## 1blzea2021001

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### PRE-PANDEMIC VULNERABILITIES
- Growth and output:
  - Real GDP growth slowed from 4.7 percent in 2000-09 to 2.8 percent in 2010-14 and 1.8 percent in 2015-19.
  - Economy in recession when the pandemic hit: real GDP contracted by 2.2 percent year on year in the last quarter of 2019 and 6.3 percent in the first quarter of 2020.
- Fiscal position:
  - Fiscal deficit widened from an average of 1.1 percent of GDP in 2007-14 to 4.3 percent in 2015-19.
  - Primary balance fell from 2.2 percent of GDP in 2007-14 to –1.5 percent of GDP in 2015-19.
  - Public debt rose from 78.9 percent of GDP in 2014 to 97.5 percent of GDP in 2019.
- External position:
  - Current account deficit increased from 4.7 percent of GDP in 2007-14 to 8.7 percent of GDP in 2015-19.
  - International reserves declined from US$487 million (29 percent of GDP) in 2014 to US$278 million (14.5 percent of GDP) in 2019.
  - NIIP deteriorated from –159 percent of GDP in 2014 to –174 percent of GDP in 2019.

### THE PANDEMIC SHOCK — HEALTH, ECONOMIC, FISCAL, EXTERNAL
- Public health and containment:
  - First wave contained via closures and a strict national lockdown during Q2 2020; second wave began in June 2020 and intensified in Q4 2020, later controlled but left Belize with one of the highest numbers of cases and deaths per capita in the Caribbean.
- Economic impacts:
  - Tourist arrivals declined by 72 percent in 2020.
  - Tourism accounts for nearly 60 percent of all foreign exchange earnings and 40 percent of GDP.
  - Real GDP contracted by 14.1 percent in 2020.
  - Employment declined by 15 percent year-on-year in Q3 2020; female employment declined by 18 percent; male employment declined by 12.5 percent.
- Fiscal effects:
  - Government revenue estimated to have fallen by 4.5 percentage points of GDP in FY2020/21.
  - Noninterest government expenditure estimated to have increased by 2.6 percentage points of GDP in FY2020/21.
  - Primary deficit estimated to have widened from 1.3 percent of GDP in FY2019/20 to 8.4 percent in FY2020/21.
  - Public debt increased to 127.4 percent of GDP in 2020.
- External effects:
  - NIIP estimated to have declined to –200 percent of GDP in 2020.
  - Public external debt rose from 69 percent of GDP in 2019 to 88 percent in 2020.
  - International reserves rose from US$278 million (3.5 months of imports) in 2019 to US$348 million (4.2 months of imports) in 2020.
- Institutional and political context:
  - Some Article IV recommendations implemented (resilient infrastructure investment, GSSS contribution raised by 0.5 percent in 2019 and 2020, ML/TF risk assessment preparation).
  - Opposition People’s United Party won November 2020 elections with 26 seats in the 31-seat House of Representatives; new administration inherited deep economic challenges.

### OUTLOOK AND RISKS
- Growth projections:
  - Real GDP projected at 1.5 percent in 2021 and 6.2 percent in 2022, converging to 2 percent over the medium term.
  - Real GDP expected to regain its 2019 level only by 2025.
  - Belize secured vaccines for only about one-third of its population (implication for exposure to the pandemic).
- Fiscal and reserves outlook (staff baseline):
  - FY2021/22 budget includes reductions of 10 percent in public sector wages and 30 percent on purchases of goods and services relative to FY2020/21, expected to reduce current expenditure by about 2 percent of GDP in FY2021/22.
  - Primary balance projected to increase from –8.4 percent of GDP in FY2020/21 to 0.8 percent from FY2023/24 onwards.
  - Public debt projected to peak at 132 percent of GDP in 2021 and decline to 111 percent in 2031.
  - International reserves expected to decline to below 3 months of imports or 100 percent of gross external financing needs starting in 2024.
- Risks:
  - Downside: pandemic intensification domestically and abroad, delays in inoculation, public-sector protests, natural disasters; these could tighten financial conditions, weaken activity, delay revenue recovery, and accelerate reserve depletion.
  - Upside: rapid vaccine distribution could revive activity earlier than expected.

### AUTHORITIES’ VIEWS
- Authorities agreed public debt is unsustainable and acknowledged the deep recession and measures that worsened debt from already weak levels.
- FY2021/22 budget includes consolidation measures estimated at around 2 percent of GDP.
- Authorities project measures and a strong revenue recovery to reduce the primary deficit from 8.5 percent of GDP in FY2020/21 to 2.9 percent of GDP in FY2021/22.
- Authorities agreed additional measures will be needed to restore debt sustainability and plan contingency options including broadening indirect tax bases.

### POLICY DISCUSSIONS — BALANCED AND SUSTAINED FISCAL CONSOLIDATION
- Policy priorities:
  - Restore public debt sustainability; strengthen the currency peg; provide near-term pandemic support.
  - Achieve a mix of ambitious but realistic fiscal consolidation, growth-enhancing structural reforms, and debt restructuring aimed at reducing public debt to 60 percent of GDP by 2031.
- Medium-term fiscal strategy:
  - Multiyear fiscal consolidation plan targeting public debt of 60 percent of GDP by 2031.
  - Introduce PFM reforms for future adoption of a Fiscal Responsibility Law (FRL) with explicit fiscal rules.
- Primary balance trajectory and required consolidation:
  - Staff recommends gradually raising the primary balance to 3 percent of GDP in FY2024/25 and keeping it at this level until FY2031/32.
  - Requires cumulative fiscal consolidation of 2.2 percent of GDP between FY2022/23 and FY2024/25, in addition to FY2021/22 budget measures.
- Expenditure and revenue measures (FY2022/23–FY2024/25) — numerical impacts (percent of GDP):
  - Total Fiscal Consolidation: 1.1 0.7 0.4 1.1 1.8 2.2
  - Expenditure measures row: 0.5 0.0 -0.3 0.5 0.5 0.2
  - Current expenditure: 1.1 0.7 0.4 1.1 1.8 2.2
  - Wage bill: 0.6 0.3 0.2 0.6 0.9 1.1
  - Pensions: 0.1 0.1 0.0 0.1 0.2 0.2
  - Purchases of goods and services: 0.2 0.1 0.1 0.2 0.4 0.5
  - Subsidies and current transfers: 0.2 0.1 0.1 0.2 0.3 0.4
  - Natural disaster reserve fund: -0.3 -0.3 -0.3 -0.3 -0.7 -1.0
  - Enhancing social programs: -0.3 -0.3 -0.3 -0.3 -0.7 -1.0
  - Revenue Measures row: 0.7 0.7 0.7 0.7 1.3 2.0
  - Personal income taxes (PIT): 0.1 0.1 0.1 0.1 0.1 0.2
  - Taxes on goods and services / GST: 0.5 0.5 0.5 0.5 1.1 1.6 (Gross sales tax (GST): 0.5 0.5 0.5 0.5 1.0 1.5)
  - Excises and fees: 0.0 0.0 0.0 0.0 0.1 0.1
  - Revenue administration: 0.1 0.1 0.1 0.1 0.1 0.2
  - Memorandum items: Primary balance (baseline scenario): -1.5 0.8 0.8; Primary balance (active scenario): -0.2 3.0 3.0
- Revenue measures potential (over three years):
  - Broadening the GST base and raising the GST rate could raise at least 1.5 percent of GDP.
  - Lowering the PIT exemption threshold and taxing some exempted income could raise 0.2 percent of GDP.
  - Increasing excise taxes and fees could raise 0.1 percent of GDP.
  - Strengthening revenue administration could increase revenue by 0.2 percent of GDP.

### STRENGTHENING PFM AND FRL DESIGN
- Key FRL features recommended:
  - Public debt anchor of 60 percent of GDP by 2031.
  - Gradual increase in the primary balance to 3 percent of GDP from FY2024/25.
  - Escape clause for major shocks with Parliament approval.
  - Automatic correction mechanism for large cumulative deviations.
  - Independent fiscal council to produce unbiased forecasts and evaluate compliance.
- Required PFM modernizations: multi-year budget preparation, cash management, fiscal risk assessment, public investment management, and government accounts coverage.
- Transparency measures: publish beneficial ownership information and procurement contracts; ensure transparency in crisis-related spending; publish audit reports when available.

### AUTHORITIES’ VIEWS ON FISCAL STRATEGY
- Authorities intend to:
  - Freeze non-interest current expenditure in FY2022/23 and FY2023/24 at the FY2021/22 budget level (equivalent to fiscal consolidation of 3 percent of GDP in two years).
  - Expect primary balance to increase from –2.9 percent of GDP in FY2021/22 to 2 percent in FY2022/23 and around 3 percent over the medium term.
  - Seek structural reforms and debt relief to reduce public debt below 70 percent of GDP by 2030.
  - Elaborate contingency plans and consider broadening indirect and land tax bases.

### GROWTH-ENHANCING STRUCTURAL REFORMS (PRIORITIES)
- Key priorities:
  - Establish a credit bureau and a credit collateral registry.
  - Ease registration for new businesses; reduce labor market rigidities; improve education and technical training.
  - Reprioritize government expenditure to protect infrastructure investment.
  - Crime reduction: expand surveillance technology; resource law enforcement and social programs targeting at-risk youth.
  - Climate and disaster resilience:
    - Structural: invest in climate-resilient infrastructure, strengthen building codes and land use regulations.
    - Financial: maintain a natural disaster reserve fund of 1 percent of GDP; use contingent credit lines and regional insurance for severe events.
    - Post-disaster: reform social protection to scale up quickly; reform budget classification to capture disaster events.

### DEBT DYNAMICS, SCENARIOS, AND RESTRUCTURING
- Staff baseline: Public debt projected to peak at 132 percent of GDP in 2021 then decline to 110.5 percent in 2031 (selected series: 97.5 127.4 132.4 128.6 124.9 123.2 121.4 119.7 117.9 116.0 114.2 112.4 110.5).
- Active Scenario (assumes fiscal consolidation of 2.2 percent of GDP and growth-enhancing reforms raising growth by 0.5 percent):
  - Public debt path: 97.5 127.4 132.4 128.4 123.2 119.1 114.4 109.2 103.8 98.3 93.0 87.7 82.5 (2019–2031 sequence).
  - Growth (percent) in Active Scenario: 1.8 -14.1 1.5 5.5 3.5 1.6 1.8 2.2 2.5 2.5 2.5 2.5 2.5.
- Authorities negotiating restructuring of the US$557 million superbond seeking principal reduction and reviewing other public debt for savings.
- DSA conclusion: Even with consolidation and reforms, debt likely remains well above the 60 percent target without restructuring.

