## _cr1118

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### Background and recent developments
- Structural constraints: weak external position, policy rigidities, reduced access to external financing.
- Growth since 2006 described as lackluster, driven mostly by petroleum extraction and tourism-related construction; export base narrow.
- 2007 debt restructuring eased external debt service but public debt remained high and foreign reserves low.
- Government strategy (took office in early 2008) endorsed to:
  - reduce public debt over time through revenue and spending actions;
  - strengthen foreign reserves;
  - reform the framework for monetary policy; and
  - improve governance.
- 2009–2010 developments:
  - Output stagnated in 2009; modest recovery in 2010.
  - Twelve-month inflation: minus 0.4 percent in 2009; reached 1¾ percent in May 2010.
  - Foreign reserves: strengthened to 3¼ months of imports at end-2009, or 160 percent of projected external financing needs.
  - Reserves (months of imports): 2007: 1.6; 2008: 2.1; 2009: 3.2; Proj. 2010: 3.4; Target: 3.0.
  - External debt service (in percent): 2007: 161; 2008: 182; 2009: 542; Proj. 2010: 50...
  - Broad money (M2): 2007: 14; 2008: 19; 2009: 23; Proj. 2010: 15-25.
  - Fiscal balance: deteriorated by 2 percentage points of GDP to a deficit of about 1.5 percent of GDP in FY09/10 (April–March).
  - Public debt rose to 80 percent of GDP at end-2009.
  - Social indicators: poverty 40 percent in 2009 (up from 33 percent in 2000); unemployment 12.5 percent in September 2009; crime appears to have increased.

### Macroeconomic outlook and scenarios
- Staff projections for 2010:
  - GDP growth: 2 percent in 2010, driven largely by expansion in electricity generation.
  - Inflation: would rise to 6 percent.
  - External current account deficit: would narrow to under 6 percent of GDP.
  - Foreign reserve position: would improve slightly.
- Baseline scenario (continuation of present policies):
  - Growth: 2.5 percent per year.
  - Primary surplus: projected to remain at 1.5 percent of GDP over the medium-term.
  - Public debt: would remain slightly under 80 percent of GDP.
  - Total external financing needs: around 8.5-10 percent of GDP a year.
  - Foreign reserves: would decline steadily to under 2 months of imports by the end of this decade.
  - Selected projections (baseline):
    - GDP at constant prices: 2010: 2.0; 2011: 2.3; 2012: 2.5; 2013: 2.5; 2014: 2.5; 2015: 2.5.
    - Consumer prices (end of period): 2010: 5.9; 2011–2015: 2.5 (each year).
    - Central government primary balance (percent of GDP): 2010–2015: 1.5 (each year).
    - Overall balance (percent of GDP): 2010: -2.4; 2011: -2.6; 2012: -3.1; 2013: -3.7; 2014: -3.9; 2015: -4.1.
    - Public and publicly guaranteed debt (percent of GDP): 2010: 78.1; 2011: 77.2; 2012: 76.6; 2013: 76.5; 2014: 76.8; 2015: 77.2.
    - Current account balance (percent of GDP): 2010: -5.7; 2011: -6.7; 2012: -5.6; 2013: -7.0; 2014: -7.6; 2015: -8.0.
    - Gross external financing needs (percent of GDP): 2010: 8.6; 2011: 9.3; 2012: 8.1; 2013: 9.3; 2014: 9.8; 2015: 10.3.
    - Gross official reserves (months of imports): 2010: 3.4; 2011: 2.9; 2012: 2.7; 2013: 2.6; 2014: 2.6; 2015: 2.6.
- Active scenario (strengthened policies):
  - Growth: would rise to 3.5 percent over the medium-term.
  - Primary surplus: sustained at 4½ percent of GDP starting in 2011.
  - Assumptions: reallocation of spending toward capital and social priorities; increased private investment from improved confidence.
  - Public debt: would gradually decline to 40 percent of GDP by 2019.
  - Foreign reserves: would strengthen to 4 months of imports by the end of this decade.
  - Selected projections (active):
    - GDP at constant prices: 2010: 2.0; 2011: 2.3; 2012–2015: 3.5 (each year).
    - Consumer prices (end of period): 2010: 5.9; 2011–2015: 2.5 (each year).
    - Central government primary balance (percent of GDP): 2010: 2.7; 2011–2015: 4.5 (each year).
    - Overall balance (percent of GDP): 2010: -1.1; 2011: 0.5; 2012: 0.2; 2013: 0.1; 2014: 0.3; 2015: 0.6.
    - Public and publicly guaranteed debt (percent of GDP): 2010: 72.2; 2011: 69.7; 2012: 62.8; 2013: 68.4; 2014: 64.4; 2015: 60.4.
    - Current account balance (percent of GDP): 2010: -5.4; 2011: -5.0; 2012: -4.7; 2013: -4.6; 2014: -4.6; 2015: -4.2.
    - Gross external financing needs (percent of GDP): 2010: 8.3; 2011: 7.6; 2012: 7.6; 2013: 7.6; 2014: 7.0; 2015: 6.8.
    - Gross official reserves (months of imports): 2010: 3.5; 2011: 3.5; 2012: 3.5; 2013: 3.5; 2014: 3.6; 2015: 3.7.

