## _cr06369 — IMF staff report excerpt (2006)

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---

### Recent developments
- Fiscal and monetary policies "considerably tightened"; non-oil GDP growth decelerated in 2005–06.
- External current account deficit:
  - Projected to narrow to 8½ percent of GDP in 2006.
  - Expected to narrow in 2006 reflecting moderation in import growth and strong exports of goods and services.
- Fiscal outcome FY05/06 (April–March):
  - Primary balance shifted from a small deficit in FY04/05 to a surplus of 3 percent of GDP in FY05/06.
  - Overall central government deficit fell from 8.6 percent of GDP in FY04/05 to 3.3 percent of GDP in FY05/06.
- Financing and reserves:
  - Despite progress, substantial fiscal and balance of payments financing gaps remain in 2007 and beyond.
  - Market financing to fill the gaps is unlikely.
  - Gross reserves projected to fall below US$50 million, about three weeks of import coverage, by end-2006 (forecast balance of payments to close 2006 with a deficit of some US$10 million).
- Debt and creditor engagement:
  - Total public and publicly guaranteed debt rose from US$384.2 million in 1998 to about US$1.1 billion in 2005.
  - Authorities announced intention (early August 2006) to approach external commercial creditors for debt service relief; in mid-September announced payments to two special purpose vehicles had not been made.
- Exchange rate and data:
  - Belize dollar pegged to the U.S. dollar at BZ$2=US$1 since 1976.
  - Belize began participating in the Fund’s GDDS in September 2006; further improvements in data quality, coverage, and timeliness needed.
- Banking sector FX practices:
  - Central bank has not engaged in selective sales or rationing of foreign exchange to the private sector since 2004; no apparent unsatisfied bank FX demand.

### Main policy recommendations and staff appraisal
- Short-term (2006):
  - Additional fiscal and monetary tightening to mitigate immediate vulnerabilities and demonstrate policy commitment while a medium-term framework is formulated and creditor consultations take place.
- Medium-term framework should include:
  - A combination of additional fiscal effort; continued monetary restraint; bilateral and multilateral financing; relief from the envisaged debt operation, with a cooperative agreement sought with private creditors.
- Structural reforms and governance:
  - Implement supportive structural reforms in fiscal, monetary, and financial sector areas to bolster credibility and reduce vulnerabilities.
  - Strengthen financial sector supervision.
- Vulnerability warning:
  - Even under favorable assumptions, Belize’s economic and financial situation will remain highly vulnerable and leaves little room for slippage in implementing the outlined policy framework.

### Fiscal consolidation in FY05/06 and near-term measures
- FY05/06 outcomes:
  - Overall central government deficit: 3.3 percent of GDP.
  - Primary surplus: 3 percent of GDP (shift from small deficit in FY04/05).
- Drivers of improvement:
  - Revenue measures taken in May 2005.
  - Cuts in capital expenditures.
  - Lower debt service costs; exceptional and accounting adjustments (some 2¾ percent of GDP in exceptional fees and commissions on external loans in FY04/05 not repeated in FY05/06; correction of fiscal misclassifications shifted about ¼ percent of GDP from capital to current expenditure).
- Tax and liquidity measures:
  - Introduction of a general sales tax (GST) on July 1, 2006.
  - Channeling of social security deposits to the central bank starting May 2005.
  - Increase in cash reserve and liquid asset requirements in three steps of 1 percentage point each between May 2005 and September 2006 to 10 percent and 23 percent, respectively.
- Credit growth:
  - Growth rate of credit to the private sector about 6 percent during the 12 months ending in July 2006, down from 10 percent in the previous 12-month period.

### Balance of payments and near-term financing (2006)
- Drivers for expected current account narrowing in 2006:
  - Merchandise exports expected to grow by some 30 percent; import growth decelerates.
  - Buoyant tourism earnings; improved income account due to lower commissions and fees from public debt operations.
- Financing sources for remaining 2006 needs:
  - Foreign direct investment inflows (notably in tourism); bilateral financial assistance; some further reserves drawdown.
  - Bilateral financing obtained in 2006: US$35 million from Taiwan Province of China and Venezuela at below-market terms.
- End-2006 projection:
  - Balance of payments forecast to close year with a deficit of some US$10 million.
  - Gross reserves projected to fall below US$50 million, about three weeks of import coverage by end-year.

### Debt strategy, market reaction, and near-term staff calls
- Debt strategy:
  - Government announced in August 2006 intention to restructure public debt through a cooperative agreement with external commercial creditors; willingness to recognize a formal creditors’ committee representing holders of at least 51 percent of the affected debt.
  - Private external commercial debt ≈ 50 percent of GDP.
- Market reaction:
  - Bond prices slumped after announcement but recovered later to about 75–80 cents to the dollar.
  - Government initially remained current; mid-September announced missed payments to two special purpose vehicles to conserve usable reserves.
- Staff short-run recommendations:
  - Contain domestic demand further; be prepared to tighten liquidity further if reserve hikes insufficient.
  - Contain fiscal deficit in FY06/07 below budgeted level; staff call to attain a primary surplus of 3½ percent of GDP in FY06/07 (½ percent of GDP more than budgeted).
  - Required actions: save most additional oil revenue; restraint in current and capital expenditures; resist diluting the GST base; corrective measures if tax yields fall short.

### Medium-term frameworks and scenarios — objectives and active scenario
- Medium-term objectives:
  - Close fiscal and balance of payments financing gaps through 2012.
  - Rebuild reserve cushion of at least 2½ months of import coverage by 2015.
  - Reduce debt burden to below 50 percent of GDP by 2015.
- Staff-proposed active scenario — key elements:
  - Additional fiscal effort: front-loaded additional fiscal effort of about 1 percent of GDP relative to the passive scenario enabling a primary surplus of 4½ percent of GDP during 2007–09 and slightly less thereafter.
    - Initially requires saving the bulk of oil revenue.
    - Medium term: additional adjustment in non-oil fiscal balance of about ½ percent of GDP needed.
    - Quality: keep growth of non-interest current expenditure, particularly wage bill, below nominal GDP growth while allowing modest capital spending increases for social sectors and infrastructure.
  - Continued monetary restraint: contain private sector credit growth below nominal GDP growth to build net international reserves and preserve exchange rate peg.
  - Mobilize additional bilateral and multilateral support: secure approval of two policy-based loans of US$25 million each from the IDB and CDB to be disbursed during 2006–08, and additional below-market bilateral financing.
- Active scenario impact and remaining needs:
  - Active package would significantly reduce financing needs, but remaining fiscal and balance of payments gaps would still average more than 6½ percent of GDP through 2012.
  - Debt-to-GDP trajectory depends on financing terms; financing at estimated market terms would reduce debt-to-GDP ratio to about 54 percent by 2015.

### Passive scenario — key projections and risks
- Passive scenario assumptions:
  - Constant primary surplus of about 3.3 percent of GDP.
  - No new multilateral lending; current debt service profile.
- Passive scenario projections:
  - Balance of payments financing needs would approach 10 percent of GDP in 2007 and average about 6¾ percent of GDP during 2008–11.
  - Public debt dynamics: debt-to-GDP about 98½ percent at end-2005, falls to about 84½ percent in 2012, shifts back to rising trend thereafter.
- Market financing risks:
  - Sufficient market financing unlikely given high external public debt; financing at current market terms would worsen debt dynamics.
- Sensitivity:
  - Bound tests (higher real interest rate, lower real GDP growth or primary surplus, one-time 30 percent real depreciation, 10 percent increase in debt) produce more explosive debt dynamics under passive scenario.

### Oil sector implications (Box 2)
- Discovery and production:
  - First commercial oil discovery in 2005 by BNE; light sweet crude currently flowing at about 2,700 barrels per day.
  - Proven recoverable reserves from first find about 10 million barrels.
- Production and growth contribution:
  - Annual output estimated about 800,000 barrels in 2006 and about one million barrels in 2007.
  - Production expected to decline at about 10 percent per year through 2015.
  - Net contribution to growth estimated: 4.3 percent in 2006 and 0.8 percent in 2007; thereafter negative, ranging from -0.6 percent in 2008 to -0.3 in 2015.
- Fiscal and export implications:
  - Government exercised option to acquire a 10 percent working interest.
  - PSA royalty payment of 7.5 percent on BNE’s share of gross sales (0.375 percent payable to landowners).
  - Production share of 1.5 percent of net petroleum.
  - Special corporate income tax rate for oil production set at 40 percent (amendments in process).
  - Staff projects government’s total revenue from oil production will peak at just under 2 percent of GDP in 2008 and gradually fall to ½ percent of GDP by 2015.
  - Export proceeds projected to reach 5½ percent of GDP in 2007 and decline to below 2 percent of GDP by 2015.
  - Staff assumes early years most of BNE’s net profits reinvested locally; about one-quarter transferred abroad as repatriated income.

### Governance and quasi-fiscal problems — selected findings
- Development Finance Corporation (DFC):
  - DFC increased assets by about 25 percent of GDP during 1999–2003; by 2004 about 40 percent of its assets were unproductive or nonperforming.
  - Government had to refinance and assume an estimated US$210 million (more than 20 percent of GDP) in external guaranteed loans of the DFC.
  - DFC ceased lending, divesting assets; balance sheet reduced by about US$200 million; authorities working with the IDB on orderly liquidation strategy.
- Mortgage securitizations and other contingent liabilities:
  - DFC and SSB raised about US$150 million in five operations between 1999 and 2002.
  - Contingent liabilities: government remains exposed to about US$28 million from a US$45 million loan case and has assumed external liabilities of about US$65 million for other operations.
  - Telecommunications privatization left government exposed to assumed foreign obligations of US$20 million; legal disputes ongoing.
- Investigations and governance actions:
  - Two investigations into SSB and DFC operations initiated in 2005; Senate commission on SSB completed investigation July 2006 and recommended removal of SSB’s Chairman and General Manager (government implemented).

### Financial sector and monetary policy recommendations
- Banking system:
  - Appears generally robust; high levels of bank capital provide buffer against shocks.
  - Loan-loss provisioning low by international standards; mission proposed minimum provision of 20 percent for substandard loans.
  - Current provisioning requirements for doubtful and loss loans are 50 percent and 100 percent respectively (regardless of collateral).
  - Proposed minimum provision would lower system’s average risk-adjusted capital assets ratio by about ¾ percentage point.
- Supervision and insurance:
  - Progress made in strengthening bank supervision; further steps needed to strengthen operational independence of bank supervisors.
  - Given vulnerability to natural disasters, increase resources for insurance supervision urgently needed.
- Monetary instruments:
  - Need to strengthen CBB’s capability; introduce market-oriented instruments (standing liquidity deposit window, auction of central bank/treasury securities).
  - Recommendation to reduce or eliminate government overdraft facility at the central bank in due course.

### Sequencing and capacity
- Authorities agreed with recommendations but noted limited administrative capacity; staff suggested initial focus on tax policy and monetary instruments (implementable fairly easily).
- Modernization of tax administration, pension reform, and strengthening debt management likely to take longer.

### Major vulnerabilities and staff caution
- Even in favorable scenario, substantial vulnerabilities would remain for quite some time.
- Oil-related revenues are uncertain; staff cautioned against over-optimism.
- Debt burden would remain relatively high and dynamics vulnerable to shocks; staff debt sustainability analysis (Appendix VIII) shows sensitivity to shocks.
- Mission and authorities underscored importance of avoiding policy slippage and taking early corrective actions.

### Key statistics and selected projections (as reported)
- Real GDP at constant prices (annual changes): 2003: 9.3; 2004: 4.6; 2005: 3.5; 2006 (Prel./Proj.): 5.3; 2007 (Proj.): 2.6.
- Consumer prices (end of period): 2003: 2.3; 2004: 3.1; 2005: 4.2; 2006: 4.4.
- Central government (percent of GDP, 2003–07 selected):
  - Revenue and grants: 21.4, 22.8, 23.5, 24.5, 26.0.
  - Primary balance: -5.9, 0.8, 2.0, 3.2, 3.3.
  - Overall balance: -10.6, -6.4, -5.5, -3.3, -2.6.
- External current account (percent of GDP): 2003: -18.2; 2004: -14.4; 2005: -14.3; 2006: -8.8; 2007 (passive scenario): -9.6.
- Public and publicly guaranteed debt (percent of GDP):
  - 2003: 102.3; 2004: 100.2; 2005: 98.5; 2006: 92.9; Active scenario projections: 2005: 98.5; 2006: 92.6; 2007: 87.5; 2008: 82.7; 2009: 78.5; 2015: 54.2.
- Gross official reserves (US$ millions, end of period): 2003: 76.2; 2004: 39.8; 2005: 57.9; 2006 (proj.): 48.6 (Table 4 shows 48.6 for 2006 and 58.6 for 2007).
- Oil sector projections:
  - Annual output estimated about 800,000 barrels in 2006 and about one million barrels in 2007.
  - Production decline: about 10 percent per year through 2015.
  - Government oil revenue peak: just under 2 percent of GDP in 2008; fall to ½ percent of GDP by 2015.
  - Export proceeds peak: 5½ percent of GDP in 2007; decline to below 2 percent of GDP by 2015.

### Executive Board Assessment — distilled recommended targets
- Short-run:
  - Further tighten macroeconomic policies in 2006; attain a primary surplus of 3½ percent of GDP in FY06/07.
  - Continue to mop up excess liquidity; be prepared for additional reserve requirement or instrument tightening.
- Medium-run:
  - Raise primary surplus by about 1 percent of GDP annually (initially by saving bulk of oil revenues).
  - Rebuild reserves to about 2½ months of imports by 2015.
  - Reduce public debt to less than 50 percent of GDP by 2015 (subject to financing terms and policy implementation).
- Structural:
  - Modernize tax administration; broaden tax base; reform oil and fuel taxation; reform public pension (PPO) to cap spending increases.
  - Strengthen debt management (establish debt management office), fiscal transparency, and governance of quasi-fiscal institutions (wind up DFC).
  - Strengthen insurance supervision, loan-loss provisioning, and valuation rules to international standards.
- Support:
  - Seek cooperative agreement with private creditors; mobilize bilateral and multilateral financing, including IDB/CDB policy-based loans of US$25 million each (disbursements during 2006–08).

