## 1. Emergency Natural Disaster Assistance (_cr09155)

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### I. Background
- Belize: small open economy with narrow export base; vulnerable to exogenous shocks.
- Output and sectoral developments:
  - Traditional sectors decelerated since 2005; severe weather-related shocks during 2007–08 caused output losses mostly in agriculture and damaged infrastructure.
  - Petroleum extraction became a major growth factor starting in 2006 and in 2008 accounted for "5½ percent of GDP".
- Prices and inflation:
  - Domestic price inflation rose to nearly "10 percent" by mid-2008, driven largely by food and fuel prices.
- Debt and debt restructuring:
  - Rapid buildup of external debt led to debt restructuring agreement in February 2007, yielding a "21 percent NPV reduction" in external debt to private creditors.
  - Debt-service obligations scheduled to increase in two steps in "2010 and 2012" when the coupon rate reaches "8.5 percent", up from "4.5 percent" currently (as of report).
  - In mid-February, Moody’s upgraded Belize’s sovereign debt to "B3".
- External assistance after 2008 floods:
  - Direct and economic losses estimated at about "US$75 million (5.4 percent of GDP)".
  - Negative balance of payments impact of "US$46 million".
  - CDB and IDB assistance of nearly "US$15 million" largely for infrastructure rehabilitation.
  - IMF provided "US$6.9 million" under ENDA.
- Political transition:
  - New government (United Democratic Party) assumed power February 2008; 2008 budget approval postponed from March to July.

### II. Recent Developments (2008–early 2009)
- Growth and inflation:
  - Real GDP growth for 2008 estimated at "3 percent".
  - Non-oil GDP expanded by "2¼ percent".
  - Twelve-month inflation peaked at "9½ percent" in mid-2008; by February 2009 inflation declined to "1½ percent".
- External and reserve positions:
  - Current account deficit widened sharply in 2008, to "10 percent of GDP".
  - Gross international reserves of the CBB rose to "US$166 million" at end-2008 ("two months of imports") and remained broadly unchanged thereafter.
- Banking and public finances:
  - Nonperforming loans rose significantly in 2008.
  - Central government accounts estimated overall surplus of "1¼ percent of GDP" in FY 2008/09 (April–March), but underlying fiscal position weakened.
- New financing and donor commitments:
  - IDB, CDB, and World Bank approved loan programs totaling "US$45 million".
  - Belize received a "US$50 million" line of credit from Taiwan, Province of China in mid-2008.
- Structural reforms underway:
  - ASYCUDA computerized customs system introduced in February; full automation to be implemented by end-2009.
  - CBB prepared plan to reform liquidity management pending government approval.
  - PEFA review completed; implementation program being developed with IDB assistance.

### III. Policy Discussions and Projections
- Short-term outlook and shocks:
  - Global downturn expected to reduce tourism, remittances, and FDI.
  - Real GDP projected to grow by around "1 percent" in 2009, reflecting a "20 percent" increase in domestic oil production, a recovery in agriculture, and expansion in electricity generation.
  - Twelve-month inflation projected to ease to "2½ percent" by year-end.
  - External current account deficit expected to contract significantly as imports decline more than exports.
- Commitment:
  - Authorities reaffirmed commitment to the medium-term fiscal strategy endorsed in the 2008 Article IV consultation.

A. Addressing Near-Term Risks
- Vulnerabilities and priorities:
  - High debt and low reserves increase vulnerability.
  - Safeguarding international reserves and strengthening financial system oversight are priorities.
- FY2009/10 budget outlook:
  - Overall balance projected to shift from a surplus to a deficit.
  - Budget approved in March targets an overall deficit of "1¾ percent of GDP", compared with a surplus of "1¼ percent of GDP" in the last fiscal year.
  - Current expenditure projected to continue rising in real terms in FY 2009/10; domestically-funded investment expected broadly stagnant.
  - Primary deficit excluding grants and oil revenue projected to widen by "1 percent of GDP".
- Staff recommendations on fiscal stance:
  - Expenditure restraint urged to ease balance of payments pressures and limit increases in current spending including the wage bill.
  - Noted large wage increases already granted in 2008 ("11 percent on average"); limit further recurrent spending while protecting public investment and flood-related outlays.
- Financial sector oversight and contingency planning:
  - CBB should closely monitor liquidity changes and develop contingency plans.
  - Monetary authorities ready to use instruments (reserves and liquidity requirements) to achieve inflation and reserves objectives; staff encouraged mechanisms to assist banks with temporary liquidity needs.
- Asset quality and system soundness:
  - Commercial bank credit to private sector reached the equivalent of "70 percent of GDP" in 2008.
  - NPL ratio doubled in 2008; deterioration largely reflected improved loan classifications in two banks (accounting for "46" of total banking assets).
  - One bank’s strong capital position should absorb associated losses; the other is in recapitalization.
  - Insurance sector exposure to CLICO-Bahamas does not exceed "2 percent" of total insurance sector assets.
  - New AML law passed last February strengthened framework; FIU requires additional resources.
- Contingency external financing:
  - Staff encouraged development of plans for contingency external financing given vulnerability and relatively low foreign reserves.
  - Authorities noted significant new donor commitments but acknowledged need for additional commitments if global environment deteriorates.

B. Policies to Strengthen Fiscal Sustainability
- Strategic aim:
  - Fiscal strategy should substantially reduce public debt ratios to regain policy flexibility; authorities agreed on need to resume fiscal adjustment.
- Required adjustment trajectory:
  - Central government primary surplus needs to rise from "2 percent of GDP" in FY2009/10 to above "4 percent of GDP" by 2011 and stay at that level subsequently to halve debt-to-GDP ratio by 2019.
- Specific measures and scenarios:
  - Fiscal measures of "2 percent of GDP" would be needed in FY 2010/11.
    - Partial freeze on recurrent expenditure and an increase in the sales tax rate by "2½ percent (to 12½ percent)" would help bring the central government primary surplus to that level.
    - Continued expenditure restraint in FY 2011/12 would help the primary surplus rise above "4½ percent of GDP", allowing for an increase in public sector capital investment in both years.
  - Petroleum revenues to remain fully integrated in the budget; plans for an oil fund discarded.
- Commitments to fiscal reforms:
  - Revenue administration: reorganize and computerize tax departments; external support essential to tackle contraband.
  - Oil revenue transparency: improve accountability; subject petroleum revenue data to regular audits and publish them.
  - Public financial management: implement PEFA recommendations; increase external audit and publish audits as required under the Finance and Reform Act of 2005.
- Public sector program viability:
  - SSB and civil servants’ pension plan require a combination of new participant contributions and modification of benefits.
  - Extension of NHI to entire country delayed pending sustainable funding sources.
  - DFC reactivated with governance safeguards; mandate needs clarification and financing; authorities did not present a specific timetable for reforms to SSB and NHI.

C. Reforms to Reinvigorate Growth
- Focus on medium-term strategy and structural reforms to boost tourism and agriculture; mobilization of private sector resources emphasized.
- National Emergency Management Organization joined World Bank’s CAPRA initiative to enhance capacity to deal with natural disasters.

---

### Boxes and Key Facts

### Box 1 — Emergency Natural Disaster Assistance (key facts)
- Historical vulnerability and damages (percent of GDP):
  - Hurricane Mitch Oct-98: 7.3
  - Hurricane Keith Oct-00: 3.3
  - Tropical Storm Chantal Aug-01: 3.4
  - Hurricane Iris Oct-01: 8.7
  - Hurricane Dean Aug-07: 3.7
  - Tropical Storm Arthur May-08: 2.5
  - Tropical Depression 16 Oct-08: 2.9
- 2008 storms:
  - Arthur (May-08): estimated damages 2.5 (In percent of GDP).
  - Tropical Depression 16 (Oct-08): estimated damages 2.9 (In percent of GDP).
  - Combined 2008 floods affected about one-sixth of Belize’s population; more than 1,700 buildings inundated.
- Balance of payments impact:
  - Balance of payments impact of the two floods estimated at US$46 million (3.3 percent of GDP).
  - Combined impact of the floods over 2008–09 equivalent to nearly one third of end-2008 external foreign reserves.
- Emergency financing:
  - Belize made a purchase under ENDA equivalent to 25 percent of quota (SDR 4.7 million).
  - CDB and IDB providing US$15 million for infrastructure rehabilitation.
  - International Red Cross, PAHO, UNICEF, UNDP, and USAID provided emergency grants (US$0.5 million) and assistance.

### Box 2 — Key public sector programs (key facts)
- Social Security System (SSS):
  - Contributory, partially-funded, defined benefit; retirement from age 60 with contributions of at least 10 years; benefits up to 60 percent of the highest three years of earnings in the 15-year period preceding retirement.
  - 2008 actuarial report recommended adjustments to contributions and parameters.
- Pension Plan for Public Officers (PPO):
  - Unfunded, noncontributory defined benefit; retirement from age 55 with at least 10 years of service; benefits up to 67 percent of average earnings of last three years.
  - PPO expenses growing annually by 15 percent over the last six years; requires additional annual budget contributions of about ½ percent of GDP over ten years.
- National Health Insurance (NHI):
  - Established in 2001; serves 73,000 people in Belize City and southern districts.
  - 2007 decision to extend NHI to entire population; two strategic approaches considered.
- Development Finance Corporation (DFC):
  - Created 1963; after rapid expansion and nonperforming assets, declared bankrupt; July 2005 new Board to wind down operations.
  - February 2009 Parliament approved new DFC Act to reactivate lending function, initially funded by a CDB loan.

