## IMF Concludes 2002 Article IV Consultation with Belize ## Source details **Canonical URL:** [IMF Concludes 2002 Article IV Consultation with Belize](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02255.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02255.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02255.pdf.json) --- ### Background - Government policies since end-1998: accelerate economic growth through tax cuts, government investment, expansionary monetary policy, and provision of subsidized credit via the state-owned Development Finance Corporation (DFC). - Authorities committed to maintaining the present exchange rate peg. - Growth: - Accelerated to 11 percent in 2000. - Declined to 5 percent in 2001 due to several hurricanes, terrorist attacks in the United States, and a shrimp-virus epidemic. - Fiscal and financing developments: - Central government deficit widened from 10 percent of GDP to 12 percent in FY 2001/02 (fiscal year ends March). - Deficits financed mainly through privatization receipts and external borrowing, mostly on commercial terms. - DFC financed lending through external commercial borrowing; later reduced new lending after liquidity shortages. - Public and publicly guaranteed external debt increased to 80 percent of GDP at end-2001, or 59 percent excluding publicly guaranteed debt. - Debt accumulation slowed since mid-2001 as government financed operations through a drawdown of central bank deposits and DFC curtailed lending. - External position and reserves: - Current account deficit increased to 20 percent of GDP during 2001. - Fall in reserves and increased risk of severe balance of payments difficulties. - Corrective measures announced/implemented: - Reduce government deficit to 5 percent of GDP during FY 2002/03. - Central bank tightened monetary policy. - Placed an international bond to refinance short-term and high-cost external debt; refrained from any new net external financing of the budget. - Intend to reorganize DFC and subject it to banking sector supervision. ### Executive Board Assessment — Key Findings - Causes and effects: - Economic growth fell sharply in 2001, largely due to exogenous shocks; inflationary pressures remained moderate. - Deterioration in fiscal and external current account positions in 2001 increased external debt, pressured usable reserves and the exchange rate, and prompted ad hoc exchange restrictions and multiple currency practice. - Accommodative monetary policy led to large excess liquidity in the banking system. - Policy response: - Directors welcomed the April 2002 policy shift to sharply reduce the budget deficit in FY 2002/03 and tighten monetary policy. - Directors urged adherence to the chosen macroeconomic stance and progress on structural reforms. - Fiscal policy and budget execution: - The budget stance for FY 2002/03 viewed as consistent with medium-term fiscal sustainability. - Disappointment that the deficit for the second quarter exceeded the target. - Urged high priority on monitoring budget implementation, resisting political spending pressures, and disallowing new extra-budgetary projects. - Cautioned against instituting a national health insurance scheme that is not self-financing. - Recommended mobilizing tax revenue: boost tax collection, reduce exemptions, and strengthen tax buoyancy. - Budget execution should be monitored closely on a quarterly basis. - Development Finance Corporation (DFC): - Supported decision to curtail sharply DFC operations and reorganize management. - Urged thorough reorganization, bar DFC from further external borrowing, and subject it to supervision and prudential regulations applied to commercial banks. - Monetary and financial sector policies: - Commended actions to mop up excess liquidity via increased commercial bank cash requirements and additional treasury securities. - Urged vigilance in maintaining tight monetary policy. - Welcomed harmonization of commercial bank cash requirements and steps to strengthen onshore and offshore banking supervision. - Recommended further actions and increasing central bank independence; technical assistance from the Fund and other donors would be helpful. - Welcomed measures to combat money laundering and financing of terrorism, including strengthening legal and regulatory framework and establishing a Financial Intelligence Unit. - External borrowing and debt strategy: - Given high public and publicly-guaranteed external debt, welcomed