*Italic: Source — IMF staff report content (PDF chapter/section).*

### 2006. The mission met with the Prime Minister and his team of economic advisors, the Cabinet’s

### _cr06369 - 2006. The mission met with the Prime Minister and his team of economic advisors, the Cabinet’s

### Recent developments
- Fiscal and monetary policies have been “considerably tightened,” and non-oil GDP growth has continued to decelerate.
- The external current account deficit is expected to narrow in 2006, reflecting both a moderation in import growth and strong exports of goods and services.
- The external current account deficit is projected to narrow to 8½ percent of GDP in 2006.
- The economic slowdown partly reflects tightening of fiscal and monetary policies over the past 18 months: taxes were raised, capital expenditures cut, and monetary conditions tightened.
- The primary balance shifted from a small deficit in FY04/05 (April to March) to a surplus of 3 percent of GDP in FY05/06.
- Despite progress, substantial fiscal and balance of payments financing gaps remain in 2007 and beyond; market financing to fill the gaps is unlikely to be forthcoming.
- The authorities announced in early August 2006 their intention to approach external commercial creditors for debt service relief; the authorities remained current on their debt obligations but in mid-September announced that payments to two special purpose vehicles had not been made.
- Belize’s statistics are “adequate for surveillance,” and the country began participating in the Fund’s General Data Dissemination System (GDDS) in September 2006; further improvements in data quality, coverage, and timeliness are still needed.
- The Belize dollar has been pegged to the U.S. dollar at BZ$2=US$1 since 1976.
- The central bank has not engaged in selective sales or rationing of foreign exchange to the private sector since 2004, and there does not appear to be an unsatisfied foreign exchange demand from commercial banks.

### Main policy recommendations and staff appraisal
- Short-term: Staff recommended additional fiscal and monetary policy tightening in 2006 to mitigate immediate vulnerabilities and demonstrate policy commitment while a medium-term framework is formulated and creditor consultations take place.
- Medium-term framework should include:
  - A combination of additional fiscal effort;
  - Continued monetary restraint;
  - Bilateral and multilateral financing;
  - Relief from the envisaged debt operation, with a cooperative agreement sought with private creditors.
- Structural reforms: To bolster credibility and reduce vulnerabilities, authorities should implement supportive structural reforms in the fiscal, monetary, and financial sector areas.
- Financial sector: Belize’s banking system appears generally robust, but further steps should be taken to strengthen financial sector supervision.
- Vulnerability warning: Even under favorable assumptions, Belize’s economic and financial situation will remain highly vulnerable and leaves little room for slippage in implementing the outlined policy framework.

### Background and drivers of the current situation
- Growth history and recent slowdown:
  - Real GDP (excluding oil) experienced strong performance historically but “slowed in 2005 and 2006,” with inflation rising moderately mainly due to higher fuel prices.
  - Real GDP increased by 60 percent cumulatively between 1998 and 2005, largely driven by higher domestic demand; since 2003 growth has slowed and relied increasingly on net exports.
- Origins of imbalances:
  - Beginning in 1999, taxes were lowered, public investment increased, and cheap credit was provided via the Development Finance Corporation (DFC) and the Social Security Board (SSB), contributing to a rise in the central government overall deficit from an average of 3 percent of GDP during 1996–98 to almost 10 percent of GDP during 2000–02.
  - Lax monetary policy led to excess liquidity and accelerated private sector credit.
- External deficits and public debt accumulation:
  - External current account deficits exceeded 20 percent of GDP during 2000–03.
  - Total public and publicly guaranteed debt rose from US$384.2 million in 1998 to about US$1.1 billion in 2005.
  - As debt service obligations rose and market financing became difficult, the government resorted to central bank financing; international reserves fell below one month of import coverage by end-2005.

### Governance and quasi-fiscal problems (selected findings)
- Development Finance Corporation (DFC):
  - DFC increased assets by about 25 percent of GDP during 1999–2003; by 2004 about 40 percent of its assets were unproductive or nonperforming.
  - The government had to refinance and assume directly an estimated US$210 million (more than 20 percent of GDP) in external guaranteed loans of the DFC.
  - The DFC ceased lending, began divesting assets, and the balance sheet was reduced by about US$200 million; authorities are working with the IDB on a strategy for orderly liquidation of remaining DFC assets.
- Mortgage securitizations:
  - The DFC and the SSB raised about US$150 million in five operations between 1999 and 2002.
  - A US$45 million loan case was particularly controversial; the government remains exposed to contingent liabilities of about US$28 million from this operation and has already assumed external liabilities of about US$65 million for the other four operations.
- Telecommunications privatization:
  - Problematic transactions left the government exposed to assumed foreign obligations of US$20 million; legal disputes remain ongoing.
- Investigations:
  - Two high-profile investigations were initiated in 2005 into SSB and DFC operations; the Senate commission on the SSB completed its investigation in July 2006 and recommended removal of the SSB’s Chairman and General Manager, which the government implemented.

### Exchange regime and Fund relations
- Exchange system: Belize has accepted the obligations of Article VIII, Sections 2, 3, and 4, and does not maintain exchange restrictions or multiple currency practices.
- Fund relations:
  - Belize presently has no outstanding use of Fund credit.
  - The authorities are implementing a “home-grown adjustment strategy” in close consultation with Fund staff.
- Possible policy actions: The report discusses the potential role of cooperative debt restructuring with external private creditors as a central element of returning to external and fiscal sustainability.

_Italic: Source — IMF staff report content (PDF chapter/section)._

### 5. Forceful stabilization policies were implemented in the context of the 2005/06

### 5. Forceful stabilization policies were implemented in the context of the 2005/06

### Fiscal consolidation in FY05/06 and near-term outcomes
- Overall deficit of the central government fell from 8.6 percent of GDP in FY04/05 to 3.3 percent of GDP in FY05/06.
- The primary balance shifted from a small deficit to a surplus of 3 percent of GDP.
- Improvements attributed to:
  - Revenue measures taken in May 2005.
  - Cuts in capital expenditures.
  - Lower debt service costs.
- Exceptional and accounting adjustments noted:
  - Some 2¾ percent of GDP in exceptional fees and commissions on external loans incurred in FY04/05 were not repeated in FY05/06.
  - Correction of fiscal misclassifications shifted about ¼ percent of GDP from capital to current expenditure.

### Tax and liquidity measures
- Introduction of a general sales tax (GST) on July 1, 2006 to replace the existing sales tax; GST described as a tax on final consumption akin to value-added tax with credits for taxes paid at earlier stages.
- Tightening of liquidity:
  - Channeling of social security deposits to the central bank starting in May 2005.
  - Increase in cash reserve and liquid asset requirements in three steps of 1 percentage point each between May 2005 and September 2006 to 10 percent and 23 percent, respectively.
- Credit growth slowed:
  - Growth rate of credit to the private sector about 6 percent during the 12 months ending in July 2006, down from 10 percent in the previous 12-month period.

### Balance of payments and financing outlook for 2006
- External current account deficit expected to narrow in 2006 due to:
  - Reduction in the trade imbalance: merchandise exports expected to grow by some 30 percent while import growth decelerates.
  - Buoyant tourism earnings.
  - Improved income account owing to lower commissions and fees from public debt operations.
- Remaining balance of payments financing needs for 2006 likely covered by:
  - Foreign direct investment inflows (notably in tourism).
  - Bilateral financial assistance.
  - Some further reserves drawdown.
- Bilateral financing obtained in 2006: US$35 million from Taiwan Province of China and Venezuela at below-market terms.
- Forecast end-2006 outcome:
  - Balance of payments still forecast to close the year with a deficit of some US$10 million.
  - Gross reserves projected to fall below US$50 million, about three weeks of import coverage by end-year.

### Policy discussions: risks and the need for further measures
- Main vulnerabilities: high public debt burden and fragile balance of payments, constraining growth.
- Consensus: further steps needed to address immediate risk of a balance of payments crisis and to design a framework for gradual return to medium-term sustainability.
- Passive scenario (broadly unchanged policies) assumptions and projections:
  - Constant primary surplus of about 3.3 percent of GDP.
  - No new multilateral lending.
  - Current debt service profile.
  - Result: balance of payments financing needs would approach 10 percent of GDP in 2007 and average about 6¾ percent of GDP during 2008–11.
  - Scheduled public debt service obligations remain high and rising, weighing heavily on the overall balance of payments.
- Market financing risks:
  - Market financing sufficient to bridge projected gaps unlikely given high external public debt.
  - Financing at current market terms would worsen debt dynamics and exacerbate vulnerability to shocks.
- Authorities’ view:
  - Further large domestic adjustment beyond what had already been achieved would be neither feasible nor advisable due to potential contraction and social tensions.

### Debt strategy and market reaction
- Government announced in August 2006 intention to restructure public debt through a cooperative agreement with external commercial creditors and willingness to recognize a formal creditors’ committee representing holders of at least 51 percent of the affected debt.
- Private external commercial debt amounts to about 50 percent of GDP.
- Bond prices slumped after the announcement but recovered later to about 75–80 cents to the dollar.
- Government remained current on obligations initially but in mid-September announced that debt service payments to two special purpose vehicles (part of an issuance of insured bonds) had not been made to conserve limited usable reserves.
- Authorities aim to conclude restructuring by end of 2006; creditors’ committee had not been formally notified as of the reporting.

### Addressing immediate risks — staff recommendations
- Contain domestic demand further to reduce risk of payments crisis and demonstrate commitment to sound policies.
- Be prepared to tighten liquidity further if latest reserve requirement hikes (including September 2006) prove insufficient to mop up excess liquidity.
- Contain the fiscal deficit in FY06/07 below the budgeted level. Specific staff call:
  - Attain a primary surplus of 3½ percent of GDP in FY06/07 (½ percent of GDP more than budgeted).
  - Actions required: save most additional oil revenue, restraint in current and capital expenditures, resist pressures to dilute the GST base, and take corrective measures if tax yields fall short.

### Medium-term framework and the active scenario
- Medium-term objectives given Belize’s vulnerabilities:
  - Close fiscal and balance of payments financing gaps through 2012.
  - Rebuild a reserve cushion of at least 2½ months of import coverage by 2015.
  - Reduce debt burden to below 50 percent of GDP.
- Key elements of the staff-proposed active scenario:
  - Additional fiscal effort: a front-loaded additional fiscal effort of about 1 percent of GDP relative to the passive scenario, enabling a primary surplus of 4½ percent of GDP during 2007–09 and slightly less thereafter.
    - Initially requires saving the bulk of revenue from oil production.
    - Medium term: an additional adjustment in the non-oil fiscal balance of about ½ percent of GDP would be needed.
    - Strengthen quality of fiscal adjustment by keeping growth of non-interest current expenditure, particularly the wage bill, below nominal GDP growth while allowing modest increases in capital spending for social sectors and infrastructure.
  - Continued monetary restraint to preserve the exchange rate peg by controlling domestic demand; contain private sector credit growth below nominal GDP growth to build net international reserves.
  - Mobilization of additional bilateral and multilateral support: work on securing approval of two policy-based loans of US$25 million each from the IDB and CDB to be disbursed during 2006–08, and additional below-market bilateral financing.
- Impact and remaining needs:
  - Active package would significantly reduce financing needs, but remaining fiscal and balance of payments gaps would still average more than 6½ percent of GDP through 2012.
  - Debt-to-GDP trajectory depends on terms at which remaining gaps are filled; financing at estimated market terms would only reduce debt-to-GDP ratio to about 54 percent by 2015.

### The oil sector (Box 2): implications for growth, fiscal revenue, and exports
- Discovery and production:
  - First commercial oil discovery in 2005 by BNE; light sweet crude currently flowing at about 2,700 barrels per day.
  - Proven recoverable reserves from first find about 10 million barrels.
- Contribution to growth:
  - Annual output estimated about 800,000 barrels in 2006 and about one million barrels in 2007.
  - Production expected to decline at about 10 percent per year through 2015; production costs expected to increase as the field is depleted.
  - Net contribution to growth estimated: 4.3 percent in 2006 and 0.8 percent in 2007; thereafter negative, ranging from -0.6 percent in 2008 to -0.3 in 2015.
- Fiscal take under the PSA and tax regime:
  - Government exercised option to acquire a 10 percent working interest.
  - PSA royalty payment of 7.5 percent on BNE’s share of gross sales (0.375 percent payable to landowners).
  - Production share of 1.5 percent of net petroleum (gross sales less royalty and operating expenditures including recovery of exploration costs).
  - Amendments to the Business and Income Tax Act (in process of being passed) set a special corporate income tax rate for oil production at 40 percent.
  - Staff projects government’s total revenue from oil production will peak at just under 2 percent of GDP in 2008 and gradually fall to ½ percent of GDP by 2015 (subject to assumptions on price, production, costs, and investments).
- Export proceeds:
  - Export proceeds projected to reach highest level of 5½ percent of GDP in 2007 and gradually decline to below 2 percent of GDP by 2015.
  - Staff assumes early years will see most of BNE’s net profits reinvested locally; about one-quarter transferred abroad as income repatriation.
- Other exploration efforts:
  - Geological conditions promising; seven foreign and two local firms undertaking exploration, mostly at early survey stages.