### Box 3 — Capital Controls (key facts)
- Exchange system:
  - Belize dollar pegged to U.S. dollar at BZ$2=US$1 since 1976.
  - Belize accepted obligations of Article VIII, Sections 2, 3, and 4 on June 14, 1983.
- Capital controls overview:
  - All capital transfers require CBB approval; normally administered liberally.
  - Controls apply to contracting foreign capital and money market instruments, derivatives, and credit (including guarantees).
- Transactions subject to controls (selected):
  - All foreign borrowings by private persons and business entities require CBB approval; payments of interest may require CBB approval when tax clearance is needed.
  - Developers and businesses in EPZ and CFZ may obtain loans/advances up to US$1 million from offshore banks without prior CBB approval; amounts beyond require written approval.
  - All outward investment and real estate transactions require CBB approval/clearance.

---

### Appendix I — Debt Sustainability Analysis (summary)

### Key assumptions
- Public sector debt includes central government, publicly guaranteed external debt, other public sector external debt, and contingent liabilities; future central government liabilities to PPO and NHI included.
- FDI flows in line with historical levels.
- External debt on gross basis; domestic debt on net basis.
- Multilateral and bilateral loans borrowed at LIBOR + 100 bps.
- Baseline financing: domestic debt stock constant; financing primarily by external commercial creditors at market interest rates (10-year U.S. T-Bond + 400 bps), and to a lesser extent by multilaterals.
- Active scenario: sufficient multilateral financing available.

### Assessment — baseline and active scenarios
- Baseline: public sector debt declines from 77.3 percent of GDP at end-2008 to 69 percent of GDP at end-2014.
  - Baseline driver: some fiscal effort with a primary surplus; primary surplus projected to decline then rebound to offset higher interest payments from step-up coupon rates.
  - Baseline vulnerability: more than 80 percentage of total public debt denominated in foreign currency in 2008; one-time 30 percent depreciation would raise total debt to 112 percent of GDP.
- Active scenario: total debt ratios decline to 55 percent of GDP by 2014, driven by stronger fiscal adjustment and higher multilateral financing at favorable terms.

### Baseline: Public sector debt trajectory (selected values)
- Public sector debt (percent of GDP): 2008 = 77.3; 2009 = 75.6; 2010 = 74.7; 2011 = 73.3; 2012 = 71.4; 2013 = 70.3; 2014 = 69.4.
- Of which foreign-currency denominated (percent of GDP): 2008 = 69.5; 2009 = 67.9; 2010 = 67.3; 2011 = 66.3; 2012 = 64.8; 2013 = 64.0; 2014 = 63.4.
- Change in public sector debt (percent of GDP): 2008 = -11.2; 2009 = -1.8; 2010 = -0.9; 2011 = -1.4; 2012 = -1.8; 2013 = -1.1; 2014 = -0.9.
- Primary deficit (percent of GDP): 2008 = -4.7; 2009 = -2.6; 2010 = -1.4; 2011 = -2.1; 2012 = -2.9; 2013 = -2.8; 2014 = -2.6.
- Revenue and grants (percent of GDP): 2008 = 28.8; 2009 = 28.4; 2010 = 26.9; 2011 = 27.0; 2012 = 26.9; 2013 = 26.7; 2014 = 26.5.
- Primary (noninterest) expenditure (percent of GDP): 2008 = 24.2; 2009 = 25.7; 2010 = 25.5; 2011 = 25.0; 2012 = 24.0; 2013 = 23.9; 2014 = 23.9.
- Public sector debt-to-revenue ratio (percent): 2008 = 268.1; 2009 = 266.4; 2010 = 277.5; 2011 = 270.8; 2012 = 265.2; 2013 = 262.9; 2014 = 261.5.
- Gross financing need (percent of GDP): 2008 = 2.1; 2009 = 3.4; 2010 = 4.3; 2011 = 4.1; 2012 = 3.6; 2013 = 4.2; 2014 = 4.4.
- Gross financing need (in billions of U.S. dollars): 2008 = 0.0; 2009 = 0.0; 2010 = 0.1; 2011 = 0.1; 2012 = 0.1; 2013 = 0.1; 2014 = 0.1.
- Debt-stabilizing primary balance (percent of GDP): 2014 = 1.5.

### External debt dynamics (selected)
- External debt (percent of GDP): 2008 = 69.5; 2009 = 67.9; 2010 = 67.3; 2011 = 66.3; 2012 = 64.8; 2013 = 64.0; 2014 = 63.4.
- Current account deficit, excluding interest payments (percent of GDP): 2008 = 7.0; 2009 = 3.9; 2010 = 3.1; 2011 = 1.7; 2012 = 1.5; 2013 = 1.5; 2014 = 1.5.
- Net non-debt creating capital inflows (negative, percent of GDP): 2008 = -14.5; 2009 = -4.9; 2010 = -4.1; 2011 = -4.0; 2012 = -4.0; 2013 = -3.7; 2014 = -4.0.
- External debt-to-exports ratio (percent): 2008 = 112.5; 2009 = 128.5; 2010 = 124.5; 2011 = 115.1; 2012 = 110.9; 2013 = 108.4; 2014 = 107.4.
- Gross external financing need (percent of GDP): 2008 = 15.0; 2009 = 10.0; 2010 = 8.7; 2011 = 7.7; 2012 = 7.7; 2013 = 7.9; 2014 = 8.0.

### Key macroeconomic assumptions (baseline)
- Real GDP growth (in percent): 2008 = 3.0; 2009 = 1.0; 2010 = 2.0; 2011 = 2.3; 2012 = 2.4; 2013 = 2.5; 2014 = 2.5.
- Average nominal interest rate on public debt (in percent): 2008 = 4.7; 2009 = 4.8; 2010 = 5.6; 2011 = 6.1; 2012 = 7.0; 2013 = 7.8; 2014 = 7.9.
- Inflation rate (GDP deflator, in percent): 2008 = 5.0; 2009 = 2.5; 2010 = 2.5; 2011 = 2.5; 2012 = 2.5; 2013 = 2.5; 2014 = 2.5.
- Growth of real primary spending (deflated by GDP deflator, in percent): 2008 = 5.9; 2009 = 7.5; 2010 = 1.0; 2011 = 0.3; 2012 = -1.7; 2013 = 2.3; 2014 = 2.4.

### Bound tests and sensitivity scenarios (selected outcomes)
- B1 (real interest rate shock): public debt around 74.6–77.3 percent of GDP across early projection years; debt-stabilizing primary balance = 2.8.
- B2 (real GDP growth shock): public debt rises to 87.5 percent of GDP in the shock path.
- B3 (primary balance shock): public debt rises to 82.6 percent of GDP in the shock path.
- B4 (combination using 1/2 std dev shocks): public debt rises to 83.0 percent of GDP.
- B5 (one-time 30 percent real depreciation): public debt jumps to 109.4 percent of GDP in Table 1 (similar magnitudes in alternative tables).
- B6 (10 percent of GDP increase in other debt-creating flows): public debt rises to 85.6 percent of GDP.

---

### Appendix II — Assessment of External Stability (summary)

### Exchange rate and REER
- CGER model-based approach suggests Belize’s actual REER is about 5.3 percent below its estimated equilibrium level.
- Real effective exchange rate moving downward since late 1990s; trend partly reversed in latter half of 2008.

### Current account and adjustments (explicit numbers)
- Observed current account balance in 2008: -10.0 percent of GDP.
- Adjustments to derive underlying current account (2008 estimates):
  - Interest on public sector debt: -3.2 percent (2008 Est.); adjustment for lower interest payments: -1.7 percent.
  - Net oil and electricity trade: -3.1 percent (2008 Est.); adjustment for lower energy trade balance: 0.5 percent.
  - Impact of weather: -1.0 percent (2008 Est.); adjustment for temporary impact of weather: 1.0 percent.
  - Grants and imports related to FDI and grants: -8.8 percent (2008 Est.); adjustment for temporary surge: 6.2 percent.
- Underlying current account after adjustments (2008): -4.0 percent of GDP.
- Underlying current account excluding interest payments (2008): -0.8 percent of GDP.
- Estimated debt-stabilizing non-interest current account deficit: 2.5 percent of GDP (comparison point).

### Policy implications
- External current account deficit influenced by temporary factors: surge in FDI-related imports, weather-affected exports, temporary interest payment reductions on Super Bond, and above-trend net oil trade balance.
- External reserves and external financing:
  - Staff encouraged raising international reserves to at least three months of imports.
  - New electricity-generating capacity in 2008–10 expected to reduce electricity imports from Mexico.
  - Authorities encouraged to assess external financing needs and contingency financing arrangements.