decision to refrain from further net external financing of the budget. - Strongly recommended abstaining from new external financing for purposes other than debt refinancing. - Supported recent bond placement to retire high-cost debt and refinance short-term debt; noted it increased usable central bank reserves and will reduce external interest payments. - Trade and market policy: - Welcomed removal of ministerial discretion to grant import duty exemptions. - Noted Belize still maintains extensive tax and duty exemptions, and 29 groups of goods under protectionist quantitative nontariff barriers. - Recommended converting these import restrictions into tariffs to improve resource allocation, increase revenue, and reduce administrative costs. - Considered fixed exchange rate has served Belize well and helped keep inflation low. - Welcomed steps to begin integrating parallel and official foreign exchange markets; stressed urgency of sound policies to avoid widening the gap between parallel and official rates that could render the peg unsustainable. - Recommended eliminating restrictions on recently established foreign exchange trading houses to increase market efficiency and transparency. - Statistics and technical assistance: - Expressed concern about the quality of statistical information, especially national accounts and government finance statistics. - Encouraged authorities to seek technical assistance to improve the statistical database. ### Policy Recommendations (condensed) - Maintain the fiscal consolidation to reach a government deficit of 5 percent of GDP in FY 2002/03 and monitor quarterly. - Rigorously prevent new extra-budgetary projects and resist political spending pressures. - Do not introduce a non–self-financing national health insurance scheme. - Mobilize tax revenue: boost collection, reduce exemptions, strengthen buoyancy. - Reorganize and curtail DFC operations; bar further external borrowing and subject to bank supervision/prudential regulations. - Maintain tight monetary policy and mop up excess liquidity; preserve central bank independence. - Abstain from new net external financing except for refinancing; use external financing only for debt refinancing. - Convert quantitative nontariff import restrictions into tariffs; remove remaining discretionary import duty exemptions. - Integrate parallel and official foreign exchange markets; remove restrictions on foreign exchange trading houses. - Seek technical assistance to improve national accounts and government finance statistics; seek assistance to strengthen banking supervision and anti–money laundering frameworks. ### Selected Economic Indicators (1998–Proj. 2002) - National income and prices (annual percentage changes) - GDP at constant prices: 1998: 3.3; 1999: 3.8; 2000: 11.1; 2001: 5.1; Proj. 2002: 3.7 - Consumer prices (end of period): 1998: -0.9; 1999: -1.0; 2000: 0.7; 2001: 1.2; Proj. 2002: 1.5 - Real effective exchange rate: 1998: 0.8; 1999: -0.3; 2000: 3.5; 2001: 1.2; Proj. 2002: ... - Money and credit (annual changes in percent of liabilities to the private sector at beginning of period) - Credit to the private sector 1/: 1998: 10.7; 1999: 7.4; 2000: 22.1; 2001: 16.2; Proj. 2002: 9.4 - Money and quasi-money (M2): 1998: 8.3; 1999: 10.4; 2000: 12.2; 2001: 7.9; Proj. 2002: 2.4 - Central government (in percent of GDP) 2/ - Primary balance: 1998: -2.4; 1999: -10.2; 2000: -9.8; 2001: -11.7; Proj. 2002: -5.0 - Overall balance: 1998: -4.5; 1999: -8.8; 2000: -10.0; 2001: -11.9; Proj. 2002: -3.8 - Central government borrowing requirement: 1998: 4.5; 1999: 4.6; 2000: 6.6; 2001: 11.5; Proj. 2002: 1.1 - External sector - External current account 3/: 1998: -6.2; 1999: -10.3; 2000: -20.1; 2001: -21.8; Proj. 2002: -12.2 - Public and publicly guaranteed external debt 4/ (end of period): 1998: 38.6; 1999: 51.5; 2000: 70.6; 2001: 79.5; Proj. 2002: 80.0 - Debt service 5/ (public external debt) - In percent of exports of goods and services: 1998: 9.6; 1999: 8.2; 2000: 11.5; 2001: 14.6; Proj. 2002: 20.9 - In percent of government current revenue: 1998: 18.9; 1999: 21.9; 2000: 31.2; 2001: 36.9; Proj. 2002: 54.2 - Notes from table: - 1/ Comprises credit by commercial banks and the Development Finance Corporation. - 2/ Fiscal year starts on April 1. - 3/ Including official grants. - 4/ End of period. - 5/ Public external debt. *Public Information Notice (PIN) No. 02/131, November 14, 2002.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02255.pdf_