*Source: IMF staff report excerpt (chapter/section on stabilization, policy discussions, and medium-term framework).*

### 18. Staff stressed that even in a favorable scenario substantial vulnerabilities would

### _cr06369 - 18. Staff stressed that even in a favorable scenario substantial vulnerabilities would 

### Major vulnerabilities and overall caution
- Even in a favorable scenario, substantial vulnerabilities would remain for quite some time.
- Oil-related revenues are uncertain because forecasts for world prices and Belize’s reserves are subject to wide margins of error; staff strongly cautioned against over-optimism.
- The debt burden would remain relatively high and its dynamics vulnerable to shocks (see staff’s debt sustainability analysis, Appendix VIII).
- Mission and authorities underscored the importance of avoiding policy slippage and taking early corrective actions in response to adverse domestic and external changes.

### Supportive structural reforms — fiscal
- Large fiscal and monetary effort envisaged in the active scenario needs structural support to buttress macroeconomic discipline, reduce vulnerabilities, and add credibility.
- Tax administration reform:
  - Move away from the current “tax type” model toward a functional model consolidating activities and resources by business processes (audit, enforcement of tax collections, taxpayer services).
  - Reform would complement GST implementation; IMF and CARTAC technical assistance already scheduled.
- Broadening the tax base and transparency:
  - Eliminate business tax holidays under the Fiscal Incentives Act.
  - Terminate discretionary import duty exemptions.
  - Replace cumbersome import licensing procedures with tariffs.
- Fuel and oil taxation:
  - Replace current variable revenue replacement duty for fuel imports with a specific excise tax on fuel consumption applicable to both domestic and imported fuel.
  - Introduce an automatic fuel price adjustment mechanism to ensure changes in international oil prices are passed on to the consumer.
  - These changes would not be expected to generate additional revenue but would promote greater revenue stability.
- Petroleum sector fiscal regime:
  - Proposed revision of the income tax regime for oil companies will bring revenue closer to international standards.
  - Mission advised considering changes to the standard production sharing agreement to increase progressivity.
  - Authorities studying instruments to achieve higher progressivity, such as a resource rent tax.
  - Authorities considering establishment of a petroleum revenue fund; staff agreed it could aid transparent accounting but emphasized the budget must remain the mechanism to allocate public expenditure and that any fund should facilitate rather than defer fiscal adjustment.
- Pension reform (PPO):
  - PPO expenses have been increasing at an average annual rate of 15 percent in the last six years, reaching 1.8 percent of GDP in FY05/06, and expected to continue to grow rapidly.
  - PPO is an unfunded, noncontributory defined benefit scheme creating large contingent liabilities (Text Figure 7; Box 3).
  - Actuarial evaluation (July 2004) estimated present value of obligations for pensions already being paid at about 11 percent of GDP; projected total benefit obligations for current active staff were estimated at more than 20 percent of GDP.
  - If the PPO remains unchanged, actuarial liabilities would rise fourfold within 25 years, and pension expenses in the budget would increase to more than 9 percent of GDP.
  - Staff recommendations:
    - Phase-out the PPO for new entrants; new entrants covered solely by the SSS.
    - Introduce parametric reforms and consider transition mechanisms to build political and social consensus.
    - Consider complementary defined contribution schemes, contribution payments, ceilings on combined PPO and SSS benefits, increasing minimum service period and retirement age, lowering pension accrual rates.
- Governance of quasi-fiscal institutions:
  - Strengthen governance to control contingent liabilities; welcomed reforms such as the Finance and Audit Act and inquiries into SSB and DFC.
  - Priorities: improve risk management at the SSB (prohibit direct lending/quasi-fiscal activities), maintain close control over the financial performance of the renationalized water company, wind up DFC activities, let DFC recover its loan portfolio without interference, and avoid further across-the-board discounts to borrowers.
- Debt management and asset-liability management:
  - Past weak debt management practices contributed to high financing costs, bunching of maturities, and currency risk.
  - Recommendations: establish a debt management office; define its objectives and managerial roles; establish an investors relations program; develop a portfolio and risk management framework to balance costs and risks; develop transparent asset-liability management policies.
  - Capacity building and technical assistance, including from the Fund, are important.

### Supportive structural reforms — monetary
- Need to strengthen the central bank’s capability for monetary policy implementation.
- Current principal instruments: cash reserve and liquid asset requirements.
- Recommendation to introduce more market-oriented instruments to facilitate liquidity management and improve allocative efficiency:
  - Consider a standing liquidity deposit window or a mechanism to auction central bank or treasury securities; authorities requested further technical assistance.
- Reduce or eliminate the government’s overdraft facility at the central bank in due course:
  - Would increase central bank control over monetary policy, improve independence, and could strengthen its balance sheet if the government retires the overdraft with marketable securities.

### Sequencing of reforms
- Authorities agreed with recommendations but noted limited administrative capacity; implementation should be sequenced.
- Staff suggested initial focus on tax policy and monetary instruments (implementable fairly easily).
- Modernization of tax administration, pension reform, and strengthening debt management likely to take longer.

### Financial sector vulnerabilities
- Indicators-based analysis and sensitivity tests suggest the domestic banking system is generally sound and relatively robust to various shocks, including direct impact of a public debt restructuring (domestic banks’ exposure to the sovereign is small and banks hold no external debt instruments potentially subject to restructuring).
- High levels of bank capital provide significant buffer against shocks (sharp tightening of monetary policy, sudden deterioration in loan quality, or a devaluation).
- Loan-loss provisioning:
  - Loan-loss provisions are low by international standards and should be raised to give a realistic picture of capital adequacy (Text Figure 8).
  - Mission proposed establishing a minimum provision of 20 percent for substandard loans and setting clear rules for valuation of loan collateral.
  - The introduction of the proposed minimum provision would lower the system’s average risk-adjusted capital assets ratio by about ¾ percentage point.
  - Current provisioning requirements for doubtful and loss loans are 50 percent and 100 percent respectively (regardless of collateral) and are broadly in line with international comparators.
  - Authorities indicated they would promptly tighten standards for loan-loss provisioning as suggested.
- Bank supervision and insurance sector oversight:
  - Progress has been made in strengthening bank supervision (implements several IMF 2003 Module 2 OFC Assessment recommendations, including enhancing resources of the Financial Sector Supervision Department).
  - Further steps needed to strengthen operational independence of bank supervisors.
  - Given vulnerability to natural disasters, a well-supervised property and business insurance sector is critical to avoid spillovers; increase in resources for insurance supervision is urgently needed.
  - Authorities committed to implement outstanding OFC assessment recommendations, including amendments to the Bank and Financial Intermediation Act and the Insurance Act.

### Exchange rate regime and competitiveness
- Authorities committed to maintain the currency peg; this requires strict policy discipline.
- Backward-looking analysis does not point to a major competitiveness problem:
  - Strong performance of exports of goods and services.
  - Recent depreciation of the real effective exchange rate.
  - Absence of significant parallel market pressures.
- Econometric analysis suggests the real effective exchange rate level is currently close to its estimated equilibrium value (Text Figure 9).
- The currency peg has helped anchor expectations and inflation; preserving it will necessitate early adoption of a sustainable medium-term macroeconomic framework.

### Possible Fund support
- Authorities prefer to continue a home-grown adjustment strategy without a formal Fund arrangement.
- Authorities recognized that a Fund-supported program would enhance credibility and could catalyze additional lending from bilateral and multilateral donors.
- Authorities noted tangible results from their economic program in stabilizing the situation and valued country-owned nature for policy credibility and domestic support.
- Authorities prefer continued close consultation with Fund staff and management and to take advantage of Fund technical assistance in critical areas: tax policy, tax administration, monetary policy, banking supervision, and economic data systems.

### Staff appraisal — summary judgment
- Belize’s economy has reached a critical juncture.
- Overly expansionary macroeconomic policies during 1999–2004 contributed to a dramatic widening of current account deficits, an unsustainable build-up of public debt, and the erosion of international reserves.
- Large fiscal and balance of payments gaps projected to emerge from 2007 onward; policy action remains needed to address significant risk of financial and currency crises.

*Source: IMF staff report content (excerpt provided).*

### 34. The authorities have already made commendable strides in correcting

### _cr06369 - 34. The authorities have already made commendable strides in correcting

### Macroeconomic developments and vulnerabilities
- The 2005/06 budget achieved a significant fiscal correction based on measures to increase tax collection, rein in discretionary current expenditure, and cut capital expenditure.
- Monetary conditions were tightened through increases in the cash reserves and liquid assets requirements, which helped to slow private credit growth in 2005.
- Assuming unchanged levels of fiscal effort, large fiscal and external financing gaps are likely to emerge in 2007 and beyond, mainly reflecting debt service obligations that are coming due in the period ahead.
- Market financing of the required magnitudes is both unlikely to become available and would increase the debt service burden further.
- International reserves are projected to remain low and the debt burden high for several years, leaving the country exposed to adverse shocks.
- Revenue estimates from oil are subject to a wide margin of error, creating the risk that oil revenue dependency will develop.

### Objectives for sustainability
- Eliminate fiscal and balance of payments gaps through 2012, while allowing only modest gaps to prevail thereafter.
- Reduce the public debt burden to less than 50 percent by 2015.
- Replenish international reserves coverage to about 2½ months of imports.

### Near-term policy recommendations (2006)
- Further tighten macroeconomic policies in 2006 to mitigate immediate vulnerabilities and demonstrate policy commitment.
- Continue to respond if the recent increase in reserve requirements proves insufficient to curb excess liquidity and contain private sector credit growth.
- Continue to outperform the fiscal year budget target to achieve a primary surplus of at least 3½ percent of GDP.
- Maintain restraint in current and capital expenditure and resist pressures to dilute the GST base.

### Medium-term framework and financing strategy
- Build a sustainable medium-term framework on a combination of:
  - Additional fiscal effort.
  - Continued monetary restraint.
  - Bilateral and multilateral financing.
  - Relief from the envisaged debt operation.
- Increase the primary surplus by about 1 percent of GDP annually.
  - Initially achieve this by saving the bulk of the projected oil revenues.
  - Subsequently achieve this through improvements in non-oil tax revenue collection and current expenditure restraint as oil revenue tapers off.
- Monetary policy must keep the growth rate of private sector credit below the expansion of nominal GDP to anchor the exchange rate peg.
- Seek to expeditiously reach a cooperative agreement with private creditors on a restructuring of their debt.
- Secure additional financing commitments from bilateral and multilateral lenders, as far as possible on concessional terms.

### Structural reforms to support fiscal effort and monetary discipline
- Fiscal reforms:
  - Modernize tax administration.
  - Broaden the tax base by eliminating exemptions and converting import licenses into tariffs.
  - Reform oil and fuel taxation.
  - Reform the pension system for public officers to cap spending increases.
  - Strengthen governance of quasi-fiscal institutions.
  - Establish an office for asset-liability management and investor relations.
- Monetary and financial sector reforms:
  - Broaden the central bank’s policy instruments.
  - Bring loan-loss provisioning requirements and valuation rules for loan collateral to international standards.
  - Fully implement Offshore Financial Center assessment recommendations, particularly in the area of insurance.
- Sequence reforms carefully given administrative capacity limits, but take early actions in tax policy and monetary instruments where possible.

### Banking system and exchange rate regime
- Belize’s banking system appears generally robust to a variety of shocks.
- Loan-loss provisioning requirements and valuation rules for loan collateral should be aligned with international standards.
- Authorities are strongly committed to the fixed exchange rate regime; the value of the Belize dollar appears broadly in line with medium-term fundamentals.
- Safeguarding the peg will ultimately depend on durable implementation of a sustainable medium-term macroeconomic framework.

### Risks and statistical capacity
- Even under the best circumstances, Belize’s economic and financial situation will remain highly vulnerable for quite some time, allowing little room for slippage in policy implementation.
- Policymakers must manage risks carefully and adjust early to changes in the domestic and external environment.
- Staff welcomes Belize’s participation in the GDDS and encourages continued strengthening of the quality and timeliness of economic statistics.

*Source: _cr06369 - 34. The authorities have already made commendable strides in correcting*

### 44. The next Article IV consultation is expected to be held on the standard 12-month

### _cr06369 - 44. The next Article IV consultation is expected to be held on the standard 12-month

### Macroeconomic performance (1999–2005)
- Belize's GDP growth:
  - 1999–2005 illustrated as "very strong, albeit decelerating since 2003" (Figure captions).
- Price developments:
  - Inflation described as low compared to other countries in the region (Figure captions).
- Investment and growth:
  - Growth has been driven in part by high levels of investment (Figure captions).

### External competitiveness and current account analysis
- Current account developments:
  - Belize’s current account deficit "has widened sharply since 1998".
  - The current account imbalance is increasingly explained by a deteriorating income account that mirrors the sharp accumulation of foreign debt in recent years (Figure captions).
  - The current account balance that excludes the impact of income and oil "shows a marked improvement in the last couple of years and is now significantly positive" (Figure captions).
- Competitiveness indicators:
  - Export performance: "Export growth—while volatile—has been positive..." (Figure captions).
  - Real exchange rate measures: "...alternative real exchange rate measures do not point to declining competitiveness..." (Figure captions).
  - Cross-country evidence: "...does not indicate that the domestic price level is misaligned." (Figure captions).

