## 1blzea2023001 ## Source details **Canonical URL:** [1blzea2023001](https://www.imf.org/-/media/files/publications/cr/2023/english/1blzea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1blzea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1blzea2023001.pdf.json) --- ### Recent developments and outlook - After contracting by 13.4 percent in 2020, real GDP expanded by 15.2 percent in 2021 and 12.1 percent in 2022, led by retail and wholesale trade, tourism, and business process outsourcing. - Real GDP growth is projected to slow to 2.4 percent in 2023 and 2 percent over the medium term as tourism returns to pre-pandemic levels and the output gap closes in 2023. - Inflation increased from near zero in 2020 to 3.2 percent in 2021 and 6.3 percent in 2022; projected to fall to 4.1 percent in 2023 and 1.2 percent over the medium term. - Visitor arrivals reached 74 percent of pre-pandemic levels in 2022. Vaccination: 54 percent of the population fully vaccinated, almost a quarter of whom have received a booster. - Unemployment declined from 13.7 percent in 2020 to 5.0 percent in 2022. ### Fiscal position and public debt - Primary balance: rose from –8.1 percent of GDP in FY2020 to 0.0 percent of GDP in FY2021 and 1.2 percent of GDP in FY2022, driven by expenditure restraint (including a temporary 10 percent cut in public sector wages and suspension of wage increments in FY2021-22) and revenue recovery. - Public debt: declined from 101 percent of GDP in 2020 to 64 percent of GDP in 2022, aided by a debt for marine protection swap with The Nature Conservancy, expenditure restraint, strong growth, high inflation, and a discount in the Petrocaribe debt owed to Venezuela. - Under an unchanged policies scenario, the primary balance is projected to remain at 1.2 percent of GDP over the medium term, with public debt declining to 53 percent of GDP by 2028. - Staff projection: reducing public debt to 50 percent of GDP by 2028 would require raising the primary balance to 2 percent of GDP from FY2025. ### Key macroeconomic projections and indicators (select figures preserved exactly) - GDP at constant prices (annual percent change): 2020 -13.4; 2021 15.2; 2022 12.1; 2023 2.4; 2024 2.0; 2025 2.0; 2026 2.0; 2027 2.0; 2028 2.0. - Consumer prices (end of period, annual percent change): 2020 0.3; 2021 4.9; 2022 6.7; 2023 3.1; 2024 2.0; 2025 1.2; 2026 1.2; 2027 1.2; 2028 1.2. - Consumer prices (average, annual percent change): 2020 0.1; 2021 3.2; 2022 6.3; 2023 4.1; 2024 2.5; 2025 1.6; 2026 1.2; 2027 1.2; 2028 1.2. - Central government (percent of fiscal year GDP) Revenue and grants: 2020 21.8; 2021 21.7; 2022 22.5; 2023 22.7 (and 22.7 consistently through 2028). - Primary balance (percent of fiscal year GDP): 2020 -8.1; 2021 0.0; 2022 1.2; 2023 1.2 (and 1.2 through 2028). - Overall balance (percent of fiscal year GDP): 2020 -9.7; 2021 -1.3; 2022 -0.6; 2023 -0.6 (and -0.6 through 2027; -0.5 in 2028). - Public debt (percent of calendar year GDP): 2020 101.4; 2021 80.1; 2022 63.7; 2023 60.4; 2024 58.4; 2025 56.9; 2026 55.7; 2027 54.6; 2028 53.4. - External current account (percent of GDP): 2020 -6.1; 2021 -6.3; 2022 -8.5; 2023 -8.0; 2024 -7.7; 2025 -7.6; 2026 -7.4; 2027 -7.2; 2028 -7.0. - Gross international reserves (US$ millions): 2020 349; 2021 415; 2022 481; 2023 487; 2024 494; 2025 500; 2026 503; 2027 507; 2028 513. - Nominal GDP (BZ$ millions): 2020 4,160; 2021 4,983; 2022 5,938; 2023 6,332; 2024 6,620; 2025 6,858; 2026 7,081; 2027 7,310; 2028 7,548. - Output gap (percent of potential output): 2020 -19.2; 2021 -9.0; 2022 -0.1; 2023 0.1; 2024 0.0; 2025 0.0; 2026 0.0; 2027 0.0; 2028 0.0. ### Risks to the outlook - Risks are tilted to the downside, including: - A sharp global slowdown. - Further increases in commodity prices. - Climate-related disasters. - Near-term public debt risks remain high despite assessed sustainability over the medium term. ### Policy recommendations and priorities (staff and Executive Directors) - Fiscal policy: - Continue fiscal consolidation to further reduce public debt and ensure adequate buffers to respond to adverse shocks. - Enhance revenues and reprioritize expenditures while increasing priority spending on infrastructure, targeted social programs, and crime prevention. - Important measures: expand the tax base, strengthen revenue administration, and reform the Pension Plan for Public Officials (PPPO). - Strengthen multi-year budget preparations, fiscal risk assessment, and public investment management; some Directors saw merit in adopting a Fiscal Responsibility Law. - Structural reforms: - Ease access to credit for micro, small, and medium sized enterprises. - Enhance governance and build resilience to climate change and related disasters. - Adopt a Disaster Resilience Strategy based on a consistent multi-year macro-fiscal framework to unlock multilateral and donor funding. - Monetary policy: - Strengthen sustainability of the currency peg by implementing additional fiscal consolidation and growth-enhancing structural reforms, and limiting central bank financing to the government. - Financial sector policy: - Preserve financial stability by continuing efforts to reduce NPLs and overseeing bank recapitalization. - Improve the AML/CFT framework, complete the update of the national ML/TF risk assessment and action plan ahead of the mutual evaluation by the Caribbean Financial Action Task Force in November 2023, and strengthen correspondent banking relationships. ### Executive Board assessment highlights - Executive Directors welcomed the strong recovery in economic activity and sharp reduction in public debt. - Directors agreed growth and inflation are projected to moderate and risks are to the downside. - Directors underscored the importance of reforms to address constraints to long-term growth and enhance resilience to shocks. - Directors recommended that planned fiscal consolidation and growth-enhancing structural reforms would also help reduce external imbalances, improve adequacy of reserves, and strengthen the currency peg. ### Fiscal and macro projections (additional details) - Authorities project a primary surplus of 0.4 percent of GDP in FY2023 and surpluses of around 1.2 percent of GDP in FY2024-25; staff projects primary balance at 1.2 percent of GDP in FY2023 and through the medium term under unchanged policies. - Alternative (active) scenario primary balance path (memorandum items): FY2023 1.2; FY2024 1.6; FY2025 2.0. - International reserves projected to remain above 3 months of imports during 2023-28. - Domestic banks’ regulatory capital at 16.6 percent of risk weighted assets in 2022; minimum requirement is 9 percent. - Nonperforming loans (NPLs): increased from 5 percent of gross loans in 2021 to 7 percent in 2022. - Growth in private sector credit: 4.5 percent in 2022. - Authorities’ medium-term growth projection: average growth of 2.7 percent during 2023-27. - Poverty rate in Belize: 35.7 percent according to the 2022 Census. - Female labor force participation: 44 percent in October 2022, compared with 73 percent of males. ### Fiscal consolidation strategy and quantitative summary - Debt target: reduce public debt to below 50 percent of GDP by FY2028; requires gradually increasing the primary balance to 2 percent of GDP by FY2025. - Required additional fiscal consolidation: 0.8 percent of GDP over three years. - Revenue mobilization and expenditure priorities could raise 2.2 percent of GDP in additional revenue by FY2025: - Taxing some zero-rated items at the standard 12.5 percent GST rate could raise 1.6 percent of GDP. - Standardizing personal income tax exemption thresholds could raise 0.2 percent of GDP. - Allow domestic fuel prices to move with global prices, raise excise taxes on fuel above pre-pandemic levels, and expand targeted social measures; higher fees on vehicle registrations and driver licenses could raise 0.2 percent of GDP. - Strengthening customs and tax administration could raise 0.2 percent of GDP. - PPPO reform impacts: - PPPO deficit totaled 1.1 percent of GDP in FY2022 and is projected at 4.1 percent of GDP by 2072; present value of cumulated deficits during 2023-72 estimated at 77.3 percent of GDP. - Introducing and gradually increasing contribution rate to 10 percent, raising retirement age from 55 to 65, and reducing replacement rate from 67.5 percent to 50 percent would lower the long-run PPPO deficit by two-thirds. - Use additional fiscal space to expand spending: - Increase infrastructure investment by 0.8 percent of GDP from FY2025 onwards. - Increase targeted social spending by 0.5 percent of GDP from FY2025 onwards. - Increase spending on crime prevention by 0.2 percent of GDP from FY2025 onwards. - Fiscal consolidation quantitative summary (Text Table 1 highlights): - Total Fiscal Consolidation (annual yields): FY2023 0.04; FY2024 0.39; FY2025 0.39. - Total Fiscal Consolidation (cumulative yields): FY2023 0.04; FY2024 0.43; FY2025 0.82. - Revenue measures (examples, annual yields): FY2023 0.00; FY2024 1.10; FY2025 1.10. - Personal income taxes (PIT): FY2023 0.10; FY2024 0.10; FY2025 0.00 (annual). - Taxes on goods and services: FY2023 0.90; FY2024 0.90; FY2025 0.00 (annual). - Gross sales tax (GST): FY2023 0.80; FY2024 0.80; FY2025 0.00 (annual). - Excises and fees: FY2023 0.10; FY2024 0.10; FY2025 0.00 (annual). - Revenue administration: FY2023 0.10; FY2024 0.10; FY2025 0.00 (annual). ### External position, reserves, and external sustainability - External position: EBA-lite current account model estimates current account norm at –7.1 percent of GDP; cyclically adjusted current account is –8.2 percent of GDP, implying a gap of –1.2 percent of GDP. Belize’s external position in 2022 is assessed as moderately weaker than warranted by fundamentals and desirable policies. - International reserves: projected to remain above three months of imports and short-term external debt but below the ARA metric. - Baseline Scenario (percent of external GFN): 156.8; 148.2; 145.6; 147.1; 147.3; 148.3; 149.2 (2022–2028 sequence). - Baseline Scenario (months of imports): 3.7; 3.6; 3.6; 3.5; 3.4; 3.4; 3.3 (2022–2028 sequence). - Illustrative Reform Scenario (percent of external GFN): 156.8; 148.5; 150.1; 156.0; 158.4; 159.6; 160.6. - Illustrative Reform Scenario (months of imports): 3.7; 3.7; 3.8; 3.8; 3.8; 3.8; 3.8. - Illustrative reform scenario assumptions: - Implementation of 0.8 percent of GDP in fiscal consolidation over three years, increasing the primary balance to 2 percent of GDP in FY2025. - A fiscal multiplier of -0.5. - Increased expenditure in infrastructure, targeted social programs, and crime prevention. - Structural reforms that increase real GDP growth by 0.25 percent in 2026 and 0.5 percent in 2027-28. - Under the illustrative reform scenario, public debt in 2028 falls from 53 percent in the baseline to 49 percent. ### Financial sector stability and AML/CFT - Central Bank actions: strengthened banks’ balance sheets and resolved problem loans after the pandemic; some banks placed under enhanced supervision. Tools include provision of liquidity, imposing limits on dividend distributions, and a bank resolution framework under the Domestic Banks and Financial Institutions