### DEBT SUSTAINABILITY ANALYSIS (DSA) — STRESS TESTS AND VULNERABILITIES
- Public debt increased by 30 percentage points to 127 percent of GDP in 2020.
- Baseline: debt-to-GDP projected to peak at 132 percent in 2021 and fall to 111 percent in 2031; assessed unsustainable (above 70 percent threshold).
- Composition of 2020 public debt:
  - Public external debt: 69 percent of public debt (external multilateral 22 percent; external bilateral 20 percent; external private 27 percent).
  - Public domestic debt: 31 percent of public debt (Domestic Central Bank 13 percent; Domestic Banks 11 percent; Domestic Other 7 percent).
- Selected stress-test results:
  - Exchange rate shock: real depreciation of 12 percent increases public debt by 8 percent of GDP in first year; by 2031 debt ratio ~11 percentage points higher than baseline.
  - Growth shock: one standard deviation decline raises debt-to-GDP by about 27 percentage points above baseline by 2031.
  - Financial sector contingent liability shock: a shock equivalent to 10 percent of banking sector’s assets raises debt-to-GDP to 121 percent in 2031.
  - Natural disaster illustrative scenario (6 percent of GDP damages): shifts debt trajectory up by around 9 percent of GDP, reaching 120 percent by 2031.
- Policy implications: Restore sustainability via large and sustained fiscal consolidation, structural reforms, and debt restructuring.

### EXTERNAL POSITION, RESERVES, AND EBA/ES ASSESSMENTS
- Current account and reserves:
  - Current account deficit averaged 8.6 percent of GDP in 2015-20.
  - NIIP averaged –166 percent of GDP during 2009-19; dropped to –200 percent of GDP in 2020.
  - Staff baseline projects current account deficit averaging 6.9 percent of GDP in 2021-31.
  - International reserves projected to fall below 3 months of imports starting in 2024 and below 100 percent of GEFN starting in 2026.
- External sector diagnostics:
  - ES approach: lowering NIIP to –130 percent of GDP by 2031 requires moving CA from –6.9 percent to –2.7 percent of GDP, implying REER overvaluation of around 10 percent.
  - EBA-lite: CA norm estimated at –4.4 percent of GDP; CA gap around –2.8 percent of GDP in 2020; REER overvaluation estimates range (6.6 percent to 14.8 percent depending on approach), average REER overvaluation about 10 percent.
- External DSA projections:
  - External debt projected to fall from 88 percent of GDP in 2020 to 51 percent in 2031 under baseline limited external financing assumptions.
  - Stress scenarios: 30 percent currency depreciation in 2021 raises external debt to 130 percent of GDP in 2021 and 77 percent in 2031.

### MONETARY, FINANCIAL SECTOR, AND AML/CFT PRIORITIES
- Currency peg and central bank financing:
  - Belize dollar pegged since 1976 at BZ$ 2 per U.S. dollar.
  - To strengthen the peg: restore debt sustainability, implement fiscal consolidation, structural reforms, and debt restructuring; limit government financing by the Central Bank of Belize (CBB).
  - Staff baseline projects government financing by CBB rising from 13 percent of GDP in 2020 to 26 percent by 2031 absent corrective measures.
- Banking sector soundness (2019→2020 changes and indicators):
  - Return on assets fell from 2 percent in 2019 to 0.4 percent in 2020.
  - NPLs to total gross loans rose from 5.1 percent in 2019 to 7.7 percent in 2020.
  - Regulatory capital to risk weighted assets declined from 22.8 percent in 2019 to 19.8 percent in 2020 (regulatory minimum 9 percent).
- Forbearance and supervisory actions:
  - Forbearance measures in 2020: reductions in liquid asset and cash reserve requirements by 2 percentage points to 21 percent and 6.5 percent; decline in risk weights for tourism-based loans from 100 percent to 50 percent; extension of NPL classification period in select sectors from 3 months to 6 months.
  - Staff recommendations: maintain loan classification and provisioning rules; phase out forbearance and loan deferrals; strengthen prudential standards and AML/CFT supervision; continue to restrict dividend payments; conduct third-party asset quality review.
- IFS and AML/CFT:
  - Economic Substance Act (2019) requires IBCs to meet “substantial economic presence”; compliance grace period expires in June 2021.
  - Actions: assess ML/TF risks in IFS sector; develop mitigation strategy; centralize beneficial ownership information; adopt risk-based approach to virtual assets; enhance IFSC supervision.
  - These measures prepare for Belize’s comprehensive AML/CFT evaluation by the Caribbean Financial Action Task Force in 2023.

### DATA, STATISTICS, AND SURVEILLANCE ADEQUACY
- Data adequacy: broadly adequate for surveillance but with shortcomings.
- Noted gaps and improvements needed:
  - Consolidated public sector operations data unavailable; Social Security Board treatment in general government needs clarity.
  - Capital expenditure compilation and accounting practice improvements; domestic debt and domestic debt service data need improvement.
  - Services trade data lacking, constraining tourism assessment.
  - SIB rebasing and methodology updates due with new series expected in 2022.
  - Financial soundness indicators and reporting on forbearance measures require enhancement.

### ANNEX I — IMPLEMENTATION OF 2019 ARTICLE IV RECOMMENDATIONS (SELECTED)
- Fiscal consolidation recommendations largely not implemented; fiscal position deteriorated:
  - Primary balance: –1.3 percent of GDP in FY2019/20; –8.4 percent of GDP in FY2020/21.
  - Wage bill: 11.6 percent of GDP in FY2018/19; 12.3 percent in FY2019/20; 13.7 percent in FY2020/21.
  - Social security contribution rate increases: 0.5 percent in 2019 and 0.5 percent in 2020; planned 1 percent increase in 2021 delayed.
- Financial sector reform: limited progress; CBB allowed regulatory forbearance but increased monitoring.
- AML/CFT: national ML/TF risk assessment concluded and action plan developed.
- Structural reforms: limited progress; legislation for credit bureau and collateral registry prepared but not submitted to parliament.
- Resilience: budget allocates about half of capital spending to resilience projects; creation of a natural disaster reserve fund remains a priority.

### KEY TABLED MACRO-FISCAL AND EXTERNAL PROJECTIONS (SELECTED SERIES AND LEVELS)
- GDP at constant prices (annual percent change): 2018: 2.9; 2019: 1.8; 2020: -14.1; 2021: 1.5; 2022: 6.2; 2023: 4.2; 2024: 2.0; 2025: 2.0; 2026: 2.0.
- Public debt (percent of GDP, selected years): 2018: 96.0; 2019: 97.5; 2020: 127.4; 2021: 132.4; 2022: 128.6; 2023: 124.9; 2024: 123.2; 2025: 121.4; 2026: 119.7.
- Gross international reserves (US$ millions): 2018: 294; 2019: 278; 2020: 348; 2021: 360; 2022: 355; 2023: 331; 2024: 303; 2025: 288; 2026: 254.
  - In months of imports: 2018: 2.9; 2019: 3.5; 2020: 4.2; 2021: 3.9; 2022: 3.6; 2023: 3.2; 2024: 2.8; 2025: 2.6; 2026: 2.2.
- Current account (percent of GDP): 2018: -8.1; 2019: -9.2; 2020: -8.0; 2021: -7.7; 2022: -7.2; 2023–2031: -6.8 (each year in baseline).
- Selected fiscal ratios (percent of GDP): Central government revenue and grants: 2019: 31.5; 2020: 27.0; 2021: 28.2; 2022: 29.9; 2023–2026: 31.3 (each year).
- Principal payment (percent of GDP, selected): 2021: 10.3; 2022: 10.3; 2023: 10.3; 2024: 9.7; 2025: 9.8; 2026: 9.8.

### STAFF APPRAISAL — SUMMARY
- Belize was hit hard by the pandemic: real GDP contracted by 14.1 percent in 2020 with deterioration of fiscal and external positions.
- Recovery projected: Real GDP growth of 1.5 percent in 2021 and 6.2 percent in 2022; 2019 output regained only by 2025.
- Public debt projected to remain above 110 percent of GDP over the next decade and is assessed as unsustainable.
- Policy priorities: large and sustained fiscal consolidation, growth-enhancing structural reforms, debt restructuring, strengthened PFM and transparency, and measures to protect the vulnerable while building resilience to natural disasters and climate change.

*Source: IMF staff estimates.*

### 1. COVID-19 Infections and Deaths ________________________________________________________________5

### 1. COVID-19 Infections and Deaths

### PRE-PANDEMIC VULNERABILITIES
- Real GDP growth slowed from 4.7 percent in 2000-09 to 2.8 percent in 2010-14 and 1.8 percent in 2015-19.
- The economy was in recession when the pandemic hit, with real GDP contracting by 2.2 percent year on year in the last quarter of 2019 and 6.3 percent in the first quarter of 2020.
- Fiscal position deterioration:
  - Fiscal deficit widened from an average of 1.1 percent of GDP in 2007-14 to 4.3 percent in 2015-19.
  - Primary balance fell from 2.2 percent of GDP in 2007-14 to –1.5 percent of GDP in 2015-19.
  - Public debt rose from 78.9 percent of GDP in 2014 to 97.5 percent of GDP in 2019.
- External position deterioration:
  - Current account deficit increased from 4.7 percent of GDP in 2007-14 to 8.7 percent of GDP in 2015-19.
  - International reserves declined from US$487 million (29 percent of GDP) in 2014 to US$278 million (14.5 percent of GDP) in 2019.
  - Net international investment position (NIIP) deteriorated from –159 percent of GDP in 2014 to –174 percent of GDP in 2019.

