annual percent change): 4.1; 2.5; 3.1; 3.5; 1.9; 3.7; 3.5; 3.6; 3.8; 3.8
- Consumption (percent of GDP): 84.9; 89.7; 85.9; 82.6; 82.9; 83.8; 83.6; 83.5; 82.1; 81.8
- Gross domestic investment (percent of GDP): 23.5; 18.1; 19.0; 19.9; 21.0; 20.6; 20.1; 20.1; 21.0; 21.1
- Net exports (percent of GDP): -8.4; -7.7; -4.9; -2.5; -3.9; -4.3; -3.7; -3.6; -3.1; -2.9
- Gross national savings (percent of GDP): 12.6; 10.2; 10.5; 12.0; 13.0; 12.4; 12.5; 12.6; 14.0; 14.3
- Exports of goods and services (percent of GDP): 63.9; 52.5; 53.0; 55.7; 56.0; 55.1; 55.5; 55.6; 55.9; 55.9
- Imports of goods and services (percent of GDP): -72.3; -60.2; -57.9; -58.2; -60.0; -59.4; -59.2; -59.1; -59.0; -58.8
- Public debt (percent of GDP): 80.8; 94.7; 94.5; 93.8; 94.2; 93.6; 92.4; 90.0; 87.6; 84.8
  - Domestic: 14.0; 28.3; 27.1; 27.1; 26.6; 24.8; 23.2; 22.2; 22.4; 23.1
  - External: 66.8; 66.4; 67.4; 66.7; 67.6; 68.8; 69.2; 67.9; 65.2; 61.7
- Gross official reserves (in months of imports): 4.8; 4.2; 3.3; 3.0; 2.8; 3.0; 3.0; 3.0; 3.0; 3.0

*Sources: Belize authorities; UNDP Human Development Report; World Development Indicators, World Bank; 2009 Poverty Country Assessment; Ministry of Finance; Central Bank of Belize; and Fund staff estimates and projections.*

### Annex I. Implementation of 2018 Article IV Consultation

### Annex I. Implementation of 2018 Article IV Consultation

### Recommendations and Implementation Status
- Fiscal consolidation
  - Recommendation: Gradually raise the primary balance to 4 percent of GDP with a combination of revenue and expenditure measures, including broadening the tax base and reducing current expenditure. Implement pension reform, including raising contribution rates.
  - Implementation: Some progress
    - The primary fiscal surplus reached 2.1 percent of GDP in FY2018/19, a 4 percent of GDP rise from the FY2016/17 level.
    - The FY2019/20 budget, approved by parliament, targeted a primary fiscal surplus of just above 2 percent of GDP but recent data suggest that the budget’s target is at risk.
    - Start of phased rise in pension contribution rate implemented in July 2019.

- Financial sector reform
  - Recommendation: Keep the financial system under tight supervision and continue addressing banking sector vulnerabilities, including by raising provisioning requirements, maintaining restrictions on a systemic bank, and conducting an asset quality review of all banks to assess the strength of capital buffers. Strengthen the bank resolution legal framework.
  - Implementation: Significant progress
    - The Central Bank of Belize (CBB) placed two troubled banks into liquidation, and conducted on-site examinations on a number of domestic banks, international banks, and credit unions to assess compliance with regulations.
    - The CBB received IMF technical assistance for strengthening contingency planning and the bank resolution framework.

- AML/CFT reforms
  - Recommendation: Further strengthen the effectiveness of the AML/CFT framework and support the recovery of correspondent banking relations (CBRs) by enhancing entity transparency, requiring a physical presence of institutions licensed by the International Financial Services Commission (IFSC), improving the CBB’s capacity to conduct risk-based supervision of banks, licensed financial operators in the international financial services sector, and registered agents and trust services.
  - Implementation: Some progress
    - The CBB has stepped up examinations to ensure compliance with AML/CFT regulations and received IMF technical assistance for strengthening the AML/CFT framework and its enforcement.

- Structural reform
  - Recommendation: Accelerate the implementation of growth-enhancing reforms to improve the business climate, including reducing the cost of doing business and establishing a credit bureau and a credit/collateral registry.
  - Implementation: Limited progress
    - Legislation to establish a credit bureau and a credit/collateral registry are yet to be submitted to parliament.

