## 1. Food Consumption Across Countries and Income Groups

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---

### Introduction: context and transmission
- Several shocks increased global food prices since early-2021: disruptions from the COVID-19 pandemic; low harvests in Europe, South America, and the U.S.; strong demand; and Russia’s invasion of Ukraine in 2022.
- Food prices have recently fallen but remain well above their 20-year average.
- Large upside risks to food prices include climate change and related disasters, and the possible spread of armed conflicts in Ukraine and the Middle East.
- Policy principle emphasized: allow domestic prices to adjust to global prices while providing targeted support to the most vulnerable so price signals work and domestic supply/demand can respond.

### Cross-country and within-country food consumption patterns (key statistics)
- Food share of household consumption basket:
  - Low income and developing countries: 46 percent
  - Emerging market economies: 28 percent
  - Advanced economies: 16 percent
- Belize: food weight in the consumption basket is 25.8 percent (the fourth largest in the Caribbean).
- Within LAC countries:
  - Poorest households spend over 50 percent of their budget on food on average.
  - Poorest households tend to allocate two times more of their budget to food than the richest households.

### Food inflation and food insecurity in Belize (findings)
- Belize experienced its highest rate of food inflation since 2008 in 2023.
- Food inflation timeline and magnitudes:
  - Near zero in 2020
  - 5 percent in 2021
  - Peak of 15.8 percent in March 2023
- Cumulative change in food prices (Dec-2020 to Sept-2023):
  - Belize: 25.8 percent increase
  - Belize’s increase is slightly above the median Caribbean country and about half the increase in the average LA-5 economy (Brazil, Chile, Colombia, Mexico, and Peru).
- Contribution of food inflation to headline inflation (Dec-2020 to Sept-2023):
  - Belize: over 40 percent of the 15.7 percent headline inflation rate
  - Caribbean average contribution: one-third
  - Belize comparable to Barbados and Saint Vincent and the Grenadines; substantially higher than Bahamas and Aruba (where contribution was less than a fifth)
- Food insecurity and undernourishment:
  - 2021: more than 40 percent of Belize’s population experienced food insecurity
  - Moderate food insecurity in Belize in 2021: 40 percent of the population
  - Severe food insecurity in Belize in 2021: 6 percent of the population
  - 2023 World Food Program Caribbean Food Security & Livelihood Survey: 18 percent of respondents in Belize were experiencing severe food insecurity
  - Belize’s undernourishment is low relative to Central America and the Caribbean peers
- Food production conditions:
  - Belize has a relatively high food production index (FAO definition).

### Policy interventions during the 2022 cost-of-living crisis (regional evidence and Belize-specific actions)
- DEFPA coverage and overall findings:
  - DEFPA covers 174 countries (90 percent of advanced and emerging markets, 80 percent of low-income and developing countries) and catalogued nearly 750 announced measures in the first half of 2022.
  - Measures breakdown: 50 percent targeted energy prices, 25 percent food prices, 15 percent both sectors, 10 percent unspecified.
- Caribbean versus rest of LAC (averages):
  - Average Caribbean country announced 5 measures with a cost of 0.7 of GDP.
  - Average country in the rest of LAC announced 6 measures with a cost of 0.9 percent of GDP.
  - Caribbean measures: 53 percent energy, 23 percent food, 12 percent both sectors, 9 percent unspecified.
  - Over 90 percent of Caribbean measures were temporary.
  - Most-used instruments: consumption taxes, price subsidies, in-kind transfers.
  - Over half of policies were revenue-based (VAT/consumption taxes, import tariffs, excises).
  - In the rest of LAC, governments relied relatively more on price subsidies, cash transfers, and non-fiscal measures like price controls.
- Targeting of measures:
  - Over 60 percent of measures across countries were targeted to specific segments, with a large share directed to households.
  - Caribbean: 21 percent targeted households, 17 percent targeted firms, 24 percent unspecified.
  - Within LAC household-targeted policies, 60 percent aimed at low-income and vulnerable individuals.
- Belize’s measures:
  - April 1, 2022: temporary reduction of excise taxes on fuel to keep diesel and regular gasoline prices at the pump constant.
  - Temporary subsidy to bus operators to limit bus fare increases.
  - Estimated cost of the 2022 energy-related measures: 0.6 percent of GDP between April 2022 and March 2023.
  - Fuel tax reduction was untargeted (benefitted households and firms); bus subsidy was more targeted to lower-income households.
  - August 2023: temporary limits on markup for 32 basic consumption goods (including foodstuff) for wholesalers (15 percent) and retailers (25 percent); effectiveness not yet assessed.