### THE PANDEMIC SHOCK
- Public health and containment:
  - Authorities contained the first wave via closures and a strict national lockdown during Q2 2020.
  - A second wave began in June 2020 and intensified in Q4 2020; it has since been controlled but left Belize with one of the highest numbers of cases and deaths per capita in the Caribbean.
- Economic impact:
  - Tourist arrivals declined by 72 percent in 2020.
  - Tourism accounts for nearly 60 percent of all foreign exchange earnings and 40 percent of GDP.
  - Real GDP contracted by 14.1 percent in 2020.
  - Larger declines occurred in hotels and restaurants, fishing, wholesale and retail trade, and transport and communication.
  - Employment declined by 15 percent year-on-year in Q3 2020.
  - Female employment declined by 18 percent; male employment declined by 12.5 percent.
- Fiscal effects:
  - Government revenue estimated to have fallen by 4.5 percentage points of GDP in FY2020/21.
  - Noninterest government expenditure estimated to have increased by 2.6 percentage points of GDP in FY2020/21.
  - Primary deficit estimated to have widened from 1.3 percent of GDP in FY2019/20 to 8.4 percent in FY2020/21.
  - Public debt increased to 127.4 percent of GDP in 2020.
- External effects:
  - NIIP estimated to have declined to –200 percent of GDP in 2020.
  - Public external debt rose from 69 percent of GDP in 2019 to 88 percent in 2020.
  - Current account deficit estimated to have narrowed in 2020 (reflecting lower imports, higher remittances, and lower repatriation of profits).
  - Government financing from bilateral and multilateral creditors increased and interest payments on the superbond were capitalized.
  - International reserves rose from US$278 million (3.5 months of imports) in 2019 to US$348 million (4.2 months of imports) in 2020.
- Institutional and policy implementation:
  - Some past Article IV recommendations were implemented (investing in resilient infrastructure, raising GSSS contribution by 0.5 percent in 2019 and 2020, preparing an ML/TF risk assessment, examining bank and credit union balance sheets).
  - Fiscal consolidation stalled; the 1 percent rise in the GSSS contribution planned for 2021 was deferred; creation of credit and collateral registries was delayed.
- Political context:
  - The opposition People’s United Party won November 2020 elections with 26 seats in the 31-seat House of Representatives.
  - New administration inherited deep economic challenges from pre-existing vulnerabilities and the pandemic.

### OUTLOOK AND RISKS
- Growth projections:
  - Real GDP projected at 1.5 percent in 2021 and 6.2 percent in 2022, converging to 2 percent over the medium term.
  - Real GDP expected to regain its 2019 level only by 2025.
  - Belize secured vaccines for only about one-third of its population (implication for exposure to the pandemic).
- Fiscal and external medium-term outlook (staff baseline):
  - FY2021/22 budget includes reductions of 10 percent in public sector wages and 30 percent on purchases of goods and services relative to FY2020/21, expected to reduce current expenditure by about 2 percent of GDP in FY2021/22.
  - Primary balance projected to increase from –8.4 percent of GDP in FY2020/21 to 0.8 percent from FY2023/24 onwards.
  - Public debt projected to peak at 132 percent of GDP in 2021 and decline to 111 percent in 2031.
  - International reserves expected to decline to below 3 months of imports or 100 percent of gross external financing needs starting in 2024.
- Debt sustainability assessment:
  - Public debt assessed as unsustainable in staff’s baseline scenario.
  - Public debt projected to remain well above the 70 percent of GDP DSA threshold over the next decade.
  - Gross financing needs projected to be higher than the 15 percent of GDP DSA threshold in some years.
- Risks:
  - Downside risks include intensification of the pandemic domestically and abroad, delays in widespread inoculation, public sector worker protests against wage reductions, and natural disasters.
  - Downside risks could tighten financial conditions, weaken activity, delay revenue recovery, postpone unwinding of pandemic-related expenditures, and accelerate the fall in international reserves.
  - Upside: rapid vaccine distribution could revive activity earlier than expected.

### AUTHORITIES’ VIEWS
- Authorities agreed with staff that public debt is unsustainable and acknowledged the deep recession and measures that worsened debt from already weak levels.
- They noted the FY2021/22 budget includes significant fiscal consolidation measures estimated at around 2 percent of GDP.
- Authorities project the measures and a strong revenue recovery to reduce the primary deficit from 8.5 percent of GDP in FY2020/21 to 2.9 percent in FY2021/22.
- Authorities agreed that additional measures will be needed to restore debt sustainability.

### POLICY DISCUSSIONS — BALANCED AND SUSTAINED FISCAL CONSOLIDATION
- Policy priorities:
  - Restore public debt sustainability.
  - Strengthen the currency peg.
  - Provide near-term support to those affected by the pandemic.
  - Achieve a mix of ambitious but realistic fiscal consolidation, growth-enhancing structural reforms, and debt restructuring aimed at reducing public debt to 60 percent of GDP by 2031.
- Medium-term fiscal strategy:
  - Implement a multiyear fiscal consolidation plan targeting reduction of public debt to 60 percent of GDP by 2031.
  - Introduce public financial management reforms for future adoption of a Fiscal Responsibility Law (FRL) with explicit fiscal rules.
- Primary balance trajectory:
  - Staff recommends gradually raising the primary balance to 3 percent of GDP in FY2024/25 and keeping it at this level until FY2031/32.
  - This requires a cumulative fiscal consolidation of 2.2 percent of GDP between FY2022/23 and FY2024/25, in addition to measures in the FY2021/22 budget.
- Expenditure measures and resilience:
  - Authorities focused on reducing the wage bill and purchases of goods and services in FY2021/22.
  - Limiting growth of wage bill, pensions, purchases of goods and services, and transfers and subsidies to the inflation rate between FY2022/23 and FY2024/25 would lower noninterest current expenditure by 2.2 percent of GDP relative to the baseline in three years.
  - Staff recommends reducing expenditures by 0.2 percent of GDP in net terms between FY2022/23 and FY2024/25 relative to the baseline, considering:
    - Limiting increases of wage bill, pensions, purchases, and transfers to inflation.
    - Gradually building a natural disaster reserve fund of 1 percent of GDP to finance immediate costs related to high frequency low severity climate change related events.
    - Increasing targeted social spending by 1 percent of GDP over three years to strengthen the social safety net.
- Revenue measures (potential savings of 2 percent of GDP over three years):
  - Broadening the GST base and raising the GST rate could raise at least 1.5 percent of GDP in additional revenue over three years.
    - GST is a value added tax with a single rate of 12.5 percent; several items are zero-rated including processed foods, non-prescription drugs, utilities, appliances, items for household use, business inputs, and government purchases.
    - The hotel sector is not covered by GST and is subject to a 9 percent tax on hotel room revenue administered by the Belize Tourism Board.
  - Lowering the PIT exemption threshold and taxing some exempted sources of income (pensions, capital gains, and interest income) could raise 0.2 percent of GDP in revenue over three years.
  - Increasing excise taxes and fees on vehicle registrations and driver licenses could raise another 0.1 percent of GDP over three years.
  - Strengthening revenue administration could increase revenue by 0.2 percent of GDP over three years. Recommendations for the Belize Tax Service (BTS) include:
    - Implement a tax compliance plan to improve filing and payment rates, starting with the largest taxpayers.
    - Increase audit capacity and implement a risk-based audit plan.
    - Increase tax arrears collection.
    - Build capacity at BTS by providing adequate staff and training.
    - Strengthen legislative provisions and instruments.

*International Monetary Fund — Belize: 1. COVID-19 Infections and Deaths*

### 19.      Execution of this consolidation path will be challenging given limited implementation

### 1blzea2021001 - 19.      Execution of this consolidation path will be challenging given limited implementation

### Fiscal consolidation challenges and contingency planning
- Execution will be challenging given limited implementation capacity, political pressures, and uncertainty about the cyclical recovery of revenue.
- Belize must demonstrate resolve and commitment to undertake adjustment needed to restore debt sustainability and regain market confidence.
- The adjustment required to reach the primary balance targets could be larger if:
  - the cyclical recovery of revenue is weaker than expected, or
  - there are slippages relative to the FY2021/22 budget, including because of social tensions.
- Contingency plans should be elaborated in case the primary balance is not increasing as planned, including:
  - further hikes in the GST rate,
  - tighter control of current expenditure,
  - cuts to public investment.
- Restoring debt sustainability with less ambitious fiscal consolidation will require larger efforts in other areas such as debt restructuring; failure to restore debt sustainability would put the fiscal position and the currency peg at risk of disorderly adjustment.

### Fiscal consolidation measures and numerical impacts (FY2022/23–FY2024/25)
- Expenditure measures (percent of GDP):
  - Expenditure measures row: 0.5 0.0 -0.3 0.5 0.5 0.2
  - Current expenditure: 1.1 0.7 0.4 1.1 1.8 2.2
  - Wage bill: 0.6 0.3 0.2 0.6 0.9 1.1
  - Pensions: 0.1 0.1 0.0 0.1 0.2 0.2
  - Purchases of goods and services: 0.2 0.1 0.1 0.2 0.4 0.5
  - Subsidies and current transfers: 0.2 0.1 0.1 0.2 0.3 0.4
  - Natural disaster reserve fund: -0.3 -0.3 -0.3 -0.3 -0.7 -1.0
  - Enhancing social programs: -0.3 -0.3 -0.3 -0.3 -0.7 -1.0
- Revenue measures (percent of GDP):
  - Revenue Measures row: 0.7 0.7 0.7 0.7 1.3 2.0
  - Personal income taxes (PIT): 0.1 0.1 0.1 0.1 0.1 0.2
  - Taxes on goods and services: 0.5 0.5 0.5 0.5 1.1 1.6
  - Gross sales tax (GST): 0.5 0.5 0.5 0.5 1.0 1.5
  - Excises and fees: 0.0 0.0 0.0 0.0 0.1 0.1
  - Revenue administration: 0.1 0.1 0.1 0.1 0.1 0.2
- Total Fiscal Consolidation: 1.1 0.7 0.4 1.1 1.8 2.2 (percent of GDP)
- Memorandum items:
  - Primary balance (baseline scenario): -1.5 0.8 0.8
  - Primary balance (active scenario): -0.2 3.0 3.0
- Source: IMF staff estimates.

### Strengthening PFM and Fiscal Responsibility Law (FRL) design
- PFM systems and procedures should be strengthened to make the rules-based fiscal framework more effective.
- Key features of a future FRL could include:
  - a public debt anchor of 60 percent of GDP by 2031;
  - a gradual increase in the primary balance to 3 percent of GDP from FY2024/25 onwards;
  - an escape clause for major shocks, such as natural disasters, triggered with Parliament approval;
  - an automatic correction mechanism triggered by large cumulative deviations from the primary fiscal balance target;
  - an independent fiscal council that produces unbiased forecasts and evaluates compliance with fiscal rules.
- Required PFM modernizations: multi-year budget preparations, cash management, fiscal risk assessment, public investment management, and coverage of government accounts.
- Transparency and accountability measures: publish beneficial ownership information and procurement contracts; ensure transparency and accountability in crisis-related spending, including COVID-related spending; publish the audit report when available.