- Resilience building
  - Recommendation: Build resilience to natural disasters through adaptation infrastructure investment, greater self-insurance through a natural disaster reserve fund, and optimized use of risk management instruments.
  - Implementation: Some progress
    - The authorities are investing about half of the capital expenditure budget to resilience-building projects and have secured an IDB contingent line of credit.

### Key implementation summary bullets
- Primary fiscal surplus: 2.1 percent of GDP in FY2018/19 (4 percent of GDP rise from FY2016/17).
- FY2019/20 budget targeted: just above 2 percent of GDP primary surplus; target at risk.
- Pension contribution rate: phased rise started July 2019.
- Two troubled banks placed into liquidation by CBB; on-site examinations conducted.
- IMF technical assistance: contingency planning, bank resolution framework, AML/CFT.
- Credit bureau and credit/collateral registry legislation: not yet submitted to parliament.
- Resilience investment: about half of capital expenditure budget; IDB contingent line of credit secured.

*Source: Annex I. Implementation of 2018 Article IV Consultation*

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### Annex II. External Stability Assessment

### Overall assessment
- The external position is weaker than the level consistent with medium-term fundamentals and desirable policy settings.
- International reserves, at around 3 months of imports of goods and services, are below risk-weighted adequacy metrics and are expected to remain so over the medium-term.
- Vulnerabilities: adverse shocks to global growth, weather-related damages, materialization of contingent liabilities.
- Policy priorities: fiscal policy adjustment, banking sector reforms, structural measures to enhance growth, and mitigation of natural disaster and climate change risks.

### External Sustainability (ES) approach results
- NFA adjustment assumptions:
  - From -135.9 percent of GDP at end-2018 to -95 percent of GDP by 2028 in the first scenario.
  - From -135.9 percent of GDP at end-2018 to -90 percent of GDP by 2028 in the alternative scenario.
- Required current account deficits to achieve these NFA levels:
  - 2.3 percent of GDP in the first scenario.
  - 1.9 percent of GDP in the alternative scenario.
- REER gaps (peaks and declines):
  - Estimated REER gap peaks in 2019 at 14.5 percent in the first scenario and 15.4 percent in the alternative scenario.
  - Declines to about 11 percent and 11.9 percent, respectively, by end-2024.
- Conclusion: Under baseline assumptions, current account and REER gaps persist without additional reforms.

### External Balance Assessment (EBA-lite) results
- Current account gap: 3.6 percent (of GDP)
  - Of which policy gap: 1.8 percent (of GDP)
  - Residual (structural gap): 1.8 percent (of GDP)
- EBA-lite implied REER gap: 9.0 percent
- Policy implication: Fiscal policy adjustment and banking sector reforms would close policy gaps; growth-enhancing reforms and resilience building would reduce structural gaps.

### Reserves and adequacy metrics
- Reserves at end-2018: around 3 months of imports of goods and services (declined from 3.3 months at end-2017).
- Legacy claims contested by government: about US$117 million (5.9 percent of GDP).
- Financial inflows under PetroCaribe: declined to zero in 2018.
- Adequacy results in baseline scenario:
  - Reserves fall slightly below 3 months of imports in 2019 and 2020 due to severe drought in 2019.
  - Risk-weighted metric 1: reserves would decline to 69 percent of the level considered adequate at end-2019 and 75 percent by 2024.
  - SIDS metric: reserves would be at 48 percent of the adequacy threshold at end-2019, and at 50 percent at end-2024.
  - 20 percent of broad money measure: reserves would decline to 97 percent of the level considered adequate at end-2019 and 94 percent by 2024.

### Selected numerical table highlights (EBA-lite and ES)
- Equilibrium external current account (CA):
  - ES baseline reducing NFA to -95 percent: -2.3
  - ES alternative reducing NFA to -90 percent: -1.9
  - EBA-lite baseline: -4.3
- Underlying CA balance ranges (2019-24) shown in brackets: [-6.7   -8.1] and [-6.7   -8.1] for ES scenarios; -7.9 for EBA-lite.
- CA elasticity to REER: -0.40 (used across scenarios).
- Implied REER adjustment (in percent, "+" appreciation):
  - ES first scenario bracket: [-11.0   -14.5]
  - ES alternative scenario bracket: [-11.9  -15.4]
  - EBA-lite: -9.0

*Source: Annex II. External Stability Assessment*

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### Annex III. Risk Assessment Matrix (RAM)

- Weaker-than-expected global growth; Economic slowdown in the U.S.
  - Direction: Downside ()
  - Relative Likelihood: Medium
  - Impact: High
  - Policy Response: Build fiscal and external buffers to offset potential shocks and accelerate structural reforms to support investment and growth.