### Policy guidance and best practices (recommendations and modalities)
- Central recommendation: let domestic prices adjust to global prices while providing targeted support to the most vulnerable for cost-effectiveness and to preserve market signals.
- Rationale:
  - Allowing passthrough enables domestic demand reduction and medium-term increases in domestic production.
  - Broad-based limits on pass-through produce costly subsidies and benefit all consumption groups regardless of need.
- If targeted transfers are infeasible (weak social safety nets), options include:
  - Temporary price subsidies for food products with low demand elasticity, with clear exit clauses.
  - Alternative targeting approaches: demographic/categorical criteria, geographic targeting, self-selection targeting, community targeting, proxy-means testing, leveraging digital solutions and big data.
  - Leverage existing programs (example: BOOST) to expand coverage where possible.
  - Use latest Census data to identify geographical areas most in need.
  - Design targeted transfers to be temporary and conditional (e.g., beneficiaries take training and seek employment).
  - Complement transfers with awareness campaigns on food prices across retailers.
  - If short-term targeting impossible, consider temporary tax reductions for staple foods with clear sunset clauses while strengthening the safety net.
- Risks and cautions:
  - Prolonged price subsidies can crowd out productive expenditure and reduce agricultural production.
  - Price subsidies should be phased out and replaced by targeted transfers as safety nets are strengthened.

### Cost estimates to fully compensate vulnerable households for food inflation in 2022
- Protecting vulnerable households against a food price shock like the one in 2022 would cost the Belizean government between 0.1 and 0.8 percent of GDP depending on the group targeted.
- Cost by vulnerability group:
  - Households with severe food insecurity: 0.1 percent of GDP
  - Households with any form of food insecurity: 0.8 percent of GDP
- The cost would be lower if the transfer compensates for just part of the food price increase.

### Assumptions and tabulated calculation (methodological notes and figures)
- Key assumptions:
  - (i) the level of consumption of vulnerable households is the same as for the average Belizean;
  - (ii) the share of food in the consumption basket is constant over time;
  - (iii) the share of food in the consumption basket of vulnerable households is the same as that of the average Belizean;
  - (iv) the government can target the most vulnerable households and provides a one-time transfer equal to the increase in the cost of the food basket.
- Staff note on bias: assumption (i) likely overestimates consumption of vulnerable households and thus cost; assumption (iii) likely underestimates cost; staff assumes these biases broadly offset each other.
- Tabulated calculation and key statistics:
  - A: Private final consumption expenditure (BLZ mn, 2021) — 2874.4
  - B: CPI weight on food (percent, 2020) — 25.8
  - C = A x B: Private final consumption of food (BLZ mn, 2021) — 741.6
  - D: Food inflation (percent, 2021 -> 2022) — 13.8
  - E = C x D: Increase in value of food consumption (BLZ mn, 2021) — 102.0
  - F: Fraction of pop. with severe/any form of food insecurity (2021) — 5.9/45.5
  - G = E x F: Cost of fully compensating the vulnerable (BLZ mn, 2021) — 6.0/46.4
  - H: GDP (current, 2022) — 5661.0
  - I = G x H: Cost in percent of 2022 GDP — 0.11/0.82

### Policy trade-offs, markup regulation assessment, and recommendations
- Targeted support versus broad-based subsidies:
  - Targeted support is less costly than broad-based subsidies, but fiscal costs may still be sizable and could conflict with efforts to reduce public debt or expand priority spending.
  - To safeguard fiscal objectives: consider offsetting revenue and expenditure measures; foster competition in agriculture by promoting international trade while supporting farmer productivity.
  - Support to farmers will become more urgent with climate change as more frequent and intense disasters are likely to disrupt domestic agricultural production.
- Assessment of recent markup regulation policy (32 essential goods):
  - Design challenges:
    - Items subject to markup limits may not be those with the highest recent price increases.
    - Retailers can increase prices on other goods to compensate, so inflation may not be curbed.
    - Effectiveness depends on proper enforcement, which requires additional resources.
  - Recommendation: evaluate the impact of the recent policy when sufficient data are available.