Act. - Banking vulnerabilities: banks remain vulnerable to shocks; some institutions may require recapitalization in 2023 if loan portfolio quality continues to deteriorate. - Financial soundness indicators (selected): - Domestic banks’ regulatory capital to risk weighted assets: 16.6 percent in 2022 (minimum requirement 9 percent). - Nonperforming loans to total gross loans: 7.0 percent in 2022 (5.0 percent in 2021). - Loan Loss Coverage: 63.8 in 2022. - AML/CFT and IFS sector: - The Central Bank must continue strengthening AML/CFT supervision; guidelines developed for penalties and a penalty is being considered. - Authorities must complete update of national ML/TF risk assessment and action plan ahead of CFATF mutual evaluation in November 2023. - New Companies Act and online business registry are positive; further steps needed to enhance transparency of beneficial ownership (BO). - Recommendations: ensure registered agents have physical presence and keep BO records in Belize; require BO information to be filed with the registry. - Regarding virtual assets: authorities prepared a bill proposing to prohibit virtual asset services until the end of 2025. - The Financial Services Commission needs more resources to fulfill its supervisory role. ### Debt structure, financing, and sustainability analysis - Structure of public debt (end-2022): - Almost two thirds denominated in foreign currency and owed to external creditors: 30 percent to multilateral institutions; 15 percent to bilateral creditors; 20 percent to private creditors (blue loan). - The other 35 percent denominated in local currency and owed to domestic creditors: 18 percent to the Central Bank; 9 percent to domestic banks; 8 percent to other domestic financial institutions. - Key debt operations: - 2021: used funds from a blue loan from TNC to repurchase the superbond at a discount, reducing public debt by 9 percent of GDP. - December 2022: Belize and Venezuela agreed to reduce Belize’s Petrocaribe debt by about 4.3 percent of GDP. - Debt sustainability and risks: - Staff assessment: public debt assessed as sustainable; with no change in policies public debt projected to fall to 53 percent of GDP by 2028. - Overall risk of sovereign debt stress: assessed as moderate (high near-term risks, low medium-term risks, moderate long-term risks). - Gross financing needs expected to decline from 6.4 percent of GDP in 2022 to averages around 3.8 percent over the medium term but rise after 2032 when blue loan principal repayments commence. - Natural disaster stress test: assumes increase in debt of 4.5 percent of GDP in 2024 and a 1.3 percent fall in real GDP growth in 2024; debt rises but remains below 70 percent of GDP over the medium term. - External debt trends: public external debt fell from 70 percent of GDP in 2020 to 54 percent in 2021 and 42 percent in 2022; projected to fall to 34 percent of GDP by 2032 under unchanged policies. - Sensitivity tests: a 30 percent depreciation pushes external debt to 50 percent of GDP in 2032. ### Pension Plan for Public Officials (PPPO) — Annex VII findings and reform scenarios - Baseline PPPO: non-contributory defined benefit; retirement age 55; benefits peak at two-thirds of the highest salary; combined average replacement rate for public officials close to 100 percent. - Baseline projections without reforms: PPPO deficit 1.1 percent of GDP in 2022 rising to 4.1 percent of GDP in 2072; present value of deficits over 2023–2072 estimated at 77.3 percent of GDP. - Benchmark parametric reforms studied: - Reduce replacement rate for new retirees by 1 percentage point per year starting in 2023 until 50 percent in 2040. - Increase contribution rate by 1 percentage point per year starting in 2023 until 10 percent by 2032. - Raise retirement age on a cohort-phased schedule to 65 for younger cohorts. - Effects of benchmark reforms: long-run PPPO deficit reduced to 1.6 percent of GDP; present value of deficits (2023–2072) falls to 26.1 percent of GDP. - Alternative combinations of parametric reforms can achieve similar deficit reductions; indexing retirement age to life expectancy recommended to manage aging impacts. ### Data, statistics, and methodological notes - National accounts rebased from base year 2000 to base year 2014 and upgraded from 1993 SNA to 2008 SNA; nominal GDP rose by an average of 30 percent relative to the old series between 1993 and 2020. - Rebasing effects: - 2020 public debt fell from 133 percent of the old GDP to 101 percent of the new GDP. - Revisions to real GDP growth: 2019 revised up by 2.5 percentage points; 2020 revised up by 3.4 percentage points; 2021 revised up by 5.5 percentage points. - Current account deficit narrowed by 2.4 percentage points in 2021 (in percent of GDP) due to rebasing. - Data gaps and priorities: improve consolidated public sector accounts, domestic debt and debt service data (including SOE debt), expand monetary statistics coverage beyond commercial banks, improve timeliness of Balance of Payments and IIP, and establish a National Summary Data Page. ### Recommendations explicitly stated - Implement 0.8 percent of GDP in fiscal consolidation to increase primary balance to 2 percent of GDP from FY2025 to reach public debt target of 50 percent of GDP by 2028. - Broaden tax base, strengthen revenue administration, raise excises and fees, and allow domestic fuel prices to move with global prices. - Reform PPPO to make it contributory, raise retirement age, and reduce replacement rate. - Strengthen public financial management (multi-year budgeting, fiscal risk assessment, public investment management) and increase transparency (publish procurement contracts and beneficial ownership information). - Ease access to credit for MSMEs via credit bureau and collateral registry, formalization, and support for business plans. - Develop a Disaster Resilience Strategy based on a consistent multi-year macro-fiscal framework to access multilateral and donor financing. - Complete the update of the national assessment of ML/TF risks and the action plan before the CFATF mutual evaluation in November 2023. - It is recommended that the next Article IV consultation take place on the standard 12-month cycle. *Source: Belize — Staff Report for the 2023 Article IV Consultation (selected excerpts).* ### 13.4 percent in 2020, real GDP expanded by 15.2 percent in 2021 and 12.1 percent in 2022, ### 1blzea2023001 - 13.4 percent in 2020, real GDP expanded by 15.2 percent in 2021 and 12.1 percent in 2022, ### Recent developments and outlook - After contracting by 13.4 percent in 2020, real GDP expanded by 15.2 percent in 2021 and 12.1 percent in 2022, led by retail and wholesale trade, tourism, and business process outsourcing. - Real GDP growth is projected to slow to 2.4 percent in 2023 and 2 percent over the medium term as tourism returns to pre-pandemic levels and the output gap closes in 2023. - Inflation increased from near zero in 2020 to 3.2 percent in 2021 and 6.3 percent in 2022, driven by higher global energy and food prices despite measures to fix domestic diesel and regular gasoline prices at the pump since April 2022. - Inflation is projected to fall to 4.1 percent in 2023 and 1.2 percent over the medium term, in line with projected falls in commodity prices and global inflation. - Visitor arrivals reached 74 percent of pre-pandemic levels in 2022. Vaccination: 54 percent of the population fully vaccinated, almost a quarter of whom have received a booster. - Unemployment declined from 13.7 percent in 2020 to 5.0 percent in 2022. ### Fiscal position and public debt - Primary balance rose from –8.1 percent of GDP in FY2020 to 0.0 percent of GDP in FY2021 and 1.2 percent of GDP in FY2022, driven by expenditure restraint including a temporary 10 percent cut in public sector wages and suspension of wage increments in FY2021-22, and a strong recovery in revenue. - Public debt declined from 101 percent of GDP in 2020 to 64 percent of GDP in 2022, driven by a debt for marine protection swap with The Nature Conservancy, expenditure restraint, strong growth, high inflation, and a discount in the Petrocaribe debt owed to Venezuela. - In an unchanged policies scenario, the primary balance is projected to remain at 1.2 percent of GDP over the medium term, with public debt declining to 53 percent of GDP by 2028. - Staff projection highlights: reducing public debt to 50 percent of GDP by 2028 would require raising the primary balance to 2 percent of GDP from FY2025. ### Key macroeconomic projections and indicators (select figures preserved exactly) - GDP at constant prices: 2020 -13.4; 2021 15.2; 2022 12.1; 2023 2.4; 2024 2.0; 2025 2.0; 2026 2.0; 2027 2.0; 2028 2.0 (annual percentage changes, calendar year). - Consumer prices (end of period): 2020 0.3; 2021 4.9; 2022 6.7; 2023 3.1; 2024 2.0; 2025 1.2; 2026 1.2; 2027 1.2; 2028 1.2. - Consumer prices (average): 2020 0.1; 2021 3.2; 2022 6.3; 2023 4.1; 2024 2.5; 2025 1.6; 2026 1.2; 2027 1.2; 2028 1.2. - Central government (percent of fiscal year GDP): Revenue and grants 2020 21.8; 2021 21.7; 2022 22.5; 2023 22.7 (and 22.7 consistently through 2028). - Primary balance (percent of fiscal year GDP): 2020 -8.1; 2021 0.0; 2022 1.2; 2023 1.2 (and 1.2 through 2028). - Overall balance (percent of fiscal year GDP): 2020 -9.7; 2021 -1.3; 2022 -0.6; 2023 -0.6 (and -0.6 through 2027; -0.5 in 2028). - Public debt (percent of calendar year GDP): 2020 101.4; 2021 80.1; 2022 63.7; 2023 60.4; 2024 58.4; 2025 56.9; 2026 55.7; 2027 54.6; 2028 53.4. - External current account (percent of GDP): 2020 -6.1; 2021 -6.3; 2022 -8.5; 2023 -8.0; 2024 -7.7; 2025 -7.6; 2026 -7.4; 2027 -7.2; 2028 -7.0. - Gross international reserves (US$ millions): 2020 349; 2021 415; 2022 481; 2023 487; 2024 494; 2025 500; 2026 503; 2027 507; 2028 513. - Nominal GDP (BZ$ millions): 2020 4,160; 2021 4,983; 2022 5,938; 2023 6,332; 2024 6,620; 2025 6,858; 2026 7,081; 2027 7,310; 2028 7,548. - Output gap (percent of potential output): 2020 -19.2; 2021 -9.0; 2022 -0.1; 2023 0.1; 2024 0.0; 2025 0.0; 2026 0.0; 2027 0.0; 2028 0.0. ### Risks to the outlook - Risks are tilted to the downside, including: - A sharp global slowdown. - Further increases in commodity prices. - Climate-related disasters. - Near-term public debt risks remain high despite assessed sustainability over the medium term. ### Policy recommendations and priorities (staff and Executive Directors) - Fiscal policy: - Continue fiscal consolidation to further reduce public debt and ensure adequate buffers to respond to adverse shocks. - Enhance revenues and reprioritize expenditures while increasing priority spending on infrastructure, targeted social programs, and crime prevention. - Important measures include expanding the tax base, strengthening revenue administration, and pension reform. - Strengthen multi-year budget preparations, fiscal risk assessment, and public investment management; some Directors saw merit in adopting a Fiscal Responsibility Law. - Structural reforms: - Ease access to credit for micro, small, and medium sized enterprises. - Enhance governance and build resilience to climate change and related disasters. - Adopt a Disaster Resilience Strategy based on a consistent multi-year macro-fiscal framework to unlock multilateral and donor funding. - Monetary policy: - Strengthen sustainability of the currency peg by implementing additional fiscal consolidation and growth-enhancing structural reforms, and limiting central bank financing to the government. - Financial sector policy: - Preserve financial stability by continuing efforts to reduce NPLs and overseeing bank recapitalization. - Improve the AML/CFT framework, complete the update of the national ML/TF risk assessment and action plan ahead of the mutual evaluation by the Caribbean Financial Action Task Force in November 2023, and strengthen correspondent banking relationships. ### Executive Board assessment highlights - Executive Directors welcomed the strong recovery in economic activity and sharp reduction in public debt. - Directors agreed growth and inflation are projected to moderate and risks are to the downside. - Directors underscored the importance of reforms to address constraints to long-term growth and enhance resilience to shocks. - Directors recommended that planned fiscal consolidation and growth-enhancing structural reforms would also help reduce external imbalances, improve adequacy of reserves, and strengthen the currency peg. *Source: Belize — Staff Report for the 2023 Article IV Consultation (selected excerpts).