---

### Appendix V — Statistical Issues (summary)
- Overall: "Data are broadly adequate for surveillance" but notable shortcomings in national accounts, prices, external trade and debt, government finance, and labor statistics.
- Real sector improvements:
  - New national accounts system phased in; base year moved from 1984 to 2000; rebase to 2006 recommended.
- Prices and labor:
  - CPI market basket based on 1990–91 household survey; CPI calculated quarterly; priorities include monthly CPI and new Household Income and Expenditure Survey.
- Fiscal accounts:
  - Expenditure classification does not conform to international standards; priorities include compiling GFS for social security and including extra budgetary units in debt coverage.
- Monetary accounts and BOP:
  - Coverage incomplete; IIP statistics not compiled; compilation based on BPM5 with improvements underway.
- External debt:
  - Discrepancies between central bank and ministry of finance data; efforts underway to develop private sector debt database.
- Selected data vintage entries (Table of Common Indicators, as of April 6, 2009):
  - Exchange Rates: Date of Latest Observation: 12/31/08; Date Received: 03/23/09.
  - Consumer Price Index: Date of Latest Observation: 11/30/08; Date Received: 02/23/09.
  - GDP/GNP: Date of Latest Observation: 2007; Date Received: 06/30/08.
  - Gross External Debt: Date of Latest Observation: 12/31/08; Date Received: 03/23/09.

---

### Staff Appraisal and Conclusion (selected)
- Macroeconomic performance:
  - Real GDP rose by "3 percent" in 2008 despite storm losses; inflation slowed after summer surge; international reserves increased.
- Fiscal policy advice:
  - Tighter fiscal stance recommended to protect external position amid global slowdown risks.
  - Restrain growth in public expenditure, including wage moderation, while protecting reconstruction and investment outlays.
  - Fiscal strategy from 2008 Article IV consultation aiming to cut debt ratio by about half by 2019 remains valid.
  - Significant adjustments required to meet rising debt service on restructured private debt from 2007.
- Financial sector oversight:
  - Strengthen oversight given rapid credit growth and deterioration in NPLs; develop contingency plans and liquidity framework.
  - Adequate resources needed for FIU to implement strengthened AML legislation.
- Exchange rate peg outlook:
  - Belize dollar appears broadly in line with medium-term fundamentals; credibility of the peg depends on sustaining fiscal consolidation and raising reserves to at least three months of imports over the medium term.
- Procedural note:
  - Next Article IV consultation expected on the standard 12-month cycle.
- Concluding assessment:
  - Belize remains vulnerable to exogenous shocks due to fixed exchange rate, low reserves, and high indebtedness.
  - Authorities committed to protecting external reserves and consolidating the budget to steer toward sustainable development.

*Source: IMF staff report — Belize: Article IV Consultation and staff appraisal (content as provided in the supplied PDF excerpt)._cr09155*

### 1.    Emergency Natural Disaster Assistance .....................................................................13

### 1.    Emergency Natural Disaster Assistance

### I. Background
- Belize is a small open economy with a narrow export base, vulnerable to exogenous shocks.
- Since 2005, growth in traditional sectors decelerated due to structural weaknesses and severe weather-related shocks during 2007–08, causing output losses mostly in agriculture and damaged infrastructure.
- Petroleum extraction became a major growth factor starting in 2006 and in 2008 accounted for "5½ percent of GDP".
- Domestic price inflation rose to nearly "10 percent" by mid-2008, driven largely by food and fuel prices.
- A rapid buildup of external debt led to a debt restructuring agreement in February 2007, yielding a "21 percent NPV reduction" in external debt to private creditors, with debt-service obligations scheduled to increase in two steps in "2010 and 2012" when the coupon rate reaches "8.5 percent", up from "4.5 percent" currently.
- In mid-February, Moody’s upgraded Belize’s sovereign debt to "B3".
- External assistance following 2008 floods:
  - Direct and economic losses estimated at about "US$75 million (5.4 percent of GDP)".
  - Negative balance of payments impact of "US$46 million".
  - CDB and IDB assistance of nearly "US$15 million" largely for infrastructure rehabilitation.
  - IMF provided "US$6.9 million" under the policy on Emergency Natural Disasters Assistance (ENDA).
- New government (United Democratic Party) assumed power February 2008; 2008 budget approval postponed from March to July to take stock of public finances and consult on priorities.
- Government reaffirmed commitment to prudent fiscal and monetary policies and to improving governance; questioned validity of several contracts from previous administration alleging excessive profit margins and corruption.

### II. Recent Developments (2008–early 2009)
- Macroeconomic performance in 2008:
  - Real GDP growth for 2008 is estimated at "3 percent".
  - Non-oil GDP expanded by "2¼ percent".
  - Twelve-month inflation peaked at "9½ percent" in mid-2008; by February 2009 inflation declined to "1½ percent".
  - Current account deficit widened sharply in 2008, to "10 percent of GDP".
  - Gross international reserves of the Central Bank of Belize (CBB) rose to "US$166 million" at end-2008 ("two months of imports") and have remained broadly unchanged since then.
  - Nonperforming loans rose significantly in 2008.
  - Central government accounts estimated to have an overall surplus of "1¼ percent of GDP" in FY 2008/09 (April–March), but underlying fiscal position weakened due to rapidly growing recurrent expenditure and dependence on volatile revenue sources (petroleum and grants).
- New donor and financing commitments:
  - IDB, CDB, and World Bank approved loan programs totaling "US$45 million".
  - Belize received a "US$50 million" line of credit from Taiwan, Province of China in mid-2008.
- Structural reforms underway:
  - ASYCUDA computerized customs system introduced in February; full automation to be implemented by end-2009.
  - CBB prepared a plan to reform liquidity management pending government approval.
  - PEFA review completed last January with EU support; implementation program being developed with IDB assistance.

### III. Policy Discussions and Projections
- Global downturn effects and medium-term strategy:
  - Declining tourism, remittances, and FDI expected to adversely affect domestic output.
  - Real GDP projected to grow by around "1 percent" in 2009, reflecting a "20 percent" increase in domestic oil production, a recovery in agriculture, and expansion in electricity generation.
  - Twelve-month inflation projected to ease to "2½ percent" by year-end.
  - External current account deficit expected to contract significantly as a decline in imports would exceed that of exports, mirroring an expected fall in private capital inflows.
  - Authorities reaffirmed commitment to medium-term fiscal strategy endorsed in the 2008 Article IV consultation, centered on sustained fiscal consolidation.

A. Addressing Near-Term Risks
- Key vulnerabilities and priorities:
  - High debt and low reserves increase vulnerability to exogenous shocks.
  - Safeguarding international reserves and strengthening financial system oversight are priorities.
- FY2009/10 budgetary outlook:
  - Overall balance projected to shift from a surplus to a deficit.
  - Budget approved in March targets an overall deficit of "1¾ percent of GDP", compared with a surplus of "1¼ percent of GDP" in the last fiscal year.
  - Current expenditure (wages and purchases of goods and services) projected to continue rising in real terms in FY 2009/10; budgeted increase larger than projected revenue increase.
  - Domestically-funded investment expected to be broadly stagnant in FY 2009/10.
  - Primary deficit excluding grants and oil revenue projected to widen by "1 percent of GDP", highlighting dependence on volatile revenue sources.
- Staff recommendations on fiscal stance:
  - Expenditure restraint urged to ease balance of payments pressures, limit increases in current spending including wage bill.
  - Noted large wage increases already granted in 2008 ("11 percent on average"); limiting further recurrent spending would help fiscal adjustment and protect competitiveness.
  - Protection of public investment and flood-related outlays encouraged.
- Financial sector oversight and contingency planning:
  - CBB should closely monitor liquidity changes and develop contingency plans for the banking system.
  - Mid-2008 shifts in public sector funds caused temporary liquidity pressures in some institutions.
  - Monetary authorities ready to use instruments (reserves and liquidity requirements) to achieve inflation and reserves objectives; staff encouraged assessment of mechanisms to assist banks with temporary liquidity needs.
- Asset quality and system soundness:
  - Commercial bank credit to private sector reached the equivalent of "70 percent of GDP" in 2008.
  - NPL ratio doubled in 2008 (from earlier levels).
  - Deterioration largely reflected improved loan classifications in two banks (accounting for "46" of total banking assets).
  - One bank's strong capital position should absorb associated losses; the other is in recapitalization.
  - In general, capital ratios are high and bank liquidity is ample.
  - Insurance sector appears sound; exposure to recently-liquidated regional insurer (CLICO-Bahamas) does not exceed "2 percent" of total insurance sector assets; insurance losses from floods are small.
  - New AML law passed last February strengthened legal framework; FIU requires additional resources.
- Contingency external financing:
  - Staff encouraged development of plans for contingency external financing given vulnerability and relatively low foreign reserves.
  - Authorities noted significant new donor commitments and considered external financing assurances adequate but acknowledged potential need for additional commitments if global environment deteriorates.