### Selected economic indicators and projections (Table 1: 2003–07)
- Real economy and prices (annual changes):
  - GDP at constant prices: 9.3, 4.6, 3.5, 5.3, 2.6 (for 2003, 2004, 2005, 2006, 2007 respectively).
  - GDP deflator: -3.1, 2.1, 1.8, 4.0, 2.5.
  - Consumer prices (end of period): 2.3, 3.1, 4.2, 4.4, 2.8.
- External sector (U.S. dollars):
  - Exports of goods and services: 8.7, 2.9, 13.3, 21.7, 5.0.
  - Imports of goods and services: 5.6, -5.2, 13.8, 9.5, 6.9.
  - Terms of trade (deterioration -): -2.0, -2.5, -5.9, -3.7, -1.3.
- Money and credit:
  - Net domestic assets: 19.3, 15.5, 3.6, 7.4, 3.2.
  - Credit to the private sector: 13.2, 9.6, 11.3, 5.5, 3.6.
  - Money and quasi-money (M2): 4.7, 7.5, 5.9, 9.5, 5.1.
- Central government (in percent of GDP):
  - Revenue and grants: 21.4, 22.8, 23.5, 24.5, 26.0.
  - Current expenditure: 19.9, 22.7, 24.8, 23.7, 23.5.
  - Capital expenditure and net lending: 12.1, 6.5, 4.1, 4.1, 5.2.
  - Primary balance: -5.9, 0.8, 2.0, 3.2, 3.3.
  - Overall balance: -10.6, -6.4, -5.5, -3.3, -2.6.
  - Central government borrowing requirement: 15.8, 6.4, 3.2, 2.9, 1.9.
  - Foreign financing: 18.8, 1.8, 4.3, -0.2, -7.3.
- Investment and savings (percent of GDP):
  - Gross domestic investment: 21.5, 18.9, 23.1, 18.0, 18.0.
  - Gross national savings: 3.3, 4.6, 8.8, 9.2, 8.4.
- External current account and debt (percent of GDP):
  - External current account: -18.2, -14.4, -14.3, -8.8, -9.6.
  - Public and publicly guaranteed debt: 102.3, 100.2, 98.5, 92.9, 90.2.
  - External debt: 96.7, 91.2, 91.2, 83.1, 80.5.
  - Debt service: 19.3, 22.8, 21.0, 12.4, 16.5.
- Balance of payments and reserves (U.S. dollars):
  - Exports of goods and services (US$ millions): 527.6, 542.8, 614.8, 748.4, 785.7.
  - Imports of goods and services (US$ millions): 661.7, 627.1, 713.9, 781.7, 835.8.
  - Gross official reserves (end of period): 76.2, 39.8, 57.9, 48.6, 58.6.
  - Nominal GDP (US$ millions): 987.6, 1,055.2, 1,110.9, 1,216.8, 1,279.1.

### Central government operations (Table 2: 2003–07)
- Revenue and grants (percent of GDP): 21.4, 22.8, 23.5, 24.5, 26.0.
  - Revenue: 21.1, 21.3, 22.9, 23.6, 25.2.
  - Current revenue: 20.7, 21.0, 22.7, 23.6, 25.2.
  - Tax revenue: 18.7, 19.0, 20.5, 21.3, 22.5.
  - Sales tax (component): 5.3, 5.8, 5.7, 5.6 (2003–2006 shown).
  - Grants: 0.3, 1.5, 0.6, 0.9, 0.8.
- Expenditure (percent of GDP): 32.7, 30.1, 29.0, 27.7, 28.6.
  - Current expenditure: 20.6, 23.6, 24.9, 23.6, 23.5.
  - Interest payments, fees, and charges: 4.7, 7.2, 7.5, 6.5, 5.9.
  - Capital expenditure: 9.7, 6.7, 3.8, 3.9, 5.2.
- Financing and memorandum items:
  - Overall balance: -10.6, -6.4, -5.5, -3.3, -2.6.
  - Central government borrowing requirement: 15.8, 6.4, 3.2, 2.9, 1.9.
  - Nominal GDP (BZ$ millions): 1,975, 2,110, 2,222, 2,434, 2,558 (2003–2007).
  - Primary balance (BZ$ basis): -5.9, 0.8, 2.0, 3.2, 3.3.

### Public and publicly guaranteed debt levels (Table 3: 2003–June 2006)
- Debt outstanding (end-of-period, US$ millions): 1,010.8, 1,057.4, 1,094.5, 1,088.4 (2003–June 2006).
- Composition (end-of-period, US$ millions):
  - Domestic debt (central government): 56.1, 94.8, 81.4, 86.7.
  - External debt: 954.6, 962.6, 1,013.1, 1,001.6.
  - Central government debt (public sector): 719.2, 810.5, 876.2, 871.3.
  - Commercial external debt: 454.9, 519.7, 559.3, 548.7.
  - Multilateral: 145.2, 160.2, 159.9, 158.0.
  - Bilateral: 116.7, 124.7, 144.9, 154.9.
- Debt ratios (percent of GDP):
  - Debt outstanding: 102.3, 100.2, 98.5, 93.5.
  - Domestic debt: 5.7, 9.0, 7.3, 7.5.
  - External debt: 96.7, 91.2, 91.2, 86.1.
  - Central government debt: 72.8, 76.8, 78.9, 74.9.
  - Publicly guaranteed external debt: 5.6, 7.3, 4.3, 3.9.
- Memorandum:
  - Nominal GDP (US$ millions): 987.6, 1,055.2, 1,110.9, 1,163.9 (2003–June 2006).

### Monetary and banking system (Table 4: 2003–07)
- Central Bank of Belize (CBB) aggregates (US$ millions):
  - Net Foreign Assets: 139.1, 74.3, 113.0, 94.4, 114.4 (2003–2007).
  - Net international reserves: 146.6, 76.8, 113.0, 94.4, 114.4.
  - Base Money: 203.6, 230.0, 255.4, 274.3, 287.0.
  - Net foreign liabilities (medium-term): -7.5, -2.5, 0.0, 0.0, 0.0.
- Commercial banks (US$ millions):
  - Net foreign assets: -63.9, -54.6, -32.7, 20.0, 20.0.
  - Credit to the private sector: 1,107.7, 1,214.2, 1,351.6, 1,426.0, 1,477.2.
  - Liabilities to the private sector: 1,130.3, 1,242.0, 1,348.7, 1,478.2, 1,539.0.
  - Money and quasi-money (M2): 1,002.8, 1,078.0, 1,141.5, 1,250.3, 1,314.4.
- Monetary indicators (percent changes and ratios):
  - Comm. bank credit to the private sector (annual percent change): 13.2, 9.6, 11.3, 5.5, 3.6.
  - Required cash reserve ratio (percent): 6.0, 7.0, 8.0, 10.0, 10.0.
  - Loan deposit ratio: 118.1, 120.3, 125.1, 120.3, 118.5.

### Balance of payments (Table 5: 2003–11)
- Current account balance (US$ millions): -179.9, -151.7, -159.2, -106.6, -122.3, -129.4, -134.4, -135.8, -137.6 (2003–2011).
- Trade balance (US$ millions): -206.8, -173.2, -234.3, -189.4, -220.2, -242.9, -258.6, -271.9, -297.2.
- Components (US$ millions):
  - Total exports, f.o.b.: 315.5, 307.5, 321.9, 419.6, 432.4, 433.6, 441.3, 448.6, 452.2.
    - Of which: oil: 0.0, 0.0, 0.0, 58.2, 71.6, 62.6, 54.6, 47.7, 42.0.
  - Total imports, f.o.b.: -522.3, -480.7, -556.2, -609.1, -652.6, -676.5, -699.9, -720.5, -749.4.
    - Of which: fuel and energy: -66.4, -77.3, -97.8, -140.7, -156.2, -157.8, -157.8, -158.2, -160.0.
  - Services: 72.7, 88.9, 135.2, 156.2, 170.1, 188.3, 208.1, 230.1, 252.9.
  - Income: -86.7, -113.3, -111.3, -134.8, -135.7, -141.0, -152.9, -166.0, -168.5.
    - Of which: public sector interest payments: -60.5, -70.5, -82.1, -75.9, -73.2, -77.5, -88.0, -99.3, -99.9.
  - Current transfers: 40.9, 45.9, 51.2, 61.5, 63.5, 66.2, 69.0, 72.0, 75.2.
- Capital and financial account:
  - Capital and financial account balance (US$ millions): 181.7, 122.0, 176.8, 97.3, 9.6, 54.5, 60.7, 19.7, 53.7 (2003–2011).
  - Public sector (net): 72.3, 69.2, 69.2, -10.0, -98.4, -53.4, -47.3, -83.3, -49.3.
    - Disbursements (public sector): 253.1, 213.8, 206.4, 61.1, 36.2, 21.9, 19.6, 17.3, 12.3.
    - Amortizations (public sector): -130.6, -169.6, -151.4, -71.1, -134.6, -75.3, -66.9, -100.6, -61.6.
  - Private sector: 102.7, 42.9, 104.6, 104.6, 105.0, 105.0, 105.0, 100.0, 100.0.
    - Of which: FDI and portfolio investment: -37.2, 77.3, 86.9, 75.0, 85.0, 85.0, 85.0, 80.0, 80.0.
- Overall balance and financing:
  - Overall balance (US$ millions): -30.1, -31.3, 18.0, -9.3, -112.7, -74.9, -73.7, -116.1, -83.9.
  - Change in reserves (- increase): 30.1, 31.3, -18.0, 9.3, -10.0, -10.0, -10.0, -10.0, -10.0.
  - Financing gap: 0.0, 0.0, 0.0, 0.0, 122.7, 84.9, 83.7, 126.1, 93.9.
- Memorandum items (percent of GDP unless noted):
  - Gross international reserves stock (US$ millions): 76.2, 39.8, 57.9, 48.6, 58.6.
  - Current account balance (percent of GDP): -18.2, -14.4, -14.3, -8.8, -9.6.

### Indicators of external position and financial vulnerability (Table 6: 2003–07)
- Financial indicators:
  - 12-month percent change in commercial bank credit to the private sector: 13.2, 9.6, 11.3, 5.5, 3.6.
  - 12-month percent change in net credit to the central government: 127.7, 88.1, -9.8, 41.4, 3.9.
  - Deposit rates (end of period weighted average): 4.9, 5.2, 5.5.
  - Lending rates (end of period weighted average): 14.2, 14.0, 14.3.
- Debt indicators:
  - Total external public debt in percent of GDP: 96.7, 91.2, 91.2, 83.1, 80.5.
  - Central government debt (percent of GDP): 72.8, 76.8, 78.9, 78.8, 77.0.
  - Public and publicly guaranteed debt (percent of GDP): 23.8, 14.4, 12.3, 4.2, 3.5.
  - Total external public debt in percent of exports of goods and services: 180.9, 177.3, 164.8, 135.1, 131.1.
  - Public debt service in percent of GDP: 19.3, 22.8, 21.0, 12.4, 16.5.
  - Public debt service in percent of exports of goods and services: 36.2, 44.2, 38.0, 20.1, 26.8.
  - Public debt service in percent of current government revenue: 93.3, 108.3, 92.4, 52.4, 65.4.
- International reserves indicators:
  - Gross official reserves (US$ million): 76.2, 39.8, 57.9, 48.6, 58.6.
    - In months of imports: 1.4, 0.8, 1.0, 0.7, 0.8.
    - In percent of amortizations due in the following year: 46.9, 26.3, 81.4, 36.1, 77.8.
    - In percent of M2: 15.2, 7.4, 10.1, 7.8, 8.9.
  - Usable gross official reserves (US$ million): 74.2, 38.0, 28.9, 28.5, 38.5.
    - In months of imports: 1.3, 0.7, 0.5, 0.4, 0.6.

### Medium-term outlook (Passive Scenario, Table 7: 2005–15)
- Real economy (annual percentage change):
  - GDP at constant prices: 3.5 (2005), 5.3 (2006), 2.6 (2007), 2.1 (2008), 2.2 (2009), 2.3 (2010), 2.6 (2011), 2.6 (2012), 2.7 (2013), 2.7 (2014), 2.7 (2015).
  - GDP at current market prices: 5.3, 9.5, 5.1, 4.7, 4.8, 4.8, 5.1, 5.2, 5.2, 5.3, 5.3.
  - Prices (GDP deflator): 1.8, 4.0, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5.
- National accounts (percent of GDP):
  - Consumption: 85.8, 84.7, 85.9, 86.6, 86.6, 85.8, 86.9, 86.4, 87.2, 87.2, 88.1.
  - Gross domestic investment: 23.1, 18.0, 18.0, 17.5, 17.0, 17.0, 16.0, 16.0, 15.0, 15.0, 14.0.
  - Net exports: -8.9, -2.7, -3.9, -4.1, -3.6, -2.8, -2.9, -2.4, -2.2, -2.2, -2.1.
  - Gross national savings: 8.8, 9.2, 8.4, 7.8, 7.4, 7.8, 7.1, 7.1, 5.9, 5.6, 4.3.
- Central government fiscal outlook (percent of GDP):
  - Revenue and grants: 23.5, 24.5, 26.0, 26.1, 25.7, 25.3, 25.1, 24.9, 24.7, 24.5, 24.4.
    - Of which: oil revenue: 0.0, 0.3, 1.8, 2.0, 1.6, 1.3, 1.1, 0.9, 0.7, 0.6, 0.5.
  - Total expenditure: 29.0, 27.8, 28.6, 28.9, 29.1, 29.2, 28.8, 29.2, 29.5, 29.6, 29.8.
  - Primary balance: 2.0, 3.2, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3, 3.3.
  - Interest: 7.5, 6.5, 5.9, 6.1, 6.7, 7.2, 7.0, 7.6, 8.1, 8.4, 8.7.
  - Overall balance: -5.5, -3.3, -2.6, -2.8, -3.4, -3.9, -3.7, -4.3, -4.8, -5.1, -5.4.
  - Net domestic financing, incl. privatization: 1.1, 3.5, 1.1, 1.1, 1.1, 1.1, 1.1, 0.9, 0.7, 0.7, 0.7.
  - Net external financing (includes financing gap): 4.3, -0.2, 1.5, 1.7, 2.3, 2.8, 2.6, 3.4, 4.0, 4.3, 4.7.
- External sector (percent of GDP):
  - Current account balance: -14.3 (2005), -8.8 (2006), -9.6 (2007), -9.7 (2008), -9.6 (2009), -9.2 (2010), -8.9 (2011), -8.9 (2012), -9.1 (2013), -9.4 (2014), -9.7 (2015).
  - Exports of goods and services (percent of GDP): 55.3, 61.5, 61.4, 60.7, 60.5, 60.2, 59.6, 59.4, 59.2, 58.8, 58.4.
  - Petroleum exports (percent of GDP): 0.0, 4.8, 5.6, 4.7, 3.9, 3.2, 2.7, 2.6, 2.5, 2.3, 2.2.
  - Imports of goods and services (percent of GDP): -64.3, -64.2, -65.3, -64.8, -64.1, -63.0, -62.4, -61.7, -61.3, -61.0, -60.6.
- Medium-term public debt and reserves:
  - Public and publicly guaranteed debt (percent of GDP): 98.5 (2005), 92.9 (2006), 90.2 (2007), 88.3 (2008), 86.9 (2009), 86.0 (2010), 84.8 (2011), 84.4 (2012), 84.5 (2013), 84.9 (2014), 85.6 (2015).
  - External public debt (percent of GDP): 91.2, 83.1, 80.5, 78.6, 77.3, 76.6, 75.5, 75.2, 75.5, 76.1, 76.9.
  - Gross official reserves (in months of imports): 1.0, 0.7, 0.8, 0.9, 1.0, 1.1, 1.2, 1.3, 1.4, 1.4, 1.4.
- Financing gap (Passive Scenario):
  - Financing gap values reported for selected years: 0.0 (2005), 0.0 (2006), 9.6 (2007), 6.3 (2008), 6.0 (2009), 8.6 (2010), 6.1 (2011), 21.2 (2012), 9.5 (2013), 10.2 (2014), 17.2 (2015) (Table 7 line "Financing gap").