### Fiscal policy recommendations and illustrative measures (active scenario)
- Expenditure measures:
  - Reverse upward trend in the wage bill relative to GDP.
  - Limit growth in non-priority spending areas.
  - Streamline generous benefits vis-à-vis contributions on the public officer’s pension scheme while introducing a pension contribution.
- Revenue measures and SSB recommendations:
  - Consider raising the GST rate closer to regional levels (15 percent) or phasing out fully the 2008 reduction in the fuel excise tax.
  - Gradually implement parametric actions from the latest actuarial report for the Social Security Board (SSB) to bring benefits in line with contributions.
- Illustrative tax revenue measures (yield, percent of GDP):
  - Total: 1.5.
  - GST rate increase (from 10 to 12½ percent): 1.5.
  - Business tax on electricity generation (from 1¾ to 6½ percent): 0.3.
  - Excise on petroleum production (US$0.50 per barrel): 0.1.
  - Social levy (duty of 5 percent on imports into a free zone): 0.1.
  - Tax relief (GST exemption of some foodstuffs, removal of duties on selected imports; and higher exempted income): -0.5.

### Public debt sustainability and Superbond considerations
- FY2010/11 budget aims to limit fiscal deficit to 2.2 percent of GDP.
- Budget included tax revenue measures equivalent to 1.5 percent of GDP (introduced in April), main measure: GST increase from 10 percent to 12.5 percent.
- Staff urged reinforcing the budget as part of medium-term fiscal consolidation and aiming for an active scenario with primary surplus rising to 3 percent of GDP this fiscal year (near-term target).
- Measures to achieve 3 percent primary surplus: be more selective in investment plan; intensify tax administration; enhance controls on transfers and the wage bill.
- Superbond details and fiscal pressures:
  - Superbond currently accounts for half the outstanding public debt; has a 12-year grace period and a 10-year semi-annual repayment period starting in August 2019.
  - Fiscal pressures derive from:
    - scheduled increase in Superbond interest rate from 4¼ percent to 6 percent this year and to 8½ percent in 2012;
    - projected decline in oil revenue beyond 2012 in absence of new discoveries;
    - priority spending in infrastructure and anti-poverty programs from the 2010-13 development plan.
- Staff and authorities agree raising primary surplus to halve public debt to about 40 percent of GDP by 2019 is an ideal target to help regain access to external private financing and ease roll-over of Superbond amortizations.

### Debt levels, composition, and projections (selected from Table 6b and related tables)
- Total public and publicly guaranteed debt (in millions, sequence shown): 1,100; 1,123; 1,083; 1,063; 1,085; 1,101; 1,093; 1,089; 1,087; 1,082; 1,072; 1,055; 1,033; 1,004; 967.
- Central government (in millions, sequence shown): 1,121; 1,016; 1,017; 1,009; 1,036; 1,052; 1,044; 1,040; 1,038; 1,033; 1,023; 1,006; 984; 954; 918.
  - Domestic debt (in millions): 118; 105; 105; 101; 96; 96; 96; 96; 96; 96; 96; 96; 96; 96; 96.
  - External debt (in millions): 1,003; 910; 912; 908; 939; 956; 948; 944; 942; 937; 926; 910; 888; 858; 822.
- Debt ratios (percent of GDP, selected sequence): Total: 98.7; 92.5; 84.8; 78.2; 76.9; 72.9; 72.8; 68.4; 64.4; 60.4; 60.4; 56.4; 54.4; 48.3; 44.2; 40.2.
- Flow-of-funds and macro assumptions (selected):
  - Primary balance (percent of GDP, sequence shown): 2.0; 4.0; 4.1; 5.4; 0.7; 2.7; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5.
  - Identified disbursements (percent of GDP): 18.0; 6.6; 5.7; 3.4; 5.5; 3.2; 1.4; 2.1; 1.8; 1.6; 1.5; 1.1; 0.8; 0.7; 1.2.
  - Debt service (percent of GDP): 20.5; 10.7; 11.1; 8.8; 6.2; 6.0; 6.0; 6.6; 6.3; 6.1; 6.0; 5.6; 5.3; 5.2; 5.7.
  - Nominal GDP (US$ millions, sequence shown): 1,115; 1,214; 1,277; 1,359; 1,352; 1,431; 1,500; 1,591; 1,688; 1,791; 1,900; 2,016; 2,139; 2,269; 2,407.
  - Real GDP growth rate (percent): 3.1; 5.6; 1.2; 3.8; 0.0; 2.0; 2.3; 3.5; 3.5; 3.5; 3.5; 3.5; 3.5; 3.5; 3.5.

