## ANALYZING INFLATION DYNAMICS IN BELIZE ## Source details **Canonical URL:** [ANALYZING INFLATION DYNAMICS IN BELIZE](https://www.imf.org/-/media/files/publications/cr/2023/english/1blzea2023002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1blzea2023002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1blzea2023002.pdf.json) --- ### Overview and Objective - Goal: quantify the role of external and domestic factors in Belize’s recent inflationary episode and project inflation going forward. - Methods: - Principal Component Analysis (PCA) on monthly year-on-year headline inflation rates for 68 countries between January 2000 and August 2022 (standardized to mean zero and standard deviation one). - An augmented Phillips curve estimated using local projection methods with quarter-on-quarter seasonally adjusted inflation in Belize regressed on lagged inflation (inflation expectations proxy), lagged output gap, quarter-on-quarter log changes in the nominal effective exchange rate (NEER), quarter-on-quarter CPI inflation in the US, and quarter-on-quarter percent changes in oil and food prices. ### Key Empirical Findings — Principal Component Analysis (PCA) - Number of global factors selected: three (chosen because the three components explain over 60 percent of cross-country inflation variation; Cattell (1966) test; recent statistical tests indicate around two components). - Sample and period: 68 countries, January 2000–August 2022. - Share of Belize inflation variation explained by global factors: - Global factors explain 71.2 percent of variation of inflation in Belize over 2000–2022. - The first global factor alone explains 69.2 percent of Belize’s inflation variation. - Importance in the recent surge: - Inflation in Belize peaked at 7.4 percent year-on-year in August 2022, of which 6.9 percent was due to global factors. - Global factors explain nearly all of the increase in inflation between June 2021 and June 2022. - Cross-country and regional patterns: - Belize ranks in the top 40 percent of countries in the sample for the share of inflation variation explained by global factors. - The importance of global factors in the recent surge is common across the Caribbean; pegged exchange rate countries experienced lower inflation than floaters, and global factors contributed more to the peggers’ inflation increase than to floaters’ (likely reflecting different CPI weightings for food and fuel and currency depreciation effects for floaters). - Composition and correlations: - Factor 1 explains most of the recent rise in Belize’s inflation and comoves strongly with global energy and food prices. - Correlation of Factor 1 with global energy prices: 0.64 (2000–2022). - Correlation of Factor 1 with global food prices: 0.51 (2000–2022). ### Key Empirical Findings — Augmented Phillips Curve - Specification includes: lagged inflation (expectations), lagged output gap, NEER changes, US CPI inflation, oil price changes, food price changes. - Model fit: R-squared = 56 percent. - Estimated drivers: - External factors (food prices and US inflation) have positive and significant effects on Belize’s inflation. - In specifications including contemporaneous US inflation, food prices remain significant (though smaller coefficient), while oil prices lose significance. - The output gap and lagged inflation also have positive and significant effects, but contribute less to the recent surge than external factors. - Counterfactual analysis: - Belize’s inflation in 2021–22 would have been much lower if US inflation had stayed at its 2019 average. - Long-run quarterly inflation implied by model under stabilization: 0.28 percent per quarter on average (driven by closure of the output gap, stabilization of commodity prices, NEER changes, and US inflation). ### Projections and Scenarios - Projection inputs: January 2023 World Economic Outlook database; quarterly projections until 2024Q4 and annual projections until 2028; quarterly projections between 2025Q1 and 2028Q4 estimated assuming constant quarter-on-quarter growth rates within each year calibrated to match projected annual growth rates. - Phillips-curve-based projections (compounded quarterly to annual rates): - Peak inflation: 