### Key analytical conclusions (as presented in source text)
- The widening current account deficit since 1998 is not strongly linked to a loss of competitiveness; instead, it is largely driven by a deteriorating income account that reflects rapid accumulation of foreign debt.
- When excluding income and oil, the current account shows marked improvement and becomes significantly positive in recent years.
- Belize faces high public and publicly guaranteed external debt levels, placing it among the more indebted emerging market countries (figure captions and tables).

*Source: Fund staff estimates and projections as presented in the IMF document _cr06369 (selected tables and figures 2003–2015)._*

### 1. Public and publicly guaranteed debt

### 1. Public and publicly guaranteed debt

### Debt stock and composition (levels and percent of GDP)
- Total debt stock (US$ millions, annual entries): 1,094.5; 1,130.2; 1,154.2; 1,181.8; 1,218.8; 1,265.3; 1,311.3; 1,372.3; 1,446.3; 1,529.7; 1,623.6
- Domestic debt (US$ millions): 81.4 119.2 124.2 129.2 134.2 139.2 144.2 149.2 154.2 159.2 164.2
- External debt (US$ millions): 1,013.1; 1,011.0; 1,029.9; 1,052.6; 1,084.6; 1,126.1; 1,167.0; 1,223.0; 1,292.1; 1,370.4; 1,459.4
- External debt by creditor (US$ millions):
  - Multilateral: 228.6 233.1 229.7 222.7 214.7 206.3 195.0 185.2 174.3 163.5 153.3
  - Bilateral and export credit: 167.4 195.0 202.4 202.0 201.0 199.0 194.5 190.4 186.3 181.7 176.9
  - Commercial, including parastatal: 617.1 582.9 597.8 627.9 668.8 720.8 777.5 847.5 931.6 1,025.2 1,129.2

- Debt as percent of GDP (Total): 98.5 92.9 90.2 88.3 86.9 86.0 84.8 84.4 84.5 84.9 85.6
- Domestic debt as percent of GDP: 7.3 9.8 9.7 9.7 9.6 9.5 9.3 9.2 9.0 8.8 8.7
- External debt as percent of GDP: 91.2 83.1 80.5 78.6 77.3 76.6 75.5 75.2 75.5 76.1 76.9
- External debt by creditor (percent of GDP):
  - Multilateral: 20.6 19.2 18.0 16.6 15.3 14.0 12.6 11.4 10.2 9.1 8.1
  - Bilateral and export credit: 15.1 16.0 15.8 15.1 14.3 13.5 12.6 11.7 10.9 10.1 9.3
  - Commercial, including parastatal: 55.5 47.9 46.7 46.9 47.7 49.0 50.3 52.1 54.4 56.9 59.5

### Medium-term projections (Selected entries from Table 9, Active Scenario)
- Public and publicly guaranteed debt (percent of GDP, 2005–15 projections): 98.5; 92.6; 87.5; 82.7; 78.5; 74.9; 70.8; 67.1; 63.0; 58.7; 54.2
- Domestic (percent of GDP, 2005–15): 7.3; 8.7; 4.2; 2.8; 2.3; 2.4; 2.6; 2.7; 2.8; 2.9; 3.0
- External (percent of GDP, 2005–15): 91.2; 83.9; 83.4; 79.9; 76.2; 72.5; 68.3; 64.4; 60.2; 55.8; 51.3

### 2. Flow of funds (2005–15, percent of GDP unless stated)

### Sources of funds (selected series)
- Primary balance: 2.0 3.2 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3
- Privatization proceeds 2/: 2.3 0.4 0.7 0.7 0.7 0.7 0.7 0.6 0.5 0.4 0.4
- Identified disbursements: 17.3 8.0 3.1 2.0 1.7 1.5 1.1 1.0 0.9 0.9 0.8
- Multilateral: 1.2 0.7 0.5 0.4 0.3 0.1 0.1 0.0 0.0 0.0 0.0
- Bilateral and export credit: 3.5 1.8 1.0 0.9 0.8 0.6 0.6 0.6 0.6 0.6 0.5
- Commercial: 3.3 0.5 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3
- Domestic (net): -1.2 3.1 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3
- External: 0.2 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0

### Use of funds (debt service breakdown)
- Debt service: 21.2 11.6 15.8 10.8 11.1 13.2 10.7 25.8 14.0 14.5 21.3
- Interest payments: 7.7 6.5 5.9 6.1 6.7 7.2 7.0 7.6 8.1 8.4 8.7
  - Domestic interest: 0.7 0.9 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.7
  - External interest: 6.9 5.6 5.1 5.3 5.9 6.5 6.3 6.9 7.4 7.7 8.0
- Principal repayments: 13.6 5.1 9.9 4.7 4.4 6.0 3.7 18.2 5.9 6.1 12.6
  - Multilateral principal: 0.8 1.0 1.0 1.0 0.9 0.8 0.7 0.7 0.6 0.6 0.6
  - Bilateral and export credit principal: 1.2 1.3 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8
  - Commercial, including parastatal principal: 3.0 7.7 2.6 2.5 4.2 1.9 16.6 4.5 4.7 11.3

### Financing gap and averages
- Financing gap (percent of GDP, selected series): 0.0 0.0 8.8 4.8 5.4 7.7 5.6 20.9 9.4 9.9 16.8
- Five-year average: 5.9 12.5

### 3. Assumptions and macro projections (selected)

### Key macro and rate assumptions (preserve exact values)
- Nominal GDP (US$ millions, series): 1,110.9; 1,216.8; 1,279.1; 1,339.1; 1,402.8; 1,470.5; 1,546.0; 1,626.2; 1,711.3; 1,801.6; 1,897.3
- Nominal GDP growth rate (percent): 5.3 9.5 5.1 4.7 4.8 4.8 5.1 5.2 5.2 5.3 5.3
- Real GDP growth rate (percent): 3.5 5.3 2.6 2.1 2.2 2.3 2.6 2.6 2.7 2.7 2.7
- Annual inflation (deflator, in percent): 1.8 4.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5
- Assumed domestic borrowing rate (percent): 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0
- Nominal external commercial borrowing rate (percent): 14.0 14.0 14.0 14.0 14.1 14.2 14.2 14.3 14.3 14.4 14.4
- Assumed 5-year U.S. T-Bond (percent): 5.0 5.0 5.0 5.1 5.2 5.2 5.3 5.3 5.4 5.4 5.4
- Spread over 5-year U.S. T-Bond (percent): 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0
- Nominal external bilateral borrowing rate (percent): 6.4 6.5 6.5 6.5 6.5 6.5 6.1 6.1 6.1 6.1

### Memorandum items (balances and effective rates)
- Overall balance (calendar year, percent of GDP): -5.5 -3.3 -2.6 -2.8 -3.4 -3.9 -3.7 -4.3 -4.8 -5.1 -5.4
- Overall balance (fiscal year, percent of GDP): -3.3 -3.2 -2.4 -2.9 -3.5 -3.8 -3.9 -4.5 -4.9 -5.1 -5.4
- Primary balance (fiscal year, percent of GDP): 3.0 3.4 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3 3.3
- Effective nominal interest rate (percent): 7.9 7.3 6.6 7.0 7.9 8.7 8.6 9.5 10.1 10.5 10.7

### 4. Medium-Term Outlook (Table 9 highlights, Active Scenario)

### Real economy (annual percentage change)
- GDP at constant prices: 3.5 5.3 3.5 3.3 3.4 3.4 3.7 3.8 3.9 3.9 3.9
- GDP at current market prices: 5.3 9.5 6.1 5.9 5.9 6.0 6.3 6.4 6.5 6.5 6.5
- Prices (GDP deflator): 1.8 4.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

### National accounts (selected percent of GDP)
- Consumption: 85.8 84.7 87.6 86.6 86.4 86.5 86.2 85.4 84.9 84.2 83.7
- Gross domestic investment: 23.1 18.0 18.0 18.0 18.0 17.0 17.0 17.0 17.0 17.0 17.0
- Net exports: -8.9 -2.7 -5.6 -4.6 -4.4 -3.5 -3.2 -2.4 -1.9 -1.2 -0.7
- Gross national savings: 8.8 9.2 6.9 8.1 8.1 7.9 8.9 9.8 11.2 12.2 13.2

### Central government (percent of GDP)
- Revenue and grants: 23.5 24.6 26.0 26.3 26.1 25.7 25.4 25.2 25.0 24.8 24.7
  - Of which: oil revenue: 0.0 0.3 1.8 1.9 1.6 1.2 1.0 0.8 0.7 0.5 0.4
- Total expenditure: 29.0 27.6 27.0 27.0 27.2 27.3 26.5 26.4 25.4 24.8 24.2
- Noninterest expenditure: 21.4 21.0 21.5 21.7 21.6 21.5 21.3 21.2 21.1 20.8 20.7
- Primary balance: 2.0 3.5 4.5 4.5 4.5 4.4 4.2 4.1 4.0 4.0 4.0
- Interest: 7.5 6.5 5.5 5.3 5.6 5.8 5.2 5.2 4.4 4.0 3.5
- Overall balance: -5.5 -3.0 -1.0 -0.8 -1.2 -1.6 -1.1 -1.1 -0.4 0.0 0.5
- Net domestic financing, incl. privatization: 1.1 2.4 -3.3 -0.4 0.4 1.0 1.0 0.9 0.7 0.7 0.7
- Net external financing 2/: 4.3 0.6 4.3 1.1 0.8 0.6 0.1 0.3 -0.3 -0.7 -1.1

### External sector (selected)
- Current account balance: -14.3 -8.8 -11.1 -9.9 -9.9 -9.1 -8.1 -7.2 -5.8 -4.8 -3.8
- Exports of goods and services: 55.3 61.5 61.6 61.1 61.0 60.9 60.6 60.8 61.0 60.9 61.0
- Petroleum exports: 0.0 4.8 5.5 4.6 3.8 3.1 2.6 2.4 2.3 2.1 2.0
- Imports of goods and services: -64.3 -64.2 -67.2 -65.6 -65.4 -64.4 -63.9 -63.2 -62.8 -62.1 -61.7
- Capital and financial account 3/: 16.0 8.8 6.2 5.9 6.6 3.7 5.7 -2.1 6.1 5.7 1.1
- Public sector disbursements: 18.6 5.8 6.9 2.5 2.2 1.9 1.5 1.4 1.3 1.2 1.1
- Public sector amortization: -13.6 -6.1 -10.6 -5.7 -4.8 -6.9 -4.3 -11.4 -2.9 -2.7 -7.1
- Change in reserves (- increase): -1.6 -0.1 -1.9 -1.8 -1.7 -1.6 -1.5 -1.4 -1.4 -1.3 -1.2
- Financing gap: 0.0 0.0 6.9 5.8 5.0 7.0 3.9 10.7 1.0 0.3 3.9
- Gross official reserves (in months of imports): 1.0 0.9 1.2 1.5 1.7 1.9 2.1 2.3 2.4 2.5 2.6

### 5. Public and publicly guaranteed debt simulations (Table 10, alternative projection series)

### Debt levels (US$ millions, Prel. and Proj. series)
- Total debt (selected series): 1,094.5; 1,126.8; 1,130.1; 1,130.3; 1,136.7; 1,150.3; 1,156.6; 1,166.5; 1,165.6; 1,157.0; 1,138.4
- Domestic (US$ millions, projected): 81.4 105.8 53.7 38.6 33.2 37.2 42.2 47.2 52.2 57.2 62.2
- External (US$ millions, projected): 1,013.1; 1,021.0; 1,076.4; 1,091.7; 1,103.5; 1,113.1; 1,114.4; 1,119.3; 1,113.4; 1,099.8; 1,076.2
- External by creditor (US$ millions, projected):
  - Multilateral: 228.6 243.1 267.2 272.7 277.2 281.3 282.5 285.2 286.8 288.5 290.8
  - Bilateral and export credit: 167.4 195.0 227.4 227.4 226.0 220.9 210.2 196.9 180.4 160.4 137.0
  - Commercial, including parastatal: 617.1 582.9 581.8 592.0 600.2 611.0 621.7 637.3 646.3 650.9 648.4