### Authorities’ views on fiscal strategy
- Authorities agreed that restoring debt sustainability requires large and sustained fiscal consolidation.
- Measures and intentions:
  - Freeze non-interest current expenditure in FY2022/23 and FY2023/24 at the FY2021/22 budget level, equivalent to a fiscal consolidation of 3 percent of GDP in two years.
  - Expect primary balance to increase from –2.9 percent of GDP in FY2021/22 to 2 percent in FY2022/23 and around 3 percent over the medium term.
  - Expect these measures, structural reforms, and debt relief from ongoing debt restructuring negotiations to reduce public debt to below 70 percent of GDP by 2030.
  - Plan to elaborate contingency plans and are considering broadening the base and raising the rate of certain indirect and land taxes.
- Authorities concurred with need to implement a medium-term fiscal strategy and to implement a Fiscal Responsibility Law once necessary PFM reforms are in place.

### Growth-enhancing structural reforms (priorities)
- Belize needs to tackle long-standing barriers to growth; key priorities:
  - Establish a credit bureau and a credit collateral registry to improve access to credit, especially for SMEs.
  - Ease registration processes for new businesses to enhance competition.
  - Reduce labor market rigidities.
  - Improve education and technical training.
  - Reprioritize government expenditure to protect infrastructure investment in key areas.
- Crime reduction measures:
  - Expand use of surveillance technology;
  - Provide adequate resources to law enforcement and social programs that keep at-risk youth away from crime.
- Building resilience to climate change and natural disasters:
  - Structural resilience: invest in climate-resilient infrastructure, prioritize projects, increase access to grants and climate funds, strengthen building codes and land use regulations.
  - Financial resilience: maintain a natural disaster reserve fund of 1 percent of GDP for high frequency, low severity events; for more severe events use a mix of ex-ante contingent lines of credit and participation in regional insurance mechanisms.
  - Post-disaster resilience: reform social protection programs to scale up quickly after a disaster; reform budget classification to capture disaster events of all magnitudes.
- Authorities’ plans: fast track approval of strategic FDI projects, modernize exchange control, securities and capital market, and insolvency laws; improve road connectivity for farmers; continue crime reduction and resilience priorities, though constrained by limited fiscal space.

### Debt dynamics, scenarios, and restructuring
- Implementation of discussed fiscal consolidation and structural reforms would not be sufficient to lower public debt to 60 percent of GDP by 2031.
- Staff projection: Increasing the primary balance to 3 percent of GDP from FY2024/25 onwards and raising potential growth by 0.5 percent over the medium term would lower public debt to 83 percent of GDP in 2031 (Active Scenario).
- Authorities have approached external private sector creditors to seek another restructuring of the superbond aiming to reduce face value, and are reviewing other public debt for possible savings.
- Selected time-series projections (2019–2031) — Baseline Scenario highlights:
  - Growth (percent): 1.8 -14.1 1.5 6.2 4.2 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0
  - Overall fiscal balance (percent of GDP): -4.7 -10.1 -8.7 -5.6 -3.2 -3.1 -3.0 -2.9 -2.8 -2.7 -2.7 -2.6 -2.4
  - Primary fiscal balance (percent of GDP): -1.3 -8.4 -4.5 -1.5 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8
  - Public debt (percent of GDP): 97.5 127.4 132.4 128.6 124.9 123.2 121.4 119.7 117.9 116.0 114.2 112.4 110.5
- Active Scenario highlights:
  - Growth (percent): 1.8 -14.1 1.5 5.5 3.5 1.6 1.8 2.2 2.5 2.5 2.5 2.5 2.5
  - Overall fiscal balance (percent of GDP): -4.7 -10.1 -8.7 -4.5 -1.5 -0.9 -0.7 -0.4 -0.2 0.0 0.1 0.3 0.5
  - Primary fiscal balance (percent of GDP): -1.3 -8.4 -4.5 -0.3 2.6 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0
  - Public debt (percent of GDP): 97.5 127.4 132.4 128.4 123.2 119.1 114.4 109.2 103.8 98.3 93.0 87.7 82.5
- Note on Active Scenario: assumes implementation of a fiscal consolidation package of 2.2 percent of GDP over three years, which increases the primary balance to 3 percent of GDP from 2024 onwards; assumes average fiscal multiplier of -0.9 (-0.5 in the first year and -0.2 in the second and third years); assumes growth-enhancing structural reforms that lift growth by 0.5 percent over the medium term.

### Monetary, external, and financial sector assessment
- External position:
  - Assessed as substantially weaker than justified by medium-term fundamentals and desirable policies.
  - Current account deficit is larger than its estimated equilibrium level; NIIP projected to remain highly negative; reserve adequacy deteriorating with more limited access to external financing.
  - Failure to address imbalances increases risk of disorderly external adjustment.
- Currency peg and central bank financing:
  - Reducing external imbalances and strengthening the currency peg requires restoring debt sustainability through balanced and sustained fiscal consolidation, structural reforms, and debt restructuring.
  - Limiting government financing by the Central Bank of Belize (CBB) is required; in staff baseline scenario government financing by CBB projected to rise from 13 percent of GDP in 2020 to 26 percent by 2031.
- Financial soundness indicators (FSI) and forbearance:
  - Domestic banks entered the pandemic with abundant liquidity, healthy profitability, and capital buffers well above regulatory minimums.
  - FSI changes 2019 to 2020: Return on assets fell from 2 percent in 2019 to 0.4 percent in 2020; NPLs to total gross loans rose from 5.1 percent in 2019 to 7.7 percent in 2020; regulatory capital to risk weighted assets declined from 22.8 percent in 2019 to 19.8 percent in 2020 (regulatory minimum 9 percent).
  - Forbearance measures introduced by the CBB in 2020 included:
    - reductions in the liquid asset and cash reserve requirements by 2 percentage points to 21 percent and 6.5 percent, respectively;
    - decline in risk weights for tourism-based loans from 100 percent to 50 percent;
    - extension of period to classify NPLs in sectors such as restaurants and transportation and distribution from 3 months to 6 months.
- Financial stability priorities and recommendations:
  - Maintain loan classification and provisioning rules to appraise banks’ potential credit losses accurately.
  - Phase out forbearance measures and loan deferrals by banks.
  - Strengthen prudential standards and AML/CFT supervision including enforcement of sanctions for non-compliance.
  - Continue to restrict dividend payments to enhance bank resilience.
  - Conduct a comprehensive third-party asset quality review as the economy recovers.
- International Financial Services (IFS) sector integrity risks and measures:
  - Economic Substance Act (2019) requires IBCs to pass the “substantial economic presence” test; compliance grace period expires in June 2021.
  - Important actions: understand ML/TF risks of the IFS sector; develop mitigating strategy; conduct cost-benefit analysis of the international business sector; ensure effective supervision by the IFSC; centralize beneficial ownership information; adopt risk-based approach to virtual assets; identify and sanction unauthorized virtual asset service providers.
  - These measures would help prepare for the comprehensive evaluation of Belize’s AML/CFT regime by the Caribbean Financial Action Task Force in 2023.
- Authorities’ confirmation:
  - Authorities confirmed risks to financial stability due to asset quality erosion and noted forbearance measures helped restructure about 27 percent of banks’ loan portfolio.
  - CBB stress tests indicate if a significant fraction of restructured loans become NPLs, some banks could face moderate shortages of capital.
  - Authorities noted a national ML/TF risk assessment has been concluded and an action plan developed.

### Staff appraisal — macroeconomic outlook and risks
- Pandemic impact: Belize was hit hard by the Covid-19 pandemic, with contraction in real GDP of 14.1 percent in 2020 and deterioration of fiscal and external positions.
- Recovery projections:
  - Real GDP projected to grow by 1.5 percent in 2021 and 6.2 percent in 2022, regaining its 2019 level only by 2025.
  - Primary fiscal balance projected to stabilize at 0.8 percent of GDP over the medium term.
  - Public debt projected to remain above 110 percent of GDP in the next decade, assessed as unsustainable.
  - Reserve adequacy projected to weaken over the medium term, falling below 3 months of imports starting in 2024.

*Source: IMF staff estimates.*

### 37.      The key policy priorities are to restore public debt sustainability and strengthen the

### The key policy priorities are to restore public debt sustainability and strengthen the currency peg

### Fiscal strategy and near-term support
- Objective: target reduction of public debt to 60 percent of GDP by 2031.
- Strategy components:
  - Provide near-term support to those affected by the pandemic while pursuing fiscal consolidation.
  - Adopt a consistent multi-year fiscal consolidation plan that targets a gradual rise in the primary balance to 3 percent of GDP from FY2024/25 onwards.
  - Signal commitment to fiscal discipline through a credible medium-term fiscal strategy.
- Implementation considerations:
  - Authorities approved significant consolidation measures in the FY2021/22 budget.
  - Execution challenges include limited implementation capacity, political pressures, and uncertainty about the cyclical recovery of revenue.
  - Improve quality and composition of adjustment by relying on both revenue and expenditure measures.
  - Allocate extra resources to enhancing resilience to natural disasters and improving the social safety net.
  - Develop contingency plans (additional revenue and expenditure measures) if public debt reduction does not proceed as expected.

### Debt reduction and growth-enhancing structural reforms
- Reducing public debt requires complementary growth-enhancing structural reforms.
- Key reform areas:
  - Strengthen the business climate by improving access to credit for SMEs, reducing entry barriers, and enhancing infrastructure.
  - Reduce crime by providing adequate resources to law enforcement and social programs.
  - Build resilience to climate change and natural disasters by adopting a Disaster Resilience Strategy focused on improving infrastructure, financial, and post-disaster resilience.

### External position and the currency peg
- Restoring public debt sustainability would help reduce external imbalances and strengthen the currency peg.
- Assessment: Belize’s external position is assessed as substantially weaker than the level implied by medium term fundamentals and desirable policies.
- Required actions to improve external position and reserve adequacy:
  - Balanced and sustained fiscal consolidation.
  - Growth-enhancing structural reforms.
  - Debt restructuring.
  - Lower government reliance on central bank financing.
- Goal: reduce the current account deficit to its equilibrium level and improve international reserve adequacy over the medium term.

### Financial stability and AML/CFT priorities
- Safeguarding financial stability and strengthening the AML/CFT framework remain priorities.
- Banking sector measures:
  - Maintain loan classification and provisioning rules to appraise banks’ credit losses accurately.
  - Phase out forbearance measures and loan deferrals by banks.
  - Strengthen prudential standards as the pandemic recedes.
- AML/CFT measures:
  - Continue efforts to strengthen AML/CFT supervision of banks and enforce sanctions for non-compliance.
  - Prioritize reforms to mitigate the ML/TF risks stemming from the IFS sector.