- Sharp rise in risk premia; abrupt deterioration in market sentiment
  - Direction: Downside ()
  - Relative Likelihood: High
  - Impact: Medium
  - Policy Response: Keep the financial sector under tight supervision, strengthen oversight and AML/CFT actions, and reduce external imbalances to build international reserves.

- Large swings in energy prices
  - Direction: Downside ()
  - Relative Likelihood: Medium
  - Impact: Medium
  - Policy Response: Reprioritize government spending to support the most vulnerable individuals.

- Higher frequency and severity of natural disasters
  - Direction: Downside ()
  - Relative Likelihood: Medium
  - Impact: High
  - Policy Response: Invest in climate resilient infrastructure, set up a natural disaster reserve fund, optimize risk management.

- Further pressure on CBRs
  - Direction: Downside ()
  - Relative Likelihood: High
  - Impact: High
  - Policy Response: Ensure systematic monitoring of CBRs and communication with global banks and standard setters. Strengthen AML/CFT actions.

- Significant deterioration in the quality of banks’ credit portfolio
  - Direction: Downside ()
  - Relative Likelihood: Low
  - Impact: Medium
  - Policy Response: Strengthen risk-based supervision, introduce emergency liquidity assistance, and fortify bank resolution framework.

- Higher-than-expected contingent liabilities; government contests legacy claims
  - Direction: Downside ()
  - Relative Likelihood: Medium
  - Impact: High
  - Policy Response: Build fiscal buffers through fiscal consolidation.

*Source: Annex III. Risk Assessment Matrix*

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### Annex IV. Debt Sustainability Analysis (DSA)

### Macroeconomic framework and baseline outlook
- Baseline real GDP growth projection: average 1.9 percent during 2020-2024.
- Current account deficit: projected to narrow but remain large over the medium term.
- International reserves: projected below standard adequacy metrics.
- Financing: Authorities expected to rely mainly on domestic financing and loans from multilateral and bilateral development partners.
- DSA assumption: no new issuance of external commercial debt given the recent debt restructuring.
- Nominal interest rates on government borrowing: expected to gradually rise over the medium term.
- Gross financing needs: expected to remain below the 2016–17 level due to fiscal policy improvements and cash flow relief from the 2017 restructuring.
- Forecast errors (median forecast error, MFE):
  - GDP MFE: -0.07 percentage point (67th percentile).
  - Inflation MFE: -0.58 percentage point (39th percentile).
  - Primary fiscal balance MFE: -1.37 (25th percentile).

### Public debt projections and risks
- Historical and projected public debt:
  - 2019 public debt: 94.2 percent of GDP.
  - 2020 public debt: 92.8 percent of GDP.
  - By end-2024 public debt: projected to fall to 84.8.2 percent of GDP (figure cited in source).
- Note: The text states "84.8.2 percent of GDP" as the projection at end-2024; preserve numeric expression as presented.
- Debt dynamics:
  - The 2017 debt restructuring provided cash flow relief and NPV reductions, but not face value reductions.
  - Debt is projected to decline to about 85 percent over the medium term, from 94 percent of GDP at end-2018 (text summary).
- Risks to debt sustainability:
  - Remain high due to sensitivity to shocks to growth, interest rates, and fiscal policy stance.
  - Stress tests indicate Belize’s debt burden exceeds emerging market benchmarks in several areas.
  - Heat map highlights significant risks from market perception changes (high spreads) and currency composition of debt.
  - Short-term debt share stabilized at around 30 percent after 2017 restructuring.
  - Fan charts show public debt could exceed 100 percent of GDP in the medium term with a probability of more than 25 percent.