### Banking system stability — conditions and recommendations
- Systemic deterioration identified: three banks with large NPLs.
  - Two small banks: NPLs of 35 percent and 44 percent of total loans; together they held 7 percent of deposits in the system (8.25 percent of GDP).
  - One large bank: NPLs doubled to 34 percent of total loans during first half of the year after reclassification; bank made capital charges for assets under litigation since 2008.
- End‑June 2010 indicators (Appendix I; in percent, selected):
  - Capital/risk-weighted assets (domestic banks; sequence shown): 2007: 23.1; 2008: 19.5; 2009: 20.7; Jun-10: 22.9.
  - Excess liquidity (percent of statutory liquidity requirement): 2007: 16.3; 2008: 20.6; 2009: 23.5; Jun-10: 32.5.
  - NPLs/total loans: 2007: 6.6; 2008: 12.7; 2009: 12.2; Jun-10: 20.0.
  - Provisions/NPLs: 2007: 34.2; 2008: 23.1; 2009: 19.5; Jun-10: 15.5.
  - NPLs net of provisions/capital: 2007: 18.9; 2008: 48.8; 2009: 46.5; Jun-10: 79.1.
  - Net earnings/assets: 2007: 3.5; 2008: 2.6; 2009: 1.7; Jun-10: 0.5.
- Prudential and resolution framework shortcomings:
  - Supervisory powers exist but implementation capacity limited; central bank needs enhanced human capital and in‑house legal counsel.
  - Bank resolution framework requires ministerial and judicial approval for statutory administration; Supreme Court approval required for reorganization; no clear time limit; depositors/creditors have veto powers; no deposit insurance; central bank lacks legal powers for “purchase and assumption” resolutions or imposing capital structure changes.
  - Prudential rules exempt collateralized portion of distressed loans from provisioning and fail to adjust for overvaluation of collateral.
- Staff recommendations:
  - Containment actions: conduct on‑site inspections simultaneously and regularly at banks; ask shareholders to develop credible recapitalization plans for affected banks.
  - Regulatory upgrades: promptly put in place upgraded regulatory and bank resolution frameworks; strengthen loan classification and provision rules, including eligibility of collateral and its valuation, in line with international best practice.
  - Specific supervisory actions already taken/planned:
    - Central bank increased on-site examinations, requested more frequent reporting, and introduced regular stress testing.
    - Central bank asked some banks to voluntarily raise provisions and to strengthen risk management and internal controls.
    - With Fund TA advice, authorities plan to overhaul legislation to introduce orderly resolution procedures; submit revised legislation to Parliament and seek approval by March 2011.
    - Authorities requested Fund TA to upgrade rules on loan classification and provisioning, related lending, and balance sheet concentration.
  - Staff urged specifying size and timelines for capital increases in weak banks and developing contingency measures if recapitalization plans do not materialize.

### Monetary policy framework, liquidity management, and exchange rate assessment
- Monetary policy reforms:
  - Steps to shift to market-based government securities for monetary operations and reduce non-remunerated required reserves welcomed.
  - Plans to improve liquidity forecasting capacity and develop the interbank market encouraged.
  - Staff encouraged setting up standing facilities to establish a corridor for interest rates and phasing out the interest rate floor on savings deposits.
  - Authorities committed to a disciplined monetary policy consistent with a fixed exchange rate.
- Box 1 (recent specific actions, preserved verbatim):
  - Liquidity asset requirements equivalent to 23 percent of deposits at present, part of which held in non-remunerated cash reserve requirements.
  - In April 2010, the ceiling on outstanding government securities was raised significantly (from BZ$175 million to BZ$425 million), and the maturity of the securities increased from 5 years to 10 years.
  - Overdraft facility ceiling lowered from 20 percent of the government’s current revenue in the previous fiscal year to 8.5 percent, and the ceiling on central bank holdings of government securities raised from 7 times its capital to 10 times.
  - In May 2009, the interest rate ceiling on government securities (3.25 percent) was eliminated and competitive auctions were introduced.
  - Within the liquid asset requirement (unchanged at 23 percent of deposits), the cash reserve requirement lowered from 10 percent to 8.5 percent and a minimum requirement on holdings of short-term government securities, equivalent to 6.5 percent of deposits, was introduced.
  - In August 2009, the central bank converted the fixed interest rate (11 percent) on interbank market transactions into a ceiling; recent transactions have taken place at interest rates below 7 percent.
  - In April 2010, firms under the export processing zone (EPZ) were prohibited from making domestic payments in U.S. dollars; EPZ and commercial free zone firms were required to register with the central bank all their operations with offshore banks.
- Exchange rate assessment and external vulnerabilities:
  - Staff analysis suggests Belize’s exchange rate peg is broadly consistent with fundamentals but external stability remains vulnerable.
  - CGER/Box 2 findings:
    - REER: appreciation of 3.5 percent from June 2008 to March 2010; prior 10-year depreciation of 10.2 percent.
    - ERER approach: Belize dollar remained slightly undervalued at end-2009 (by 5 percent).
    - ES approach: small depreciation of 4 percent would stabilize net foreign asset position.
    - MB approach: small depreciation of 5 percent would bring projected external current account deficit (nearly 8 percent of GDP) down to norm level (5.5 percent of GDP) over the medium term.
  - Staff conclusion: fixed exchange rate has provided an adequate anchor, but stability depends on sustained fiscal consolidation, strengthening of the banking system, and maintenance of a disciplined monetary stance.

### Growth, poverty reduction, structural reforms, and development plan
- Authorities target reducing poverty to 35 percent by 2013.
- Development plan 2010–13 focuses on job creation and growth in tourism, agro-industry, and fishing, based on five pillars:
  - developing small enterprises;
  - strengthening export trade capacity;
  - enhancing human development;
  - addressing social dislocations and reducing crime; and
  - managing environmental and natural disaster risk.
- Plan seeks to address infrastructure bottlenecks, high costs of financing, and red tape; includes investment and social plans to be integrated into the multiyear budget and presented to donors.
- Authorities plan to sell shares in the telephone company (BTL) starting in October; envisages a controlling majority sold to domestic investors (including the SSB) and remaining minority shareholdings sold to foreign investors.
- Staff cautioned on investor perceptions of March 2010 amendments to the Supreme Court Judicature Act and highlighted need for early resolution of compensation negotiations with previous owners to avoid adverse effects on investment climate.
- World Bank 2010 doing business indicator: Belize ranks 80th out of 183 countries.