### Debt ratios (percent of GDP, projected)
- Total debt (percent of GDP): 98.5 92.6 87.5 82.7 78.5 74.9 70.8 67.1 63.0 58.7 54.2
- Domestic: 7.3 8.7 4.2 2.8 2.3 2.4 2.6 2.7 2.8 2.9 3.0
- External: 91.2 83.9 83.4 79.9 76.2 72.5 68.3 64.4 60.2 55.8 51.3
- External by creditor (percent of GDP, projected):
  - Multilateral: 20.6 20.0 20.7 20.0 19.1 18.3 17.3 16.4 15.5 14.6 13.9
  - Bilateral and export credit: 15.1 16.0 17.6 16.6 15.6 14.4 12.9 11.3 9.8 8.1 6.5
  - Commercial, including parastatal: 55.5 47.9 45.1 43.3 41.4 39.8 38.1 36.7 34.9 33.0 30.9

### Flow of funds (alternate simulation, percent of GDP)
- Primary balance: 2.0 3.5 4.5 4.5 4.4 4.2 4.1 4.0 4.0 4.0 4.0
- Identified disbursements: 17.3 7.7 2.7 1.4 1.8 2.2 1.8 1.7 1.5 1.4 1.3
- Multilateral receipts: 2.0 2.9 1.4 1.3 1.1 0.9 0.8 0.7 0.7 0.6
- Commercial flows (percent of GDP): 2.2 -3.9 -1.0 -0.3 0.3 0.3 0.3 0.3 0.3 0.2
- Domestic (net): -1.2 2.0 -4.0 -1.1 -0.4 0.3 0.3 0.3 0.3 0.3 0.2

### Use of funds (alternate simulation)
- Debt service: 21.2 11.6 15.4 9.9 9.9 11.7 9.1 16.3 7.1 6.6 10.5
- Interest payments: 7.7 6.5 5.5 5.3 5.6 5.8 5.2 5.2 4.4 4.0 3.5
  - Domestic interest: 0.7 0.9 0.5 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2
  - External interest: 6.9 5.6 5.0 5.0 5.4 5.6 5.0 4.9 4.1 3.8 3.3
- Principal repayments: 13.6 5.1 9.9 4.6 4.3 6.0 3.9 11.1 2.7 2.6 6.9

### Financing gap (alternate simulation, percent of GDP)
- Financing gap (percent of GDP): 0.0 0.0 7.4 3.2 2.9 4.7 2.5 10.0 1.1 0.7 4.7
- Five-year average: 3.6 3.8

### Alternate assumptions (selected)
- Nominal GDP (US$ millions, alternate series): 1,110.9; 1,216.8; 1,291.1; 1,366.8; 1,448.1; 1,535.3; 1,632.7; 1,737.3; 1,849.5; 1,969.7; 2,098.6
- Nominal external commercial borrowing rate (percent, alternate): 14.1 10.6 9.9 9.2 8.5 8.6 8.4 8.4 8.2 8.2
- Assumed 10-year U.S. T-Bond (percent): 5.1 5.1 5.1 5.2 5.3 5.3 5.4 5.4 5.4 5.4
- Spread over 10-year U.S. T-Bond (percent): 9.0 5.5 4.8 4.0 3.3 3.3 3.0 3.0 2.8 2.8
- Nominal external bilateral and multilateral borrowing rate (percent): 6.0 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1
- Six-month LIBOR rate (percent): 5.0 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1
- Spread over LIBOR rate (percent): 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

### 6. Fund relations, technical assistance, and multilateral partner engagement (selected)
- Membership: Joined March 16, 1982; Article VIII
- Quota: SDR 18.80; Fund holdings of currency 14.56; Reserve position 4.24
- SDR Holdings: 1.88
- Outstanding Purchases and Loans: None
- Last Article IV consultation concluded by the Executive Board on September 19, 2005; published as IMF Country Report Nos. 05/352 and 05/353. Belize is on the standard 12-month consultation cycle.
- Technical assistance highlights (years and topics preserved exactly as listed):
  - In January 2002 and July 2006, CARTAC experts visited Belize to advise the Central Statistical Office on improving National Income Accounting.
  - During early 2004–June 2005, a long-term consultant from IMF’s Monetary and Financial Systems Department (MFD) assisted the Central Bank of Belize in banking supervision.
  - In March 2005, a joint mission from the IMF’s Legal Department and MFD visited Belize to advise the authorities on strengthening their regime to combat money laundering and the financing of terrorism (AML/CFT).
  - In October 2005, a mission from the IMF’s Statistics Department (STA) visited Belize to assist the central bank in strengthening monetary and financial statistics.
  - During 2005 and 2006, CARTAC provided extensive assistance through frequent expert visits to help design and implement a General Sales Tax.
  - During 2006, experts from CARTAC conducted macroeconomic programming workshops in Belize.
- Planned further IMF technical assistance in 2006 and early 2007 (topics preserved): post-implementation support for the GST by CARTAC; Fiscal Affairs Department assistance in strengthening tax administration; multisector STA mission on economic statistics scheduled for early 2007; assistance requested from the Monetary and Capital Markets Department in developing monetary policy instruments.
- Exchange rate regime: Since 1976, the Belize dollar has been pegged to the U.S. dollar at the rate of BZ$2 per U.S. dollar. The central bank has not engaged in selective sales or rationing of foreign exchange to the private sector since 2004.

### 7. World Bank and Inter-American Development Bank (selected)

### World Bank (as of August 31, 2006)
- A five year Country Assistance Strategy completed August 2000; World Bank currently has no active projects in Belize.
- IBRD operations summary (US$ equivalent):
  - Original Principal: 86,200,000
  - Cancellations: 5,703,328
  - Disbursed: 80,496,672
  - Repaid: 48,180,269
  - Due: 32,316,403
  - Exchange Adjustment: -1,089,192
  - Borrower Obligation: 31,227,211
- Gross disbursements and debt service during fiscal years (July–June, in millions of U.S. dollars):
  - Disbursements (2001–2006, 2007 Est.): 4.7; 5.5; 4.3; 1.6; 0.7; 0.7; 0
  - Repayments (2001–2007): 3.3; 3.4; 4.8; 4.8; 4.5; 4.5; 4.9
  - Net (2001–2007): 1.3; 2.1; -0.5; -3.2; -3.8; -3.8; -4.9
  - Interest and Fees (2001–2007): 1.8; 3.1; 2.6; 2.0; 1.7; 1.7; 1.8

### Inter-American Development Bank (as of August 31, 2006)
- Current portfolio (US$ millions): Land Administration II Approved 7.0 Undisbursed 3.0; Health Sector Reform Approved 9.8 Undisbursed 6.3; Total Approved 16.8 Undisbursed 9.3
- Loan transactions (net flows and components, 2000–2006 series):
  - Net flows (2000–2006): 10.3; 16.3; 11.8; 12.2; 3.3; -3.1; -0.2
  - Gross disbursements (2000–2006): 11.1; 18.3; 14.3; 15.8; 8.1; 2.9; 7.1
  - Amortization (2000–2006): 0.0; 0.0; 0.0; 0.5; 1.6; 2.5; 3.8
  - Interest and charges (2000–2006): 0.8; 2.0; 2.0; 3.1; 3.2; 3.5; 3.5
- IDB nonfinancial products and pipeline highlights:
  - 2004–08 IDB-Country Strategy approved September 2004 focusing on “supporting private sector-led growth”.
  - No loans approved since 2001 due to unsustainable level of Belize’s external debt; 2006 pipeline includes a $25 million Policy-based Loan to support macroeconomic and public financial sector reforms.
  - Technical Cooperation operations in 2006 for HIV/AIDS and combating human trafficking; PRODEV initiative project for strengthening results-based management; MIF pipeline project for mentoring entrepreneurs.
  - Financial Intermediation Study exploring alternatives for development financing in the DFC dissolution process; Belize Fiscal Study and Public Expenditure Review completed; WEF contracted to develop competitiveness indicators for Belize.

*Sources: Belizean authorities; and Fund staff estimates and projections.*

### Appendix IV. Belize––Relations with the Caribbean Development Bank (CDB)

### Appendix IV. Belize––Relations with the Caribbean Development Bank (CDB)

### I. Current Portfolio (In millions of U.S. dollars)
- Disaster Preparedness — Approved: 9.2 — Undisbursed: 3.1
- Fifth Line of Credit — Approved: 7.3 — Undisbursed: 0.0
- Second Water and Sewerage Project — Approved: 13.8 — Undisbursed: 1.7
- Rural Development — Approved: 3.4 — Undisbursed: 2.2
- Health Sector Reform Program — Approved: 5.6 — Undisbursed: 4.2
- Enhancement of Technical and Vocational Education — Approved: 16.1 — Undisbursed: 3.1
- Southern Highway Rehabilitation — Approved: 1.8 — Undisbursed: 0.6
- Social Investment Fund — Approved: 7.1 — Undisbursed: 6.9
- Belize Cogeneration Energy Limited (Belcogen) — Approved: 8.3 — Undisbursed: 8.3
- Total — Approved: 72.6 — Undisbursed: 30.1

### II. Loan Transactions
- Annual net flows:
  - 2000: 6.2
  - 2001: 6.1
  - 2002: 3.7
  - 2003: 6.1
  - 2004: 9.3
  - 2005: 4.0
  - August 2006: -0.7
- Gross disbursements:
  - 2000: 9.0
  - 2001: 9.3
  - 2002: 7.6
  - 2003: 9.5
  - 2004: 13.5
  - 2005: 9.4
  - August 2006: 2.9
- Amortizations:
  - 2000: 2.8
  - 2001: 3.2
  - 2002: 3.9
  - 2003: 3.4
  - 2004: 4.2
  - 2005: 5.4
  - August 2006: 3.6
- Interest and charges:
  - 2000: 3.2
  - 2001: 3.9
  - 2002: 3.6
  - 2003: 3.6
  - 2004: 3.9
  - 2005: 4.5
  - August 2006: 3.2

### III. Economic and Sector Work
- Focus since 2003:
  - Helping authorities address significant macroeconomic and fiscal imbalances.
  - Addressing sustainability issues in the operations of the Development Finance Corporation.
  - Resulted in a slower rate of loan approvals.
- Private sector activity:
  - A private sector loan to Belcogen was approved in 2005.
  - Appraisal work ongoing on another private sector agriculture project.
- Public sector project pipeline:
  - Consideration of a request for loan funding for a public sector road infrastructure project has been delayed in light of the current macro-economic situation.
- Poverty reduction:
  - Activity levels on CDB’s main direct poverty reduction program, the Basic Needs Trust Fund, has been maintained.
- Country strategy and policy-based support:
  - CDB is preparing a Country Strategy Paper for Belize.
  - One likely short-term intervention is a Policy-based Loan to assist Belize in making necessary adjustments to correct macro-economic imbalances.

*Source: Appendix IV. Belize––Relations with the Caribbean Development Bank (CDB) (As of August 31, 2006).*

### Appendix VII. Figure 3. Projected Monthly Debt Service Payments

### Appendix VII. Figure 3. Projected Monthly Debt Service Payments

### Data and methodology
- Debt service projections cover central government debt and publicly guaranteed external debt of quasi-fiscal entities.
- Data sources:
  - Bilateral and multilateral debt service: Central Bank of Belize (CBB).
  - Commercial debt service: IMF staff files compiled on a loan-by-loan basis from original documentation for central government debt.
- Assumptions for standard financing terms (used for bilateral, multilateral, and new domestic financing):
  - Interest = 6-month LIBOR plus one percent.
  - Term = 20 years.
  - Amortizations on a half-yearly basis after a grace period of three years.
- Domestic debt:
  - Rolled over at existing terms.
  - New domestic financing contracted at a flat interest rate of 8 percent (average cost of the past 5 years).
- Residual financing gaps filled by external market financing:
  - Passive scenario: 5-year notes with bullet maturity.
  - Active scenario: 10-year bonds with bullet maturity.
  - Projected interest rates = current market projections for 5- and 10-year U.S. Treasury bonds plus a country risk premium (spread).
  - It is assumed that 1/4 of the annual interest payments will fall due in the year of contracting new loans.

### Treatment of quasi-fiscal and specific debts
- External quasi-fiscal entities:
  - Interest payments assumed to be serviced from their own resources.
  - For the DFC: amortization payments fully assumed by the central government, which is able to recoup two-thirds of them through the sale of DFC assets (recorded as privatization proceeds, below the line).
  - Other publicly guaranteed debt assumed rolled over and remains constant at end-2005 level.

### Passive scenario — assumptions
- Bilateral and multilateral financing:
  - Multilateral financing limited to previously identified lending.
  - Bilateral financing assumed at US$10 million per year through 2015 on a gross basis.
- Domestic financing assumed at about US$5 million per year in net terms.
- Sovereign risk spreads projected at 900bps.
- Consequence: after an initial fall, public debt does not stabilize long run.