* ### 6. The primary balance is projected to remain in surplus over the medium term. In an ### 6. The primary balance is projected to remain in surplus over the medium term. In an ### Fiscal and macro projections - Primary balance (unchanged policies scenario) projected at 1.2 percent of GDP in FY 2023. - Staff projects primary balance to remain at 1.2 percent of GDP over the medium term. - Authorities project a primary surplus of 0.4 percent of GDP in FY2023 and surpluses of around 1.2 percent of GDP in FY2024-25. - Public debt projected to fall to 53 percent of GDP by 2028 under unchanged policies; this level is assessed as sustainable but with still high near-term risks. - Alternative (active) scenario primary balance path: FY2023 1.2; FY2024 1.6; FY2025 2.0 (as reported in memorandum items). - Current account deficit estimated at 8.5 percent of GDP in 2022. - International reserves projected to remain above 3 months of imports during 2023-28. - Domestic banks’ regulatory capital at 16.6 percent of risk weighted assets in 2022; minimum requirement is 9 percent. - Nonperforming loans (NPLs) increased from 5 percent of gross loans in 2021 to 7 percent in 2022. - Growth in private sector credit at 4.5 percent in 2022. - Authorities’ medium-term growth projection: average growth of 2.7 percent during 2023-27. - Poverty rate in Belize at 35.7 percent according to the 2022 Census. - Female labor force participation stood at 44 percent in October 2022, compared with 73 percent of males. ### Risks to the outlook and financial stability - Downside risks remain prominent: sharp slowdown in advanced economies, climate-related disasters, further increases in food and fuel prices due to Russia’s invasion of Ukraine. - Potential effects of adverse shocks: exacerbate imported inflation, widen current account deficit, reduce international reserves, and worsen banking sector vulnerabilities. - Banking sector: some banks more exposed to pandemic-affected sectors have experienced larger increases in NPLs. - Global tightening of financial conditions not expected to impact Belize significantly because the country does not borrow from private external creditors and the central bank has tools to manage capital outflows. ### Authorities’ views (summary) - Broad agreement with staff on outlook and risks; noted strong recovery in 2021-22 led by tourism and business-process outsourcing. - Authorities expect growth to slow starting in 2023 but are more optimistic for the medium term (2.7 percent average growth during 2023-27). - Authorities view public debt as on a more sustainable path and expect continued decline as the primary balance stays in surplus. - Fiscal plans: FY2023 budget projects a primary surplus of 0.4 percent of GDP; authorities plan surpluses around 1.2 percent of GDP in FY2024-25. - Authorities have taken revenue-administration measures: more staff in Customs, creating a Tax Recovery Unit in the Belize Tax Services Department, plans to reduce zero-rated GST items, pass a Fiscal Incentives Act, consolidate revenue collection, introduce electronic tax invoicing, and a single electronic window for Customs. - Authorities plan to increase excise taxes on fuel to recoup FY2022 revenue losses and have begun negotiations with labor unions on PPPO reforms. - Authorities are not planning to adopt a Fiscal Responsibility Law but welcome analytical work on appropriate fiscal rules. ### Policy discussions — Fiscal policy (recommendations and measures) - Debt target: reduce public debt to below 50 percent of GDP by FY2028; requires gradually increasing the primary balance to 2 percent of GDP by FY2025. - Required additional fiscal consolidation: 0.8 percent of GDP over three years. - Anchor plan in a medium-term fiscal strategy and prepare groundwork for adoption of a Fiscal Responsibility Law (FRL) with specific fiscal rules. - Revenue mobilization and expenditure priorities: - Broaden tax base, increase excise taxes, strengthen revenue administration. - Tax and revenue administration measures could raise 2.2 percent of GDP in additional revenue by FY2025. - Taxing some zero-rated items at the standard 12.5 percent GST rate could raise 1.6 percent of GDP. - Standardizing personal income tax exemption thresholds could raise 0.2 percent of GDP. - Allow domestic fuel prices to move with global prices, raise excise taxes on fuel above pre-pandemic levels, and expand targeted social measures; higher fees on vehicle registrations and driver licenses could raise 0.2 percent of GDP. - Strengthening customs and tax administration (BTSD and Belize Customs coordination) could raise 0.2 percent of GDP. - Reforming the Pension Plan for Public Officials (PPPO) could reduce government spending by 0.1 percent of GDP over three years and by much more long term. - PPPO deficit totaled 1.1 percent of GDP in FY2022 and is projected at 4.1 percent of GDP by 2072; present value of cumulated deficits during 2023-72 estimated at 77.3 percent of GDP. - Introducing and gradually increasing contribution rate to 10 percent, raising retirement age from 55 to 65, and reducing replacement rate from 67.5 percent to 50 percent would lower the long-run PPPO deficit by two-thirds. - Use additional fiscal space to expand spending on infrastructure, targeted social programs, and crime prevention: - Increase infrastructure investment by 0.8 percent of GDP from FY2025 onwards. - Increase targeted social spending by 0.5 percent of GDP from FY2025 onwards (expand BOOST, subsidize childcare). - Increase spending on crime prevention by 0.2 percent of GDP from FY2025 onwards. - Prepare contingency revenue and expenditure measures to implement if public debt does not decline as expected: options include taxing a larger share of zero-rated items at 12.5 percent GST rate, raising the GST rate, and reducing nonpriority expenditure. - Public Financial Management improvements needed: multi-year budget preparation, fiscal risk assessment, public investment management, coverage of government accounts, accounting and fiscal reporting, internal audit, and greater transparency (publish procurement contracts and beneficial ownership information). ### Fiscal consolidation quantitative summary (Text Table 1 highlights) - Total Fiscal Consolidation (annual yields): FY2023 0.04; FY2024 0.39; FY2025 0.39. - Total Fiscal Consolidation (cumulative yields): FY2023 0.04; FY2024 0.43; FY2025 0.82. - Expenditure measures (examples, cumulative yields): Public pensions/1: FY2023 0.04; FY2024 0.04; FY2025 0.04 (annual) / cumulative FY2023 0.04; FY2024 0.08; FY2025 0.12. - Revenue measures (examples, annual yields): FY2023 0.00; FY2024 1.10; FY2025 1.10. - Personal income taxes (PIT): FY2023 0.10; FY2024 0.10; FY2025 0.00 (annual). - Taxes on goods and services: FY2023 0.90; FY2024 0.90; FY2025 0.00 (annual). - Gross sales tax (GST): FY2023 0.80; FY2024 0.80; FY2025 0.00 (annual). - Excises and fees: FY2023 0.10; FY2024 0.10; FY2025 0.00 (annual). - Revenue administration: FY2023 0.10; FY2024 0.10; FY2025 0.00 (annual). ### Structural reforms and climate change (recommendations) - Structural reforms needed to raise long-run potential growth; pre-pandemic average growth 2.1 percent in 2010-19. - Enhance access to credit and FX to boost domestic investment and FDI: - Passed the Credit Reporting Act; working on credit bureau and collateral registry. - Promote formalization of MSMEs via electronic invoicing and Fiscal Incentives Act; help MSMEs prepare business plans. - Build resilience to climate change and related disasters: - Invest in (i) infrastructure resilience to storm and sea level rise; (ii) early warning systems; and (iii) coastal and broad ecosystem conservation. - Adopt a Disaster Resilience Strategy (DRS) based on a consistent multi-year macro-fiscal framework to enhance access to financing from multilateral creditors, the Green Climate Fund, and The Conservation Fund. - Mitigation measures in line with updated Nationally Determined Contribution: protect and restore forests, mangroves, and seagrass; expand renewable energy; reduce conventional transportation fuel use; enhance energy efficiency. - Improve rule of law to enhance business confidence: strengthen technical capacity of the judiciary, promote access to legislation and judicial decisions, reduce ministerial discretion in business-related processes, and continue digitalization projects (land and business registries, single investment window, digitalization of firms and government services). *Source: IMF staff estimates and discussions (content as provided in the source PDF).