### Staff appraisal and Executive Board recommendations
- Near-term outlook improved: moderate economic growth resumed since late 2009 and foreign reserves strengthened.
- Key challenges: banking system risks and weakened social conditions.
- Immediate priorities:
  - Protect banking system stability given increases in overdue loans in three banks that account for a sizeable portion of the banking system.
  - Reinforce fiscal strategy to achieve debt sustainability while providing space for priority social spending.
  - Implement public financial management reforms (multi-year budgeting; fiscal responsibility guidelines; fiscal code of conduct; improve Finance and Audit Act; upgrade management of public investment plan).
  - Continue shift to market-based monetary instruments and improve liquidity management; phase out remaining interest rate floor on savings deposits.
- Executive Board emphasized:
  - Urgency to rebuild macroeconomic and financial buffers, strengthen the banking system, and promote private sector-led growth.
  - Need for ambitious fiscal consolidation to reduce public debt to more sustainable levels.
  - Support for improvements in tax administration, containment of the wage bill, pension reforms, upgraded resolution and prudential frameworks, intensified oversight, and technical assistance from the Fund.
  - Endorsement of the authorities’ development plan contingent on successful delivery and adequate donor support to raise medium-term prospects and reduce poverty.
- Next Article IV consultation expected on standard 12-month cycle.

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

### 1.     Improvements to the Framework for Monetary Policy....................................................14

### 1.     Improvements to the Framework for Monetary Policy

### Background
- Belize’s macroeconomic performance constrained by structural weaknesses: weak external position, policy rigidities, and reduced access to external financing.
- Since 2006, growth remained lackluster, driven mostly by petroleum extraction and tourism-related construction; export base remained narrow.
- 2007 debt restructuring eased external debt service but public debt stayed high and foreign reserves low, limiting policy capacity to respond to shocks.
- The government (took office in early 2008) endorsed strategy to:
  - reduce public debt over time through revenue and spending actions;
  - strengthen foreign reserves;
  - reform the framework for monetary policy; and
  - improve governance.
- Debt sustainability considered essential to regain access to external private financing and reduce roll-over risks.

### Recent Developments
- 2009 global downturn impacted Belize; modest recovery in 2010.
- Output and inflation:
  - Output stagnated in 2009 due to weakening in tourism and agriculture (effects of floods in late 2008).
  - Twelve-month inflation: minus 0.4 percent in 2009; reached 1¾ percent in May 2010.
- External position and reserves:
  - Foreign reserves strengthened to 3¼ months of imports at end-2009, or 160 percent of projected external financing needs.
  - Reserves relative to months of imports: 2007: 1.6; 2008: 2.1; 2009: 3.2; Proj. 2010: 3.4; Target: 3.0.
  - External debt service (in percent): 2007: 161; 2008: 182; 2009: 542; Proj. 2010: 50...
  - Broad money (M2): 2007: 14; 2008: 19; 2009: 23; Proj. 2010: 15-25.
- Public finances:
  - Fiscal balance deteriorated by 2 percentage points of GDP to a deficit of about 1.5 percent of GDP in FY09/10 (April–March).
  - Tax revenue was stable; public debt rose to 80 percent of GDP at end-2009.
- Banking system risks and financial soundness indicators (domestic banks; in percent):
  - Capital/risk-weighted assets: 2007: 23.1; 2008: 19.5; 2009: 20.7; Jun-10: 22.9.
  - Excess liquidity (in percent of statutory liquidity requirement): 2007: 16.3; 2008: 20.6; 2009: 23.5; Jun-10: 32.5.
  - NPLs/total loans: 2007: 6.6; 2008: 12.7; 2009: 12.2; Jun-10: 20.0.
  - Provisions/NPLs: 2007: 34.2; 2008: 23.1; 2009: 19.5; Jun-10: 15.5.
  - NPLs net of provisions/capital: 2007: 18.9; 2008: 48.8; 2009: 46.5; Jun-10: 79.1.
  - Net earnings/assets: 2007: 3.5; 2008: 2.6; 2009: 1.7; Jun-10: 0.5.
- Banking system details:
  - NPLs surged to 20 percent of total loans in mid-2010; provisioning covers less than 16 percent of NPLs.
  - Three banks (two domestic, one offshore) account for over 40 percent of deposits; largest of these accounts for close to one third of total bank deposits and experienced NPLs deterioration since the beginning of the year.
  - Deposits and credit broadly stable through June 2010.
- Social indicators:
  - Poverty: 40 percent of the population in 2009 (up from 33 percent in 2000).
  - Unemployment: reached 12.5 percent in September 2009.
  - Crime appears to have increased.