B. Policies to Strengthen Fiscal Sustainability
- Strategic aim:
  - Fiscal strategy should substantially reduce public debt ratios to regain policy flexibility; authorities agreed on need to resume fiscal adjustment.
  - Debt Sustainability Assessment (Appendix I) demonstrates risk to debt sustainability absent consolidation.
- Required fiscal adjustment trajectory:
  - Central government primary surplus needs to rise from "2 percent of GDP" in FY2009/10 to above "4 percent of GDP" by 2011 and stay at that level subsequently to halve debt-to-GDP ratio by 2019.
  - Authorities recognize need to tighten fiscal position partly because of rising interest payments on restructured private debt.
- Specific measures and scenarios:
  - Fiscal measures of "2 percent of GDP" would be needed in FY 2010/11.
    - A partial freeze on recurrent expenditure and an increase in the sales tax rate by "2½ percent (to 12½ percent)" would help bring the central government primary surplus to that level.
    - Continued expenditure restraint in FY 2011/12 would help the primary surplus rise above "4½ percent of GDP", allowing for an increase in public sector capital investment in both years.
  - Petroleum revenues to remain fully integrated in the budget; plans for an oil fund discarded due to expected lower return relative to cost of additional borrowing.
- Commitments to fiscal reforms:
  - Revenue administration: implement reorganization and computerization of tax departments; external support essential to tackle contraband through regional anti-drug trafficking efforts.
  - Oil revenue transparency: improve accountability and transparency, especially on tax write-offs for exploration and investment; subject petroleum revenue data to regular audits and publish them.
  - Public financial management: implement PEFA recommendations, including budgetary transparency, policy-based budgeting, budget execution, accounting and reporting, and increased external audit; publication of audits of government financial statements welcomed as required under the Finance and Reform Act of 2005.
- Public sector program viability:
  - Ensuring financial viability of key public programs (Social Security Board, public servants’ pension fund, National Health Insurance, Development Finance Corporation) is essential for fiscal sustainability.
  - SSB and civil servants’ pension plan require combination of new participant contributions and modification of benefits to be financially sound.
  - Extension of National Health Insurance to entire country delayed pending identification of sustainable funding sources.
  - Development Finance Corporation reactivated with governance safeguards; mandate needs clarification and financing to cover operating costs until self-sufficiency.
  - Authorities did not present a specific timetable for reforms to SSB and NHI.

### C. Reforms to Reinvigorate Growth
- Discussion focus: medium-term strategy and structural reforms to counteract slowdown in traditional sectors and the global downturn; specific reform measures described under revenue administration, oil revenue transparency, and public financial management (see above).

*Source: IMF staff report content as provided in the supplied PDF excerpt.*

### 20.      Belize faces the challenge of raising its medium-term growth potential. Trade and

### _cr09155 - 20.      Belize faces the challenge of raising its medium-term growth potential. Trade and

### Medium-term growth potential and development strategy
- Key constraints:
  - Trade and infrastructure bottlenecks, together with high cost of domestic financing, hinder competitiveness of key sectors.
  - Inadequate infrastructure due to insufficient maintenance and lack of new investment raises the cost of agricultural exports and tourism.
  - Recent growth boosted by oil discoveries, but overall performance has weakened reflecting problems in several sectors.
- Development strategy:
  - Government, multilateral donors, and the private sector plan a medium-term strategy to boost growth in tourism and agriculture.
  - Staff strongly supported authorities’ plans to seek financing for projects consistent with their fiscal strategy.
- Private sector investment:
  - Mobilization of private sector resources is a key determinant of medium-term growth potential.
  - Authorities’ emphasis on good governance should help improve investment climate, particularly when accompanied by sustained fiscal consolidation, enforcement of the rule of law, and respect of contracts.
- Natural disaster management:
  - The National Emergency Management Organization of Belize joined the World Bank’s Central American Probabilistic Risk Assessment (CAPRA) initiative to enhance capacity to deal with natural disasters.

### Financial sector development
- Recommendations and planned actions:
  - Early introduction of market-based instruments of liquidity management, as recommended by Fund technical assistance, to address distortions such as high spreads between deposit and lending rates.
  - Development of an active interbank market.
  - CBB plans to auction a limited amount of Treasury bills later this year; current Treasury bills are not marketable and are subject to interest ceilings.
  - Based on auction experience, CBB will decide how to proceed with intended securitization of the government overdraft account.

### External stability issues
- Exchange rate regime:
  - Authorities consider Belize’s fixed exchange arrangement a crucial anchor for financial and macroeconomic stability.
  - This arrangement limits macroeconomic policy options given Belize’s low reserves and relatively high debt.
  - Tight fiscal policy is crucial for maintaining exchange rate stability and mitigating risks to external debt sustainability.
  - Authorities noted capital controls could be more tightly enforced to provide additional protection against destabilizing capital flows and support the exchange rate peg.
- Exchange rate assessment:
  - Staff’s analysis suggests Belize’s exchange rate remains broadly in line with fundamentals (see Appendix II).
  - In real terms, the exchange rate was broadly stable during 2008 after some decline from the 1990 levels.
- Current account and external balances:
  - External current account deficit expected to narrow to 6¾ percent of GDP in 2009.
  - Trade balance: expected sharp improvement in 2009 as 2008 import surge related to floods and large investments in tourism-related construction and electricity generation.
  - New electricity-generating capacity coming on stream in 2009-10 will significantly reduce electricity imports from Mexico.
  - External financing: staff encouraged authorities to assess external financing needs and possible use of contingency financing arrangements from international financial institutions.
  - External reserves: raising international reserves to at least three months of imports recommended to provide a cushion and support the fixed exchange rate arrangement.
- Data limitations:
  - Assessment constrained by data weaknesses: incomplete information on private external assets and liabilities; private capital flow data available with significant lags.
  - Statistical Institute of Belize preparing release in early 2010 of a new CPI based on an updated consumption basket.

### Staff appraisal — macroeconomic performance and policy advice
- 2008 performance:
  - Real GDP rose by 3 percent in 2008 despite losses from two tropical storms, boosted by growing oil extraction and FDI-related investments.
  - Inflation slowed considerably in recent months after a surge the previous summer.
  - International reserves increased, benefiting from robust FDI inflows and external aid disbursements.
- Fiscal policy:
  - A tighter fiscal stance recommended to protect the external position amid global slowdown risks (lower tourism receipts, remittances, and a substantial decline in FDI inflows).
  - Advisable to restrain growth in public expenditure, including through wage moderation, while protecting reconstruction and investment outlays for positive supply-side effects.
  - Fiscal policies aimed at lowering debt ratios substantially over the medium term are key to strengthening debt sustainability.
  - Fiscal strategy from the 2008 Article IV consultation—aimed at cutting the debt ratio by about half by 2019—remains valid.
  - Significant adjustments required to meet rising debt service obligations on private debt restructured in 2007.
  - Tax revenue measures and strict control on growth of recurrent spending would help raise the primary surplus of the central government beginning next fiscal year and reduce reliance on volatile revenue sources.
- Public sector program stability and transparency:
  - Social Security Board and the pension plan for civil servants may require a combination of new participant contributions and modification of benefits to achieve sustainability.
  - Proposed extension of the NHI scheme should proceed only once adequately funded.
  - DFC’s mandate needs clear definition and financial backing to cover operating costs.
  - Petroleum revenues should remain integrated in the budget, published, and subject to regular audits.
- Financial sector oversight:
  - Oversight needs strengthening given rapid credit growth and deterioration in nonperforming loans.
  - Close monitoring of banking system credit and liquidity risks warranted to preserve stability.
  - Vigilant oversight of domestic insurance companies should continue.
  - Authorities encouraged to develop contingency plans for the financial system and a framework for liquidity provision to address temporary pressures.
  - Recent strengthening of AML legislation is welcome; adequate resources should be provided for the FIU to enable satisfactory implementation.
- Liquidity management and financing:
  - Progress in introducing a more flexible domestic liquidity management framework could help reduce the cost of domestic financing.
  - Authorities encouraged to develop plans for access to external financing in the short run to protect against a sharper-than-anticipated deterioration in external accounts.
- Outlook for the exchange rate peg:
  - Belize dollar appears broadly in line with medium-term fundamentals.
  - Credibility of the peg depends on sustaining fiscal consolidation given high public debt and relatively low international reserves and vulnerability to exogenous shocks.
  - Over the medium term, fiscal prudence should help raise international reserves to at least three months of imports.
- Procedural note:
  - The next Article IV consultation expected on the standard 12-month cycle.