* ### 22. Belize’s external position in 2022 is assessed as moderately weaker than warranted by ### 22. Belize’s external position in 2022 is assessed as moderately weaker than warranted by ### External position and current account - The EBA-lite current account model estimates the current account norm at –7.1 percent of GDP. - The cyclically adjusted current account is –8.2 percent of GDP, implying a gap of –1.2 percent of GDP (Annex VIII). - Belize’s external position in 2022 is assessed as moderately weaker than warranted by fundamentals and desirable policies. ### International reserves and reserve adequacy - International reserves are projected to remain above three months of imports and short-term external debt, but below the ARA metric. - International reserves (percent of external GFN) and (months of imports) from Text Table 2: - Baseline Scenario (2022–2028): 156.8; 148.2; 145.6; 147.1; 147.3; 148.3; 149.2 (percent of external GFN) and 3.7; 3.6; 3.6; 3.5; 3.4; 3.4; 3.3 (months of imports) by year sequence shown in the table. - Illustrative Reform Scenario (2022–2028): 156.8; 148.5; 150.1; 156.0; 158.4; 159.6; 160.6 (percent of external GFN) and 3.7; 3.7; 3.8; 3.8; 3.8; 3.8; 3.8 (months of imports) by year sequence shown in the table. - The high ARA metric for Belize reflects the high level of other liabilities (long-term external debt) and broad money, which measure the risk of capital outflows from nonresidents and residents, respectively. The text notes that these risks are not significant given most external debt is with multilateral and bilateral creditors and the central bank’s tools to limit capital outflows by residents. ### Fiscal stance, growth, and debt outlook - Baseline and illustrative reform scenario highlights from Text Table 2 (selected series, in percent of GDP unless otherwise noted): - Growth (percent) baseline: -13.4; 15.2; 12.1; 2.4; 2.0; 2.0; 2.0; 2.0 (by year sequence shown). - Growth (percent) illustrative reform: -13.4; 15.2; 12.1; 2.4; 1.8; 1.8; 2.3; 2.5; 2.5 (by year sequence shown). - Overall fiscal balance (percent of GDP) baseline: -9.7; -1.3; -0.6; -0.6; -0.6; -0.6; -0.6; -0.6; -0.5. - Overall fiscal balance (percent of GDP) illustrative: -9.7; -1.3; -0.6; -0.6; -0.2; 0.2; 0.3; 0.3; 0.4. - Primary fiscal balance (percent of GDP) baseline: -8.1; 0.0; 1.2; 1.2; 1.2; 1.2; 1.2; 1.2; 1.2. - Primary fiscal balance (percent of GDP) illustrative: -8.1; 0.0; 1.2; 1.2; 1.6; 2.0; 2.0; 2.0; 2.0. - Public debt (percent of GDP) baseline: 101.4; 80.1; 63.7; 60.4; 58.4; 56.9; 55.7; 54.6; 53.4. - Public debt (percent of GDP) illustrative: 101.4; 80.1; 63.7; 60.3; 58.0; 55.9; 53.7; 51.5; 49.2. - Current account balance (percent of GDP) baseline: -6.1; -6.3; -8.5; -8.0; -7.7; -7.6; -7.4; -7.2; -7.0. - Current account balance (percent of GDP) illustrative: -6.1; -6.3; -8.5; -7.9; -7.5; -7.1; -6.9; -6.7; -6.5. - Text notes: Implementing recommended fiscal measures and structural reforms would reduce public debt to below 50 percent of GDP by 2028. Under the illustrative reform scenario public debt in 2028 falls from 53 percent in the baseline to 49 percent in the illustrative reform scenario. - The illustrative reform scenario assumptions: - Implementation of 0.8 percent of GDP in fiscal consolidation over three years, increasing the primary balance to 2 percent of GDP in FY2025. - A fiscal multiplier of -0.5. - Increased expenditure in infrastructure, targeted social programs, and crime prevention (in line with Text Table 1 recommendations). - Structural reforms that increase real GDP growth by 0.25 percent in 2026 and 0.5 percent in 2027-28. ### Financial sector stability and Central Bank actions - The Central Bank’s process for strengthening domestic banks’ balance sheets and resolving problem loans after the pandemic has been well executed; some banks placed under enhanced supervision. - Banks remain vulnerable to shocks; some institutions may require recapitalization in 2023 if loan portfolio quality continues to deteriorate. - The Central Bank has tools to intervene: provision of liquidity, imposing limits on the distribution of dividends, and a bank resolution framework as outlined in the Domestic Banks and Financial Institutions Act. - The Central Bank expects banks’ owners will inject needed capital as they have in the past. - Low capital and elevated NPLs could keep growth in private sector credit subdued, with potential adverse feedback loops between economic activity and financial stability. ### AML/CFT framework and international financial services (IFS) sector - The Central Bank must continue strengthening AML/CFT supervision of banks and has developed guidelines for imposing penalties for non-compliance with AML/CFT requirements; it is considering issuing a penalty. - Authorities must continue strengthening the AML/CFT framework and implementation, especially in the IFS sector, ahead of the mutual evaluation by the Caribbean Financial Action Task Force in November 2023. - Authorities expect to complete the update of the national assessment of money laundering and terrorism financing (ML/TF) risks and the action plan in the coming months. - The enactment of the new Companies Act and development of an online business registry are positive, but more needs to be done to enhance transparency of beneficial ownership (BO) of legal entities and trusts. - Recommendations regarding registered agents and BO: - Ensure all registered agents have a physical presence and keep BO records in Belize and are subject to adequate AML/CFT supervision. This will require additional Financial Services Commission supervisory resources. - Require BO information to be filed with the registry by agents or corporations to facilitate access by competent authorities. - Regarding virtual assets, authorities have prepared a bill that proposes to prohibit virtual asset services until the end of 2025. - Footnotes from the source: - Physical presence of office and certain mind and management elements of international corporations in Belize is required under the Economic Substance Law enacted in 2019. The grace period for registered agents to comply with the law expired in June 2022, and some of them are yet to become compliant. ### Authorities’ views - Authorities broadly agree with the assessment of monetary and financial sector issues and remain committed to the currency peg. - They agree additional fiscal consolidation and growth-enhancing structural reforms are necessary to strengthen international reserve buffers. - Authorities see scope to increase exports and reduce imports by increasing domestic production of processed foods and further expanding the tourism industry. - Authorities noted the need to continue improving asset quality of domestic banks and credit unions and stressed the central bank has appropriate tools should it need to intervene. ### Staff appraisal and policy recommendations - Belize experienced a strong recovery from the COVID-19 pandemic: real GDP declined by 13.4 percent in 2020, rebounded by 15.2 percent in 2021 and 12.1 percent in 2022. - Inflation: 3.2 percent in 2021 and 6.3 percent in 2022. - Debt sustainability restored through GDP rebasing, fiscal consolidation, debt operations, strong growth, and high inflation. Key figures: - Primary balance rose from –8.1 percent of GDP in FY2020 to 1.2 percent in FY2022. - GDP rebasing reduced public debt-to-GDP ratio in 2020 from 133 percent to 101 percent. - Public debt further reduced to 64 percent in 2022 after debt for marine protection swap, Petrocaribe discount, and strong nominal GDP growth. - Projections: - Real GDP growth projected to slow to 2.4 percent in 2023 and 2 percent over the medium term. - Inflation projected to fall to 4.1 percent in 2023 and 1.2 percent over the medium term. - Primary balance projected to stabilize at 1.2 percent of GDP with unchanged policies. - Public debt projected to decline to 53 percent of GDP by 2028 under unchanged policies. - Policy recommendations: - Implement 0.8 percent of GDP in fiscal consolidation to increase the primary balance to 2 percent of GDP from FY2025 to reach a public debt target of 50 percent of GDP by 2028. - Increase priority expenditure on infrastructure, targeted social programs, and crime prevention, financed with revenue and expenditure measures. - Raise revenue by: taxing zero rated items at the standard 12.5 percent GST rate, enhancing revenue administration, and raising excises and fees. - Reduce expenditure by reforming the PPPO (including making it contributory), increasing the retirement age, and reducing the replacement rate. - Prepare contingency measures if public debt does not fall as planned. - Ease access to credit for MSMEs by establishing a credit bureau and a collateral registry, formalizing firms, and helping them prepare business plans. - Develop a DRS focused on structural, financial, and post-disaster resilience, based on a consistent multi-year macro-fiscal framework to unlock multilateral and donor funding. - Improve governance and reduce ministerial discretion in business processes to enhance business confidence. - Reduce central bank financing to the government to support external adjustment and reserve adequacy. - Complete update of national assessment of ML/TF risks and the action plan before the CFATF mutual evaluation in November 2023. *Source: IMF Staff estimates.* ### 2023. The Financial Services Commission needs more resources to fulfill its supervisory role. ### 2023. The Financial Services Commission needs more resources to fulfill its supervisory role. ### Key findings - The report states that "The Financial Services Commission needs more resources to fulfill its supervisory role." - It is recommended that the next Article IV consultation take place on the standard 12-month cycle. ### Macroeconomic outlook and real sector - GDP at constant prices (annual percent change): -13.4 in 2020; 15.2 in 2021; 12.1 in 2022; 2.4 in 2023; 2.0 in 2024; 2.0 in 2025; 2.0 in 2026; 2.0 in 2027; 2.0 in 2028. - Consumer prices (end of period, annual percent change): 0.3 in 2020; 4.9 in 2021; 6.7 in 2022; 3.1 in 2023; 2.0 in 2024; 1.2 in 2025; 1.2 in 2026; 1.2 in 2027; 1.2 in 2028. - Tourist visitor arrivals (stay over) and cruise ship disembarkations shown in Figure 4 (time series through 2022); composition of stay over visitor arrivals by origin, 2022: USA 74 percent, Canada 4 percent, Europe 10 percent, Other 10 percent, Mexico 1 percent, South America 1 percent. ### Fiscal position and public sector indicators - Central government (fiscal year April–March) projections (percent of GDP unless noted): - Revenue and grants: 21.8 (2022/23), 21.7 (2023/24), 22.5 (2024/25), 22.7 (2025/26), 22.7 (2026/27), 22.7 (2027/28), 22.7 (2028/29). - Total expenditure: 31.5 (2022/23), 23.0 (2023/24), 23.1 (2024/25), 23.3 (2025/26), 23.3 (2026/27), 23.3 (2027/28), 23.3 (2028/29). - Primary balance: -8.1 (2022/23), 0.0 (2023/24), 1.2 (2024/25 through 2028/29). - Overall balance: -9.7 (2022/23), -1.3 (2023/24), -0.6 (2024/25 through 2028/29, evolving to -0.5 in 2028/29). - Public debt (calendar year, percent of GDP): 101.4 (2020), 80.1 (2021), 63.7 (2022), 60.4 (2023), 58.4 (2024), 56.9 (2025), 55.7 (2026), 54.6 (2027), 53.4 (2028). - Domestic debt (percent of GDP): 31.6 (2020), 26.4 (2021), 22.2 (2022), 18.7 (2023), 16.5 (2024), 15.6 (2025), 15.6 (2026), 15.9 (2027), 15.7 (2028). - External debt (percent of GDP): 69.9 (2020), 53.7 (2021), 41.6 (2022), 41.7 (2023), 41.8 (2024), 41.4 (2025), 40.1 (2026), 38.6 (2027), 37.7 (2028). - Central government operations (BZ$ millions), selected levels: - Revenue and grants: 953 (2022/23), 1,136 (2023/24), 1,360 (2024/25), 1,455 (2025/26), 1,518 (2026/27), 1,571 (2027/28), 1,622 (2028/29). - Total expenditure: 1,375 (2022/23), 1,201 (2023/24), 1,393 (2024/25), 1,494 (2025/26), 1,560 (2026/27), 1,611 (2027/28), 1,665 (2028/29). - Overall balance (BZ$ millions): -422 (2022/23), -66 (2023/24), -33 (2024/25), -39 (2025/26), -42 (2026/27), -40 (2027/28), -43 (2028/29). - Public sector debt (calendar year, BZ$ millions): 4,182 (2020), 3,954 (2021), 3,745 (2022), 3,782 (2023), 3,824 (2024), 3,865 (2025), 3,908 (2026), 3,952 (2027), 3,993 (2028). ### External sector and reserves - Current account balance (percent of GDP): -6.1 (2020), -6.3 (2021), -8.5 (2022), -8.0 (2023), -7.7 (2024), -7.6 (2025), -7.4 (2026), -7.2 (2027), -7.0 (2028). - Trade balance (US$ millions): -443 (2020), -534 (2021), -737 (2022), -727 (2023), -752 (2024), -774 (2025), -793 (2026), -812 (2027), -831 (2028). - Total exports, f.o.b. (US$ millions): 289 (2020), 422 (2021), 469 (2022), 509 (2023), 532 (2024), 551 (2025), 569 (2026), 587 (2027), 606 (2028). - Of which: Oil: 242 (2020), 110 (2021), 0 (2022 onward). - Total imports, f.o.b. (US$ millions): 731 (2020), 956 (2021), 1,206 (2022), 1,236 (2023), 1,284 (2024), 1,325 (2025), 1,361 (2026), 1,399 (2027), 1,437 (2028). - Gross international reserves (US$ millions): 349 (2020), 415 (2021), 481 (2022), 487 (2023), 494 (2024), 500 (2025), 503 (2026), 507 (2027), 513 (2028). - Reserves in months of imports: 3.4 (2020), 3.3 (2021), 3.7 (2022), 3.6 (2023), 3.6 (2024), 3.5 (2025), 3.4 (2026), 3.4 (2027), 3.3 (2028). - Net International Investment Position (NIIP) and components shown in Figure 6 (percent of GDP) with time series through 2022. ### Banking system and financial soundness - Central Bank of Belize indicators (BZ$ millions, selected): - Base money: 1,052 (2020), 1,159 (2021), 1,331 (2022), 1,426 (2023), 1,477 (2024), 1,528 (2025), 1,578 (2026), 1,629 (2027), 1,682 (2028). - Net international reserves: 699 (2020), 848 (2021), 967 (2022), 977 (2023), 992 (2024), 1,004 (2025), 1,009 (2026), 1,017 (2027), 1,030 (2028). - Commercial banks (BZ$ millions, selected): - Credit to the private sector: 2,254 (2020), 2,312 (2021), 2,417 (2022), 2,516 (2023), 2,612 (2024), 2,706 (2025), 2,793 (2026), 2,884 (2027), 2,978 (2028). - Money and quasi-money (M2): 3,534 (2020), 3,969 (2021), 4,155 (2022), 4,323 (2023), 4,478 (2024), 4,634 (2025), 4,784 (2026), 4,939 (2027), 5,100 (2028). - Loan-deposit ratio (percent): 70.1 (2020), 62.9 (2021), 63.9 (2022), 64.7 (2023), 65.6 (2024), 66.4 (2025), 67.2 (2026), 68.1 (2027), 68.9 (2028). - Financial Soundness Indicators (domestic banks, percent): - Regulatory Capital to Risk Weighted Assets: 24.2 (2017), 24.6 (2018), 22.8 (2019), 19.8 (2020), 19.2 (2021), 16.6 (2022). - Non-Performing Loans to Total Gross Loans: 6.4 (2017), 6.2 (2018), 5.1 (2019), 7.7 (2020), 5.0 (2021), 7.0 (2022). - Return On Equity (Net Income to Average Capital): 9.2 (2017), 19.8 (2018), 13.3 (2019), 3.2 (2020), 5.7 (2021), 2.8 (2022). - Loan Loss Coverage: 77.6 (2017), 72.3 (2018), 71.9 (2019), 57.3 (2020), 70.1 (2021), 63.8 (2022). ### Projections and medium-term outlook - Medium-term baseline projections (selected): - GDP at current market prices (annual percent change): -13.9 (2020), 19.8 (2021), 19.2 (2022), 6.6 (2023), 4.6 (2024), 3.6 (2025), 3.2 (2026), 3.2 (2027), 3.2 (2028). - Gross official reserves (in months of imports): 3.4 (2020), 3.3 (2021), 3.7 (2022), 3.6 (2023), 3.6 (2024), 3.5 (2025), 3.4 (2026), 3.4 (2027), 3.3 (2028). - Public debt (percent of GDP): 101.4 (2020), 80.1 (2021), 63.7 (2022), 60.4 (2023), 58.4 (2024), 56.9 (2025), 55.7 (2026), 54.6 (2027), 53.4 (2028). ### Recommendation(s) explicitly stated in the source - It is recommended that the next Article IV consultation take place on the standard 12-month cycle. *Source: 1blzea2023001 - 2023. The Financial Services Commission needs more resources to fulfill its supervisory role.* ### Annex I. The Impact of the Rebasing of the National Accounts on ### Annex I. The Impact of the Rebasing of the National Accounts on the Macroeconomic Framework and Policy Recommendations ### Rebasing process and methodological changes - The Statistical Institute of Belize (SIB), with support from CARTAC, the IMF, and Statistics Canada, rebased the national accounts by updating the base year from 2000 to 2014 and upgrading from the 1993 SNA to the 2008 SNA. - The rebasing included updating the statistical business registry via an economy-wide industrial survey to improve coverage of small and medium sized enterprises. - The new national accounts series (base 2014) has 34 industry groupings and subgroupings versus 18 groupings in the base 2000 series. - The price structure and weights were updated to the 2014 base year. ### Revisions to nominal GDP and real GDP growth - Nominal GDP rose by an average of 30 percent relative to the old series between 1993 and 2020. - Real GDP growth revisions (new series relative to old series): - 2019: revised up by 2.5 percentage points - 2020: revised up by 3.4 percentage points - 2021: revised up by 5.5 percentage points - These revisions reflect larger weights on sectors that expanded rapidly during the rebased period and the updated business registry. ### Effects on key macroeconomic ratios and external position - Key ratios declined in percent of GDP after rebasing because denominator (GDP) increased: - Ratios of tax revenues and government expenditures to GDP declined, bringing Belize’s revenue and expenditure ratios more in line with regional peers of similar income per capita. - Primary and overall fiscal deficits declined as shares of GDP. - Current account deficit narrowed by 2.4 percentage points in 2021 (in percent of GDP). - Staff assessments changed: - In 2021 staff assessed Belize’s external position as weaker than the level justified by medium-term fundamentals and desirable policies. - Staff now assesses the external position in 2022 as moderately weaker than the level warranted by fundamentals and desirable policies despite a widening of the current account deficit compared to 2021. ### Public debt: levels, projections, and sustainability implications - Rebasing effect on public debt-to-GDP: - 2020 public debt fell from 133 percent of the old GDP to 101 percent of the new GDP due to rebasing. - 2022 Article IV staff recommendations (prior framing): - Recommended lowering public debt to 60 percent of GDP (180 percent of revenue) in 2031 through fiscal consolidation and structural reforms. - Without reforms, public debt was projected to remain high at 86 percent of GDP in 2031 (using pre-rebasing series). - Using the new GDP series extended with baseline projections from the 2022 Article IV Consultation: - Public debt would be 66 percent of GDP in 2031, but 289 percent of revenue (revenues did not increase with GDP rebasing). - Updated staff recommendation (post-rebasing and updated assessment): - Recommend reducing public debt to 50 percent of GDP (201 percent of revenue) in 2028, in line with an implicit debt-to-revenue target. - Other contributors to the decline in public debt-to-GDP (2021–22): - Strong 44 percent increase in nominal GDP during 2021–22. - Relatively high primary surpluses. - A debt-for-marine-protection swap with The Nature Conservancy in 2021. - A discount in the debt owed to Venezuela under Petrocaribe in 2022. - Baseline projections without further reforms: - Public debt projected to fall to 53 percent of GDP by 2028, a level assessed as sustainable though with a still high debt-to-revenue ratio. - Assessment change drivers: - The move from an earlier unsustainable assessment (2022 Article IV Consultation) to a sustainable assessment reflects not only the GDP rebasing but also improved fiscal position, strong economic growth, high inflation, and sizable debt operations. ### Immediate policy implications and fiscal stance - Fiscal outcomes and policy posture: - Despite a fuel tax cut, costs from Hurricane Lisa, reinstatement of a 10 percent public sector wage cut, and delayed implementation of some recommended revenue measures, the primary balance increased in FY2022 due to revenue recovery and strict expenditure containment. - In an unchanged-policies scenario where the primary balance stabilizes at 1.2 percent of GDP over the medium term, public debt would fall to 53 percent of GDP by 2028. - Staff’s medium-term fiscal strategy (as framed in 2022 Article IV and updated in light of rebasing and developments): - Implement a credible multiyear fiscal consolidation plan and growth-enhancing structural reforms to reach lower public debt targets (updated recommendation: 50 percent of GDP by 2028). - Focus on broadening the tax base and strengthening revenue administration to improve debt-to-revenue dynamics, since rebasing raised GDP without a commensurate increase in revenues. *Source: Annex I. The Impact of the Rebasing of the National Accounts on the Macroeconomic Framework and Policy Recommendations (IMF staff summary).* ### 2. The structure of public debt has been shaped by the reliance on official financing, t he ### 1blzea2023001 - 2. The structure of public debt has been shaped by the reliance on official financing, t he ### Structure of public debt (end-2022) - Almost two thirds of public debt was denominated in foreign currency and owed to external creditors: - 30 percent to multilateral institutions - 15 percent to bilateral creditors - 20 percent to private creditors (blue loan) - The other 35 percent was denominated in local currency and owed to domestic creditors: - 18 percent to the Central Bank - 9 percent to domestic banks - 8 percent to other domestic financial institutions - Key debt operations affecting structure: - In 2021, Belize used funds from a blue loan from TNC to repurchase the superbond at a discount, reducing public debt by 9 percent of GDP. - The blue loan’s 10-year grace period and low interest rates reduced Belize’s debt service payments until FY2034. - In December 2022, Belize and Venezuela agreed to reduce Belize’s Petrocaribe debt by about 4.3 percent of GDP. - Note: The rebasing of GDP reduced the public debt to GDP ratio in 2020 from 133 percent of the old GDP to 101 percent of the new GDP; the public debt to revenue ratio remained unchanged. ### Baseline assumptions and macro projections - Growth and output: - Real GDP grew by 12.1 percent in 2022. - Real GDP is projected to grow by 2.4 percent in 2023 and 2 percent over the medium-term. - The output gap is expected to close in 2023. - Inflation: - Inflation is projected to decline from 6.3 percent in 2022 to 4.1 percent in 2023 and 1.2 percent over the medium term. - Primary balance: - Primary balance improved from –1.8 percent of GDP in 2021 to 0.9 percent in 2022. - Primary balance projected at 1.2 percent of GDP from 2023 onwards in an unchanged policies scenario. - Public debt and financing needs: - Public debt projected to fall from 64 percent of GDP in 2022 to 47 percent in 2033. - Gross financing needs expected to decline from 6.4 percent of GDP in 2022 to 3.7 percent of GDP in 2031, before rising to 4.7 percent of GDP in 2032 when principal repayments on the blue loan commence. - Domestic debt expected to decline faster than external debt over the medium-term as authorities rely more on external financing from official creditors. ### Near-term risk analysis - Near-term risks have moderated but remain elevated: - The sharp decline in public debt during 2021-22 reduced near-term risks, particularly foreign-currency debt. - Elevated risks persist due to a still sizable debt stock and high share denominated in foreign currency, making Belize vulnerable to sharp exchange rate adjustments. - High global financial volatility further exacerbates near-term risks, although impact is limited because the country does not borrow from private external creditors. ### Medium-term risk analysis - Overall assessment: Medium-term risks assessed as low, though mechanical indicators are mixed. - Debt Fanchart: - Produces a score of 1.6 (above the low-risk threshold of 1.1, below