### Discussions on Macroeconomic Policies

#### A. Macroeconomic Outlook
- Staff projections for 2010:
  - GDP growth: 2 percent in 2010, driven largely by expansion in electricity generation.
  - Inflation: would rise to 6 percent.
  - External current account deficit: would narrow to under 6 percent of GDP.
  - Foreign reserve position: would improve slightly.
- Two scenarios for the medium-term:

  - Baseline scenario (continuation of present policies):
    - Growth: 2.5 percent per year.
    - Primary surplus: projected to remain at 1.5 percent of GDP over the medium-term.
    - Public debt: would remain slightly under 80 percent of GDP.
    - Total external financing needs: around 8.5-10 percent of GDP a year.
    - Foreign reserves: would decline steadily to under 2 months of imports by the end of this decade.
    - Table excerpts (selected projections, baseline):
      - GDP at constant prices: 2010: 2.0; 2011: 2.3; 2012: 2.5; 2013: 2.5; 2014: 2.5; 2015: 2.5.
      - Consumer prices (end of period): 2010: 5.9; 2011: 2.5; 2012: 2.5; 2013: 2.5; 2014: 2.5; 2015: 2.5.
      - Central government primary balance (in percent of GDP): 2010: 1.5; 2011: 1.5; 2012: 1.5; 2013: 1.5; 2014: 1.5; 2015: 1.5.
      - Overall balance (in percent of GDP): 2010: -2.4; 2011: -2.6; 2012: -3.1; 2013: -3.7; 2014: -3.9; 2015: -4.1.
      - Public and publicly guaranteed debt (percent of GDP): 2010: 78.1; 2011: 77.2; 2012: 76.6; 2013: 76.5; 2014: 76.8; 2015: 77.2.
      - Current account balance (percent of GDP): 2010: -5.7; 2011: -6.7; 2012: -5.6; 2013: -7.0; 2014: -7.6; 2015: -8.0.
      - Gross external financing needs (percent of GDP): 2010: 8.6; 2011: 9.3; 2012: 8.1; 2013: 9.3; 2014: 9.8; 2015: 10.3.
      - Gross official reserves (months of imports): 2010: 3.4; 2011: 2.9; 2012: 2.7; 2013: 2.6; 2014: 2.6; 2015: 2.6.

  - Active scenario (strengthened policies):
    - Growth: would rise to 3.5 percent over the medium-term.
    - Primary surplus: sustained at 4½ percent of GDP starting in 2011.
    - Assumptions: reallocation of spending toward capital and social priorities; increased private investment from improved confidence.
    - Public debt: would gradually decline to 40 percent of GDP by 2019.
    - Foreign reserves: would strengthen to 4 months of imports by the end of this decade.
    - Table excerpts (selected projections, active):
      - GDP at constant prices: 2010: 2.0; 2011: 2.3; 2012: 3.5; 2013: 3.5; 2014: 3.5; 2015: 3.5.
      - Consumer prices (end of period): 2010: 5.9; 2011: 2.5; 2012: 2.5; 2013: 2.5; 2014: 2.5; 2015: 2.5.
      - Central government primary balance (in percent of GDP): 2010: 2.7; 2011: 4.5; 2012: 4.5; 2013: 4.5; 2014: 4.5; 2015: 4.5.
      - Overall balance (in percent of GDP): 2010: -1.1; 2011: 0.5; 2012: 0.2; 2013: 0.1; 2014: 0.3; 2015: 0.6.
      - Public and publicly guaranteed debt (percent of GDP): 2010: 72.2; 2011: 69.7; 2012: 62.8; 2013: 68.4; 2014: 64.4; 2015: 60.4.
      - Current account balance (percent of GDP): 2010: -5.4; 2011: -5.0; 2012: -4.7; 2013: -4.6; 2014: -4.6; 2015: -4.2.
      - Gross external financing needs (percent of GDP): 2010: 8.3; 2011: 7.6; 2012: 7.6; 2013: 7.6; 2014: 7.0; 2015: 6.8.
      - Gross official reserves (months of imports): 2010: 3.5; 2011: 3.5; 2012: 3.5; 2013: 3.5; 2014: 3.6; 2015: 3.7.

- Policy recommendations under the active scenario (fiscal actions):
  - Expenditure:
    - Reverse upward trend in the wage bill relative to GDP.
    - Limit growth in non-priority spending areas.
    - Streamline generous benefits vis-à-vis contributions on the public officer’s pension scheme while introducing a pension contribution.
  - Revenue:
    - Consider raising the GST rate closer to regional levels (15 percent) or phasing out fully the 2008 reduction in the fuel excise tax.
  - Social Security Board (SSB):
    - Gradually implement parametric actions from the latest actuarial report to bring benefits in line with contributions, aiming for financial viability of the pension scheme for private sector workers and reducing potential fiscal costs.

- Illustrative tax revenue measures (yield, percent of GDP):
  - Total: 1.5.
  - GST rate increase (from 10 to 12½ percent): 1.5.
  - Business tax on electricity generation (from 1¾ to 6½ percent): 0.3.
  - Excise on petroleum production (US$0.50 per barrel): 0.1.
  - Social levy (duty of 5 percent on imports into a free zone): 0.1.
  - Tax relief (GST exemption of some foodstuffs, removal of duties on selected imports; and higher exempted income): -0.5.