### Box 1 — Emergency Natural Disaster Assistance (key facts)
- Vulnerability and recent events:
  - Belize highly vulnerable to weather-related natural disasters; since 1998 experienced seven tropical storms or hurricanes of powerful magnitudes.
  - During the 2008 hurricane season, two tropical systems caused losses estimated at nearly 5.4 percent of GDP.
  - In 2007, Hurricane Dean inflicted damages that reached 3.7 percent of GDP.
- 2008 storms:
  - Tropical Storm Arthur (May-08): estimated damages 2.5 (In percent of GDP).
  - Tropical Depression 16 (Oct-08): estimated damages 2.9 (In percent of GDP).
  - Combined 2008 floods affected about one-sixth of Belize’s population; more than 1,700 buildings inundated.
- Balance of payments impact:
  - Balance of payments impact of the two floods estimated at US$46 million (3.3 percent of GDP).
  - Most export losses in 2008 in tourism, citrus, and banana sectors; sugar export losses principally reflected in 2009.
  - About two thirds of the impact on imports from purchases of reconstruction-related materials.
  - Combined impact of the floods over 2008–09 equivalent to nearly one third of end-2008 external foreign reserves.
- Emergency financing and assistance:
  - Belize made a purchase under the Fund’s ENDA equivalent to 25 percent of quota (SDR 4.7 million).
  - At the time reserves were relatively low (2 months of imports).
  - CDB and IDB providing US$15 million for infrastructure rehabilitation.
  - International Red Cross, PAHO, UNICEF, UNDP, and USAID provided emergency grants (US$0.5 million), food items, and medical and technical assistance.
- Historical estimated damages (In percent of GDP):
  - Hurricane Mitch Oct-98: 7.3
  - Hurricane Keith Oct-00: 3.3
  - Tropical Storm Chantal Aug-01: 3.4
  - Hurricane Iris Oct-01: 8.7
  - Hurricane Dean Aug-07: 3.7
  - Tropical Storm Arthur May-08: 2.5
  - Tropical Depression 16 Oct-08: 2.9

### Box 2 — Key public sector programs (key facts)
- Main programs: Social Security (SSS), pension plan for public officers (PPO), National Health Insurance (NHI), Development Finance Corporation (DFC).
- Social Security System (SSS):
  - Contributory, partially-funded, defined benefit scheme based on a scaled premium system.
  - Provides retirement pensions from age 60 with contributions of at least 10 years, up to a maximum of 60 percent of the highest three years of earnings in the 15-year period preceding retirement.
  - 2008 actuarial report recommended adjustments to contributions and parameters (income ceilings, retirement age) to ensure sustainability.
- Pension Plan for Public Officers (PPO):
  - Unfunded, noncontributory defined benefit scheme providing retirement pensions from age 55 for public officers with at least 10 years of service, up to a maximum of 67 percent of average earnings of last three years of service.
  - PPO expenses have been growing annually by 15 percent over the last six years, requiring additional annual budget contributions of about ½ percent of GDP over ten years.
  - Combining benefits from SSS and PPO can yield combined replacement rates of more than 100 percent of average salary for some public officers.
- National Health Insurance (NHI):
  - Established in 2001; currently serves 73,000 people in Belize City and in the southern districts of Stann Creek and Toledo.
  - In 2007 government decided to extend NHI to the entire population; two strategic approaches considered: (i) gradual geographic-based expansion; (ii) gradual expansion targeting specific population groups.
- Development Finance Corporation (DFC):
  - Created in 1963 to stimulate growth through subsidized credit to private sector; operations funded by government and borrowing mainly from CDB and Social Security Board.
  - After rapid expansion and increased nonperforming assets, DFC was declared bankrupt; in July 2005 new Board appointed to wind down operations and collect outstanding debt with minimal government subsidy.
  - In February 2009 Parliament approved new DFC Act to reactivate lending function, initially funded by a CDB loan.

*IMF staff report: Belize — Article IV Consultation and staff appraisal.*

### Box 3.  Belize: Capital Controls

### Box 3.  Belize: Capital Controls

### Exchange system
- Since 1976, the Belize dollar has been pegged to the U.S. dollar at the rate of BZ$2=US$1.
- Commercial banks and other authorized dealers are allowed to buy and sell foreign exchange at the official rate.
- Belize accepted the obligations of Article VIII, Sections 2, 3, and 4 on June 14, 1983.
- It maintains an exchange system free of restrictions on the making of payments and transfers for current account transactions.
- This system is administered by commercial banks and all bona fide transactions are approved.

### Capital controls (overview)
- All capital transfers require the approval of the Central Bank of Belize (CBB), although these are normally administered liberally.
- Controls apply to:
  - The contracting of foreign capital and money market instruments;
  - Derivatives; and
  - Credit, including guarantees, sureties, and financial backup facilities.

### Transactions subject to controls
- Loans
  - All foreign borrowings by private persons and business entities require CBB approval.
  - Payments of interest on these loans require approval by the CBB in such cases when clearance from the Commissioner of Income Tax is required.
  - Developers and businesses operating in the export processing zone (EPZ) and the commercial free zone (CFZ) may obtain loans or advances of up to US$1 million from offshore banks without prior CBB approval.
  - Loans and advances beyond that amount require written CBB approval.
- Direct investment
  - All outward investment requires approval by the CBB.
  - Registration of inward foreign direct investment with the CBB is encouraged, to facilitate the subsequent repatriation of funds or associated profits.
  - The transfer of profits and dividends requires approval by the CBB when clearance by the Commissioner of Income Tax is required.
- Real estate and other personal transactions
  - All inward or outward real estate transactions require clearance by the CBB.
  - The settlement of personal loans and the transfer of gifts, endowments, inheritances, or other assets require CBB approval.
  - The outward transfer of gambling proceeds by residents and nonresidents requires clearance by the CBB.

*Source: _cr09155 - Box 3. Belize: Capital Controls*

### APPENDIX I.   DEBT SUSTAINABILITY ANALYSIS

### APPENDIX I.   DEBT SUSTAINABILITY ANALYSIS

### Key assumptions
- Public sector debt includes the central government, publicly guaranteed external debt, other public sector external debt, and contingent liabilities.
- Future central government liabilities to the pension plan for public officers and national health insurance are included.
- FDI flows are in line with historical levels.
- External debt is on a gross basis, while domestic debt is on a net basis.
- Multilateral and bilateral loans are borrowed at LIBOR, plus 100 bps.
- Baseline scenario financing: domestic debt stock is constant; financing requirements covered primarily by external commercial creditors at market interest rates (i.e., 10-year U.S. T-Bond plus 400 bps), and to a lesser extent by multilaterals.
- Active scenario financing: enough multilateral financing will be available to meet financing requirements.

### Assessment — baseline and active scenarios (summary findings)
- Baseline: public sector debt declines from 77.3 percent of GDP at end-2008 to 69 percent of GDP at end-2014.
- Baseline driver: some fiscal effort reflected in a primary surplus; primary surplus projected to decline in the next few years and rebound in the outer years to offset higher interest payments from step-up coupon rates on restructured debt.
- Baseline vulnerability: debt ratios are particularly sensitive to depreciation because more than 80 percentage of total public debt was denominated in foreign currency in 2008.
  - One-time 30 percent depreciation would raise total debt to 112 percent of GDP, then follow a trajectory similar to baseline.
- Active scenario: total debt ratios decline to 55 percent of GDP by 2014.
  - Drivers: stronger fiscal adjustment and higher availability of multilateral financing at favorable terms.
  - Bound tests: reduced vulnerability to standard shocks compared to baseline, though a 30% depreciation triggers a similar step-increase followed by a steeper decline.

### Baseline: Public sector debt trajectory (selected values from Appendix Table 1)
- Public sector debt (percent of GDP): 2008 = 77.3; 2009 = 75.6; 2010 = 74.7; 2011 = 73.3; 2012 = 71.4; 2013 = 70.3; 2014 = 69.4.
- Of which foreign-currency denominated (percent of GDP): 2008 = 69.5; 2009 = 67.9; 2010 = 67.3; 2011 = 66.3; 2012 = 64.8; 2013 = 64.0; 2014 = 63.4.
- Change in public sector debt (percent of GDP): 2008 = -11.2; 2009 = -1.8; 2010 = -0.9; 2011 = -1.4; 2012 = -1.8; 2013 = -1.1; 2014 = -0.9.
- Identified debt-creating flows (4+7+12, percent of GDP): 2008 = -7.5; 2009 = -1.7; 2010 = -0.7; 2011 = -1.2; 2012 = -1.5; 2013 = -1.0; 2014 = -0.7.
- Primary deficit (percent of GDP): 2008 = -4.7; 2009 = -2.6; 2010 = -1.4; 2011 = -2.1; 2012 = -2.9; 2013 = -2.8; 2014 = -2.6.
- Revenue and grants (percent of GDP): 2008 = 28.8; 2009 = 28.4; 2010 = 26.9; 2011 = 27.0; 2012 = 26.9; 2013 = 26.7; 2014 = 26.5.
- Primary (noninterest) expenditure (percent of GDP): 2008 = 24.2; 2009 = 25.7; 2010 = 25.5; 2011 = 25.0; 2012 = 24.0; 2013 = 23.9; 2014 = 23.9.
- Automatic debt dynamics contribution (percent of GDP): 2008 = -2.8; 2009 = 0.9; 2010 = 0.7; 2011 = 0.9; 2012 = 1.4; 2013 = 1.8; 2014 = 1.9.
- Contribution from real interest rate (percent of GDP): 2008 = -0.4; 2009 = 1.7; 2010 = 2.2; 2011 = 2.5; 2012 = 3.1; 2013 = 3.5; 2014 = 3.6.
- Contribution from real GDP growth (percent of GDP): 2008 = -2.5; 2009 = -0.7; 2010 = -1.4; 2011 = -1.6; 2012 = -1.7; 2013 = -1.7; 2014 = -1.7.
- Public sector debt-to-revenue ratio (percent): 2008 = 268.1; 2009 = 266.4; 2010 = 277.5; 2011 = 270.8; 2012 = 265.2; 2013 = 262.9; 2014 = 261.5.
- Gross financing need (percent of GDP): 2008 = 2.1; 2009 = 3.4; 2010 = 4.3; 2011 = 4.1; 2012 = 3.6; 2013 = 4.2; 2014 = 4.4.
- Gross financing need (in billions of U.S. dollars): 2008 = 0.0; 2009 = 0.0; 2010 = 0.1; 2011 = 0.1; 2012 = 0.1; 2013 = 0.1; 2014 = 0.1.
- Debt-stabilizing primary balance (percent of GDP): 2014 = 1.5.