the high-risk threshold of 2.1). - Reflects uncertainty around the debt trajectory (wide fan) and a relatively moderate level of public debt by 2028 with a high probability that debt will stabilize in the medium term. - GFN financeability: - Produces a score of 4.2, well below the low-risk threshold of 7.6. - Gross financing needs expected to average 3.8 percent of GDP over the medium-term. - Large share of public debt owed to official creditors reduces rollover risk. - Natural disaster stress test: - Assumes increase in debt of 4.5 percent of GDP in 2024 and a 1.3 percent fall in real GDP growth in 2024, resulting in a permanent output loss. - Debt rises but remains below 70 percent of GDP over the medium term. - Gross financing needs rise in 2024 but remain below 10 percent of GDP over the horizon. ### Long-term risk analysis - Long-term risks assessed as moderate. - Amortization profile: - Gross financing needs expected to rise from 2032 after blue loan principal payments commence. - Scenario with persistent primary deficit: - Even with a primary deficit of -1.2 percent of GDP (10-year historical average), gross financing needs would remain below 15 percent of GDP in the long-term and public debt would remain below 70 percent of GDP through 2050. - Climate-related fiscal sensitivity: - Debt sustainability generally robust to additional spending on climate adaptation even after reducing the primary balance by an additional 1 percent of GDP per year relative to the baseline; debt only rises above 70 percent of GDP after 2045. - Public debt is more vulnerable to an additional 4.1 percent of GDP per year investment in climate change mitigation. - Pension risk: - Debt and gross financing needs remain vulnerable to the future path of public pension deficits, but periodic adjustments to the General Social Security Scheme and plans to reform the Pension Plan for Public Officials limit broader risks. ### Public debt sustainability and overall risk of sovereign stress - Staff assessment: - Belize’s public debt assessed as sustainable. - With no change in policies, public debt projected to fall to 53 percent of GDP by 2028, with a high probability of stabilizing in the medium term. - Even with a natural disaster or real exchange rate adjustment, public debt expected to fall below 60 percent of GDP over the medium term. - Overall risk of sovereign debt stress: - Assessed as moderate. - Balances still high near-term risks with low medium-term and moderate long-term risks. - Vulnerabilities: debt remains high in percent of revenue and high share denominated in foreign currency. - Higher gross financing needs starting in 2032 when blue loan principal repayments commence partially offset downward debt trajectory from primary surpluses. - Upside and downside contingencies: - Downside: sharp slowdown in advanced economies weakening tourism recovery, higher food and fuel prices prompting broad-based fiscal support, deterioration in banking sector vulnerabilities—each could raise sovereign stress. - Upside: structural reforms that boost growth and enhance climate resilience could reduce public debt faster and mitigate medium-term risks. ### External debt sustainability analysis - External debt trends: - Public external debt fell from 70 percent of GDP in 2020 to 54 percent in 2021, and further to 42 percent in 2022. - Decline driven by strong growth, high inflation, the debt-for-marine-protection swap with TNC, and the discount on Petrocaribe debt. - External public debt expected to fall further to 34 percent of GDP by 2032 in an unchanged policies scenario. - Sensitivity to shocks: - A widening of the noninterest current account deficit by 0.6 percent of GDP increases external debt to 40 percent of GDP in 2032. - A 30 percent depreciation pushes external debt to 50 percent of GDP in 2032. - Half standard deviation shocks to real GDP growth or interest rates have smaller effects. - A combined one-quarter standard deviation shock would increase external debt to 39 percent of GDP in 2032. - Coverage note: - Given the lack of data on private external debt, the external DSA covers only external public debt. *Sources: Central Bank of Belize; and IMF staff estimates.* ### 5. Debt Consolidation Across Sectors: ### 5. Debt Consolidation Across Sectors ### Coverage and recording of public sector debt - Coverage: The SRDSA uses Belize’s public sector debt, which comprises central government debt and external financial and non-financial public sector debt. - Social Security Board classification: The Social Security Board is not treated as part of the general government as the Central Bank (CBB) classifies it as other non-financial public corporation. - IMF SDR allocation: The IMF’s SDR allocation to the CBB is included in public debt. - Data gaps: Despite wide coverage of external public sector debt, data on domestic debt and debt service (including SOE debt) needs to be improved. - Reporting on intra-government debt holdings: Table indicates zeros for many sub-sectors and highlights that stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable. *Comments on valuation and recording notes (as presented)* - Nominal value: defined as the amount the debtor owes to the creditor; reflects value at creation and subsequent economic flows other than market price changes. - Face value: the undiscounted amount of principal to be paid at (or before) maturity. - Market value: value as if acquired in market transactions on the balance sheet reporting date; only traded debt securities have observed market values. *Italicized note: “CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector.”* ### Realism of baseline assumptions and forecast track record - Comparator group: Emerging Markets, Non-Commodity Exporter, Surveillance. - Commentary: The sharp economic contraction in 2020 and subsequent recovery complicate interpretation of the realism tools. The large rise in debt between 2017 and 2021 was largely driven by the economic contraction, the large primary deficit in 2020, and low inflation. - Recent developments: Nominal GDP growth was strong in 2022, and is expected to be strong in 2023 due to remaining spare capacity and still high average inflation. Together with a return to primary surpluses, these should contribute to a material fall in public debt. ### Baseline scenario projections (selected figures preserved exactly) - Public debt (percent of GDP): Actual 2022 = 63.7; 2023 = 60.4; 2024 = 58.4; 2025 = 56.9; 2026 = 55.7; 2027 = 54.6; 2028 = 53.4; 2029 = 52.2; 2030 = 51.0; 2031 = 49.8; 2032 = 48.6; 2033 = 47.3. - Change in public debt: 2023 = -16.4; 2024 = -3.4; 2025 = -2.0; 2026 = -1.5; 2027 = -1.2; 2028 = -1.2; subsequent annual changes mostly -1.2 to -1.3. - Contribution of identified flows to change in public debt: 2023 = -8.9; 2024 = -2.7; 2025 = -1.9; 2026 = -1.7; 2027 = -1.5; 2028 = -1.5; thereafter roughly -1.4 to -1.5. - Primary deficit (percent of GDP): 2022 = -0.9; projected stabilize at -1.2 from 2023 onwards (staff projects the primary balance to stabilize at 1.2 percent of GDP from 2023 onwards — staff commentary uses positive sign for surplus). - Noninterest revenues (percent of GDP): 2022 = 22.0; projected 2023 onward = 22.6, 22.7, then steady at 22.7. - Noninterest expenditures (percent of GDP): 2022 = 21.0; projected 2023 onward = 21.4, 21.5, then steady at 21.5. - Automatic debt dynamics: 2023 = -9.3; 2024 = -1.5; 2025 = -0.5; 2026 = -0.2; small positives and zeros thereafter. - Real interest rate and relative inflation (percent): 2023 = -1.0; 2024 = 0.0; 2025 = 0.7; 2026 = 0.9; 2027 = 1.1; 2028 = 1.2; subsequent years mostly 1.1–0.9. - Real GDP growth (percent): Actual 2022 = 12.1; 2023 = 2.4; 2024 onward = 2.0 (medium-term). - Real exchange rate: 2022 = 0.4 (other years not populated in table excerpt). - Contingent liabilities (percent of GDP): 2022 = 1.3; 2023 onward = 0.0. - Contribution of residual (percent of GDP): 2023 = -7.5; 2024 = -0.7; 2025 = -0.1; 2026 = 0.2; small positives thereafter. - Gross financing needs (percent of GDP): 2022 = 6.4; 2023 = 4.6; 2024 = 4.3; 2025 = 3.7; 2026 = 3.2; 2027 = 3.3; 2028 = 3.4; 2029 = 3.6; 2030 = 3.7; 2031 = 3.7; 2032 = 4.4; 2033 = 4.9. - Debt service (percent of GDP): 2022 = 6.0; 2023 = 5.7; 2024 = 5.5; 2025 = 4.9; 2026 = 4.4; 2027 = 4.5; 2028 = 4.6; 2029 = 4.8; 2030 = 4.9; 2031 = 4.9; 2032 = 5.9; 2033 = 6.1. - Local currency debt service (percent of GDP): 2022 = 3.9; 2023 = 3.1; 2024 = 2.1; 2025 = 1.2; 2026 = 0.7; 2027 = 1.0; 2028 = 1.3; 2029 = 1.3; 2030 = 1.3; 2031 = 1.3; 2032 = 1.3; 2033 = 1.6. - Foreign currency debt service (percent of GDP): 2022 = 2.2; 2023 = 2.6; 2024 = 3.4; 2025 = 3.7; 2026 = 3.6; 2027 = 3.5; 2028 = 3.4; 2029 = 3.5; 2030 = 3.6; 2031 = 3.7; 2032 = 4.6; 2033 = 4.5. *Staff commentary highlights* - Real GDP expanded by 12.1 percent in 2022 and is projected to grow by 2.4 percent in 2023, as tourism returns to pre-pandemic levels and the BPO sector continues to develop, before growth returns to potential at 2 percent over the medium-term. - Public debt fell to 64 percent of GDP in 2022 and is projected to decline to 53 percent by 2028. ### Public debt structure and financing composition (commentary) - After the debt-for-marine-protection swap in 2021, the government has relied increasingly on official sector debt to meet gross financing needs. This reliance is likely to continue in the medium-term. - Figures indicate public debt by currency, by holder, by governing law, by instrument, and by maturity; residual maturity is noted as 6. years in the graphic captions. ### Medium-term risk analysis (selected indicators and probabilities — numeric values preserved) - Indicator values (as presented): Fanchart width = 42.3 0.6 - Probability of debt not stabilizing (pct) = 23.2 0.2 - Terminal debt level x institutions index = 38.2 0.8 - Debt fanchart index = 1.6 - Average GFN in baseline = 3.8 1.3 - Bank claims on government (pct bank assets) = 6.1 2.0 - Change in claims on government in stress (pct bank assets) = 2.9 1.0 - GFN financeability index = 4.2 - Prob. of missed crisis, 2023-2028 (if stress not predicted) = 9.1 pct. - Prob. of false alarm, 2023-2028 (if stress predicted) = 48.9 pct. - Aggregate mechanical signal for the medium-term risk analysis: low. - Assessment: moderate risk for the Debt Fanchart index and low risk for the GFN Financeability index. - Triggered stress tests: suggest natural disasters would not increase risks sufficiently to justify a change in the overall assessment. ### Long-term risk analysis (selected themes) - The long-term scenarios include medium-term extrapolation, medium-term extrapolation with debt stabilizing, historical average assumptions, and custom scenarios incorporating climate adaptation and mitigation (standardized and customized). - Charts project GFN-to-GDP ratio and Total Public Debt-to-GDP ratio over multi-decade horizons under baseline and climate scenarios; no single numeric long-run projection is isolated in the excerpt beyond illustrative graphics. ### External debt sustainability: boundary and scenario tests (high-level) - Boundary tests and individual shocks include permanent one-half standard deviation shocks to real interest rate, growth