### Broader fiscal context, fiscal-rule design, and disaster resilience
- Debt target and primary balance recommendation:
  - Staff recommends achieving a public debt target of 50 percent of GDP by 2030 by raising the primary surplus to 2 percent of GDP from FY2025 onwards.
  - The required increase is 0.8 percent of GDP in the primary surplus and should rely mostly on revenue mobilization.
  - Keeping the primary surplus at this level through 2032 would reduce public debt to 45 percent of GDP.
  - The primary balance target could be reduced to zero afterwards to keep public debt broadly stable in percent of GDP.
- Incorporating response to large shocks and fiscal rule design:
  - A well-designed fiscal rule should have adequate escape clauses triggered only under extraordinary circumstances and require a clear, time-bound plan to return to target.
  - An automatic adjustment mechanism (as in Jamaica) prescribing fiscal adjustment after cumulative deviations would reduce uncertainty and help return debt to target.
- Contingency fund, resilient infrastructure, and longer-term debt anchor:
  - Creating a contingency fund of 1 percent of GDP (as recommended in the 2018 Climate Change Policy Assessment for Belize) could justify a 1 percent of GDP higher long term debt target.
  - Frontloading investment in resilient infrastructure could mitigate damages from large climate disasters but requires careful assessment of mapping to fiscal buffer needs.
- Conclusion and policy guidance:
  - Implement a simple fiscal rule prioritizing debt sustainability, target public debt at 50 percent of GDP by 2030, include a well-defined escape clause and an automatic adjustment mechanism, and clearly communicate the primary balance path required to return debt to its original target.

### Annex I — Macroeconomic effects of climate change and natural disasters (key findings)
- Belize was in the top 5 percent for losses to climate-related natural disasters during 2000–2019 and in the top 15 percent of climate-related disaster fatalities.
- Belize average damage (lost output and destroyed capital) during 2000-23: 5 percent of GDP.
- Losses from specific events:
  - Hurricane Keith (2000): 17 percent of GDP
  - Tropical Storm Earl (2016): 4 percent of GDP
- Damages from disasters in the Caribbean are expected to rise by between 22 and 77 percent by 2100.
- Illustrative hurricane scenario (2026):
  - Damages: 6 percent of GDP
  - Real GDP growth: falls by 3 percent below baseline in year of disaster, by 1 percent in next year, and rises by 0.5 percent above baseline in the next two years due to reconstruction.
  - Government covers two-thirds of damage (4 percent of GDP): 2 percent of GDP in first year and 1 percent of GDP in each of the next two years.
  - Public debt trajectory shifts upwards by about 6 percent of GDP above the baseline.
- Climate change risks: reductions in hydroelectricity generation (hydroelectricity provides around half of Belize’s electricity) and impacts on agriculture and tourism via sea-level rise, storm surges, salinization, and ecosystem disruption.
- Disaster Resilience Strategy (DRS) priorities:
  - Structural resilience: invest in climate-resilient infrastructure; strengthen building codes and land use regulations; increase share of public expenditure allocated toward resilience-building investment.
  - Financial resilience: establish a natural disaster reserve fund of 1 percent of GDP; use ex-ante contingent credit lines and regional insurance mechanisms; consider climate resilient debt clauses (CDRCs).
  - Post-disaster resilience: reform social protection to scale up quickly after disasters; reform budget classification to capture disaster events of all magnitudes.
- Strengthening resilience entails large fiscal costs; implementing a comprehensive DRS and anchoring fiscal strategy on a credible multiyear fiscal rule would enhance credibility and ease access to external financing for resilience initiatives.