*Source: IMF country chapter text.*

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

### 1blzea2021001 - 43.      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.

### Government expenditure (selected indicators and trends)
- Government Total Expenditure (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Compensation of Employees (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Purchases of Goods and Services (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Interest Payments (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Capital Expenditure (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)

### Government revenue (selected indicators and trends)
- Government Tax Revenue (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Taxes on Income and Profits (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Taxes on Goods and Services (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Taxes on International Trade (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Other Government Taxes (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)
- Government Grants (In percent of GDP): charted for 2010–2020 (Belize vs. other Caribbean percentiles, median, mean). (Sources: Country authorities and IMF staff estimates.)

### Selected social and economic indicators (Table 1)
- Area (sq.km.): 22,860
- Population (thousands), September 2020: 421.5
- GDP per capita, (current US$), 2020: 3,917
- Life expectancy at birth (years), 2017: 70.6
- Human development index (rank), 2017: 106
- Under-five mortality rate (per thousand), 2017: 14.2
- Unemployment rate (percent), September, 2020: 13.7
- Poverty (percent of total population), 2009: 42.0

### Key macroeconomic indicators and projections (Table 1 — National income and prices; select series)
- GDP at constant prices (annual percent change): 2018: 2.9; 2019: 1.8; 2020: -14.1; 2021: 1.5; 2022: 6.2; 2023: 4.2; 2024: 2.0; 2025: 2.0; 2026: 2.0.
- Consumer prices (average): 2018: 0.3; 2019: 0.2; 2020: 0.1; 2021: 2.0; 2022: 2.0; 2023: 2.0; 2024: 2.0; 2025: 2.0; 2026: 2.0.
- Central government revenue and grants (percent of fiscal year GDP): 2018: 31.4; 2019: 31.5; 2020: 27.0; 2021: 28.2; 2022: 29.9; 2023: 31.3; 2024: 31.3; 2025: 31.3; 2026: 31.3.
- Central government current non-interest expenditure (percent of GDP): 2018: 24.8; 2019: 26.0; 2020: 26.6; 2021: 24.1; 2022–2026: 24.1 (each year).
- Interest payment (percent of GDP): 2018: 3.3; 2019: 3.4; 2020: 1.7; 2021: 4.2; 2022: 4.2; 2023: 4.1; 2024: 4.0; 2025: 3.9; 2026: 3.7.
- Capital expenditure and net lending (percent of GDP): 2018: 4.3; 2019: 6.9; 2020: 8.9; 2021: 8.6; 2022: 7.2; 2023: 6.3; 2024: 6.3; 2025: 6.3; 2026: 6.3.
- Primary balance (percent of GDP): 2018: 2.4; 2019: -1.3; 2020: -8.4; 2021: -4.5; 2022: -1.5; 2023: 0.8; 2024: 0.8; 2025: 0.8; 2026: 0.8.
- Overall balance (percent of GDP): 2018: -0.9; 2019: -4.7; 2020: -10.1; 2021: -8.7; 2022: -5.6; 2023: -3.2; 2024: -3.1; 2025: -3.0; 2026: -2.9.
- Public debt (percent of GDP): 2018: 96.0; 2019: 97.5; 2020: 127.4; 2021: 132.4; 2022: 128.6; 2023: 124.9; 2024: 123.2; 2025: 121.4; 2026: 119.7.
  - Domestic debt (percent of GDP): 2018: 27.8; 2019: 28.7; 2020: 39.8; 2021: 43.7; 2022: 44.5; 2023: 44.4; 2024: 44.9; 2025: 45.8; 2026: 47.0.
  - External debt (percent of GDP): 2018: 68.2; 2019: 68.8; 2020: 87.6; 2021: 88.7; 2022: 84.1; 2023: 80.4; 2024: 78.3; 2025: 75.7; 2026: 72.7.
- Principal payment (percent of GDP): 2018: 7.2; 2019: 6.2; 2020: 7.7; 2021: 10.3; 2022: 10.3; 2023: 10.3; 2024: 9.7; 2025: 9.8; 2026: 9.8.
  - Domestic principal payment (percent of GDP): 2018: 4.9; 2019: 3.9; 2020: 5.1; 2021: 6.8; 2022: 6.7; 2023: 6.2; 2024: 5.9; 2025: 5.9; 2026: 5.8.
  - External principal payment (percent of GDP): 2018: 2.2; 2019: 2.3; 2020: 2.6; 2021: 3.6; 2022: 3.6; 2023: 3.9; 2024: 3.8; 2025: 3.9; 2026: 4.0.
- Credit to the private sector (percent of GDP): 2018: 3.2; 2019: 5.8; 2020: 2.2; 2021: 3.5; 2022: 8.3; 2023: 6.3; 2024: 4.0; 2025: 4.0; 2026: 4.0.
- Money and quasi-money (M2) (percent of GDP): 2018: 2.6; 2019: 5.7; 2020: 10.6; 2021: 3.5; 2022: 8.3; 2023: 6.3; 2024: 4.0; 2025: 4.0; 2026: 4.0.
- External current account (percent of GDP): 2018: -8.1; 2019: -9.2; 2020: -8.0; 2021: -7.7; 2022: -7.2; 2023: -6.8; 2024: -6.8; 2025: -6.8; 2026: -6.8.
- Gross international reserves (US$ millions): 2018: 294; 2019: 278; 2020: 348; 2021: 360; 2022: 355; 2023: 331; 2024: 303; 2025: 288; 2026: 254.
  - In months of imports: 2018: 2.9; 2019: 3.5; 2020: 4.2; 2021: 3.9; 2022: 3.6; 2023: 3.2; 2024: 2.8; 2025: 2.6; 2026: 2.2.
- Nominal GDP (BZ$ millions): 2018: 3,765; 2019: 3,839; 2020: 3,302; 2021: 3,419; 2022: 3,703; 2023: 3,936; 2024: 4,095; 2025: 4,260; 2026: 4,432.

### Central government operations (Table 2a and 2b; select fiscal-year and percent-of-GDP items, projections)
- Revenue and grants (BZ$ millions): 2022/23: 1,188; 2023/24: 1,168; 2024/25: 900; 2025/26: 983; 2026/27: 1,123; 2027/28: 1,243; 2028/29: 1,293; 2029/30: 1,346; 2030/31: 1,400.
- Revenue (BZ$ millions): 2022/23: 1,151; 2023/24: 1,148; 2024/25: 869; 2025/26: 958; 2026/27: 1,096; 2027/28: 1,214; 2028/29: 1,263; 2029/30: 1,314; 2030/31: 1,367.
- Current revenue (BZ$ millions): 2022/23: 1,145; 2023/24: 1,142; 2024/25: 852; 2025/26: 945; 2026/27: 1,087; 2027/28: 1,211; 2028/29: 1,260; 2029/30: 1,310; 2030/31: 1,363.
- Tax revenue (BZ$ millions): 2022/23: 1,035; 2023/24: 1,046; 2024/25: 775; 2025/26: 861; 2026/27: 985; 2027/28: 1,095; 2028/29: 1,139; 2029/30: 1,185; 2030/31: 1,233.
  - Income and profits (BZ$ millions): 288; 293; 218; 242; 276; 304; 316; 329; 342 (2022/23–2030/31 sequence).
  - Goods and services (BZ$ millions): 578; 585; 430; 478; 546; 609; 633; 659; 685.
  - General Sales Tax (BZ$ millions): 317; 320; 231; 260; 301; 336; 349; 363; 378.
  - Taxes on international trade (BZ$ millions): 164; 161; 121; 134; 156; 173; 180; 187; 194.
- Nontax revenue (BZ$ millions): 110; 96; 78; 85; 102; 116; 121; 126; 131.
- Grants (BZ$ millions): 37; 20; 31; 25; 27; 29; 30; 31; 33.
- Total expenditure (BZ$ millions): 1,223; 1,341; 1,236; 1,288; 1,335; 1,372; 1,423; 1,476; 1,531.
- Current expenditure (BZ$ millions): 1,062; 1,087; 941; 989; 1,064; 1,122; 1,162; 1,204; 1,248.
  - Wages and salaries (BZ$ millions): 441; 457; 464; 418; 450; 476; 495; 515; 536.
  - Interest payments (BZ$ millions): 125; 126; 56; 147; 157; 162; 164; 166; 168.
- Capital expenditure and net lending (BZ$ millions): 161; 254; 295; 299; 270; 251; 261; 271; 282.
  - Capital expenditure (BZ$ millions): 159; 241; 287; 296; 263; 239; 248; 258; 269.
  - Domestically financed expenditure (Capital II) (BZ$ millions): 67; 95; 171; 110; 113; 119; 124; 129; 134.
  - Foreign financed expenditure (Capital III) (BZ$ millions): 92; 146; 109; 186; 150; 119; 124; 129; 134.
- Net lending (BZ$ millions): 2; 13; 8; 2; 13; 13; 13; 13; 14.
- Primary balance (BZ$ millions): 91; -48; -280; -158; -55; 33; 34; 36; 37.
- Overall balance (BZ$ millions): -35; -173; -336; -305; -212; -129; -130; -130; -131.
- Financing (BZ$ millions): 351; 733; 363; 305; 212; 129; 130; 130; 131.
- Disbursements (external) (BZ$ millions): 140; 174; 272; 250; 213; 202; 193; 183; 173.
- Amortization (external) (BZ$ millions): 85; 89; 95; 126; 139; 154; 159; 170; 180.
- Memorandum: Nominal GDP (in BZ$ millions): 3,783; 3,705; 3,331; 3,490; 3,762; 3,976; 4,136; 4,303; 4,477.
- Public sector debt (BZ$ millions): 3,578; 3,707; 4,170; 4,489; 4,724; 4,874; 5,003; 5,134; 5,266.
  - Domestic (BZ$ millions): 1,045; 1,103; 1,313; 1,494; 1,650; 1,748; 1,838; 1,951; 2,082.
  - External (BZ$ millions): 2,533; 2,604; 2,857; 2,995; 3,074; 3,126; 3,165; 3,184; 3,183.