rate, and current account balance; a one-time real depreciation of 30 percent occurs in 2024 in one scenario. - Figures show baseline and scenario projections of external debt (percent of GDP) under interest rate shock, non-interest current account shock, growth shock, combined shock, and real depreciation shock. - Selected averages reported in figure boxes (as shown): Baseline: 3.4; Scenario: 3.8; Historical: 2.9 (labels correspond to variables in the figure boxes). Another grouping shows Baseline: 2.0; Scenario: -1.9; Historical: 3.0; and Baseline: -6.1; Scenario: -6.7; Historical: -5.2 for specified variables. ### Risk Assessment Matrix — Selected country-specific risks and policy responses - Abrupt global slowdown: Downside; Relative Likelihood = Medium; Impact = High. - Policy response: Reprioritize government spending to support the most vulnerable; implement structural reforms to reinvigorate growth; monitor closely the banks’ balance sheets for potential vulnerabilities. - Intensifying regional conflicts: Downside; Relative Likelihood = High; Impact = High. - Policy response: Increase targeted support to the most vulnerable and avoid broad-based fuel subsidies; over the medium term, reduce reliance on imported food and fuel by investing in renewable energy generation and domestic food production. - Miscalibration of monetary policy: Downside; Relative Likelihood = Medium; Impact = Medium. - Policy response: Reprioritize government spending to support the most vulnerable; implement structural reforms to reinvigorate growth; monitor banks’ balance sheets. - Higher frequency and severity of natural disasters related to climate change: Downside; Relative Likelihood = Medium; Impact = High. - Policy response: Enhance ex-ante preparedness and risk reduction strategies, invest in resilient infrastructure, strengthen financial and post disaster resilience. - Further pressure on Correspondent Banking Relationships (CBRs): Downside; Relative Likelihood = Medium; Impact = High. - Policy response: Strengthen the AML/CFT framework. Monitor CBRs and communicate with global banks and standard setters. - Social discontent and political instability: Downside; Relative Likelihood = Medium; Impact = Medium. - Policy response: Implement targeted measures to support vulnerable households and businesses. *Note on likelihood definitions (as presented): “low” is probability below 10 percent, “medium” between 10 and 30 percent, and “high” between 30 and 50 percent.* ### Annex VII — Reforming the Pension Plan for Public Officials (PPPO): findings and reform scenarios - Baseline PPPO structure: - PPPO: non-contributory defined benefit retirement plan with retirement age 55 and benefits peaking at two-thirds of the highest salary during public service. - Public officials also participate in the long-term branch of the General Social Security Scheme (contributory defined benefit) with retirement age 65 (or between 60 and 64 if not employed) and average replacement rate for public officials of 27.9 percent. - Combined average replacement rate for public officials is close to 100 percent. - Baseline projections without reforms: - PPPO deficit: 1.1 percent of GDP in 2022 rising to 4.1 percent of GDP in 2072. - Present value of deficits over next 50 years: 77.3 percent of GDP. - Demographic ratio (retirees/workers): 28.4 percent in 2022 rising to 83.8 percent in 2072. - Benchmark parametric reforms studied: - Reduce replacement rate for new retirees by 1 percentage point per year starting in 2023 until it reaches 50 percent in 2040. - Increase contribution rate by 1 percentage point per year starting in 2023 until it reaches 10 percent by 2032. - Raise retirement age on a cohort-phased schedule: to 56 for workers age 49 in 2022; 57 for those age 48; 58 for age 47; 59 for age 46; 60 for age 45; 61 for age 44; 62 for age 43; 63 for age 42; 64 for age 41; and 65 for those age 40 or younger. - Effects of benchmark reforms: - Reduction in long-run PPPO deficit to 1.6 percent of GDP. - Present value of deficits (2023–2072) falls to 26.1 percent of GDP. - Each reform (raising retirement age, increasing contribution rate, reducing replacement rate) contributes broadly the same amount to deficit reduction in the long run. - Alternative combinations: - Different combinations of parametric reforms can yield the same deficit reduction: less ambitious reform in one dimension requires more ambitious reform in another to reach the same target (example: to lower the PPPO deficit to zero by 2045 with retirement age at 65, a smaller reduction in replacement rate requires a larger rise in contribution rate). - Indexing and structural considerations: - Indexing retirement age to life expectancy would lower the impact of population aging on fiscal spending and avoid frequent changes to PPPO parameters. - One-time parametric reforms reduce deficits temporarily; as population continues to age, deficits can rise again unless reforms are complemented by indexing or additional measures. - Containing the wage bill would help moderate increases in PPPO deficits. *Italicized line* *Source: 1blzea2023001 - 5. Debt Consolidation Across Sectors (PDF chapter provided).* ### Annex VIII. External Sector Assessment ### Annex VIII. External Sector Assessment ### Overall Assessment - Belize’s external position in 2022 is assessed as moderately weaker than warranted by fundamentals and desirable policies. - The EBA-lite current account model estimates the current account norm at –7.1 percent of GDP. - The cyclically adjusted current account is –8.2 percent of GDP, implying a gap of -1.1 percent of GDP. - The current account deficit is expected to remain financed by FDI and official loans to the government. - International reserves are expected to remain above 3 months of imports and short-term external debt, but below the ARA metric. - The risk of capital outflows is modest as most external debt is with official creditors and the Central Bank has the appropriate tools to manage capital outflows if needed. ### Potential Policy Responses - Increase the level of international reserves closer to the ARA metric to strengthen the sustainability of the currency peg and permit more predictable access to FX. - Implement additional fiscal consolidation. - Implement growth enhancing structural reforms that: - increase competitiveness and exports, and - attract FDI. - Invest in infrastructure to: - improve road connectivity, - enhance airport capacity, and - build resilience to climate change and related disasters. - Strengthening infrastructure and resilience would help the agriculture and tourism sectors grow and become more interconnected. ### Foreign Assets and Liabilities: Position and Trajectory Background and recent trajectory: - Belize’s net international investment position (NIIP) improved from –165 percent of GDP in 2020 to – 110 in 2022, reflecting: - strong economic growth, - a fall in portfolio investment liabilities related to the debt for marine protection swap with The Nature Conservancy and the discount in the Petrocaribe debt owed to Venezuela, and - a fall in direct investment liabilities as the stock of FDI did not grow as fast as GDP. - Gross liabilities amounted to 139 percent of GDP in 2022, with: - external debt amounting to 51 percent of GDP and - FDI to 88 percent of GDP. - Gross assets totaled 30 percent of GDP, with: - reserve assets amounting to 15 percent of GDP, - other investment to 11 percent of GDP, - direct investment to 3 percent of GDP, and - portfolio investment to 1 percent of GDP. Assessment: - Belize’s NIIP is assessed as broadly sustainable as it is projected to continue improving over the medium term in line with the projected decline in external debt. Key 2022 figures (percent of GDP): - NIIP: -110 - Gross Assets: 30 - Debt Assets: 12 - Gross Liab.: 139 - Debt Liab.: 51 ### Current Account Background: - The current account balance (CAB) is projected to decline from –6.3 percent of GDP in 2021 to –8.5 percent of GDP in 2022, as the rise in tourism-related receipts is more than offset by higher imports, larger repatriation of profits, and lower remittances. - Going forward, the CAB is projected to gradually increase over time as commodity prices decline and tourism continues to recover. Assessment and model results: - The EBA-lite current account model estimates a current account norm of –7.1 percent of GDP. - The cyclically-adjusted CAB is –8.2 percent of GDP, implying a current account gap of –1.2 percent of GDP and a small real effective exchange rate overvaluation of 3.6 percent. - The cyclically-adjusted CAB reflects: - a cyclical adjustment of 0.2 percent of GDP and - an adjustment of –0.5 percent of GDP due to natural disasters. - A COVID-tourism adjustor was not used since tourism levels approached pre-pandemic levels in 2022. - The current account gap places Belize in the range of [-2%, -1%] percent of GDP, thus as moderately weaker than the level implied by fundamentals and desirable policies. ### Real Exchange Rate - Belize’s real effective exchange rate (REER) appreciated by 0.3 percent in 2022, reversing in part the 1.6 percent depreciation of 2021. - Before that, it was broadly stable, averaging an appreciation of *Source: Annex VIII. External Sector Assessment* ### 0.1 percent per year during 2010- 20. ### 1blzea2023001 - 0.1 percent per year during 2010- 20. ### Real exchange rate and external position assessment - EBA-Lite REER model estimates an undervaluation of 21.1 percent. - Staff places more weight on the CA model because it imposes multilateral consistency, which the REER model cannot due to the normalization of REER indexes. - CA and REER model indicators (in percent of GDP / percent): - CA-Actual-8.5 - Cyclical contributions (from model) (-)0.2 - Natural disasters and conflicts (-)-0.5 - Adjusted CA-8.2 - CA Norm (from model) 2/-7.1 - Adjusted CA Norm-7.1 - CA Gap-1.27.0 - o/w Relative policy gap1.4 - Elasticity-0.3 - REER Gap (in percent)3.6-21.1 - Methodological note: Based on the EBA-lite 3.0 methodology; CA Norm is cyclically adjusted, including multilateral consistency adjustments. ### Capital and financial accounts: flows and risks - Between 2020 and 2022, the capital and financial accounts balance surpassed the current account deficit by around 2 percent of GDP per year on average. - Composition of inflows (averages 2020–2022): - Multilateral and bilateral loans to the government, net of amortization payments: averaged 8.4 percent of GDP per year. - FDI inflows: averaged 5 percent of GDP. - Medium-term projection: - Capital and financial accounts balance is projected to be in line with the current account deficit as FDI in the tourism and business process outsourcing sectors continues and the government continues to rely on official loans. - As a result, the overall Balance of Payments balance is projected at near zero over the medium term. - Assessment of risks: - No major risks of capital outflows from nonresidents as Belize is de facto excluded from the international capital market and the government relies on multilateral and bilateral loans. - Risk of capital outflows from residents is limited because the Central Bank has appropriate