*International Monetary Fund — “FOOD INFLATION AND FOOD INSECURITY IN BELIZE”*

### 1. Food Consumption Across Countries and Income Groups ___________________________ 4

### 1. Food Consumption Across Countries and Income Groups

### Introduction: context and transmission
- Several shocks increased global food prices since early-2021: disruptions from the COVID-19 pandemic; low harvests in Europe, South America, and the U.S.; strong demand; and Russia’s invasion of Ukraine in 2022, given both countries’ roles as large producers of wheat, maize, and fertilizers.
- Food prices have recently fallen but remain well above their 20-year average.
- Large upside risks to food prices include climate change and related disasters, and the possible spread of armed conflicts in Ukraine and the Middle East.
- Policy principle emphasized: allow domestic prices to adjust to global prices while providing targeted support to the most vulnerable so price signals work and domestic supply/demand can respond.

### Cross-country and within-country food consumption patterns (key statistics)
- Food share of household consumption basket:
  - Low income and developing countries: 46 percent
  - Emerging market economies: 28 percent
  - Advanced economies: 16 percent
- Belize: food weight in the consumption basket is 25.8 percent (the fourth largest in the Caribbean).
- Within LAC countries, poorest households spend over 50 percent of their budget on food on average; poorest households tend to allocate two times more of their budget to food than the richest households.

### Food inflation and food insecurity in Belize (findings)
- Belize experienced its highest rate of food inflation since 2008 in 2023.
- Food inflation timeline and magnitudes:
  - Near zero in 2020
  - 5 percent in 2021
  - Peak of 15.8 percent in March 2023
- Cumulative change in food prices:
  - Belize: 25.8 percent increase between December 2020 and September 2023
  - Belize’s increase is slightly above the median Caribbean country and about half the increase in the average LA-5 economy (Brazil, Chile, Colombia, Mexico, and Peru).
- Contribution of food inflation to headline inflation (Dec-2020 to Sept-2023):
  - In Belize, food inflation contributed over 40 percent of the 15.7 percent headline inflation rate.
  - Caribbean average contribution: one-third.
  - Comparisons: Belize’s contribution comparable to Barbados and Saint Vincent and the Grenadines; substantially higher than Bahamas and Aruba (where contribution was less than a fifth).
- Food insecurity and undernourishment:
  - 2021: more than 40 percent of Belize’s population experienced food insecurity.
  - Moderate food insecurity in Belize in 2021: 40 percent of the population.
  - Severe food insecurity in Belize in 2021: 6 percent of the population.
  - 2023 World Food Program’s Caribbean Food Security & Livelihood Survey: 18 percent of respondents in Belize were experiencing severe food insecurity.
  - Belize’s undernourishment is low relative to Central America and the Caribbean peers.
- Food production conditions:
  - Belize has a relatively high food production index (FAO definition as the sum of price-weighted quantities of different edible and nutritious agricultural commodities produced after deductions of quantities used as seed and feed).

### Policy interventions during the 2022 cost-of-living crisis (regional evidence and Belize-specific actions)
- DEFPA coverage and overall findings:
  - DEFPA covers 174 countries (90 percent of advanced and emerging markets, 80 percent of low-income and developing countries) and catalogued nearly 750 announced measures in the first half of 2022.
  - Measures breakdown: 50 percent targeted energy prices, 25 percent food prices, 15 percent both sectors, 10 percent unspecified.
- Caribbean versus rest of LAC (averages):
  - Average Caribbean country announced 5 measures with a cost of 0.7 of GDP.
  - Average country in the rest of LAC announced 6 measures with a cost of 0.9 percent of GDP.
  - Caribbean measures: 53 percent energy, 23 percent food, 12 percent both sectors, 9 percent unspecified.
  - Over 90 percent of Caribbean measures were temporary.
  - Most-used instruments: consumption taxes, price subsidies, in-kind transfers.
  - Over half of policies were revenue-based (VAT/consumption taxes, import tariffs, excises).
  - In the rest of LAC, governments relied relatively more on price subsidies, cash transfers, and non-fiscal measures like price controls.
- Targeting of measures:
  - Over 60 percent of measures across countries were targeted to specific segments, with a large share directed to households.
  - Caribbean: 21 percent targeted households, 17 percent targeted firms, 24 percent unspecified.
  - Within LAC household-targeted policies, 60 percent aimed at low-income and vulnerable individuals.
- Belize’s measures:
  - April 1, 2022: temporary reduction of excise taxes on fuel to keep diesel and regular gasoline prices at the pump constant.
  - Temporary subsidy to bus operators to limit bus fare increases.
  - Estimated cost of the 2022 energy-related measures: 0.6 percent of GDP between April 2022 and March 2023.
  - Fuel tax reduction was untargeted (benefitted households and firms); bus subsidy was more targeted to lower-income households.
  - August 2023: temporary limits on markup for 32 basic consumption goods (including foodstuff) for wholesalers (15 percent) and retailers (25 percent) aimed at limiting monopolistic practices and price gouging; effectiveness not yet assessed.