### Balance of payments (Tables 3a and 3b; select items, projections)
- Current account balance (US$ millions): 2018: -152; 2019: -177; 2020: -132; 2021: -131; 2022: -134; 2023: -133; 2024: -139; 2025: -144; 2026: -150.
- Trade balance (US$ millions): 2018: -445; 2019: -506; 2020: -390; 2021: -404; 2022: -437; 2023: -465; 2024: -483; 2025: -503; 2026: -523.
- Total exports, f.o.b. (US$ millions): 2018: 451; 2019: 462; 2020: 398; 2021: 413; 2022: 450; 2023: 478; 2024: 498; 2025: 518; 2026: 539.
  - Of which: Oil (US$ millions): 2018: 1; 2019: 2; 2020: 1; 2021: 1; 2022: 0; 2023: 0; 2024: 0; 2025: 0; 2026: 0.
- Total imports, f.o.b. (US$ millions): 2018: 896; 2019: 969; 2020: 787; 2021: 817; 2022: 887; 2023: 943; 2024: 981; 2025: 1,021; 2026: 1,062.
  - Of which: Fuel and lubricants (US$ millions): 174; 187; 108; 112; 122; 130; 135; 140; 146.
- Services (US$ millions): 2018: 397; 2019: 404; 2020: 210; 2021: 259; 2022: 337; 2023: 412; 2024: 428; 2025: 446; 2026: 464.
- Income (US$ millions): 2018: -182; 2019: -158; 2020: -69; 2021: -85; 2022: -123; 2023: -162; 2024: -169; 2025: -176; 2026: -183.
  - Of which: Public sector interest payments (US$ millions): -43; -37; -17; -24; -31; -38; -40; -41; -43.
- Current transfers (US$ millions): 2018: 788; 2019: 411; 2020: 710; 2021: 0; 2022: 88; 2023: 82; 2024: 85; 2025: 92; 2026: 92.
  - Private (net) (US$ millions): 90; 96; 123; 108; 99; 94; 98; 102; 106.
  - Official (net) (US$ millions): -11; -12; 0; -6; -8; -10; -12; -13; -14.
- Capital and financial account balance (US$ millions): 2018: 135; 2019: 183; 2020: 203; 2021: 143; 2022: 129; 2023: 109; 2024: 110; 2025: 130; 2026: 116.
- Gross international reserves (US$ millions): 2018: 294; 2019: 278; 2020: 348; 2021: 360; 2022: 355; 2023: 331; 2024: 303; 2025: 288; 2026: 254.
  - In percent of next year's gross external financing needs: 2018: 132; 2019: 156; 2020: 178; 2021: 175; 2022: 165; 2023: 149; 2024: 130; 2025: 118; 2026: 99.
  - In percent of next year's total debt service: 2018: 313; 2019: 363; 2020: 330; 2021: 294; 2022: 270; 2023: 249; 2024: 219; 2025: 202; 2026: 170.
  - In months of next year's imports: 2018: 2.9; 2019: 3.5; 2020: 4.2; 2021: 3.9; 2022: 3.6; 2023: 3.2; 2024: 2.8; 2025: 2.6; 2026: 2.2.

### Banking system and financial soundness (Tables 4 and 6; select items)
- Central Bank of Belize (CBB) net international reserves (US$ millions): 2018: 541; 2019: 460; 2020: 587; 2021: 611; 2022: 601; 2023: 553; 2024: 496; 2025: 467; 2026: 399.
- Base money (BZ$ millions): 2018: 846; 2019: 904; 2020: 1,103; 2021: 1,142; 2022: 1,237; 2023: 1,315; 2024: 1,368; 2025: 1,423; 2026: 1,481.
- Liabilities to the private sector (BZ$ millions): 2018: 3,504; 2019: 3,771; 2020: 4,032; 2021: 4,243; 2022: 4,597; 2023: 4,887; 2024: 5,062; 2025: 5,283; 2026: 5,495.
- Money and quasi-money (M2) (BZ$ millions): 2018: 3,067; 2019: 3,242; 2020: 3,585; 2021: 3,712; 2022: 4,021; 2023: 4,273; 2024: 4,446; 2025: 4,625; 2026: 4,812.
- Credit to the private sector by commercial banks (BZ$ millions): 2018: 2,313; 2019: 2,448; 2020: 2,503; 2021: 2,591; 2022: 2,807; 2023: 2,983; 2024: 3,104; 2025: 3,229; 2026: 3,360.
- Financial soundness indicators (Table 6, in percent; 2015–2020 series):
  - Regulatory Capital to Risk Weighted Assets: 2015: 24.8; 2016: 24.0; 2017: 24.2; 2018: 24.6; 2019: 22.8; 2020: 19.8.
  - Non-Performing Loans to Total Gross Loans: 2015: 14.0; 2016: 10.4; 2017: 6.4; 2018: 6.2; 2019: 5.1; 2020: 7.7.
  - Loan Loss Coverage: 2015: 62.4; 2016: 79.8; 2017: 77.6; 2018: 72.3; 2019: 70.5; 2020: 57.3.
  - Return On Equity (Net Income to Average Capital): 2015: 7.9; 2016: 4.8; 2017: 9.2; 2018: 19.8; 2019: 13.3; 2020: 3.2.
  - Return On Assets (Net Income to Average Assets): 2015: 1.0; 2016: 0.6; 2017: 1.3; 2018: 3.1; 2019: 2.0; 2020: 0.4.
  - Liquid Assets to Total Assets: 2015: 32.6; 2016: 32.7; 2017: 27.3; 2018: 25.8; 2019: 24.3; 2020: 28.1.
  - Customer Deposits to total (Non-Interbank) Loans: 2015: 132.3; 2016: 132.3; 2017: 130.4; 2018: 127.8; 2019: 128.4; 2020: 138.1.

### Baseline medium-term outlook (Table 5; select multi-year projections)
- GDP at constant prices (annual percent change): 2019: 1.8; 2020: -14.1; 2021: 1.5; 2022: 6.2; 2023: 4.2; 2024–2031: 2.0 (each year).
- GDP at current market prices (annual percent change): 2019: 2.0; 2020: -14.0; 2021: 3.5; 2022: 8.3; 2023: 6.3; 2024–2031: 4.0 (each year).
- Consumer prices (end of period): 2019: 0.2; 2020: 1.1; 2021–2031: 2.0 (each year).
- Consumption (percent of GDP): 2019–2031: 85.4 (each year).
- Gross domestic investment (percent of GDP): 2019: 19.9; 2020: 25.4; 2021: 23.1; 2022: 20.0; 2023 onward: 17.3 (each year through 2031).
- Net exports (percent of GDP): 2019: -5.3; 2020: -10.9; 2021: -8.5; 2022: -5.4; 2023–2031: -2.7 (each year).
- Gross national savings (percent of GDP): 2019: 5.6; 2020: 6.9; 2021: 7.2; 2022: 7.6; 2023–2031: 8.1 (each year).
- Central government revenue and grants (percent of GDP): 2019: 31.5; 2020: 27.0; 2021: 28.2; 2022: 29.9; 2023–2031: 31.3 (each year).
- Total expenditure (percent of GDP): 2019: 36.2; 2020: 37.1; 2021: 36.9; 2022: 35.5; 2023: 34.5; 2024: 34.4; 2025: 34.2; 2026: 34.1; 2027: 34.0; 2028: 33.9; 2029: 33.9; 2030: 33.7; 2031: 33.7.
- Primary balance (percent of GDP): 2019: -1.3; 2020: -8.4; 2021: -4.5; 2022: -1.5; 2023–2031: 0.8 (each year).
- Interest (percent of GDP): 2019: 3.4; 2020: 1.7; 2021: 4.2; 2022: 4.2; 2023: 4.1; 2024: 4.0; 2025: 3.9; 2026: 3.7; 2027: 3.6; 2028: 3.5; 2029: 3.4; 2030: 3.3; 2031: 3.3.
- Overall balance (percent of GDP): 2019: -4.7; 2020: -10.1; 2021: -8.7; 2022: -5.6; 2023: -3.2; 2024: -3.1; 2025: -3.0; 2026: -2.9; 2027: -2.8; 2028: -2.7; 2029: -2.7; 2030: -2.6; 2031: -2.4.
- Current account balance (percent of GDP): 2019: -9.2; 2020: -8.0; 2021: -7.7; 2022: -7.2; 2023–2031: -6.8 (each year).
- Exports of goods and services (percent of GDP): 2019: 58.8; 2020: 46.8; 2021: 50.2; 2022: 54.3; 2023 onward: 57.7 (each year).
- Imports of goods and services (percent of GDP): 2019: -64.2; 2020: -57.7; 2021: -58.7; 2022: -59.7; 2023 onward: -60.4 (each year).
- Capital and financial account (percent of GDP): 2019: 12.3; 2020: 8.3; 2021: 7.0; 2022: 5.6; 2023: 5.4; 2024: 6.1; 2025: 6.3; 2026: 7.1; 2027: 7.3; 2028: 5.7; 2029: 5.8; 2030: 5.8; 2031: 5.8.
- Gross official reserves (in months of imports): 2019: 4.2; 2020: 3.9; 2021: 3.6; 2022: 3.2; 2023: 2.8; 2024: 2.6; 2025: 2.2; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 1.7; 2030: 1.5; 2031: 1.5.
- Public debt (percent of GDP) projected path (select years): 2020: 127.4; 2021: 132.4; 2022: 128.6; 2023: 124.9; 2024: 123.2; 2025: 121.4; 2026: 119.7; 2027: 117.9; 2028: 116.0; 2029: 114.2; 2030: 112.4; 2031: 110.5.
  - Domestic (percent of GDP) projected path: 2020: 39.8; 2021: 43.7; 2022: 44.5; 2023: 44.4; 2024: 44.9; 2025: 45.8; 2026: 47.0; 2027: 48.6; 2028: 50.4; 2029: 52.2; 2030: 56.1; 2031: 59.7.
  - External (percent of GDP) projected path: 2020: 87.6; 2021: 88.7; 2022: 84.1; 2023: 80.4; 2024: 78.3; 2025: 75.7; 2026: 72.7; 2027: 69.3; 2028: 65.7; 2029: 62.1; 2030: 56.3; 2031: 50.8.

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

### Annex I. Implementation of 2019 Article IV Consultation

### Annex I. Implementation of 2019 Article IV Consultation

### Fiscal consolidation — Recommendations and implementation
- Recommendation: Implement revenue and expenditure measures to gradually increase the primary budget balance from the estimated 1.5 percent of GDP in FY2019/20 to 4 percent over the medium term, with the goal of lowering public debt to below 60 percent of GDP by 2029, guided by well-calibrated fiscal rules based on a debt anchor.
- Revenue recommendations:
  - Broaden the tax base by phasing out exemptions on the general sales tax and excises, and tightening tax incentives.
- Expenditure recommendations:
  - Introduce civil service reforms designed to reduce the number of public sector employees and limit salary increments to the inflation rate.
  - Reform the unfunded, noncontributory defined-benefit Pension Plans for Public Officials, and raise the retirement age to 65 years.
- Implementation (assessment: No progress / partial developments):
  - The fiscal position deteriorated in FY2019/20, with the actual primary balance coming at –1.3 percent of GDP, below the preliminary estimates at the time of the 2019 Article IV consultation.
  - The Covid-19 pandemic led to a further deterioration of the fiscal position, with the primary balance declining to –8.4 percent of GDP in FY2020/21.
  - Some progress in tax administration: reorganization of the Belize Tax.
  - No progress on reducing tax exemptions and incentives.
  - Wage bill developments:
    - Wage bill grew from 11.6 percent of GDP in FY2018/19 to 12.3 percent in FY2019/20 and 13.7 percent in FY2020/21.
  - Social security:
    - To ensure the sustainability of the social security scheme, the government raised the contribution rate by 0.5 percent in 2019 and 2020.
    - The planned 1 percent increase in 2021 was delayed because of the pandemic.