### External debt dynamics (selected values from Appendix Table 2)
- External debt (percent of GDP): 2008 = 69.5; 2009 = 67.9; 2010 = 67.3; 2011 = 66.3; 2012 = 64.8; 2013 = 64.0; 2014 = 63.4.
- Change in external debt (percent of GDP): 2008 = -10.0; 2009 = -1.6; 2010 = -0.6; 2011 = -1.1; 2012 = -1.5; 2013 = -0.8; 2014 = -0.6.
- Identified external debt-creating flows (percent of GDP): 2008 = -6.7; 2009 = 1.1; 2010 = 0.8; 2011 = -0.3; 2012 = 0.0; 2013 = 0.6; 2014 = 0.5.
- Current account deficit, excluding interest payments (percent of GDP): 2008 = 7.0; 2009 = 3.9; 2010 = 3.1; 2011 = 1.7; 2012 = 1.5; 2013 = 1.5; 2014 = 1.5.
- Net non-debt creating capital inflows (negative, percent of GDP): 2008 = -14.5; 2009 = -4.9; 2010 = -4.1; 2011 = -4.0; 2012 = -4.0; 2013 = -3.7; 2014 = -4.0.
- Automatic debt dynamics (percent of GDP): 2008 = 0.7; 2009 = 2.1; 2010 = 1.8; 2011 = 2.0; 2012 = 2.5; 2013 = 2.9; 2014 = 3.0.
- External debt-to-exports ratio (percent): 2008 = 112.5; 2009 = 128.5; 2010 = 124.5; 2011 = 115.1; 2012 = 110.9; 2013 = 108.4; 2014 = 107.4.
- Gross external financing need (in billions of US dollars): 2008 = 0.2; 2009 = 0.1; 2010 = 0.1; 2011 = 0.1; 2012 = 0.1; 2013 = 0.1; 2014 = 0.1.
- Gross external financing need (percent of GDP): 2008 = 15.0; 2009 = 10.0; 2010 = 8.7; 2011 = 7.7; 2012 = 7.7; 2013 = 7.9; 2014 = 8.0.
- Scenario with key variables at historical averages: external debt rises to 79.7 percent of GDP by 2008 projection horizon (table note: 69.5 in baseline 2008).

### Key macroeconomic and fiscal assumptions underlying baseline (selected series)
- Real GDP growth (in percent): 2008 = 3.0; 2009 = 1.0; 2010 = 2.0; 2011 = 2.3; 2012 = 2.4; 2013 = 2.5; 2014 = 2.5.
- Average nominal interest rate on public debt (in percent): 2008 = 4.7; 2009 = 4.8; 2010 = 5.6; 2011 = 6.1; 2012 = 7.0; 2013 = 7.8; 2014 = 7.9.
- Average real interest rate (in percent): 2008 = -0.3; 2009 = 2.3; 2010 = 3.1; 2011 = 3.6; 2012 = 4.5; 2013 = 5.3; 2014 = 5.4.
- Inflation rate (GDP deflator, in percent): 2008 = 5.0; 2009 = 2.5; 2010 = 2.5; 2011 = 2.5; 2012 = 2.5; 2013 = 2.5; 2014 = 2.5.
- Growth of real primary spending (deflated by GDP deflator, in percent): 2008 = 5.9; 2009 = 7.5; 2010 = 1.0; 2011 = 0.3; 2012 = -1.7; 2013 = 2.3; 2014 = 2.4.
- GDP deflator in US dollars (change in percent): 2008 = 5.0; 2009 = 2.5; 2010 = 2.5; 2011 = 2.5; 2012 = 2.5; 2013 = 2.5; 2014 = 2.5.
- Nominal external interest rate (in percent): 2008 = 4.0; 2009 = 4.2; 2010 = 4.8; 2011 = 5.4; 2012 = 6.4; 2013 = 7.2; 2014 = 7.4.

### Bound tests and sensitivity scenarios (selected outcomes)
- B1. Real interest rate shock (historical average + 1 std dev): public debt around 74.6–77.3 percent of GDP across early projection years; debt-stabilizing primary balance = 2.8 (Table 1 note).
- B2. Real GDP growth shock (historical average - 1 std dev): public debt rises to 87.5 percent of GDP in the shock path (Table 1).
- B3. Primary balance shock (historical average - 1 std dev): public debt rises to 82.6 percent of GDP in the shock path (Table 1).
- B4. Combination of B1–B3 using 1/2 standard deviation shocks: public debt rises to 83.0 percent of GDP in the shock path (Table 1).
- B5. One-time 30 percent real depreciation in 2006: public debt jumps to 109.4 percent of GDP in Table 1 and similar magnitudes (e.g., 110.1 percent in alternative table variants), with subsequent decline.
- B6. 10 percent of GDP increase in other debt-creating flows in 2006: public debt rises to 85.6 percent of GDP (Table 1) and 85.7 percent in alternative table.

### Scenarios reported (high-level)
- Baseline scenario: described trajectories above (public debt decline to 69.4 percent of GDP by 2014).
- Active scenario: stronger decline to 55 percent of GDP by 2014 under increased multilateral financing and stronger fiscal adjustment.
- Scenario with no policy change (constant primary balance): shows alternative debt paths in tables (e.g., public sector debt values noted under "No policy change" rows).
- Scenario with key variables at their historical averages: alternate higher-debt trajectories reported in tables (e.g., public sector debt rising toward ~79.5–82.0 percent in some projections).

_Appendix I. Debt Sustainability Analysis — _cr09155 - APPENDIX I.   DEBT SUSTAINABILITY ANALYSIS_

### Appendix Table 3. Belize: Public Sector Debt Sustainability Framework, 2003-2014

### Appendix Table 3. Belize: Public Sector Debt Sustainability Framework, 2003-2014

### Public sector debt: scenarios and shocks
- Active Scenario projections cover 2003–2014 with baseline and multiple stress tests (growth shock, PB shock, interest rate shock, combined shock, real depreciation and contingent liabilities shock).
- Individual shocks are permanent one-half standard deviation shocks; scenario boxes show average projections and ten-year historical averages.
- Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.
- One-time real depreciation of 30 percent and 10 percent of GDP shock to contingent liabilities occur in 2008 (real depreciation defined as nominal depreciation minus domestic inflation based on GDP deflator).
- Baseline and historical scenarios presented for 2003–2014.

### Key scenario highlights (explicit figures preserved where shown)
- Baseline and scenario averages (examples from figure text):
  - Baseline primary balance: 4.0
  - No policy change (constant primary balance) scenario: 1.9
  - Historical primary balance: -1.9
  - Baseline (another indicator): 2.9; Scenario: 1.2; Historical: 5.9
  - Baseline (another indicator): 3.8; Scenario: 4.9; Historical: 4.3
- Shocks explicitly called out:
  - Growth shock (in percent per year): shown as a scenario.
  - Primary balance shock (in percent of GDP): shown.
  - Interest rate shock (in percent): shown.
  - Combined shock: permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.
  - Real depreciation and contingent liabilities shocks: one-time real depreciation of 30 percent and contingent liabilities shock of 10 percent of GDP in 2008.

### Gross financing need and debt dynamics
- Gross financing need under baseline is shown on a right-hand scale in figures.
- Identified external debt-creating flows (summary row): 9.7, -2.7, -0.8, -14.1, -9.8, -6.2, 1.1, -3.9, -4.8, -4.6, -4.2, -3.7 (2003–2014 sequence as presented).
- Change in external debt (2003–2014 sequence): 10.8, -5.5, -0.4, -7.0, -4.3, -10.0, -1.6, -3.2, -4.4, -4.0, -3.5, -3.3.
- Automatic debt dynamics (2003–2014 sequence): 1.0, 0.1, 1.9, -2.5, 0.2, 1.3, 2.1, 1.4, 1.0, 1.4, 1.7, 1.6.
  - Contribution from nominal interest rate (2003–2014): 5.8, 6.3, 6.8, 4.9, 4.3, 2.9, 2.8, 3.0, 3.1, 3.4, 3.6, 3.4.
  - Contribution from real GDP growth (2003–2014): -7.4, -4.2, -3.3, -4.7, -1.0, -1.6, -0.7, -1.6, -2.1, -2.0, -1.9, -1.8.
  - Contribution from price and exchange rate changes (2003–2014): 2.6, -2.0, -1.5, -2.7, -3.2, ... (series truncated in source).
- Residual, including change in gross foreign assets (2003–2014 sequence): 1.1, -2.8, 0.4, 7.1, 5.4, -3.8, -2.7, 0.8, 0.4, 0.6, 0.7, 0.4.