### Policy guidance and best practices (recommendations and modalities)
- Central recommendation: let domestic prices adjust to global prices while providing targeted support to the most vulnerable for cost-effectiveness and to preserve market signals.
- Rationale:
  - Allowing passthrough enables domestic demand reduction and medium-term increases in domestic production.
  - Broad-based limits on pass-through produce costly subsidies and benefit all consumption groups regardless of need.
- If targeted transfers are infeasible (weak social safety nets), options include:
  - Temporary price subsidies for food products with low demand elasticity, with clear exit clauses.
  - Use alternative targeting approaches: demographic/categorical criteria, geographic targeting, self-selection targeting, community targeting, proxy-means testing, leveraging digital solutions and big data.
  - Leverage existing programs (example: BOOST) to expand coverage where possible.
  - Use latest Census data to identify geographical areas most in need.
  - Design targeted transfers to be temporary and conditional (e.g., beneficiaries take training and seek employment).
  - Complement transfers with awareness campaigns on food prices across retailers.
  - If short-term targeting impossible, consider temporary tax reductions for staple foods with clear sunset clauses while strengthening the safety net.
- Risks and cautions:
  - Prolonged price subsidies can crowd out productive expenditure and reduce agricultural production.
  - Price subsidies should be phased out and replaced by targeted transfers as safety nets are strengthened.

*International Monetary Fund — “FOOD INFLATION AND FOOD INSECURITY IN BELIZE”*

### 16.      Staff estimates that protecting the vulnerable against a food price shock like the one

### 1blzea2024002 - 16.      Staff estimates that protecting the vulnerable against a food price shock like the one

### Cost estimates to fully compensate vulnerable households for food inflation in 2022
- Protecting vulnerable households against a food price shock like the one in 2022 would cost the Belizean government between 0.1 and 0.8 percent of GDP depending on the group targeted.
- Cost by vulnerability group:
  - Households with severe food insecurity: 0.1 percent of GDP.
  - Households with any form of food insecurity: 0.8 percent of GDP.
- The cost would be lower if the transfer compensates for just part of the food price increase.

### Assumptions and methodological notes
- The estimations assume:
  - (i) the level of consumption of vulnerable households is the same as for the average Belizean;
  - (ii) the share of food in the consumption basket is constant over time;
  - (iii) the share of food in the consumption basket of vulnerable households is the same as that of the average Belizean;
  - (iv) the government can target the most vulnerable households and provides a one-time transfer equal to the increase in the cost of the food basket.
- Staff note on bias: Assumption (i) likely overestimates the level of food consumption of vulnerable households and thus the cost of protecting them, while assumption (iii) likely leads to an underestimation as poorer households spend a larger share of their income on food than richer households. Staff assumes that these two biases broadly offset each other.