### Financial sector reform
- Recommendation: Strengthen the bank resolution framework and step up financial sector surveillance, informed by a bank asset quality review.
- Implementation (assessment: Limited progress):
  - The Central Bank of Belize (CBB) allowed regulatory forbearance during the pandemic, but also conducted closer examinations of the balance sheets of banks and credit unions to monitor asset quality developments.

### AML/CFT reforms
- Recommendation: Further strengthen AML/CFT framework by properly regulating and supervising the international financial services sector and ensuring that beneficial ownership information of legal persons and arrangements is available without impediments.
- Implementation (assessment: Limited progress):
  - A national ML/TF risk assessment was concluded, and an action plan developed to address the weaknesses identified.

### Structural reform
- Recommendation: Accelerate the implementation of growth-enhancing reforms to improve the business climate, including addressing corruption, dealing more effectively with violent crimes, reducing the cost of doing business, and establishing a credit bureau and a collateral registry.
- Implementation (assessment: Limited progress / some progress):
  - The prevalence of crime remains a significant obstacle for economic growth and development.
  - Legislation to establish a credit bureau and a collateral registry have been prepared but 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 (assessment: Some progress):
  - The budget allocates about half of capital spending to resilience-building projects, albeit the pandemic has caused delays in implementation.
  - The creation of a natural disaster reserve fund is a priority going forward.

### Key statistics from Annex I implementation
- Primary balance: –1.3 percent of GDP in FY2019/20; –8.4 percent of GDP in FY2020/21.
- Wage bill: 11.6 percent of GDP in FY2018/19; 12.3 percent in FY2019/20; 13.7 percent in FY2020/21.
- Social security contribution rate increases: 0.5 percent in 2019 and 0.5 percent in 2020; 1 percent planned for 2021 delayed.

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### Annex II. Debt Sustainability Analysis (DSA) — Findings, projections, and stress tests

### Overall assessment and baseline projections
- Public debt increased by 30 percentage points to 127 percent of GDP in 2020.
- Under current policies, the debt-to-GDP ratio is projected to peak at 132 percent in 2021 and fall gradually after to 111 percent in 2031.
- The debt trajectory is assessed as unsustainable as it remains above the 70 percent of GDP sustainability threshold.
- Restoring debt sustainability requires balanced and sustained fiscal consolidation, growth-enhancing structural reforms, and debt restructuring.
- With prominent downside risks, debt dynamics will remain vulnerable to adverse shocks to growth, interest rates, or the fiscal position.

### Macro and fiscal context
- COVID-19 impact:
  - Tourist arrivals declined by 72 percent in 2020.
  - Tourism accounts for about 40 percent of GDP.
  - Real GDP contracted by 14.1 percent in 2020.
- Fiscal position pre-pandemic:
  - Primary fiscal deficit averaged 1.5 percent of GDP between FY2014/15 and FY2019/20.
  - Public debt rose to 97.5 percent of GDP in 2019.
- Pandemic fiscal impact:
  - Primary deficit widened to –8.4 percent of GDP in FY2020/21.
  - Public debt increased to 127.4 percent of GDP in 2020.

### Composition of public debt in 2020
- Public external debt: 69 percent of public debt
  - External multilateral: 22 percent
  - External bilateral: 20 percent
  - External private: 27 percent
- Public domestic debt: 31 percent of public debt
  - Domestic Central Bank: 13 percent
  - Domestic Banks: 11 percent
  - Domestic Other: 7 percent

### Medium-term assumptions and projections
- FY2021/22 budget consolidation measures total about 2 percent of GDP, including:
  - 10 percent cut in the wage bill.
  - 30 percent cut in purchases of goods and services relative to the FY2020/21 budget.
- Projected primary balance: From –8.4 percent of GDP in FY2020/21 to 0.8 percent of GDP over the medium term.
- Projected public debt path: 132 percent of GDP in 2021, falling gradually to 111 percent in 2031.
- Public external debt projection: Falls from 88 percent of GDP in 2020 to 51 percent in 2031.
- Public domestic debt projection: Rises from 40 percent of GDP in 2020 to 60 percent in 2031.
- Gross financing needs: Projected to surpass 15 percent of GDP during some years over the next decade, assuming continued low interest rate borrowing.

### Risk analysis and stress tests
- Major vulnerabilities:
  - Debt level, changes in market perception, and currency composition of debt.
- Probability outcomes:
  - Public debt could exceed 133 percent of GDP over the medium term with a probability of more than 10 percent.
- Stress-test results (selected scenarios):
  - Exchange rate shock:
    - A real exchange rate depreciation of 12 percent would increase public debt by 8 percent of GDP in the first year.
    - By 2031 the debt ratio would be about 11 percentage points of GDP higher than the baseline.
  - Growth shock:
    - If real GDP growth declines by one standard deviation, the debt-to-GDP ratio would be about 27 percentage points higher than the baseline projection by 2031.
  - Financial sector contingent liability shock:
    - A 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 the debt-to-GDP ratio to 121 percent in 2031.
  - Natural disaster scenario (illustrative):
    - Assumes a natural disaster causing 6 percent of GDP in economic damages (about half of the damage inflicted by Hurricane Earl in 2016).
    - Assumed macroeconomic impacts:
      - Real GDP falls by 3 percent in the year of the disaster relative to the baseline, by a further 1 percent in the next year, and increases by 0.5 percent in each of the following two years.
    - Fiscal cost assumption: Government cost is 4 percent of GDP (two-thirds of the economic damage).
    - Recovery and reconstruction spending spread over three years: 2 percent of GDP in the first year, and 1 percent of GDP in each of the next two years.
    - Impact on debt: The shock shifts the entire trajectory up by around 9 percent of GDP above the baseline, with the debt-to-GDP ratio reaching 120 percent by 2031.

### Policy implications from the DSA
- Restoring sustainability requires:
  - Large and sustained fiscal consolidation.
  - Growth-enhancing structural reforms.
  - Debt restructuring.
- Debt dynamics remain highly vulnerable to shocks to growth, interest rates, the fiscal position, and natural disasters or climate change impacts.

*International Monetary Fund*

### 7.      External debt is projected to fall from 88 percent of GDP in 2020 to 51 percent in 2031,

### 7. External debt is projected to fall from 88 percent of GDP in 2020 to 51 percent in 2031

### Key projections and stress-test findings
- External debt is projected to fall from 88 percent of GDP in 2020 to 51 percent in 2031, reflecting more limited access to external financing because of debt sustainability concerns.
- In the absence of data on private external debt, the external DSA coverage is limited to external public debt.
- Bounds tests and scenario shocks:
  - A 30 percent currency depreciation in 2021 raises external debt to 130 percent of GDP in 2021 and 77 percent of GDP in 2031.
  - A widening of the non-interest current account balance pushes external debt to 69 percent of GDP in 2031.
  - A half standard deviation shock to real GDP growth or interest rates would have smaller effects on external debt (relative magnitudes not quantified in the source text).
  - A combined one-quarter standard deviation shock would increase external debt to 66 percent of GDP in 2031.

### DSA indicators and vulnerabilities (selected)
- Baseline external debt levels reported in the DSA table: 87.6 percent of GDP (2019), 88.7 percent of GDP (2021 projection).
- Identified external debt-creating flows and dynamics include:
  - Current account deficit, excluding interest payments: 6.0 percent of GDP (2020); projected 5.1 percent of GDP (2021) and gradual decline thereafter.
  - Automatic debt dynamics contribution: 13.2 (2020) and 1.3 (2021) (units and full decomposition provided in DSA methodology).
  - External debt-to-exports ratio examples: 187.1 percent (2020), 176.7 percent (2021 projection).
- Gross external financing need measured in percent of GDP: 11.6 (2016), 10.6 (2020), projected around 10.7–10.8 in the 2021–2026 projection years (exact year-by-year values provided in the DSA tables and charts).

### Alternative scenarios and stress tests (high-level)
- Alternative scenarios examined include: historical scenario, combined shock (permanent 1/4 standard deviation shocks to real interest rate, growth rate, and current account), real depreciation shock (one-time real depreciation of 30 percent), and other macro-fiscal and contingent liability shocks.
- Stress tests shown in the DSA indicate material downside risks under exchange rate and current account shocks, with large increases in external debt under severe depreciation scenarios.

### Policy recommendations and risk responses
- From the External Sector Assessment and DSA conclusions:
  - Implement large and sustained fiscal consolidation.
  - Undertake structural reforms to boost competitiveness.
  - Pursue debt restructuring to address debt sustainability and limit further loss of external financing access.
- Risk Assessment Matrix policy responses for relevant risks:
  - Unexpected shifts in the COVID-19 pandemic: increase screening, quarantining, health-related spending; support the most vulnerable; closely monitor banks’ balance sheets.
  - Faster containment of COVID-19: phase out COVID-19-related spending sooner to lower the fiscal deficit.
  - Higher frequency and severity of natural disasters related to climate change: enhance ex-ante preparedness and risk reduction strategies, invest in resilient infrastructure, rebuild financial resilience.
  - Further pressure on Correspondent Banking Relationships (CBRs): systematic monitoring of CBRs, communication with global banks and standard setters, strengthen AML/CFT actions.
  - Cyber-attacks: strengthen cybersecurity preparedness in Fintech and digitalization projects.
  - Social discontent and political instability: measures to support households and businesses, particularly the most vulnerable.

### Implications
- The DSA results highlight that Belize’s external position remains susceptible to adverse shocks (pandemic intensification, natural disasters, exchange rate depreciation), and that limited access to external financing—driven by debt sustainability concerns—underpins the projected decline in external debt only under the baseline.
- Without access to broader external financing (including private external debt, which is not covered due to data absence), the country faces heightened vulnerability to exchange rate and current account shocks that can sharply raise external debt ratios.