7.5 percent in 2022. - Projected inflation in 2023: 4.0 percent. - Projected medium-term inflation: 1.2 percent. - Drivers of the projected decline: - Projected fall in US inflation and food prices are the main contributors to the decline from the 2022 peak. - Lagged inflation and closure of the output gap reinforce the downward trajectory. - Projection nuance: the peak in 2022 and subsequent decline are driven primarily by the dynamics of US inflation and food prices per the Phillips curve decomposition. ### Analytical Conclusions on Inflation - External/global factors have contributed significantly to Belize’s inflation surge since mid-2021: - PCA: global factors (closely linked to energy and food prices) explain over 70 percent of historical inflation variation in Belize and most of the mid-2021 surge. - Phillips curve: external factors, proxied by US inflation and food prices, have been main drivers of Belize’s inflation since the 1990s and especially since mid-2021. - Outlook: Global factors are projected to reduce Belize’s inflation substantially; model projects a decline from a 7.5 percent peak in 2022 to 4.0 percent in 2023 and 1.2 percent over the medium term, mostly due to projected falls in US inflation and food prices. --- ### 1blzea2023002 — PPPO (Pension Plan for Public Officials) Analysis ### Key findings and fiscal projections - The PPPO deficit is projected to increase from 1.1 percent of GDP in 2022 to 4.1 percent of GDP in 2072. - The present value of the PPPO deficits accumulated during 2022-72 is estimated at 77.3 percent of GDP without reforms. - Benchmark reforms reduce the long-run PPPO deficit to 1.6 percent of GDP by 2072. - With benchmark reforms, the present value of deficits during 2022-72 falls from 77.3 percent of GDP to 26.1 percent of GDP (also reported as 26.2 percent of GDP in one passage). - The analysis assumes a real interest rate of 3 percent and a nominal interest rate falling from 7.2 percent in 2023 to 4.2 percent over the medium term. ### Context and pension system structure - Public officials participate in: - The long-term branch of the General Social Security Scheme (GSSS): defined benefit, contributions by employers and employees, retirement age of 65 (or between 60 and 64 if not employed), maximum pension of 60 percent of pensionable salary after a full career. - The Pension Plan for Public Officials (PPPO): non-contributory defined-benefits scheme, retirement age of 55, benefits peak at two-thirds of the highest salary during public service. - Average replacement rates in 2021: - PPPO: 67.5 percent. - GSSS: 27.9 percent of the average income in the public sector. - Combined replacement rate for public officials: 95.4 percent. - OECD comparators cited: OECD (2021) male gross replacement rate 51.8 percent; OECD (2014) male gross replacement rate for Latin America and the Caribbean 61.9 percent. ### Demographics and labor force assumptions - PPPO population in FY2021: 15,117 workers and 4,767 retirees; demographic ratio of 31.5 percent. - Public workers average age in 2022: 36.8 years (also reported later as 36.3 in 2022). - Public workers age distribution: 47.3 percent between 27 and 39 years old. - Current cohort of retirees: 12 percent younger than 55 and 50.1 percent between 55 and 65. - Old-age dependency ratio (population 65+ over population 15-64): 7.4 percent in 2021; projected to increase to 20 percent in 2052 and 37 percent in 2072. - Life expectancy at 55: projected to increase from 22 in 2022 to 29.8 in 2072. - PPPO demographic ratio projected: 31.5 percent in 2022; 58.4 percent in 2052; 83.8 percent in 2072. - Labor force and GDP assumptions: - Labor force participation rate held constant at pre-pandemic average of 64.8 percent. - Unemployment rate declines from 6.1 percent in 2022 to long-run equilibrium of 5.0 percent. - Real GDP growth: 2 percent over the next decade, then slows with employment growth assuming constant capital-to-labor ratio. - Total factor productivity growth: 1 percent per year. - GDP deflator change: declines from 4.1 percent in 2023 to 1.2 percent over the medium term. - Public sector employment: 8.1 percent of employment in 2022; assumed to fall by 0.04 percentage points