#### B. Public Debt Sustainability
- FY2010/11 budget aims to limit fiscal deficit to 2.2 percent of GDP.
- Budget included tax revenue measures equivalent to 1.5 percent of GDP (introduced in April), main measure: GST increase from 10 percent to 12.5 percent.
- Budget contemplates ambitious gains in tax administration (1 percent of GDP) and a large increase in public investment.
- On this basis, the primary surplus would be kept at nearly 2 percent of GDP and public debt would decline slightly.
- Staff recommendations:
  - Reinforce the budget as part of medium-term fiscal consolidation.
  - Aim for an active scenario with primary surplus rising to 3 percent of GDP this fiscal year (near-term target).
  - Measures to achieve 3 percent primary surplus: be more selective in investment plan; intensify tax administration; enhance controls on transfers and the wage bill.
- Authorities’ stance:
  - Authorities agreed actions desirable but noted any yield should be used to reverse deterioration in social conditions while keeping fiscal deficit in line with the budget.
  - Authorities intend to pursue administrative improvements in tax compliance and spending control to meet anticipated fiscal pressures and maintain primary surplus of 1.5–2 percent of GDP, keeping public debt at current levels.
  - Authorities acknowledged need for fiscal reforms (wages and pensions) but noted strong opposition from labor unions and business sector; expressed willingness to engage stakeholders to develop consensus.
- Staff support for institutional improvements:
  - Tax and customs: enhance tax compliance; improve controls over large taxpayers; adopt ASYCUDA for customs; set up electronic network to track imports and cross-check tax information.
  - Public financial management (PFM): adopt EU report recommendations including multi-year budgeting; fiscal responsibility guidelines; fiscal code of conduct; improve Finance and Audit Act; upgrade management of public investment plan.
- Target for debt sustainability:
  - Staff and authorities agree raising primary surplus to halve public debt to about 40 percent of GDP by 2019 is an ideal target to help regain access to external private financing and ease roll-over of Superbond amortizations (Superbond amortization peak starting in 2019).

- Notes on Superbond and fiscal pressures:
  - Superbond: currently accounts for half the outstanding public debt; has a 12-year grace period and a 10-year semi-annual repayment period starting in August 2019.
  - Fiscal pressures derive from:
    - scheduled increase in Superbond interest rate from 4¼ percent to 6 percent this year and to 8½ percent in 2012;
    - projected decline in oil revenue beyond 2012 in absence of new discoveries;
    - priority spending in infrastructure and anti-poverty programs from the 2010-13 development plan.

#### C. Banking System Stability
- Banking system deterioration: three banks facing financial weakness; reported capital exceeds required minimum but suffer high NPLs and low provisions.
- In the largest troubled bank:
  - NPLs doubled to 34 percent of total loans during first half of the year.
  - Bank made capital charges for assets under litigation since 2008.
- Remaining banks appear liquid and well capitalized, with capital adequacy ratios averaging 25 percent.
- Policy discussions and recommendations:
  - Priority: ensure all banks are well capitalized.
  - MCM and LEG provided technical assistance on steps to contain systemic risks and address shortcomings in Belize’s resolution and prudential framework.
  - Authorities: banks with weaknesses recognize potential capital shortfalls and agreed to submit recapitalization plans to the central bank.
  - Staff recommended authorities:
    - Specify the size of capital increase needed in each weak bank.
    - Set timelines for implementation of recapitalization plans.
    - Stand ready to take additional actions if needed.
    - Develop contingency measures if recapitalization plans do not materialize as expected.

_Italic: Source — IMF staff report content provided in the supplied PDF chapter._

### 17. The authorities have also intensified supervision of the overall system. In line

### _cr1118 - 17. The authorities have also intensified supervision of the overall system. In line

### Banking supervision, regulatory reform, and bank resolution
- The central bank increased on-site examinations, requested more frequent reporting from the banks, and introduced regular stress testing to supplement off-site monitoring.
- The central bank asked some banks to voluntarily raise provisions to adequately cover for loan-loss risks.
- Banks were required to strengthen their risk management and internal control systems to limit credit risk.
- For three banks with elevated problems, the central bank held frequent meetings with their management as part of continuous monitoring and intensified oversight.
- With Fund TA advice, the authorities plan to overhaul existing legislation to introduce orderly resolution procedures; the plan is to submit revised legislation to Parliament and seek its approval by March 2011.
- The authorities requested Fund TA to upgrade rules on loan classification and provisioning, related lending, and balance sheet concentration over the next few months, after consultation with the banks.
- Staff encouraged rapid implementation of corrective plans for the three banks and indicated readiness to take additional action if needed.
- Present plans to improve prudential rules are expected to provide banks with better protection against credit risks.

### Monetary policy framework and liquidity management
- Staff welcomed steps to shift to market-based government securities for monetary operations and reduce non-remunerated required reserves.
- Reforms are intended to:
  - enhance the central bank’s effectiveness in managing liquidity,
  - facilitate the attainment of foreign reserve targets, and
  - reduce the costs of financial intermediation.
- Staff welcomed plans to improve liquidity forecasting capacity and develop the interbank market.
- Staff encouraged the authorities to set up standing facilities to establish a corridor for interest rates and to phase out the interest rate floor on savings deposits.
- The authorities remained committed to a disciplined monetary policy, consistent with a fixed exchange rate.
- Box 1 — recent specific actions (preserved verbatim):
  - Liquidity asset requirements equivalent to 23 percent of deposits at present, part of which held in non-remunerated cash reserve requirements.
  - In April 2010, the ceiling on outstanding government securities was raised significantly (from BZ$175 million to BZ$425 million), and the maturity of the securities increased from 5 years to 10 years.
  - Overdraft facility ceiling lowered from 20 percent of the government’s current revenue in the previous fiscal year to 8.5 percent, and the ceiling on central bank holdings of government securities raised from 7 times its capital to 10 times.
  - In May 2009, the interest rate ceiling on government securities (3.25 percent) was eliminated and competitive auctions were introduced.
  - Within the liquid asset requirement (unchanged at 23 percent of deposits), the cash reserve requirement lowered from 10 percent to 8.5 percent and a minimum requirement on holdings of short-term government securities, equivalent to 6.5 percent of deposits, was introduced.
  - In August 2009, the central bank converted the fixed interest rate (11 percent) on interbank market transactions into a ceiling; recent transactions have taken place at interest rates below 7 percent.
  - In April 2010, firms under the export processing zone (EPZ) were prohibited from making domestic payments in U.S. dollars; EPZ and commercial free zone firms were required to register with the central bank all their operations with offshore banks.