### External debt levels and financing need (explicit values)
- External debt (in percent of GDP) sequence shown: 96.7, 91.2, 90.8, 83.8, 79.5, 69.5, 67.9, 64.8, 60.4, 56.4, 52.9, 49.6 (2003–2014).
- External debt-to-exports ratio (in percent) sequence: 193.2, 177.3, 163.9, 130.2, 123.2, 112.5, 128.4, 118.4, 105.9, 98.9, 92.8, 87.0.
- Gross external financing need (in billions of US dollars, 2003–2014): 0.2, 0.3, 0.3, 0.1, 0.1, 0.2, 0.1, 0.1, 0.1, 0.1, 0.1, 0.1.
- Gross external financing need (in percent of GDP, 2003–2014): 23.3, 27.1, 28.5, 8.1, 8.0, 15.0, 10.0, 6.0, 5.8, 5.4, 5.2, 5.2.

### Key macroeconomic assumptions underlying the baseline (series preserved)
- Real GDP growth (in percent, 2003–2014): 9.2, 4.6, 3.9, 5.6, 1.2, 2.2, 1.0, 2.5, 3.5, 3.5, 3.6, 3.6.
- GDP deflator in US dollars (change in percent, 2003–2014): -2.9, 2.1, 1.7, 3.1, 3.9, 5.8, 2.5, 2.5, 2.5, 2.5, 2.5, 2.5.
- Nominal external interest rate (in percent, 2003–2014): 7.2, 7.0, 7.8, 5.8, 5.4, 4.0, 4.2, 4.7, 5.1, 6.0, 6.8, 6.8.
- Growth of exports (US dollar terms, in percent, 2003–2014): 0.3, 9.8, 13.8, 26.6, 5.4, 3.5, -11.4, 8.7, 10.5, 6.1, 6.2, 6.2.
- Growth of imports (US dollar terms, in percent, 2003–2014): 5.2, -5.1, 13.9, 6.6, 6.3, 18.6, -17.9, 1.4, 13.1, 5.5, 5.4, 6.3.
- Current account balance, excluding interest payments (in percent of GDP, 2003–2014): -12.4, -8.5, -7.6, 2.8, 0.3, -7.0, -3.9, -0.3, -0.2, 0.1, 0.3, 0.1.
- Net nondebt creating capital inflows (in percent of GDP, 2003–2014): 3.7, 11.3, 10.3, 8.7, 9.6, 14.5, 4.9, 5.7, 6.0, 5.9, 5.6, 5.2.

### Debt-stabilizing metric
- Debt-stabilizing non-interest current account (long-run constant balance) concept is presented; specific long-run constant value that stabilizes debt ratio is referenced in the framework (no single numeric long-run constant preserved beyond table context).

*Sources: International Monetary Fund, country desk data, and staff estimates.*

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### Appendix Table 4. Belize: External Debt Sustainability Framework, 2003-2014

### External debt bound tests and shocks
- Active Scenario presents external debt in percent of GDP for 2003–2014 with baseline and stress tests: interest rate shock, non-interest current account shock, growth shock, combined shock, real depreciation shock (30 percent), and gross financing need under baseline (right scale).
- Shocks and tests:
  - Interest rate shock (in percent) and i-rate shock shown.
  - 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 2008.
  - Combined shock presented.

### Scenario values and sample indicators (as presented)
- Baseline and historical markers for external debt figures are shown in figures.
- Selected baseline / scenario / historical summary metrics (from figure text):
  - Baseline: 5.6; Scenario: 6.3; Historical: 6.7 (context in figure for a variable).
  - Baseline: 2.9; Scenario: 1.2; Historical: 5.9.
  - Baseline: -0.6; Scenario: -4.1; Historical: -8.7.

*Sources: International Monetary Fund, Country desk data, and staff estimates.*

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### Appendix II — Assessment of External Stability (Exchange rate, current account, and external position)

### Exchange rate assessment and REER
- Model-based CGER methodology used with comparators (Caribbean and wider tourism-dependent group); results similar across samples.
- The model-based approach suggests Belize’s actual REER is about 5.3 percent below its estimated equilibrium level.
- The real effective exchange rate has been moving downward since the late 1990s with a secular decline observable since 1997; trend partly reversed in latter half of 2008 when the U.S. dollar strengthened.

### Current account and underlying adjustments (explicit numbers)
- Observed current account balance in 2008: -10.0 percent of GDP.
- Adjustments to derive underlying current account (2008 estimates and 2014–18 projections where shown):
  - Interest on public sector debt: -3.2 percent (2008 Est.), -4.9 percent (2014–18 Proj.). Adjustment for lower interest payments: -1.7 percent.
  - Net oil and electricity trade: -3.1 percent (2008 Est.), -2.6 percent (2014–18 Proj.). Adjustment for lower energy trade balance: 0.5 percent.
  - Impact of weather (US$ millions): -1.0 percent (2008 Est.), 0.0 percent (2014–18 Proj.). Adjustment for temporary impact of weather: 1.0 percent.
  - Grants, and imports related to FDI and grants: -8.8 percent (2008 Est.), -2.6 percent (2014–18 Proj.). Adjustment for temporary surge in FDI and grants: 6.2 percent.
- Underlying current account after adjustments (2008): -4.0 percent of GDP.
- Underlying current account excluding interest payments (2008): -0.8 percent of GDP.
- Note: Assumes an import content of 75 percent for FDI and grants.

### Interpretation of current account and external outlook
- The current account deficit in 2008 (10 percent of GDP) was affected by several temporary factors: (i) a surge in FDI-related imports; (ii) a decline in weather-affected exports; (iii) temporarily reduced interest payments on the Super Bond (restructured debt); and (iv) an above-trend net oil trade balance before domestic oil production tapers off.
- The underlying current account deficit excluding transitional factors is estimated at 4.0 percent of GDP in 2008, or 0.8 percent of GDP after interest payments are excluded—about 1¾ percentage points less than the estimated debt-stabilizing non-interest current account deficit of 2.5 percent of GDP (see External Debt Sustainability Framework).
- Projected current account deficits are significantly lower than in the past or in peer economies and are consistent with declining debt/GDP ratios. The recent widening in the external current account deficit is expected to be partly reversed in 2009; many import-intensive projects are expected to be largely completed in 2009.
- Belize’s balance of payments is expected to benefit from additional electricity-generating capacity coming on stream during 2008–10, reducing the need for imported electricity from Mexico.

### External debt outlook and policy implications
- External debt ratios will remain high over the medium term; under the unchanged policies (passive) scenario, external debt ratio will decline by 5 percent of GDP over the next five years, reaching 63 percent of GDP.
- Such a high debt ratio will constrain the country’s ability to respond to exogenous shocks.
- Policy implication emphasized: further sustained efforts are needed to strengthen the country’s fiscal and external positions to create requisite policy space.

*Sources and methodology: CGER model-based approach; IMF staff estimates and country desk data (as presented in source).*

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### Appendix III — Background and summary of appendices (selected institutional and operational facts)

### Consultations and mission
- 2009 Article IV consultation discussions held in Belize during March 17–26, 2009. Mission met with Prime Minister Barrow, Finance Secretary Waight, CBB Governor Ysaguirre, other officials, private sector, labor unions, and opposition. Staff team: P. Gajdeczka (Head), N. Belhocine, G. El-Masry, and M. Kandil (all WHD); P. McGoldrick (OED) joined final discussions.

### Exchange arrangement and Fund relations (explicit values)
- Belize has accepted the obligations of Article VIII, Sections 2, 3, and 4 and maintains an exchange system free of restrictions on payments and transfers for current transactions.
- The Belize dollar has been pegged to the U.S. dollar at BZ$2=US$1 since 1976.
- On February 18 (year as in source context), the Board approved a request for a loan by Belize, 25 percent of quota, SDR$4.7 million, under the Fund’s policy on emergency assistance for natural disasters.
- Last financial arrangement referenced: Stand-by Arrangement for the period 12/03/84 to 05/31/86 totaling SDR$7.13 million, fully drawn.

### Technical assistance and multilateral relations (selected)
- MCM missions on bank supervision/regulation in 2008 and 2006; follow-up STA missions on national accounts and on FDI and IIP development scheduled.
- World Bank: Interim Strategy Note for 2009–2011 approved March 2009; interim strategy includes one investment loan for $15 million (municipal development project).
- Inter-American Development Bank: US$25 million PBL in December 2006 fully disbursed; two loans for Solid Waste Management and Sustainable Tourism approved end-2008; US$5 million loan for Road Reconstruction approved February 2009.
- Caribbean Development Bank: US$25 million PBL approved December 2006; loan of US$12.6 million for Placencia road; TA loans and grants noted; CDB approved two loans of US$8.8 million and 0.5 million in 2008 for recovery and reconstruction.

*Prepared by the Western Hemisphere Department; Staff Report for the 2009 Article IV Consultation — Informational Annex (April 23, 2009).*

### APPENDIX II. BELIZE––RELATIONS WITH THE WORLD BANK GROUP

### APPENDIX II. BELIZE––RELATIONS WITH THE WORLD BANK GROUP

### I. Projects
- A five year Country Assistance Strategy was completed for Belize in August 2000 (Report No. 20708-BEL).
- The World Bank currently has no active projects in Belize.
- The World Bank is preparing an Interim Strategy Note for the period of 2009–2011 which envisions Analytical and Advisory Activities (AAA) and modest investment lending.