per year to reach 6.1 percent in 2072. ### Model structure and behavioral parameters - Focus of analysis: public workers younger than 55 and retirees older than 54. - New hires assumed to be between 18 and 25 years old, distributed in proportion to 2022 age distribution (휙휙푎푎). - Wages: - Average public sector wages assumed to grow by 2.5 percent per year (annual wage increments restart in FY2024). - Wage evolution for age a, year t: 푤푤푎𝑖𝑡 = 1.025 ⋅ 푤푤𝑎,𝑡−1 for t>2022. - Overall wage bill: 푊푊𝑡 = Σ푎=14 54 푤푎𝑡 ⋅ 훿푎𝑡. - Pensions: - New retirees (age 55) pension: 푔55𝑡 = (2/3) ⋅ 푤54𝑡. - Pension benefits remain constant for ages >55 per current rules: 푔𝑎𝑡 = 푔𝑎−1,𝑡−1. - Government total PPPO expenditure: 푃𝑡 = Σ푎=55 102 푔𝑎𝑡 ⋅ 푟𝑎𝑡. - Present value calculation uses the assumed interest rates above. ### Benchmark reform package (gradual implementation) - Replacement rate: - Reduced by 1 percentage point per year starting in 2023 until it reaches 50 percent by 2039. - Contribution rate: - Increased by 1 percentage point per year (0.5 percentage point for workers and 0.5 percentage point for the government) starting in 2023 until it reaches 10 percent total by 2032 (5 percent workers; 5 percent government). - Retirement age: - Remains at 55 for workers that are 50 or older in 2022. - Raised incrementally by cohort for younger workers such that those age 40 or younger reach retirement age 65; the schedule: - 49 → 56; 48 → 57; 47 → 58; 46 → 59; 45 → 60; 44 → 61; 43 → 62; 42 → 63; 41 → 64; 40 or younger → 65. - Assumed wage effect of working an extra year: 2.7 percent increase in annual wage (estimate based on tenure coefficients 0.0285, 0.0282, 0.0269 in Table 1; the analysis uses 2.7 percent). ### Quantitative effects of reforms and alternative scenarios - Benchmark reforms outcome: - Long-run PPPO deficit reduced to 1.6 percent of GDP by 2072. - Present value of deficits during 2022-72 falls to 26.1 percent of GDP (26.2 percent reported in related passage). - Government savings smaller than PPPO deficit reduction because the government must pay its share of increased contributions. - Timing and contribution of reforms: - Near-term savings mostly from raising contribution rate (implemented over 10 years). - Reductions in replacement rate and raising retirement age take longer (15 to 18 years) but each contribute about 0.8 percentage point of GDP to long-run deficit reduction. - Alternative combinations to eliminate deficit by 2045 (with retirement age 65): - Smaller reductions in replacement rate require larger increases in contribution rate to eliminate the PPPO deficit by 2045. - Example: with retirement age raised to 65 and replacement rate reduced to 45 percent by 2040, a contribution rate of 11.7 percent in 2040 is necessary to eliminate the PPPO deficit. ### Additional model outcomes and projections - Average age of public workers projected to increase by 2.8 years between 2022 and 2072 (from 36.3 in 2022 to 38.9 in 2072 as reported). - Average age of retirees projected to increase from 65.9 in 2022 to 70.0 in 2072. - Demographic ratio projected to rise from 28.4 percent in 2022 to 83.8 percent in 2072 (alternative reported 31.5 percent in 2022 depending on measurement of workers/retirees sample). - PPPO deficit time path without reforms and with benchmark reforms illustrated in figures (PPPO deficit rising to 4.1 percent of GDP by 2072 without reforms; reduced path with reforms). ### Implementing reforms only on new workers (key findings) - Implementing reforms only on new public sector workers hired after 2022 would keep the PPPO deficit below 2 percent of GDP in the long run. - Doing so would reduce the PPPO’s 50-year present value to 52.2 percent of GDP (text also reports a closely related figure of 52.1 percent of GDP for the same scenario). - Compared with the benchmark (comprehensive) reforms, imposing reforms only on new hires would produce smaller reductions in the PPPO deficit but still achieve a substantial long-run improvement (keeping deficit below 2 percent of GDP and reducing the 50-year present value by about one-third relative to the no-reform baseline). - Reform parameters described for new workers: - Contribution rate: 10 percent for public