### Additional debt-related data points
- 2017 debt restructuring details (summary):
  - Private external commercial debt restructured: US$526 million (about 30 percent of GDP).
  - Coupon rate reduced to 4.9375 percent (from a contract rate set to step up from 5 to 6.767 percent in August 2017).
  - Amended amortization schedule: principal repayments pushed back to 2030-34 (instead of semiannual installments beginning in August 2019).

*Source: Annex IV. Debt Sustainability Analysis*

### 6.      Public debt continues to be exposed to adverse developments as highlighted by

### 1blizea2019001 - 6.      Public debt continues to be exposed to adverse developments as highlighted by

### Public debt vulnerabilities (stress tests)
- Almost 70 percent of total public debt is denominated in foreign currency.
- A 10 percent real depreciation would increase total public debt to 97.9 percent of GDP in the first year and keep the debt-to-GDP ratio about 5 percentage points more than the baseline scenario over the medium term.
- A decline in GDP growth by one standard deviation would raise total public debt almost 4.5 percentage points higher than the baseline projection over the medium term.
- A financial sector contingent liability shock that increases public spending by the equivalent of 10 percent of banking sector’s assets associated with recapitalization needs of a few banks would raise total public debt to 99.6 percent of GDP.
- Belize faces legacy claims estimated at about US$100 million (about 5.4 percent of GDP); a contingent liability shock could lead to large public and external financing needs.

### Natural disaster and climate-change vulnerability
- Staff scenario assumes a natural disaster causing 6 percent of GDP in economic damages (about half the damage of Hurricane Earl in 2016).
- Under that scenario:
  - Real GDP is assumed to decline by 3 percent in the year of the disaster relative to baseline, by a further 1 percent in the next year, and to accelerate by ½ percentage point in each of the following two years.
  - Government cost is assumed to be ⅔ of economic damage, corresponding to 4 percent of GDP.
  - Government recovery and reconstruction expenditure is assumed spread over 3 years: 2 percent of GDP in the first year, and 1 percent of GDP in each of the next two years.
  - The shock would shift the government debt trajectory up by around 6 percent of GDP above the baseline, with government debt at 90 percent of GDP by end-2024.
- Climate change could weaken potential growth over the longer term and increase pressure on the government debt-to-GDP ratio.
- Recommended risk-management measures:
  - Increase self-insurance through a natural disaster reserve fund.
  - Manage remaining risks cost-effectively through a mix of risk-transfer and risk-retention instruments, such as ex-ante contingent lines of credit and optimized participation in regional insurance options.

### External debt outlook and sensitivity
- External debt-to-GDP ratio projected to decline from 67 percent of GDP in 2018 to 62 percent of GDP by 2024.
- Bound tests indicate external debt is mostly sensitive to exchange rate and current account shocks.
- Under a hypothetical 30 percent depreciation of the national currency in 2019:
  - External debt would rise to 99 percent of GDP in 2020 and remain elevated at 88 percent of GDP over the medium term.
- A non-interest current account shock would keep external debt at 73 percent of GDP over the medium term.
- An extreme two-standard deviation reduction in growth would raise external debt to 70 percent of GDP by 2024.
- A combined one-quarter standard deviation shock would keep external debt at 69 percent by 2024.
- Residuals (2-3 percent of GDP) that account for most of the projected decline in external debt-to-GDP reflect expected use of reserves to service debt.

### Assessment and policy recommendations
- Baseline: public debt projected to decline over the medium term, reflecting a tight fiscal stance and modest gains from automatic debt dynamics; nonetheless, debt will remain elevated and vulnerable to adverse developments.
- The 2017 debt restructuring eased the debt service burden; refinancing risks are expected to remain low.
- External debt expected to gradually decline over the medium term, mainly reflecting non-debt creating inflows.
- Staff recommendation:
  - Gradually raise the primary surplus to about 4 percent of GDP over the medium term to reduce public debt to prudent levels over the long term (see staff active scenario).
  - Implement reforms to improve public debt management.