### II. Financial Relations

- IBRD/IDA Operations — Loans/Credits/Grants Summary In USD Equivalent
  - IBRD
  - IDA Credits
  - IDA Grants
  - Total
  - Original Principal 86,200,00000 86,200,000
  - Cancellations                                      5,703,32800                                      5,703,328
  - Disbursed                                          80,496,67200                                          80,496,672
  - Undisbursed                                                      000                                                      0
  - Repaid                                               59,258,57600                                               59,258,576
  - Due                                                   21,238,09600                                                   21,238,096
  - Exchange Adjustment -613,05000 -613,050
  - Borrower Obligation 20,625,04600 20,625,046

- Gross Disbursements and Debt Service During Fiscal Year (July 1-June 30) (In millions of U.S. dollars)
  - Years listed: 2001     20022003200420052006
    2007 
    2008 
    2009
    Est.
  - Disbursements         4.7         5.54.31.60.70.70         0         0
  - Repayments                3.3        3.44.84.84.64.54.9        4.9        4.7
  - Net                           1.3                           2.1-0.5-3.2-3.9-3.8-4.9                           -49                           -4.7
  - Interest and 
    fees                          1.8                          3.12.62.01.51.7
    1.8 
    1.6        1.1

*Source: APPENDIX II. BELIZE––RELATIONS WITH THE WORLD BANK GROUP (As of January 9, 2009).*

### APPENDIX V. BELIZE––STATISTICAL ISSUES

### APPENDIX V. BELIZE––STATISTICAL ISSUES

### I. Assessment of Data Adequacy for Surveillance
- General finding:
  - "Data are broadly adequate for surveillance" but the July 2007 multisector statistics mission listed shortcomings in national accounts, prices, external trade and debt, government finance, and labor statistics.
  - The Central Bank of Belize publishes, in irregular intervals, a quarterly bulletin, an annual report, and a statistical digest.
  - Participant in the GDDS since September 27, 2006.

- Real sector:
  - A new national accounts system has been phased-in: national accounts at constant and current prices are produced quarterly, instead of just annually.
  - Base year moved from 1984 to 2000.
  - Priorities:
    - Establish a national accounts user advisory committee.
    - Update the SNAPC-Belize application to reflect structural changes.
    - Modify the concept of government industrial activity in conformity with the 1993 SNA.
    - Rebase the national accounts to 2006.
    - Include electricity imports in merchandise trade statistics.
    - Conduct a survey of activity in the Commercial Free Zone.
    - Disaggregate imports of the Export Processing Zone.
    - Undertake an inventory of data sources for national accounts.
    - Update the Register of Establishments.
    - Annotate all GDP tables to distinguish revision stages.
    - Collect data on informal sector activity.

- Prices and labor statistics:
  - CPI market basket based on a household expenditure survey conducted between June 1990 and March 1991 and needs updating.
  - CPI is calculated only four times a year (February, May, August, and November), with a lag of about three months.
  - Labor market statistics are scarce and available at irregular intervals.
  - Priorities:
    - Allocate additional staff to compile the CPI.
    - Establish a CPI advisory committee.
    - Revise procedures for collecting prices for perishable goods.
    - Undertake a new Household Income and Expenditure Survey.
    - Improve timeliness and compile a monthly CPI in accordance with international best practice.
    - Publish the CPI weights.
    - Streamline price collection instruments.
    - Develop and disseminate a schedule for releasing the CPI.
    - Improve CPI metadata and develop procedures for quality change.

- Fiscal accounts:
  - Classification of expenditure into current and capital does not conform to international standards.
  - Priorities:
    - Prepare a comprehensive list of institutions comprising central government, general government, and public sector.
    - Evaluate each statutory body for proper sectorization.
    - Compile GFS for the social security fund.
    - Include the social security fund and extra budgetary units in public sector debt coverage.
    - Treat all government transactions according to GFSM 1986 guidelines.
    - Ensure timely audits of annual financial statements for budgetary central government.
    - Disseminate central government aggregates and debt statistics per GDDS recommendations.
    - Disseminate available monthly data on budgetary central government revenue, expenditure and financing.

- Monetary accounts:
  - Coverage of monetary data is incomplete; inclusion of credit union data remains a priority (recent submissions contain accounts of the six largest credit unions).
  - Interest accruals are included in other assets or other liabilities rather than with underlying instruments.
  - Unclassified assets and liabilities are large.
  - Priorities:
    - Send a revised form 2SR as soon as data for the rest of the credit unions become available.
    - Classify international offshore banks as part of other financial corporations sub sector.
    - Sectorize the Social Security Board as part of the general government.
    - Establish an integrated monetary base.
    - Establish data sharing procedures between the CBB and the Supervisor of Insurance.

- Balance of payments:
  - Compilation based on BPM5.
  - Authorities are refining data collection enabling regular quarterly BOP presentation.
  - International Investment Position (IIP) Statistics are not compiled.
  - Need to improve and expand compilation and dissemination of external sector statistics.
  - Additional staff and relevant training highly recommended.

- External debt:
  - Discrepancies between external debt data reported by the central bank and by the ministry of finance, particularly gross external disbursements of the central government.
  - Central bank and ministry data on public enterprises' external debt are incomplete and inconsistent with public enterprise information.
  - Authorities are fostering greater cooperation among agencies to reduce discrepancies.
  - An effort to develop a database for private sector debt is under way.

- Development Finance Corporation (DFC):
  - Priorities:
    - Record financial support provided by the government to DFC in recent years.
    - Record loans to DFC locked by mortgage securities as debt.
    - Compile a consolidated sectoral balance sheet for insurance companies and the Belize mutual fund.
    - Renew efforts to collect balance sheet data from the DFC.

### II. Data Standards and Quality
- Participant in the General Data Dissemination System (GDDS) since September 27, 2006.

### III. Reporting to STA (Optional)
- "No data ROSC is available."
- "No fiscal data are being reported for publication in the Government Finance Statistics Yearbook or in the IFS."

### Belize: Table of Common Indicators Required for Surveillance (As of April 6, 2009) — selected entries
- Exchange Rates:
  - Date of Latest Observation: 12/31/08
  - Date Received: 03/23/09
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: NA

- International Reserve Assets and Reserve Liabilities of the Monetary Authorities:
  - Date of Latest Observation: 12/31/08
  - Date Received: 01/31/09
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: NA

- Reserve/Base Money:
  - Date of Latest Observation: 12/31/08
  - Date Received: 01/31/09
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: NA

- Broad Money:
  - Date of Latest Observation: 12/31/08
  - Date Received: 01/31/09
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: NA

- Central Bank Balance Sheet:
  - Date of Latest Observation: 12/31/08
  - Date Received: 01/31/09
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: NA

- Consolidated Balance Sheet of the Banking System:
  - Date of Latest Observation: 12/31/08
  - Date Received: 01/31/09
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: NA

- Interest Rates:
  - Date of Latest Observation: 12/31/08
  - Date Received: 01/31/09
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: NA

- Consumer Price Index:
  - Date of Latest Observation: 11/30/08
  - Date Received: 02/23/09
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: NA

- Revenue, Expenditure, Balance and Composition of Financing — Central Government:
  - Date of Latest Observation: 01/30/09
  - Date Received: 1/30/09
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: NA

- Stocks of Central Government and Central Government-Guaranteed Debt:
  - Date of Latest Observation: 12/31/08
  - Date Received: 03/23/09
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: NA

- External Current Account Balance:
  - Date of Latest Observation: Q2 08
  - Date Received: 11/13/08
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: A

- Exports and Imports of Goods and Services:
  - Date of Latest Observation: Q2 08
  - Date Received: 11/13/08
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: NA

- GDP/GNP:
  - Date of Latest Observation: 2007
  - Date Received: 06/30/08
  - Frequency of Data: A
  - Frequency of Reporting: A
  - Frequency of Publication: NA

- Gross External Debt:
  - Date of Latest Observation: 12/31/08
  - Date Received: 03/23/09
  - Frequency of Data: A, M
  - Frequency of Reporting: A, M
  - Frequency of Publication: NA

- International Investment Position:
  - Date of Latest Observation: N/A
  - Date Received: N/A
  - Frequency of Data: N/A
  - Frequency of Reporting: N/A
  - Frequency of Publication: N/A

(Notes in table preserved: frequency codes — D, W, M, Q, A, I, NA; definitions for reserve assets, interest rates, financing categories, and government coverage appear in table footnotes.)

*Source: APPENDIX V. BELIZE––STATISTICAL ISSUES (As of April 6, 2009).*

### Conclusion

### Conclusion

### Key findings and vulnerabilities
- Belize has shown willingness and initiative to overcome structural issues that have hindered its development.
- As a small, open economy with a fixed exchange rate, low levels of reserves and high levels of indebtedness, Belize remains vulnerable to exogenous shocks.
- The authorities appreciate the support provided by the international community to help address the impact of these shocks.

### Policy commitments and objectives
- The authorities remain resolutely committed to take the required steps to protect the external reserve position.
- The authorities remain resolutely committed to consolidate the budget.
- Authorities are confident that Belize can be steered onto and on a course of sustainable development through these difficult times of transition.

*Source: _cr09155 - Conclusion*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09155.pdf_