workers hired after 2022. - Replacement rate: 50 percent for public workers hired after 2022. - Retirement age: 65 for public workers hired after 2022. - Existing public sector workers in 2022: PPPO parameters remain unchanged. - Summary statistics: - PPPO deficit in 2022 (baseline): 1.1 percent of GDP. - Projected PPPO deficit by 2072 without reforms: 4.1 percent of GDP. - Present value of 50-year deficits without reforms: 77.3 percent of GDP. - Reforms only for new workers (parameters above): 50-year present value = 52.2 percent of GDP (text also states 52.1 percent of GDP for this scenario). - Long-run PPPO deficit under new-worker-only reforms: remains below 2 percent of GDP. - Dynamics, tradeoffs, and indexing: - One-time parametric reforms reduce or stabilize the PPPO deficit temporarily, but as population aging continues, the deficit eventually rises again unless further adjustments occur. - Example trajectory with gradual reforms (illustrative from figures): PPPO deficit falls from 1.1 percent of GDP in 2022 to 0.2 percent of GDP in 2046, but rises to 1.6 percent of GDP in 2072 once reforms cease. - Indexing the retirement age to life expectancy would lower the impact of population aging on fiscal spending, avoid frequent changes to PPPO parameters, and help keep the PPPO deficit low over time. - Containing the wage bill would also help moderate increases in PPPO deficits. *Source: IMF staff analysis in "ANALYZING INFLATION DYNAMICS IN BELIZE" and related PPPO chapter content provided.* ### References ____________________________________________________________________________ 10 ### ANALYZING INFLATION DYNAMICS IN BELIZE ### Overview and Objective - Goal: quantify the role of external and domestic factors in Belize’s recent inflationary episode and project inflation going forward. - Methods: - Principal Component Analysis (PCA) on monthly year-on-year headline inflation rates for 68 countries between January 2000 and August 2022 (standardized to mean zero and standard deviation one). - An augmented Phillips curve estimated using local projection methods with quarter-on-quarter seasonally adjusted inflation in Belize regressed on lagged inflation (inflation expectations proxy), lagged output gap, quarter-on-quarter log changes in the nominal effective exchange rate (NEER), quarter-on-quarter CPI inflation in the US, and quarter-on-quarter percent changes in oil and food prices. ### Key Empirical Findings — Principal Component Analysis (PCA) - Number of global factors selected: three (chosen because the three components explain over 60 percent of cross-country inflation variation; Cattell (1966) test; recent statistical tests indicate around two components). - Sample and period: 68 countries, January 2000–August 2022. - Share of Belize inflation variation explained by global factors: - Global factors explain 71.2 percent of variation of inflation in Belize over 2000–2022. - The first global factor alone explains 69.2 percent of Belize’s inflation variation. - Importance in the recent surge: - Inflation in Belize peaked at 7.4 percent year-on-year in August 2022, of which 6.9 percent was due to global factors. - Global factors explain nearly all of the increase in inflation between June 2021 and June 2022. - Cross-country and regional patterns: - Belize ranks in the top 40 percent of countries in the sample for the share of inflation variation explained by global factors. - The importance of global factors in the recent surge is common across the Caribbean; pegged exchange rate countries experienced lower inflation than floaters, and global factors contributed more to the peggers’ inflation increase than to floaters’ (likely reflecting different CPI weightings for food and fuel and currency depreciation effects for floaters). - Composition and correlations: - Factor 1 explains most of the recent rise in Belize’s inflation and comoves strongly with global energy and food prices. - Correlation of Factor 1 with global energy prices: 0.64 (2000–2022). - Correlation of Factor 1 with global food prices: 0.51 (2000–2022). ### Key Empirical Findings — Augmented Phillips Curve - Specification includes: lagged inflation (expectations), lagged output gap, NEER