### Exchange rate assessment and external vulnerabilities
- Staff’s analysis suggests Belize’s exchange rate peg is broadly consistent with fundamentals, but external stability is still vulnerable.
- Belize has high external financing needs; the external sector is susceptible to exogenous shocks, especially on the terms of trade, tourism receipts, interest rates, and weather events.
- The situation underscores the need for fiscal consolidation and a gradual further increase in the foreign reserve position to enhance defenses against shocks.
- The fixed exchange rate has provided an adequate anchor for macroeconomic policies and expectations, but stability depends on:
  - sustained fiscal consolidation,
  - strengthening of the banking system, and
  - maintenance of a disciplined monetary stance.
- With these policies and a further build up of foreign reserves, Belize would have stronger defenses to downside risks.

### Growth, poverty reduction, and structural reforms
- Authorities seek to reduce the poverty rate to 35 percent by 2013.
- The development plan for 2010–13 focuses on job creation and identifies sources of growth in tourism, agro-industry, and fishing, resting on five pillars:
  - developing small enterprises;
  - strengthening export trade capacity;
  - enhancing human development;
  - addressing social dislocations and reducing crime; and
  - managing environmental and natural disaster risk.
- The plan seeks to strengthen competitiveness by addressing infrastructure bottlenecks, high costs of financing, and red tape.
- The plan contains investment and social plans to be assessed and integrated into the multiyear budget and presented to donors later this year.
- Authorities announced a plan to sell shares in the telephone company (BTL) starting in October; plan envisages a controlling majority sold to domestic investors (including the SSB) and remaining minority shareholdings sold to foreign investors.
- Staff highlighted the need for early resolution of compensation negotiations with previous owners to avoid adverse effects on the investment climate and encouraged authorities to avoid placing pressure on public debt in financing this plan.
- Staff cautioned that March 2010 amendments to the Supreme Court Judicature Act increasing penalties or imprisonment for contempt of court may be perceived by investors as limiting arbitration in commercial disputes and could deter private investment.
- Under the World Bank’s 2010 doing business indicator, Belize ranks 80th out of 183 countries.

### Fiscal policy, debt sustainability, and public financial management
- Staff urged reinforcing the fiscal strategy to achieve debt sustainability while providing space for priority social spending.
- The primary surplus should be gradually raised to steadily reduce the public debt ratio.
- Reforms are needed to:
  - enhance tax compliance;
  - contain the wage bill growth; and
  - make the pension system sustainable.
- Progress on public financial management reforms should help entrench fiscal consolidation.
- Lower debt ratios would provide additional space to respond to adverse shocks and facilitate future rollover of amortizations falling due from the restructured external private debt.

### Staff appraisal — near-term outlook and priorities
- The near-term macroeconomic outlook has improved: moderate economic growth resumed since late 2009 and foreign reserves have strengthened, supported by prudent macroeconomic management.
- Key challenges that have emerged: banking system risks and weakened social conditions.
- Medium-term policies should focus on strategies to achieve debt sustainability, protect banking system stability, and strengthen the external position to foster private investment.
- Protecting banking system stability is an immediate priority given increases in overdue loans in three banks that account for a sizeable portion of the banking system.
- Recent improvements to the monetary policy framework are welcomed; gradual shift to market-based monetary instruments should provide more flexible liquidity management, help strengthen foreign reserves further, and reduce costs to financial intermediation.
- Authorities are encouraged to phase out the remaining interest rate floor on savings deposits.
- Implementing the development plan will require mobilization of public and private investment and support from multilaterals and donors; priority public investment and social projects must be adequately integrated into the medium-term budgeting framework and consistent with fiscal consolidation.
- The next Article IV consultation is expected to be held on the standard 12-month cycle.

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

### Box 2. Belize—Exchange Rate Assessment and External Stability

### Box 2. Belize—Exchange Rate Assessment and External Stability

### Exchange rate movements and drivers
- In real effective terms, Belize’s currency has recently appreciated after a period of steady depreciation.
- From June 2008—to March 2010, it appreciated by 3.5 percent, largely driven by a temporary increase in domestic inflation and the strengthening of the U.S. dollar.
- Over the preceding 10-year period it had depreciated by 10.2 percent, reflecting in part low domestic inflation in Belize relative to its trading partners.

### CGER (Cyclically-adjusted External Balance Assessment) methodology results
- The exchange rate appears to be broadly in line with its equilibrium level and consistent with external stability.
- ERER (equilibrium real exchange rate) dynamics:
  - The ERER has depreciated slightly over time due to a steady decline in the economy’s net foreign asset position and a weakening in the terms of trade.
  - ERER approach indicates the Belize dollar remained slightly undervalued at end-2009 (by 5 percent).
- ES (external sustainability) approach:
  - Suggests a small depreciation of 4 percent would stabilize the net foreign asset position.
- MB (macroeconomic balance) approach:
  - Points to a small depreciation of 5 percent to bring the projected external current account deficit (nearly 8 percent of GDP) down to its norm level (5.5 percent of GDP) over the medium term.