### Passive scenario — key projected outcomes and dynamics
- Debt-to-GDP ratio:
  - About 98½ percent at end-2005.
  - Falls to about 84½ percent in 2012.
  - Shifts back to a rising trend thereafter.
- Interest bill:
  - Projected to climb to about 9 percent of GDP by 2015.
  - Increase driven by refinancing at higher market terms and the phasing out of exceptional upfront fees/commissions.
- Primary balance:
  - Stable primary surplus in outer years translates into a gradually widening overall deficit as interest payments rise, adding to debt stock.
- Sensitivity (bound) tests produce more explosive debt dynamics under shocks:
  - Higher real interest rate of one standard deviation.
  - Lower real GDP growth rate or primary surplus of one-half standard deviation each.
  - One-time real depreciation of 30 percent.
  - 10 percent increase in debt stock (e.g., recapitalization needs or emergency/reconstruction spending).
- Appendix VIII. Table 1 (selected figures, passive scenario, in percent of GDP unless otherwise indicated):
  - Baseline: Public and publicly guaranteed debt 2005 = 98.4.
  - Change in public sector debt (2006–2011): -5.5 (2006), -2.7 (2007), -2.0 (2008), -1.4 (2009), -0.8 (2010), -1.2 (2011).
  - Primary deficit (2005–2011): -2.0 (2005), -3.2 (2006), -3.3 (2007–2011).
  - Revenue and grants (2005–2011): 23.5 (2005), 24.5 (2006), 26.0 (2007), 26.1 (2008), 25.7 (2009), 25.3 (2010), 25.1 (2011).
  - Average nominal interest rate on public debt (2005–2011): 7.9 (2005), 7.3 (2006), 6.6 (2007), 7.0 (2008), 7.9 (2009), 8.7 (2010), 8.6 (2011).
  - Real GDP growth (2005–2011): 3.5 (2005), 5.3 (2006), 2.6 (2007), 2.1 (2008), 2.2 (2009), 2.3 (2010), 2.6 (2011).
  - Gross financing need (in percent of GDP, 2005–2011): 18.8 (2005), 8.4 (2006), 12.5 (2007), 7.5 (2008), 7.8 (2009), 9.9 (2010), 7.4 (2011).
  - Gross financing need (in billions of U.S. dollars, 2005–2011): 0.2 (2005), 0.1 (2006), 0.2 (2007), 0.1 (2008), 0.1 (2009), 0.1 (2010), 0.1 (2011).

### Active policy scenario — assumptions
- Bilateral and multilateral support:
  - Additional policy-based loans from IDB and CDB of US$25 million each, with disbursements during the last quarter of 2006 through early 2008.
  - Afterwards, multilateral financial support of about US$12.5 million per year (gross basis) through 2015.
  - Bilateral lenders provide additional lending of US$25 million in 2007.
- Domestic financing:
  - Lower than in the passive scenario, particularly early years, as government repays central bank overdraft to accumulate international reserves.
- Country risk (spreads):
  - Decline from 550 bps in 2007 to 275 bps by 2015 following a successful debt exchange.

### Active policy scenario — key projected outcomes and dynamics
- Debt-to-GDP ratio trajectory (market-term closure of financing needs):
  - About 98½ percent in 2005.
  - 67 percent by 2012.
  - 54 percent by 2015.
  - Decline largely driven by higher primary surplus under the active scenario and more favorable financing conditions.
- Vulnerabilities:
  - Public debt burden remains high for a prolonged period.
  - Significant vulnerability to adverse shocks: under bound sensitivity tests the debt-to-GDP ratio remains declining but return to safer levels is significantly delayed.
- Appendix VIII. Table 2 (selected figures, active scenario, in percent of GDP unless otherwise indicated):
  - Baseline: Public and publicly guaranteed debt 2005 = 98.4 (note: active-scenario tables report close baseline series with projections showing steeper declines).
  - Change in public sector debt (2006–2011): -5.8 (2006), -5.1 (2007), -4.8 (2008), -4.2 (2009), -3.6 (2010), -4.1 (2011).
  - Primary deficit (2005–2011): -2.0 (2005), -3.5 (2006), -4.5 (2007), -4.5 (2008), -4.4 (2009), -4.2 (2010), -4.1 (2011).
  - Revenue and grants (2005–2011): 23.5 (2005), 24.6 (2006), 26.0 (2007), 26.3 (2008), 26.1 (2009), 25.7 (2010), 25.4 (2011).
  - Average nominal interest rate on public debt (2005–2011): 7.9 (2005), 7.3 (2006), 6.3 (2007), 6.4 (2008), 7.2 (2009), 7.8 (2010), 7.4 (2011).
  - Real GDP growth (2005–2011): 3.5 (2005), 5.3 (2006), 3.6 (2007), 3.3 (2008), 3.4 (2009), 3.4 (2010), 3.7 (2011).
  - Gross financing need (in percent of GDP, 2005–2011): 29.8 (2005), 28.0 (2006), 14.6 (2007), 20.1 (2008), 15.3 (2009), 14.4 (2010), 16.1 (2011).
  - Gross external financing need (in billions of U.S. dollars, 2005–2011): 0.3 (2005), 0.3 (2006), 0.2 (2007), 0.3 (2008), 0.2 (2009), 0.2 (2010), 0.2 (2011).

### Sensitivity and bound tests (both scenarios)
- Types of shocks tested:
  - Permanent one-half standard deviation shocks to real interest rate, growth rate, and primary balance.
  - Permanent 1/4 standard deviation shocks applied jointly to real interest rate, growth rate, and primary balance.
  - One-time real depreciation of 30 percent and a 10 percent of GDP shock to contingent liabilities occurring in 2006.
- Results summary:
  - Passive scenario: bound tests lead to more explosive debt dynamics; combined shocks and contingent liability or depreciation shocks substantially worsen debt paths (Appendix VIII. Figure 1).
  - Active scenario: debt-to-GDP ratio remains on a declining trend under bound sensitivity tests, but shocks significantly delay return to safer debt levels (Appendix VIII. Figure 2).

*Source: Appendix VIII. Debt Sustainability Analysis, including Appendix VIII. Tables 1–2 and Appendix VIII. Figures 1–2, as provided in the source content.*

### Appendix VIII. Table 3. Public and Publicly Guaranteed External Debt Sustainability Framework, 2000–11

### Appendix VIII. Table 3. Public and Publicly Guaranteed External Debt Sustainability Framework, 2000–11

### Debt sustainability bound tests and scenario highlights
- Figures refer to "Public and Publicly Guaranteed External Debt Sustainability: Bound Tests" (Passive Scenario, in percent of GDP).  
- Individual shocks are permanent one-half standard deviation shocks. Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance. One-time real depreciation of 30 percent occurs in 2006.  
- Shaded areas represent actual data; figures in boxes represent average projections for respective variables in the baseline and scenario; ten-year historical averages shown.

- Selected scenario indicators shown in figures:
  - Interest rate shock: i-rate shock panels present baseline levels and shocked paths for 2001–2011.
  - CA shock panel: figure label "96" with baseline and shocked series for 2001–2011.
  - Combined shock (2/): figure label "92".
  - Real depreciation shock (3/): "30 % depreciation" with figure label "107".
  - Growth shock: figure label "83".
  - Gross financing need under baseline shown on right scale.

### Baseline projections and active scenario (Table 3, active scenario excerpt)
- Baseline: External public and publicly guaranteed debt (in percent of GDP) by year:
  - 2001: 75.4
  - 2002: 85.8
  - 2003: 96.7
  - 2004: 91.2
  - 2005: 91.2
  - 2006: 83.9
  - 2007: 83.4
  - 2008: 79.9
  - 2009: 76.2
  - 2010: 72.5
  - 2011: 68.3

- Change in external debt (percent of GDP):
  - 2001: 9.8
  - 2002: 10.4
  - 2003: 10.8
  - 2004: -5.4
  - 2005: 0.0
  - 2006: -7.3
  - 2007: -0.5
  - 2008: -3.5
  - 2009: -3.7
  - 2010: -3.7
  - 2011: -4.2

- Identified external debt-creating flows (sum of items 4 + 8 + 9, percent of GDP):
  - 2001: 15.5
  - 2002: 9.0
  - 2003: 13.6
  - 2004: -0.1
  - 2005: 2.1
  - 2006: -4.5
  - 2007: -1.3
  - 2008: -1.5
  - 2009: -1.6
  - 2010: -1.8
  - 2011: -2.7

- Components of identified debt-creating flows (percent of GDP):
  - Current account deficit, excluding interest payments:
    - 2001: 17.4
    - 2002: 14.3
    - 2003: 16.3
    - 2004: 11.1
    - 2005: 6.6
    - 2006: 2.2
    - 2007: 5.3
    - 2008: 4.2
    - 2009: 4.0
    - 2010: 3.2
    - 2011: 2.9
  - Deficit in balance of goods and services:
    - 2001: 18.4
    - 2002: 14.6
    - 2003: 16.9
    - 2004: 11.4
    - 2005: 8.9
    - 2006: 2.7
    - 2007: 5.6
    - 2008: 4.6
    - 2009: 4.4
    - 2010: 3.5
    - 2011: 3.2
  - Exports (percent of GDP):
    - 2001: 50.8
    - 2002: 52.9
    - 2003: 50.0
    - 2004: 48.0
    - 2005: 55.3
    - 2006: 61.5
    - 2007: 61.6
    - 2008: 61.1
    - 2009: 61.0
    - 2010: 60.9
    - 2011: 60.6
  - Imports (percent of GDP):
    - 2001: 69.2
    - 2002: 67.4
    - 2003: 67.0
    - 2004: 59.4
    - 2005: 64.3
    - 2006: 64.2
    - 2007: 67.2
    - 2008: 65.6
    - 2009: 65.4
    - 2010: 64.4
    - 2011: 63.9

- Net nondebt creating capital inflows (negative values indicate inflows, percent of GDP):
  - 2001: -4.0
  - 2002: -6.2
  - 2003: -3.7
  - 2004: -11.3
  - 2005: -7.7
  - 2006: -8.8
  - 2007: -9.7
  - 2008: -8.8
  - 2009: -9.0
  - 2010: -8.5
  - 2011: -8.3

- Automatic debt dynamics 1/ (percent of GDP):
  - 2001: 2.0
  - 2002: 0.9
  - 2003: 1.0
  - 2004: 0.1
  - 2005: 3.2
  - 2006: 2.1
  - 2007: 3.1
  - 2008: 3.1
  - 2009: 3.3
  - 2010: 3.5
  - 2011: 2.6

- Contributions to automatic dynamics (percent of GDP):
  - From nominal interest rate:
    - 2001: 5.0
    - 2002: 5.8
    - 2003: 5.8
    - 2004: 6.3
    - 2005: 7.8
    - 2006: 6.5
    - 2007: 5.9
    - 2008: 5.7
    - 2009: 5.9
    - 2010: 6.0
    - 2011: 5.2
  - From real GDP growth:
    - 2001: -3.1
    - 2002: -3.6
    - 2003: -7.6
    - 2004: -4.2
    - 2005: -3.0
    - 2006: -4.4
    - 2007: -2.8
    - 2008: -2.6
    - 2009: -2.5
    - 2010: -2.5
    - 2011: -2.6
  - From price and exchange rate changes 2/:
    - 2001: 0.1
    - 2002: -1.3
    - 2003: 2.7
    - 2004: -2.0
    - 2005: -1.6
    - 2006: ...

- Residual, incl. change in gross foreign assets (2-3) 3/ (percent of GDP):
  - 2001: -5.7
  - 2002: 1.4
  - 2003: -2.7
  - 2004: -5.3
  - 2005: -2.1
  - 2006: -2.8
  - 2007: 0.8
  - 2008: -2.0
  - 2009: -2.1
  - 2010: -1.9
  - 2011: -1.5

- External debt-to-exports ratio (in percent):
  - 2001: 148.4
  - 2002: 162.3
  - 2003: 193.2
  - 2004: 190.2
  - 2005: 164.8
  - 2006: 136.4
  - 2007: 135.3
  - 2008: 130.8
  - 2009: 124.9
  - 2010: 119.0
  - 2011: 112.6

- Gross external financing need (in billions of US dollars) 4/:
  - 2001: 0.2
  - 2002: 0.3
  - 2003: 0.3
  - 2004: 0.3
  - 2005: 0.3
  - 2006: 0.2
  - 2007: 0.3
  - 2008: 0.2
  - 2009: 0.2
  - 2010: 0.2
  - 2011: 0.2

- Gross external financing need (in percent of GDP):
  - 2001: 27.9
  - 2002: 35.7
  - 2003: 27.2
  - 2004: 29.7
  - 2005: 28.0
  - 2006: 14.6
  - 2007: 21.6
  - 2008: 15.4
  - 2009: 14.5
  - 2010: 15.9
  - 2011: 12.2

- Scenario with key variables at their historical averages 5/ (selected values):
  - 2001: 83.9
  - 2002: 92.5
  - 2003: 98.4
  - 2004: 104.1
  - 2005: 109.9
  - 2006: 116.0
  - Debt-stabilizing non-interest current account: -3.8

### Key macroeconomic assumptions underlying baseline
- Real GDP growth (in percent):
  - 2001: 4.9
  - 2002: 5.1
  - 2003: 9.3
  - 2004: 4.6
  - 2005: 3.5
  - 2006: 5.3
  - 2007: 3.5
  - 2008: 3.3
  - 2009: 3.4
  - 2010: 3.4
  - 2011: 3.7

- GDP deflator in U.S. dollars (change in percent):
  - 2001: -0.2
  - 2002: 1.8
  - 2003: -3.1
  - 2004: 2.1
  - 2005: 1.8
  - 2006: 4.0
  - 2007: 2.5
  - 2008: 2.5
  - 2009: 2.5
  - 2010: 2.5
  - 2011: 2.5

- Nominal external interest rate (in percent):
  - 2001: 8.0
  - 2002: 8.3
  - 2003: 7.2
  - 2004: 7.0
  - 2005: 9.0
  - 2006: 7.9
  - 2007: 7.4
  - 2008: 7.2
  - 2009: 7.8
  - 2010: 8.3
  - 2011: 7.6

- Growth of exports (U.S. dollar terms, in percent):
  - 2001: 0.4
  - 2002: 11.3
  - 2003: 0.3
  - 2004: 2.4
  - 2005: 21.5
  - 2006: 21.7
  - 2007: 6.3
  - 2008: 4.9
  - 2009: 5.8
  - 2010: 5.9
  - 2011: 5.8

- Growth of imports (U.S. dollar terms, in percent):
  - 2001: -1.0
  - 2002: 4.2
  - 2003: 5.2
  - 2004: -5.3
  - 2005: 14.0
  - 2006: 9.5
  - 2007: 11.0
  - 2008: 3.3
  - 2009: 5.6
  - 2010: 4.5
  - 2011: 5.4

- Current account balance, excluding interest payments (percent of GDP):
  - 2001: -17.4
  - 2002: -14.3
  - 2003: -16.3
  - 2004: -11.1
  - 2005: -6.6
  - 2006: -2.2
  - 2007: -5.3
  - 2008: -4.2
  - 2009: -4.0
  - 2010: -3.2
  - 2011: -2.9

- Net nondebt creating capital inflows (percent of GDP; positive values listed):
  - 2001: 4.0
  - 2002: 6.2
  - 2003: 3.7
  - 2004: 11.3
  - 2005: 7.7
  - 2006: 8.8
  - 2007: 9.7
  - 2008: 8.8
  - 2009: 9.0
  - 2010: 8.5
  - 2011: 8.3

- Notes on formulas and definitions:
  - 1/ Automatic debt dynamics derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in U.S. dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
  - 2/ Contribution from price and exchange rate changes defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock.
  - 3/ For projection, line includes impact of price and exchange rate changes.
  - 4/ Gross external financing need defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
  - 5/ Key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and nondebt inflows in percent of GDP.
  - 6/ Long-run, constant balance that stabilizes the debt ratio assuming key variables remain at levels of the last projection year.