tools to manage capital outflows. - Downside risk: FDI could be lower than in the baseline scenario if adverse shocks derail the recovery of tourism or strict limits on the use of FX constrain foreign investors’ capacity to repatriate profits. ### FX intervention and reserves level - Gross international reserves: - US$482 million or 3.7 months of imports at end-2022. - US$205 million above the level in 2019. - Drivers of reserve accumulation: large official loans to the government, robust FDI inflows, and the IMF SDR allocation in 2021. - Authorities maintain a fixed exchange rate against the US dollar; no intervention data published by the Central Bank. - Assessment and projections: - Increasing reserves closer to the ARA metric would strengthen the sustainability of the currency peg and allow more predictable access to FX. - Belize’s reserves are projected to remain above 3 months of imports or short-term external debt, but below the ARA metric (which also considers long term external debt and broad money). - Policy implications: - Increasing the level of reserves requires implementing additional fiscal consolidation and growth-enhancing structural reforms that improve competitiveness, increase exports, and attract FDI. - Making access to FX more predictable would facilitate attracting FDI. ### Data, statistics, and methodological issues - National accounts rebasing (2020, with CARTAC, IMF, and Statistics Canada support): - Updated from the 1993 SNA to the 2008 SNA. - Updated base year’s price structure and weights from 2000 to 2014. - Increased industry subgroupings from 18 to 34. - Revised nominal GDP rose by an average of 30 percent relative to the old series between 1993 and 2020. - Data adequacy and gaps: - General: Data provision has some shortcomings but is broadly adequate for surveillance. - Real sector: Timeliness generally adequate except biannual labor force statistics and poverty and literacy-related social indicators, which have large lags. GDP on an expenditure basis is only annual and with a significant lag. - Fiscal accounts: Data on consolidated operations of the public sector are unavailable. Priorities include preparing comprehensive lists of institutions comprising central government, general government, and public sector including extra budgetary units. Classification issues noted for the Social Security Board; implications for money and credit aggregates. Difficulties in compiling capital expenditure and inconsistent accounting practices (neither cash nor accrual basis). Domestic debt and domestic debt service data need improvement, particularly amortization. - Monetary and financial statistics: Compiled by CBB using SRFs; disseminated with a lag of approximately two months. Coverage of other depository corporations limited to commercial banks (around 2/3 of financial system assets); coverage should be expanded to credit unions and international (offshore) banks. - Financial Soundness Indicators: CBB compiles 15 core FSIs and 10 additional FSIs for deposit takers, plus two additional FSIs on real estate markets, quarterly. Limited data on non-bank financial institutions, especially the offshore sector. - External sector statistics: SIB disseminates trade in goods monthly with a one-month lag; data do not cover services (important given tourism). CBB compiles Balance of Payments and International Investment Position in BPM6 format on quarterly and annual frequencies; timeliness should be improved. - Data dissemination and standards: - Belize has participated in the e-GDDS since September 2006; metadata last updated on DSBB in 2011. - Belize has yet to establish a National Summary Data Page (NSDP); work has begun with IMF Statistics Department support. - No data ROSC is available. ### Fund relations, technical assistance, and macro context (selected highlights) - Exchange rate arrangement: conventional peg since 1976; BZ$ 2 per U.S. dollar. - IMF membership: Joined March 16, 1982; Article VIII. - Quota and holdings: - Quota 26.70 SDR Million 100.00 percent of quota. - IMF’s Holdings of Currency (Holdings Rate) 20.49 76.73 - Reserve Tranche Position 6.21 23.27 - Net cumulative SDR allocation 43.49 100.00; Holdings 37.35 85.89 - Selected recent technical assistance (FAD, STA, MCM, LEG; sample dates 2018–March 2023) across tax administration, financial soundness indicators, contingency planning, cyber risk supervision, bank resolution, NPL management, FX regulatory framework, FX reserve management, accrual accounting implementation. - CARTAC TA FY2021–FY2023: multiple missions across Customs and Tax Administration, Public Financial Management, Statistics, and Financial Markets (detailed mission dates and topics provided in source). - Macroeconomic outlook notes (authorities’ statement, May 8, 2023): - Real GDP: after declining by 13.4 percent in 2020, rebounded by 15.2 percent in 2021 and 12.1 percent in 2022; real GDP already above pre-pandemic level by a sizeable margin. - Fiscal primary balance: increased from -8.1 percent of GDP in 2020 to 1.2 percent of GDP in 2022. - Public debt dynamics: GDP rebasing in 2020 reduced public debt-to-GDP from 133 percent (old GDP) to 101 percent (new GDP). Debt declined further to 64 percent of GDP in 2022. With current policies, Belize is on track to reduce debt to 53 percent of GDP by 2028. - Risks to outlook: high inflation, spillovers from Russia’s war against Ukraine (including increased food and fuel prices), and climate-related disasters. - Inflation: increased from near zero in 2020 to 3.2 percent in 2021. *Source: IMF staff report material as presented in the provided PDF content.* ### 6.3 percent in 2022, in line with the increase in global food and fuel prices and global inflation. ### 1blzea2023001 - 6.3 percent in 2022, in line with the increase in global food and fuel prices and global inflation. ### Economic outlook and risks - Real GDP growth was 6.3 percent in 2022, in line with the increase in global food and fuel prices and global inflation. - Authorities project growth to slow starting in 2023, with real GDP growth of about 2.7 percent over the medium term. - Inflation is expected to moderate to 4.1 percent in 2023 and 1.2 percent over the medium term. - Risks to financial stability remain elevated, with a growing number of nonperforming loans since the expiry of the COVID-19 forbearance measures and weak private sector credit growth. ### Fiscal policy actions and commitments - Authorities committed to continue reducing public debt and creating fiscal space for buffers and growth-enhancing investments through a combination of revenue and expenditure measures. - Revenue administration measures already taken or underway: - Allocated more staff in Customs to combat fraud. - Created a Tax Recovery Unit in the Belize Tax Services Department. - Work underway to introduce an electronic tax invoicing system and a single electronic window for Customs (with Fund technical assistance). - Planned revenue and tax-base measures: - Widen the tax base, including by reducing the number of zero-rated items under the GST. - Pass the Fiscal Incentives Act to help bring micro, small and medium-sized enterprises (MSMEs) into the formal sector through various tax incentives. - Increase the excise tax on fuel to recoup revenue lost in FY 2022 as soon as conditions allow. - Pension reform: - Belize’s 2023 Budget announced reforms to the Pension Plan for Public Officials to improve sustainability and reduce the deficit, broadly in line with staff’s recommendation. - Phased implementation of a new contributory pension scheme beginning with new entrants to the public service as of July 1, 2023, following consultations with labour unions. - Government to work with unions to finalize the design of the second phase, which will include existing public officers. - These efforts are expected to put the pension plan on a sustainable track, creating further fiscal space for priority long-term investments. ### Structural reforms and social priorities - Priority areas: - Boost inclusive growth and build resilience to climate change. - Ambitious pipeline of physical and digital infrastructure projects: improved road connectivity, renewable energy, climate resilient infrastructure, digitalized civil registry and land registry services. - Expand access to credit through establishment of a credit bureau and credit collateral registry. - Tax incentives targeted at MSMEs. - Fight crime and corruption through increased use of technology in surveillance. - Reduce poverty through targeted social programs to increase the quality of education and mandatory age of schooling and provide housing and childcare to the most vulnerable. - Expected outcome: - Ambitious reform agenda to ensure a robust social safety net that supports the poorest and most vulnerable. ### Climate change as a macro-critical threat - Belize is exceptionally vulnerable to increasingly frequent and severe climate shocks, including hurricanes, flooding, sea level rise, coastal erosion and coral bleaching. - Investment in adaptation and mitigation efforts, including the transition away from fossil fuels towards renewable energy, is an economic imperative. - Progress constrained by limited fiscal space; authorities seeking grants and concessional loans from the Green Climate Fund and other development partners. - Authorities committed to a proactive and preventative approach to climate change and underscore the important role of the IMF and MDBs in supporting such efforts. ### Monetary and financial sector policies - Belize’s currency peg is a key macroeconomic anchor with a long-proven track record of providing stability. - Authorities committed to maintaining the peg and undertaking additional fiscal consolidation and growth-enhancing structural reforms to help increase international reserves. - Central Bank commitments and actions: - Continue closely monitoring financial sector risks and strengthen AML/CFT supervision of banks. - Close monitoring and supervision of the banking sector in the context of the recent rise in non-performing loans and deteriorating asset quality; ready to act if some institutions require recapitalization. - Developed guidelines for imposing penalties for non-compliance with AML/CFT requirements and committed to continue strengthening the AML/CFT framework ahead of the mutual evaluation by the Caribbean Financial Action Task Force in November 2023. - Commitment to maintain the highest level of compliance with international financial integrity standards. ### Engagement with Fund and technical partners - Authorities value close collaboration with the Fund in developing their homegrown reform agenda. - Authorities are grateful for the Fund’s continued policy advice and technical assistance, including through the Caribbean Regional Technical Assistance Centre (CARTAC), and are committed to continue listening to the Fund’s advice. - Authorities look forward to staying closely engaged with the Fund on implementing their reform agenda. *Source: 1blzea2023001 - 6.3 percent in 2022, in line with the increase in global food and fuel prices and global inflation.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1blzea2023001.pdf_