changes, US CPI inflation, oil price changes, food price changes. - Model fit: R-squared = 56 percent (explains a large share of Belize’s inflation variation). - Estimated drivers: - External factors (food prices and US inflation) have positive and significant effects on Belize’s inflation. - In specifications including contemporaneous US inflation, food prices remain significant (though smaller coefficient), while oil prices lose significance. - The output gap and lagged inflation also have positive and significant effects, but contribute less to the recent surge than external factors. - Counterfactual analysis: - Belize’s inflation in 2021–22 would have been much lower if US inflation had stayed at its 2019 average. - Long-run quarterly inflation implied by model under stabilization: 0.28 percent per quarter on average (driven by closure of the output gap, stabilization of commodity prices, NEER changes, and US inflation). ### Projections and Scenarios - Projection inputs: January 2023 World Economic Outlook database; quarterly projections until 2024Q4 and annual projections until 2028; quarterly projections between 2025Q1 and 2028Q4 estimated assuming constant quarter-on-quarter growth rates within each year calibrated to match projected annual growth rates. - Phillips-curve-based projections (compounded quarterly to annual rates): - Peak inflation: 7.5 percent in 2022. - Projected inflation in 2023: 4.0 percent. - Projected medium-term inflation: 1.2 percent. - Drivers of the projected decline: - Projected fall in US inflation and food prices are the main contributors to the decline from the 2022 peak. - Lagged inflation and closure of the output gap reinforce the downward trajectory. - Projection nuance: the peak in 2022 and subsequent decline are driven primarily by the dynamics of US inflation and food prices per the Phillips curve decomposition. ### Analytical Conclusions - External/global factors have contributed significantly to Belize’s inflation surge since mid-2021: - PCA: global factors (closely linked to energy and food prices) explain over 70 percent of historical inflation variation in Belize and most of the mid-2021 surge. - Phillips curve: external factors, proxied by US inflation and food prices, have been main drivers of Belize’s inflation since the 1990s and especially since mid-2021. - Outlook: Global factors are projected to reduce Belize’s inflation substantially; model projects a decline from a 7.5 percent peak in 2022 to 4.0 percent in 2023 and 1.2 percent over the medium term, mostly due to projected falls in US inflation and food prices. *Source: IMF staff analysis in "ANALYZING INFLATION DYNAMICS IN BELIZE" (chapter content provided).* ### References ### 1blzea2023002 - References ### Key findings and fiscal projections - The PPPO deficit is projected to increase from 1.1 percent of GDP in 2022 to 4.1 percent of GDP in 2072. - The present value of the PPPO deficits accumulated during 2022-72 is estimated at 77.3 percent of GDP without reforms. - Benchmark reforms reduce the long-run PPPO deficit to 1.6 percent of GDP by 2072. - With benchmark reforms, the present value of deficits during 2022-72 falls from 77.3 percent of GDP to 26.1 percent of GDP (also reported as 26.2 percent of GDP in one passage). - The analysis assumes a real interest rate of 3 percent and a nominal interest rate falling from 7.2 percent in 2023 to 4.2 percent over the medium term. ### Context and pension system structure - Public officials participate in: - The long-term branch of the General Social Security Scheme (GSSS): defined benefit, contributions by employers and employees, retirement age of 65 (or between 60 and 64 if not employed), maximum pension of 60 percent of pensionable salary after a full career. - The Pension Plan for Public Officials (PPPO): non-contributory defined-benefits scheme, retirement age of 55, benefits peak at two-thirds of the highest salary during public service. - Average replacement rates in 2021: - PPPO: 67.5 percent. - GSSS: 27.9 percent of the average income in the public sector. - Combined replacement rate for public officials: 95.4 percent. - OECD comparators cited: OECD (2021) male gross replacement rate 51.8 