*Italic: IMF staff (from the cited chapter).*

### Annex V. Statistical Issues

### Annex V. Statistical Issues

### Assessment of Data Adequacy for Surveillance
- General: "Data provision has some shortcomings, but is broadly adequate for surveillance."
- Real sector:
  - SIB publishes GDP, CPI, population and labor force/employment statistics, social indicators.
  - Timeliness and frequency generally adequate except social indicators related to poverty and literacy, "which are available with large lags."
  - Capacity limitations at the SIB constrain survey implementation and data processing.
  - GDP on expenditure basis: available only at annual frequency and "with a significant lag."
  - Future work priorities: methodology and source data for compiling supply and use tables (SUT); improving robustness of measurements of economic activity in export processing zones and the commercial free zone; including informal activity in GDP estimates; rebasing the GDP to 2014.
  - SIB could utilize Social Security Board (SSB) data to strengthen labor statistics.
- Fiscal accounts:
  - "Data on the consolidated operations of the public sector are unavailable."
  - Priorities: prepare a comprehensive list of institutions comprising central government, general government, and the public sector including extra budgetary units.
  - Social Security Board is not treated as part of general government; Central Bank classifies it as "other non-financial public corporation," and includes its claims (deposits) on the banking system as part of broad money.
  - Compilation difficulties persist for capital expenditure: a number of Capital II items that started as fixed-term project contributions have become permanent funding allocations.
  - Current accounting practices "follow neither a cash basis nor an accrual basis of accounting," contributing to inconsistent accounting and reporting of assets, liabilities, revenues, and expenses.
  - Domestic debt data recording needs to be improved.
- Monetary and financial statistics:
  - Financial soundness indicators of individual banks available quarterly.
  - Very limited data on non-bank financial institutions, "especially the offshore sector."
- Balance of payments:
  - SIB publishes trade data monthly with a one month lag and monthly press releases; data do not cover services, constraining assessment of the overall external position given tourism's large share of exports.
  - Usefulness would be improved by expanding to cover trade in services and the international investment position.
  - Central Bank of Belize is responsible for producing the Balance of Payments, compiled quarterly and annually in BPM6 format.

### Data Standards and Quality
- Participation: "Participant in the General Data Dissemination System (GDDS) since September 27, 2006."
- RosC: "No data ROSC is available."

### Reporting to STA
- "No fiscal data are being reported for publication in the Government Finance Statistics Yearbook or in the IFS."

### Key data-frequency and availability notes (Table of Common Indicators Required for Surveillance, as of September 23, 2019)
- Exchange Rates: Date of Latest Observation 9/23/2019; Date Received 9/23/2019; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D
- International Reserve Assets and Liabilities of the Monetary Authorities 1/: Date of Latest Observation 9/23/2019; Date Received 9/23/2019; Frequency W
- Reserve/Base Money: Date of Latest Observation 9/23/2019; Date Received 9/23/2019; Frequency W
- Broad Money: Date of Latest Observation 9/23/2019; Date Received 9/23/2019; Frequency W
- Central Bank Balance Sheet: Date of Latest Observation 8/31/2019; Date Received 9/23/2019; Frequency M
- Banking System Balance Sheet: Date of Latest Observation 6/30/2019; Date Received 9/1/2019; Frequency M
- Interest Rates 2/: Date of Latest Observation 7/31/2019; Date Received 9/23/2019; Frequency M
- Consumer Price Index: Date of Latest Observation 7/31/2019; Date Received 9/1/2019; Frequency M
- Revenue, Expenditure, Balance and Composition of Financing — Central Government 3/: Date of Latest Observation 6/30/2019; Date Received 9/23/2019; Frequency Q
- Stocks of Central Government and Central Government-Guaranteed Debt 4/5/: Date of Latest Observation 6/30/2019; Date Received 9/23/2019; Frequency M
- External Current Account Balance: Date of Latest Observation 2019Q2; Date Received 9/23/2019; Frequency Q
- Exports/Imports of Goods and Services: Date of Latest Observation 2019Q2; Date Received 9/23/2019; Frequency Q
- GDP/GNP: Date of Latest Observation 2019Q2; Date Received 9/1/2019; Frequency Q
- Gross External Debt (Central Government only): Date of Latest Observation 6/30/2019; Date Received 9/23/2019; Frequency A, MA, MNA
- International Investment Position: Not available (NA)
- Revenue, Expenditure, Balance and Composition of Financing — General Government: Not available (NA)

*Source: Annex V. Statistical Issues (As of August 31, 2019).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1blizea2019001.pdf_