*Source: IMF staff DSA and External Sector Assessment materials contained in the provided document.*

### 1.      Belize’s external position worsened in the last six years and is projected to remain

### Belize’s external position worsened in the last six years and is projected to remain weak in the medium term

### Current account, capital and reserves — key findings
- The current account deficit averaged 8.6 percent of GDP in 2015-20.
- The capital and financial accounts balance averaged 7.2 percent of GDP in 2015-20.
- International reserves declined from US$487 million (29 percent of GDP) in 2014 to US$348 million (21 percent of GDP) in 2020.
- Staff baseline projection (under current policies):
  - The current account deficit is projected to average 6.9 percent of GDP in 2021-31.
  - The capital and financial accounts balance is projected at 6.3 percent of GDP, insufficient to finance the projected current account deficits.
  - International reserves are projected to fall over time, reaching US$210 million in 2031.

### Net international investment position (NIIP) and External Stability (ES) approach
- Historical NIIP:
  - NIIP averaged –166 percent of GDP during 2009-19.
  - NIIP dropped to –200 percent of GDP in 2020 due to an increase in external debt and a sharp fall in GDP.
- Projected NIIP:
  - NIIP is projected to improve somewhat but remain highly negative, reaching –170 percent of GDP in 2031.
- ES model implications:
  - Lowering the NIIP to –130 percent of GDP by 2031 would require lowering the current account balance in 2021-31 from –6.9 percent of GDP to –2.7 percent of GDP.
  - This implies a CA gap of –4.2 percent of GDP and a real effective exchange rate (REER) overvaluation of around 10 percent.
  - The 40 percent of GDP increase in the NIIP by 2031 is consistent with the overall strategy to restore public debt sustainability discussed in the source.

### External balance (EBA-lite) approach
- Adjusted current account in 2020:
  - CA balance adjusted by the cycle and the impact of the pandemic on the oil trade balance, tourism, and remittances was –4.5 percent of GDP in 2020.
  - Footnote adjustments for 2020: oil trade balance adjustor (–0.7 percent of GDP); tourism adjustor (7.1 percent of GDP); remittances adjustor (–1.5 percent of GDP).
- EBA-lite model estimates:
  - CA norm (level consistent with medium-term fundamentals and desirable policies) estimated at –4.4 percent of GDP.
  - An adjustment of 2.7 percent of GDP is needed to ensure the CA balance can be sustained over the medium term given reduced access to external financing.
  - Estimated CA gap is –2.8 percent of GDP in 2020, of which 1.2 percent corresponds to policy gaps driven by the fiscal balance and changes in reserves.
  - This CA gap is equivalent to a REER overvaluation of 6.6 percent.
  - The EBA-lite REER approach indicates a REER overvaluation of 14.8 percent, equivalent to a CA gap of –6.2 percent of GDP.
- Overall consistency:
  - EBA-lite CA and REER models and the ES approach point to an average CA gap of around –4 percent of GDP and an average REER overvaluation of about 10 percent.

### Reserve adequacy projections
- Reserve levels and adequacy:
  - International reserves increased from 3.5 months of imports (156 percent of gross external financing needs (GEFN)) in 2019 to 4.2 months of imports (178 percent of GEFN) in 2020, led by a lower current account deficit and higher bilateral and multilateral financing.
  - Going forward, reserves are projected to fall below 3 months of imports starting in 2024.
  - Reserves are projected to fall below 100 percent of GEFN starting in 2026.
- Historical and projected reserve trajectory (in millions of US dollars) shows decline from 2014 levels through 2030, with markers at:
  - 3 months of imports
  - 100% of external GFN

### Downside risks and potential effects
- Key downside risks:
  - Intensification of the pandemic in the U.S. and Europe, and a resurgence in Belize, delaying tourism recovery.
  - Delays in widespread inoculation, amplifying pandemic risks.
  - Natural disasters and social tensions reducing tourism flows and hurting other key exports.
- Potential impacts if risks materialize:
  - Widening current account deficits.
  - Worsening NIIP.
  - Declining international reserves.

*Source: IMF staff estimates and analysis as presented in the provided content unit.*

### 6.      Without exchange rate flexibility, strengthening the external position would require

### 6.      Without exchange rate flexibility, strengthening the external position would require

### Constraints and overall strategy
- The room for exchange rate adjustment is constrained by the peg to the U.S. dollar, which the authorities consider a key anchor for macroeconomic stability.
- Strengthening competitiveness and reducing external imbalances requires:
  - implementing large and sustained fiscal consolidation;
  - growth-enhancing structural reforms to enhance competitiveness and resilience to natural disasters and climate change;
  - debt restructuring.
- These measures would reduce the fiscal deficit, lower the current account deficit, and enhance reserve adequacy, thereby reinforcing the sustainability of the currency peg.

### Fiscal consolidation (findings and measures)
- Fiscal consolidation needs to be large and sustained to support the peg and reduce external vulnerabilities.
- Belize’s 2021 Budget “Today’s Sacrifice: Tomorrow’s Triumph” includes:
  - 10 percent reduction of public sector wages;
  - 30 percent reduction in spending on goods and services;
  - freeze of non-interest current expenditure for two years.
- The above expenditure measures amount to 2 percent of GDP (wage and goods/services measures) plus a further 3 percent of GDP from the freeze of non-interest current expenditure.
- Projected primary balance path in authorities’ plan:
  - -8.5 percent of GDP in 2020;
  - -2.9 percent of GDP in 2021;
  - +2 percent of GDP in 2022;
  - +3 percent of GDP over the medium term.
- Authorities plan to adopt a new “Fiscal Responsibility Law” that addresses public debt limits, budget performance targets, correction mechanisms, and establishes an independent Fiscal Oversight Council.

### Growth-enhancing structural reforms
- Key reforms to boost inclusive growth and competitiveness include:
  - fast-tracking approvals for strategic investments;
  - accelerating real estate-related processes;
  - relaxing constraints for small and medium size business operations;
  - pursuing private-public partnerships;
  - improving road connectivity for farmers to raise agricultural production;
  - introducing new service standards across government and modernizing laws related to exchange control regulations, securities and capital markets, and company and insolvency;
  - implementing an E-governance campaign to provide online access to 90 percent of government services by 2025;
  - improving access to credit by creating a credit bureau and credit collateral registry;
  - implementing labor market reforms to allow flexible working hours;
  - fighting crime and corruption through improved surveillance, a Whistle Blowers’ law, and community-based social programs.
- These reforms are designed to be growth-enhancing and to ensure a robust social safety net for the poorest and most vulnerable.

### Debt restructuring
- Staff conclude that even deep fiscal consolidation and growth-enhancing reforms are insufficient alone to restore debt sustainability.
- Authorities are engaged in negotiations with commercial creditors to restructure Belize’s US$557 million “superbond”.
- Authorities are seeking an overall principal reduction to the superbond and reviewing other public debts for possible write-offs, payment deferments, coupon reduction, or discounted buyouts.
- Authorities established a Debt Management Unit to reduce public debt to 85 percent of GDP by 2025 and below 70 percent by 2030.
- Current public debt metrics reported by authorities and staff:
  - public debt rose from 79 percent of GDP in 2014 to 98 percent of GDP by 2019;
  - public debt ratio reported by authorities as totaling 132 percent of GDP (statement context).

### Exchange rate peg and reserves
- Exchange rate arrangement: Since 1976, the Belize dollar has been pegged to the U.S. dollar at the rate of BZ$ 2 per U.S. dollar.
- The peg is seen as a key macroeconomic anchor; authorities are committed to strengthening it via restoring debt sustainability and enhancing international competitiveness.
- International reserves had been halved between 2014 and 2019 to just 3.2 months of import cover (staff assessment referenced).
- An SDR allocation is noted as a potential instrument to further strengthen Belize’s external position.

### Macroeconomic shocks and recent outcomes
- Economic contraction and pandemic impact:
  - Real GDP contracted by 6.3 percent year-on-year in Q1 2020 (pre-pandemic deepening of recession).
  - Real GDP dropped more than 14 percent in 2020.
- Fiscal deterioration:
  - Primary balance fell from -1.2 percent of GDP in 2019 to -8.5 percent of GDP in 2020.
- Belize’s public debt described as “unsustainable” in staff assessment.

### Banking sector and financial integrity
- Belize’s banking sector described as resilient with abundant liquidity and strong capital buffers.
- Central Bank of Belize extended a forbearance framework to allow commercial banks to extend flexible repayment terms during the pandemic.
- Authorities committed to maintaining high compliance with international financial integrity standards:
  - a national risk assessment has been concluded and an action plan developed ahead of Belize’s comprehensive AML/CFT evaluation by the Caribbean Financial Action Task Force in 2023.
- Continued close supervision planned on asset quality, nonperforming loans, and bank capital as recovery picks up.

### Climate vulnerability and financing
- Climate change is characterized as a macro-critical threat: increasing frequency and severity of hurricanes, flooding, sea level rise, coastal erosion, coral bleaching, and sargassum.
- Fiscal constraints limit Belize’s ability to build climate resilience.
- Authorities will pursue climate finance grants and concessional loans from the Green Climate Fund and other development partners to support resilience-building efforts.

### Data and statistical issues (surveillance adequacy)
- General: Data provision has some shortcomings but is broadly adequate for surveillance.
- Real sector: SIB publishes GDP, CPI, population, and labor force/employment statistics; labor force statistics released twice a year; poverty and literacy indicators have large lags.
- National accounts: SIB is rebasing and updating methodology; new series expected to be released in 2022.
- Fiscal accounts: Consolidated public sector operations data are unavailable; need a comprehensive list of institutions in central government, general government, and public sector; Social Security Board currently not treated as part of general government; capital expenditure compilation issues; current accounting practices follow neither cash nor accrual basis; data on domestic debt and domestic debt service need improvement.
- Monetary and financial statistics: Reported by CBB in SRFs (1SR and 2SR) with a one-month lag.
- Financial soundness indicators: Individual banks’ FSIs quarterly; limited data on non-bank financial institutions; forbearance measures in 2020 complicate comparisons; compilation and reporting of core and encouraged FSIs expected to start later in 2021.
- Balance of payments: Trade in goods published monthly with one-month lag but services coverage is lacking, constraining assessment given tourism’s share (~40 percent of the economy); CBB compiles Balance of Payments in BPM6 on quarterly and annual basis; timelines should be improved.

*Source: IMF staff report and informational annex for the 2021 Article IV Consultation for Belize (content provided).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1blzea2021001.pdf_