percent; OECD (2014) male gross replacement rate for Latin America and the Caribbean 61.9 percent. ### Demographics and labor force assumptions - PPPO population in FY2021: 15,117 workers and 4,767 retirees; demographic ratio of 31.5 percent. - Public workers average age in 2022: 36.8 years (also reported later as 36.3 in 2022). - Public workers age distribution: 47.3 percent between 27 and 39 years old. - Current cohort of retirees: 12 percent younger than 55 and 50.1 percent between 55 and 65. - Old-age dependency ratio (population 65+ over population 15-64): 7.4 percent in 2021; projected to increase to 20 percent in 2052 and 37 percent in 2072. - Life expectancy at 55: projected to increase from 22 in 2022 to 29.8 in 2072. - PPPO demographic ratio projected: 31.5 percent in 2022; 58.4 percent in 2052; 83.8 percent in 2072. - Labor force and GDP assumptions: - Labor force participation rate held constant at pre-pandemic average of 64.8 percent. - Unemployment rate declines from 6.1 percent in 2022 to long-run equilibrium of 5.0 percent. - Real GDP growth: 2 percent over the next decade, then slows with employment growth assuming constant capital-to-labor ratio. - Total factor productivity growth: 1 percent per year. - GDP deflator change: declines from 4.1 percent in 2023 to 1.2 percent over the medium term. - Public sector employment: 8.1 percent of employment in 2022; assumed to fall by 0.04 percentage points per year to reach 6.1 percent in 2072. ### Model structure and behavioral parameters - Focus of analysis: public workers younger than 55 and retirees older than 54. - New hires assumed to be between 18 and 25 years old, distributed in proportion to 2022 age distribution (휙휙푎푎). - Wages: - Average public sector wages assumed to grow by 2.5 percent per year (annual wage increments restart in FY2024). - Wage evolution for age a, year t: 푤푤푎푖푡 = 1.025 ⋅ 푤푤푎,𝑡−1 for t>2022. - Overall wage bill: 푊푊𝑡 = Σ푎=14 54 푤푎𝑡 ⋅ 훿푎𝑡. - Pensions: - New retirees (age 55) pension: 푔55𝑡 = (2/3) ⋅ 푤54𝑡. - Pension benefits remain constant for ages >55 per current rules: 푔𝑎𝑡 = 푔𝑎−1,𝑡−1. - Government total PPPO expenditure: 푃𝑡 = Σ푎=55 102 푔𝑎𝑡 ⋅ 푟𝑎𝑡. - Present value calculation uses the assumed interest rates above. ### Benchmark reform package (gradual implementation) - Replacement rate: - Reduced by 1 percentage point per year starting in 2023 until it reaches 50 percent by 2039. - Contribution rate: - Increased by 1 percentage point per year (0.5 percentage point for workers and 0.5 percentage point for the government) starting in 2023 until it reaches 10 percent total by 2032 (5 percent workers; 5 percent government). - Retirement age: - Remains at 55 for workers that are 50 or older in 2022. - Raised incrementally by cohort for younger workers such that those age 40 or younger reach retirement age 65; the schedule: - 49 → 56; 48 → 57; 47 → 58; 46 → 59; 45 → 60; 44 → 61; 43 → 62; 42 → 63; 41 → 64; 40 or younger → 65. - Assumed wage effect of working an extra year: 2.7 percent increase in annual wage (estimate based on tenure coefficients 0.0285, 0.0282, 0.0269 in Table 1; the analysis uses 2.7 percent). ### Quantitative effects of reforms and alternative scenarios - Benchmark reforms outcome: - Long-run PPPO deficit reduced to 1.6 percent of GDP by 2072. - Present value of deficits during 2022-72 falls to 26.1 percent of GDP (26.2 percent reported in related passage). - Government savings smaller than PPPO deficit reduction because the government must pay its share of increased contributions. - Timing and contribution of reforms: - Near-term savings mostly from raising contribution rate (implemented over 10 years). - Reductions in replacement rate and raising retirement age take longer (15 to 18 years) but each contribute about 0.8 percentage point of GDP to long-run deficit reduction. - Alternative combinations to eliminate deficit by 2045 (with retirement age 65): - Smaller reductions in replacement rate require larger increases in contribution rate to eliminate the PPPO deficit by 2045. - Example: with retirement age raised to 65 and replacement rate reduced to 45 percent by 2040, a contribution rate of 11.7 percent in 2040 is necessary to eliminate the PPPO deficit. ### Additional