### Tabulated calculation and key statistics (as presented)
- A: Private final consumption expenditure (BLZ mn, 2021) — 2874.4
- B: CPI weight on food (percent, 2020) — 25.8
- C = A x B: Private final consumption of food (BLZ mn, 2021) — 741.6
- D: Food inflation (percent, 2021 -> 2022) — 13.8
- E = C x D: Increase in value of food consumption (BLZ mn, 2021) — 102.0
- F: Fraction of pop. with severe/any form of food insecurity (2021) — 5.9/45.5
- G = E x F: Cost of fully compensating the vulnerable (BLZ mn, 2021) — 6.0/46.4
- H: GDP (current, 2022) — 5661.0
- I = G x H: Cost in percent of 2022 GDP — 0.11/0.82

### Policy trade-offs and recommendations
- Targeted support versus broad-based subsidies:
  - Providing targeted support to vulnerable households is less costly than broad-based subsidies, but fiscal costs may still be sizable and could conflict with other policy objectives such as reducing public debt or expanding priority expenditure on infrastructure and crime prevention.
- To safeguard fiscal objectives:
  - Consider offsetting revenue and expenditure measures to limit the impact on the fiscal balance.
  - Foster competition in the agricultural sector by promoting international trade while supporting farmers to become more productive.
  - Support to farmers will become more urgent with climate change, as more frequent and intense climate-related disasters are likely to disrupt domestic agricultural production.

### Assessment of recent markup regulation policy
- Authorities introduced limits on the markup for 32 essential goods to limit the increase in food prices and avoid monopolistic practices.
- Key design challenges identified:
  - The items subject to markup limits may not be the consumption goods with the highest price increases in the recent period.
  - Retailers can increase prices on other consumption goods to compensate for losses on regulated items, so the policy may not necessarily curb inflation.
  - Effectiveness depends on proper enforcement, which will require additional resources.
- Recommendation: Authorities should evaluate the impact of the recent policy when they have sufficient data.

### Broader fiscal context and link to fiscal-rule design
- Protecting the vulnerable must be weighed against Belize’s broader fiscal strategy:
  - Staff recommends a fiscal rule targeting a reduction in public debt to 50 percent of GDP by 2030 by raising the primary balance from 1.2 percent of GDP in FY2023 to 2 percent from FY2025 onwards.
  - A well-defined escape clause and an automatic adjustment mechanism can provide flexibility to respond to large adverse shocks without undermining credibility.
- Rationale for fiscal rule design:
  - Primary balance operational rule preferred for small states with high exposure to natural disasters and high initial debt.
  - Staff recommends a public debt anchor of 50 percent of GDP for Belize, noting a possible more prudent anchor of about 45 percent of GDP given high exposure to natural disasters, fixed exchange rate regime, and potential contingent liabilities.

*Sources: SIB, IMF CPI Database, FAO, and IMF staff calculations.*

### 16.      Staff recommends achieving the 50 percent of GDP debt target by 2030 by raising the

### 1blzea2024002 - 16.      Staff recommends achieving the 50 percent of GDP debt target by 2030 by raising the

### Debt target and primary balance recommendation
- Staff recommends achieving the 50 percent of GDP debt target by 2030 by raising the primary surplus to 2 percent of GDP from FY2025 onwards.
- The required increase is 0.8 percent of GDP in the primary surplus and should rely mostly on revenue mobilization given the large fall in government spending since the pandemic and the need to expand infrastructure, social, and crime prevention spending to boost growth and make it more inclusive and resilient to climate change and related disasters.
- Keeping the primary surplus at this level through 2032 would reduce public debt to 45 percent of GDP.
- The primary balance target could be reduced to zero afterwards to keep public debt broadly stable in percent of GDP.

### Incorporating the response to large shocks and fiscal rule design
- A well-designed fiscal rule should have adequate escape clauses to allow flexibility to respond to large shocks without undermining credibility.
- Deviation from the fiscal rule targets should be triggered only under extraordinary circumstances (e.g., large natural disasters or a pandemic).
- Activation of the escape clause and subsequent reports to parliament should be accompanied by a clear, time-bound plan to get public debt back to its target after the effects of the shock have faded.
- An automatic adjustment mechanism that prescribes the necessary fiscal adjustment in response to cumulative deviations from the primary balance target (as in Jamaica) would reduce uncertainty about the future fiscal path and ensure debt returns to its target in a pre-determined timeframe (IMF, 2022a).
- This mechanism could facilitate temporary cyclical deviations away from the 2 percent primary balance target followed by higher primary balances in the medium term to ensure that public debt reaches its 50 percent of GDP target by 2030.