### Statement by Belize authorities — key points and recent developments
- Key points:
  - Authorities tightened policies in fiscal year 2004/2005 after fiscal and monetary expansion that produced large fiscal deficits and growth in external debt to unsustainable levels.
  - Significant progress in correcting macroeconomic imbalances has been made, but Belize continues to face acute fiscal and balance of payments gaps.
  - Government entered into good faith consultations with creditors to restructure external debt.

- Recent policy actions and outcomes:
  - Short-term corrective action (October 2004–March 2005): immediate cutback in capital expenditure program and a reduction in planned operating costs by 5 percent during that 6 month period.
  - Medium-term stabilization program (budget FY 2005/2006 onward) aims to reduce overall deficit to sustainable levels and attain sustainable external debt profile via expenditure controls, tax reform, streamlined budget process, and comprehensive debt-management strategy.
  - Fiscal outcomes:
    - Primary balance moved from a small deficit in FY 2004/2005 to a surplus of 3 percent of GDP in FY 2005/2006.
    - Overall deficit reduced from 8.6 percent of GDP to 3.3 percent of GDP between FY 2004/2005 and FY 2005/2006.
    - Exceptional fees and commissions on external loans of 2¾ percent of GDP in FY 04/05 not repeated in FY 05/06.
    - Expected primary surplus by end of current fiscal year: 3 1/2 percent of GDP (1/2 percent of GDP more than budgeted).
  - Central Bank measures: tightened financial sector liquidity; social security deposits channeled to the Central Bank; cash reserve and liquid asset requirements increased four times during adjustment.
  - Government engaged financial advisors and announced in August (year not restated in excerpt) approach to private creditors to seek restructuring of external debt. A detailed analysis published on Central Bank website; formal debt restructuring offer to be made after creditor consultations conclude.

### Policy responses and commitments
- Authorities agree with staff that long-term sustainability requires additional fiscal effort of about 1 percent of GDP annually to achieve an increase in the primary surplus to 4 1/2 percent of GDP during the 2007-2009 period.
- Fiscal policy stance:
  - Maintain tight macroeconomic policies; keep growth of non-interest current expenditure, including the wage bill, below nominal GDP growth while allowing modest capital spending increases in social sectors and infrastructure.
  - Implement Public Expenditure Review recommendations: prepare annual budget in a multi-year context and introduce programme budgeting.
- Revenue-side measures:
  - Introduced an ad valorem General Sales Tax (GST) on July 1, 2006 to replace existing Sales Tax.
  - Authorities resist diluting the GST base and are reviewing GST performance while preparing deeper tax administration reform.
- Monetary policy:
  - Authorities consider current reserve requirement increases sufficient but are prepared to tighten further if necessary.

### Structural reforms, governance, and institution-specific actions
- Legal and administrative reforms:
  - Passage of the Finance and Audit (Reform) Act of 2005 to strengthen legal framework for public finances.
  - Plans for accelerated structural reforms in fiscal and monetary areas.
- Priority reform measures:
  1. Modernization of customs procedures to increase administrative efficiency and revenue; Cabinet approved project prepared with UNCTAD assistance.
  2. Streamlining budget format and strengthening budget management and reporting; steps taken to submit fiscal data for IMF Government Finance Statistics.
  3. Creation of an autonomous Statistical Institute by transforming the Central Statistics Office (CSO); expected implementation by end of fiscal year; Belize began participating in the General Data Dissemination System in September 2006.
  4. Introduction of long term planning framework – Vision 2025 with broad social consultation.
- Governance-related actions:
  - Senate Select Committee investigations into Social Security Board (SSB) concluded and report submitted July 2006; Government accepted and began implementing recommendations.
  - Independent commission of inquiry into the Development Finance Corporation (DFC) ongoing; Government pledged to receive and act on the report, including forensic audit.
  - Orderly liquidation of DFC reduced assets and liabilities from over US$300 million to approximately US$100 million at end of July 2006; Government assumed approximately US$210 million in liabilities and received significant real estate and other assets from DFC.
- Petroleum revenue management:
  - Following discovery of oil in commercial quantities, amendment to the Income and Business Tax Act (before the National Assembly) to re-instate income tax on petroleum operators at 40 percent of net income.
  - Work underway to achieve greater progressiveness in petroleum taxation.
  - Government working to establish a Petroleum Fund to ensure transparency and benefit future generations.
- Financial sector vulnerabilities:
  - Banking system described as generally sound and relatively robust to shocks in staff assessment.
  - Authorities implemented many recommendations of the 2003 Offshore Financial Center (OFC) assessment, tightened loan-loss provisioning standards, and plan to implement remaining recommendations, particularly in insurance.

*Source: Appendix VIII. Table 3 and related figures, and Statement by Jonathan T. Fried, Executive Director for Belize and Yvette Alvarez, Advisor to Executive Director, October 20, 2006.*

### Conclusion

### Conclusion

### Summary of situation
- Belize continues to face a very difficult financing environment.
- Authorities recognize the need for careful management of risks and are putting in place a comprehensive set of measures.
- Authorities seek continued support of international institutions and a successful conclusion of the debt negotiations to chart a path to a stable and sustainable future.

### Recent developments (2004–2006)
- After years of expansionary policies, stabilization measures were implemented more forcefully in the 2005/06 budget (April to March).
- Economic growth slowed from 4½ percent in 2004 to 3½ percent in 2005.
- Inflation rose marginally to just over 4 percent, mainly reflecting higher fuel prices.
- The overall fiscal deficit fell from 8.6 percent of GDP in FY04/05 to 3.3 percent of GDP in FY05/06.
- The primary balance shifted from a small deficit to a surplus of 3 percent of GDP in FY05/06.
- Fiscal correction reflected revenue measures taken in May 2005, lower interest payments, and cuts in capital expenditure.
- Authorities tightened liquidity by channeling social security deposits to the central bank and increasing the cash reserve and liquid asset requirements on three occasions by 1 percentage point each, including most recently in September 2006.
- External current account deficit expected to narrow to 8½ percent of GDP in 2006, from more than 14 percent of GDP in 2005, driven by increased traditional exports, onset of crude oil exports, restraint in import growth, buoyant tourism earnings, and a lower interest bill.

### Near-term outlook and debt issues
- Outlook for 2007 and beyond remains worrisome due to high and rising scheduled debt service obligations that will weigh heavily on the overall balance of payments.
- Access to voluntary market financing at affordable terms is impaired.
- Authorities approached external commercial creditors in August 2006 to seek a cooperative agreement on restructuring public sector debt.

### Executive Board Assessment — findings and recommended targets
Findings:
- Significant fiscal correction achieved in FY 2005/06 via increased tax collection, reined discretionary current spending, and reduced capital expenditure.
- Tighter monetary conditions helped slow credit growth and contain inflationary pressures.
- Belize’s banking system is generally sound and bank supervision has been strengthened.
- Fixed exchange rate regime has anchored prices and expectations and has generally served the economy well.

Recommendations and targets:
- Aim progressively and on a firm timetable to:
  - Close the fiscal and balance of payments financing gaps.
  - Replenish international reserves.
  - Reduce significantly the public debt burden.
- Persevere with disciplined macroeconomic policies to contain domestic demand and support an orderly debt restructuring.
- Monetary measures:
  - Recent increase in bank reserve requirements is appropriate.
  - Authorities stand ready to take further action, if needed, to curb excess liquidity and contain private sector credit growth.
  - Broaden market-based policy instruments to make monetary policy more effective.
  - Eliminate the government’s overdraft facility at the central bank to strengthen the bank’s independence.
- Fiscal measures:
  - Work to achieve a primary surplus of 3½ percent of GDP in fiscal year 2006/07.
  - Raise the primary surplus by about 1 percentage point of GDP above that originally targeted, initially by saving the bulk of projected revenues from oil production, and later by enhanced non-oil revenue collection and restrained current expenditures.
  - Reform the revenue system and strengthen public expenditure programming and debt management.
  - Modernize tax administration and broaden the tax base.
  - Reform oil and gasoline taxation.
  - Review the pension system to limit growth of spending and make it actuarially sound.
  - Improve debt management practices.
  - Improve governance of quasi-fiscal institutions, including winding up the operations of the Development Finance Corporation.
- Structural and institutional recommendations:
  - Support fiscal and monetary discipline and foster stronger long-term growth through carefully sequenced structural reforms.
  - Strengthen insurance supervision and broaden financial sector prudential regulations, especially loan-loss provisioning and loan collateral valuation.
  - Consider implementing outstanding recommendations of the IMF’s 2003 Offshore Financial Center assessment.
  - Continue engagement with multilateral and bilateral creditors to promote an orderly adjustment process.
  - Request and utilize Fund technical assistance in tax policy and monetary instruments.
  - Continue participation in the Fund’s General Data Dissemination System and strengthen the quality and timeliness of economic statistics.

### Key statistics and projections (selected, as reported)
- GDP at constant prices: 2002: 5.1; 2003: 9.3; 2004: 4.6; 2005: 3.5; 2006 (Prel./Proj.): 5.3
- Nominal GDP (in millions of Belize dollars): 2002: 1,864.3; 2003: 1,975.2; 2004: 2,110.4; 2005: 2,221.8; 2006: 2,433.6
- Consumer prices (end of period): 2002: 3.2; 2003: 2.3; 2004: 3.1; 2005: 4.2; 2006: 4.4
- Real effective exchange rate: 2003: -0.4; 2004: -2.5; 2005: -2.4; 2006: -1.3
- Gross domestic investment (including inventories and discrepancy): 2002: 22.3; 2003: 21.5; 2004: 18.9; 2005: 23.1; 2006: 18.0 (In percent of GDP)
- Gross national saving: 2002: 2.0; 2003: 3.3; 2004: 4.6; 2005: 8.8; 2006: 9.2 (In percent of GDP)
- Central government:
  - Revenue and grants: 2002: 25.3; 2003: 21.4; 2004: 22.8; 2005: 23.5; 2006: 24.5 (In percent of GDP)
  - Expenditure and net lending (including unidentified expenditures): 2002: 30.9; 2003: 32.0; 2004: 29.2; 2005: 29.0; 2006: 27.8 (In percent of GDP)
  - Overall balance: 2002: -5.6; 2003: -10.6; 2004: -6.4; 2005: -5.5; 2006: -3.3 (In percent of GDP)
  - Primary balance: 2002: -2.4; 2003: -5.9; 2004: 0.8; 2005: 2.0; 2006: 3.2 (In percent of GDP)
- Money and credit:
  - Credit to the private sector (including inventories and discrepancy): 2002: 19.2; 2003: 13.2; 2004: 9.6; 2005: 11.3; 2006: 5.5 (Annual percentage change)
  - Money and quasi-money (M2): 2002: 2.1; 2003: 4.7; 2004: 7.5; 2005: 5.9; 2006: 9.5 (Annual percentage change)
- External sector (percent of GDP unless otherwise indicated):
  - External current account: 2002: -20.3; 2003: -18.2; 2004: -14.4; 2005: -14.3; 2006: -8.8
  - Overall balance of payments: 2002: 0.2; 2003: -3.0; 2004: -3.0; 2005: 1.6; 2006: -0.8
  - Public and publicly guaranteed debt (end of period): 2002: 89.0; 2003: 102.3; 2004: 100.2; 2005: 98.5; 2006: 92.9 (In percent of GDP)
    - Domestic: 2002: 3.2; 2003: 5.7; 2004: 9.0; 2005: 7.3; 2006: 9.8
    - External: 2002: 85.8; 2003: 96.7; 2004: 91.2; 2005: 91.2; 2006: 83.1
  - Gross official reserves (in months of imports, end of period): 2002: 2.0; 2003: 1.4; 2004: 0.8; 2005: 1.0; 2006: 0.7

*IMF Public Information Notice (PIN) No. 06/121 — October 20, 2006*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06369.pdf_