model outcomes and projections - Average age of public workers projected to increase by 2.8 years between 2022 and 2072 (from 36.3 in 2022 to 38.9 in 2072 as reported). - Average age of retirees projected to increase from 65.9 in 2022 to 70.0 in 2072. - Demographic ratio projected to rise from 28.4 percent in 2022 to 83.8 percent in 2072 (alternative reported 31.5 percent in 2022 depending on measurement of workers/retirees sample). - PPPO deficit time path without reforms and with benchmark reforms illustrated in figures (PPPO deficit rising to 4.1 percent of GDP by 2072 without reforms; reduced path with reforms). *Source: 1blzea2023002 - References.* ### 21. Implementing the reforms only on new workers would keep the PPPO deficit below ### 21. Implementing the reforms only on new workers would keep the PPPO deficit below ### Key findings on reforming PPPO for new workers - Implementing reforms only on new public sector workers hired after 2022 would keep the PPPO deficit below 2 percent of GDP in the long run. - Doing so would reduce the PPPO’s 50-year present value to 52.2 percent of GDP (text also reports a closely related figure of 52.1 percent of GDP for the same scenario). - Compared with the benchmark (comprehensive) reforms, imposing reforms only on new hires would produce smaller reductions in the PPPO deficit but still achieve a substantial long-run improvement (keeping deficit below 2 percent of GDP and reducing the 50-year present value by about one-third relative to the no-reform baseline). ### Reform parameters described for new workers - Contribution rate: 10 percent for public workers hired after 2022. - Replacement rate: 50 percent for public workers hired after 2022. - Retirement age: 65 for public workers hired after 2022. - Existing public sector workers in 2022: PPPO parameters remain unchanged. ### Projections and baseline without reforms - PPPO deficit in 2022 (baseline): 1.1 percent of GDP. - Projected PPPO deficit by 2072 without reforms: 4.1 percent of GDP. - Present value of 50-year deficits without reforms: 77.3 percent of GDP. ### Impact of prompt, comprehensive parametric reforms (benchmark scenario) - Contribution rate path: increases by 1 percentage point per year, from zero in 2022 to 10 in 2032. - Retirement age path: gradually raises from 55 in 2022 to 65 in 2036. - Replacement rate path: reduces by 1 percentage point per year, from 67.5 percent in 2022 to 50 by 2039. - Resulting 50-year present value of the PPPO deficit under the benchmark reforms: 26.1 percent of GDP. - Near-term savings: modest, given gradual implementation. - Long-term savings: sizable. ### Dynamics, tradeoffs, and indexing - One-time parametric reforms reduce or stabilize the PPPO deficit temporarily, but as population aging continues, the deficit eventually rises again unless further adjustments occur. - Example trajectory with gradual reforms (illustrative from figures): PPPO deficit falls from 1.1 percent of GDP in 2022 to 0.2 percent of GDP in 2046, but rises to 1.6 percent of GDP in 2072 once reforms cease. - Tradeoffs: If the increase in retirement age or the hike in contribution rates is less ambitious, larger reductions in pension benefits will be required to achieve the same reduction in the PPPO deficit. - Indexing the retirement age to life expectancy would: - Lower the impact of population aging on fiscal spending. - Avoid frequent changes to PPPO parameters. - Help keep the PPPO deficit low over time. - Containing the wage bill would also help moderate increases in PPPO deficits. ### Summary statistics and outcomes - No reforms: deficit rises from 1.1 percent of GDP (2022) to 4.1 percent of GDP (2072); 50-year present value = 77.3 percent of GDP. - Benchmark reforms (gradual, comprehensive): 50-year present value = 26.1 percent of GDP. - Reforms only for new workers (parameters above): 50-year present value = 52.2 percent of GDP (text also states 52.1 percent of GDP for this scenario). - Long-run PPPO deficit under new-worker-only reforms: remains below 2 percent of GDP. *Source: IMF staff calculations as presented in the chapter on Belize’s PPPO reforms.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1blzea2023002.pdf_