### Contingency fund, resilient infrastructure, and longer-term debt anchor
- Setting a contingency fund for natural disasters and increasing investment in resilient infrastructure would require additional fiscal efforts in the near to medium term but could justify a higher debt target in the long term.
- Creating a contingency fund of 1 percent of GDP, as recommended in the 2018 Climate Change Policy Assessment for Belize (IMF, 2018c), could justify a 1 percent of GDP higher long term debt target because part of the response to natural disasters would be financed by the contingency fund rather than by issuing new debt.
- Frontloading investment in resilient infrastructure could mitigate damages from large climate disasters and require lower fiscal buffers over the long term, but the mapping from resilient infrastructure investment to reduced fiscal buffers depends on the type and location of investment and requires careful assessment.

### Conclusion and policy guidance
- Staff recommends implementing a fiscal rule that targets a reduction in public debt to 50 percent to GDP by 2030 by raising the primary balance to 2 percent of GDP from FY2025 onwards.
- The rule should be simple and prioritize debt sustainability over output stabilization.
- Targeting public debt at 50 percent of GDP would ensure that it stays below the 70 percent of GDP threshold for sustainability with 95 percent probability over the next six years given the historical distribution of shocks.
- Reducing public debt further to 45 percent of GDP by 2032 would provide additional buffers to respond to more frequent and severe climate disasters.
- Building a contingency fund to finance responses to frequent, low severity events, and increasing investment in resilient infrastructure could justify a higher gross debt anchor in the long term but would require larger primary surpluses in the short term.
- A well-defined escape clause and an automatic adjustment mechanism to return to the rule targets would provide sufficient flexibility to respond to large shocks without hurting credibility; such clauses should require the prior approval of parliament and be triggered only under exceptional circumstances.
- Clearly communicating the primary balance path required to return debt to its original target could ensure fiscal policy remains credible and fiscal objectives are met in a timely manner.

### Annex I — Macroeconomic effects of climate change and natural disasters (key findings)
- Belize was in the top 5 percent for losses to climate-related natural disasters during 2000–2019 and in the top 15 percent of climate-related disaster fatalities.
- Belize has suffered several natural disasters in the last 25 years, with an average damage (lost output and destroyed capital) of 5 percent of GDP during 2000-23.
- Losses from Hurricane Keith in 2000 were estimated at 17 percent of GDP and those from Tropical Storm Earl in 2016 at 4 percent of GDP.
- Damages from disasters in the Caribbean are expected to rise by between 22 and 77 percent by 2100.
- Illustrative scenario: a hurricane in 2026 causing 6 percent of GDP in damages leads to real GDP growth falling by 3 percent below baseline in the year of the disaster, by 1 percent in the next year, and rising by 0.5 percent above baseline in the next two years due to reconstruction.
- In that scenario the government covers two-thirds of the damage (4 percent of GDP): 2 percent of GDP in the first year and 1 percent of GDP in each of the next two years; the shock shifts the public debt trajectory upwards by about 6 percent of GDP above the baseline.
- Climate change risks include reductions in hydroelectricity generation (hydroelectricity provides around half of Belize’s electricity) and impacts on agriculture and tourism via sea-level rise, storm surges, salinization, and ecosystem disruption.
- Disaster Resilience Strategy (DRS) priorities:
  - Structural resilience: invest in climate-resilient infrastructure and strengthen building codes and land use regulations; increase the share of public expenditure allocated toward resilience-building investment.
  - Financial resilience: establish a natural disaster reserve fund of 1 percent of GDP; use ex-ante contingent credit lines and regional insurance mechanisms for severe events; consider climate resilient debt clauses (CDRCs) in new debt contracts to defer debt payments after a natural disaster.
  - Post-disaster resilience: reform social protection to scale up quickly after disasters; reform budget classification to capture disaster events of all magnitudes.
- Strengthening resilience entails large fiscal costs; advancing priority areas requires mobilizing revenue, reprioritizing spending, and enhancing access to affordable financing.
- Implementing a comprehensive DRS and anchoring the fiscal strategy on a credible multiyear fiscal rule would enhance credibility and ease access to external financing for resilience initiatives.

*Source: IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1blzea2024002.pdf_