### External debt sustainability and vulnerabilities
- External debt sustainability analysis confirms CGER results but signals some vulnerability (reference to Appendix II).
- Under present policies and the fixed exchange rate:
  - The projected non-interest current account deficit is consistent with a moderately declining external debt-to-GDP ratio through 2015.
  - However, external financing needs would remain high, leaving the external sector vulnerable to exogenous shocks.

### Key related quantitative findings (as reported in the Box and accompanying tables/figures)
- Recent REER change: appreciation of 3.5 percent from June 2008 to March 2010; prior 10-year depreciation of 10.2 percent.
- Estimated undervaluation at end-2009 (ERER approach): 5 percent.
- Depreciation needed (ES approach): 4 percent.
- Depreciation needed (MB approach): 5 percent.
- Projected external current account deficit referred to: nearly 8 percent of GDP (MB approach) versus norm level 5.5 percent of GDP.

*IMF staff assessment as presented in Box 2 of the source document.*

### 1. Public and publicly guaranteed debt

### 1. Public and publicly guaranteed debt

### Debt levels and composition (Projections 2005–2019, Table 6b)
- Total (in millions): 1,100; 1,123; 1,083; 1,063; 1,085; 1,101; 1,093; 1,089; 1,087; 1,082; 1,072; 1,055; 1,033; 1,004; 967
- Other public and publicly guaranteed external debt (in millions): 135; 107; 66; 54; 49; 49; 49; 49; 49; 49; 49; 49; 49; 49; 49
- Central government (in millions): 1,121; 1,016; 1,017; 1,009; 1,036; 1,052; 1,044; 1,040; 1,038; 1,033; 1,023; 1,006; 984; 954; 918
  - Domestic debt (in millions): 118; 105; 105; 101; 96; 96; 96; 96; 96; 96; 96; 96; 96; 96; 96
  - External debt (in millions): 1,003; 910; 912; 908; 939; 956; 948; 944; 942; 937; 926; 910; 888; 858; 822
    - Multilateral (in millions): 225; 172; 198; 197; 219; 241; 243; 252; 265; 274; 278; 274; 264; 246; 247
    - Bilateral and export credit (in millions): 163; 208; 161; 162; 173; 167; 157; 144; 130; 116; 102; 89; 77; 65; 55
    - Commercial (in millions): 615; 531; 552; 550; 547; 547; 547; 547; 547; 547; 547; 547; 547; 547; 520
    - New commercial borrowing: 000000000000000

### Debt ratios (percent of GDP) (Projections 2005–2019, Table 6b)
- Total: 98.7; 92.5; 84.8; 78.2; 76.9; 72.9; 72.8; 68.4; 64.4; 60.4; 60.4; 56.4; 54.4; 48.3; 44.2; 40.2 (sequence as presented)
- Other public and publicly guaranteed external debt: 12.1; 8.8; 5.2; 4.0; 3.6; 3.4; 3.3; 3.1; 2.9; 2.7; 2.6; 2.4; 2.3; 2.2; 2.0
- Central government: 100.5; 83.7; 79.6; 74.3; 76.6; 73.5; 69.6; 65.4; 61.5; 57.7; 53.8; 49.9; 46.0; 42.1; 38.1
  - Domestic debt: 10.6; 8.7; 8.2; 7.4; 7.1; 6.7; 6.4; 6.0; 5.7; 5.4; 5.1; 4.8; 4.5; 4.2; 4.0
  - External debt: 89.9; 75.0; 71.4; 66.9; 69.5; 66.8; 63.2; 59.3; 55.8; 52.3; 48.8; 45.1; 41.5; 37.8; 34.1
    - Multilateral: 20.2; 14.2; 15.5; 14.5; 16.2; 16.9; 16.2; 15.9; 15.7; 15.3; 14.6; 13.6; 12.3; 10.9; 10.3
    - Bilateral and export credit: 14.6; 17.1; 12.6; 11.9; 12.8; 11.7; 10.5; 9.1; 7.7; 6.5; 5.3; 4.4; 3.6; 2.8; 2.3
    - Commercial: 55.1; 43.7; 43.3; 40.5; 40.5; 38.2; 36.5; 34.4; 32.4; 30.6; 28.8; 27.1; 25.6; 24.1; 21.6
    - New commercial borrowing: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0

### Flow of funds — Sources (selected, percent of GDP)
- Primary balance: 2.0; 4.0; 4.1; 5.4; 0.7; 2.7; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5; 4.5
- Privatization proceeds 2/: 0.4; 0.2; 0.3; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- Identified disbursements: 18.0; 6.6; 5.7; 3.4; 5.5; 3.2; 1.4; 2.1; 1.8; 1.6; 1.5; 1.1; 0.8; 0.7; 1.2
  - Multilateral: 1.2; 1.3; 2.9; 0.9; 2.5; 2.6; 1.1; 2.0; 1.8; 1.6; 1.5; 1.1; 0.8; 0.7; 1.2
  - Bilateral and export credit: 3.1; 5.4; 1.8; 2.1; 2.1; 0.7; 0.3; 0.1; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
  - Commercial: 13.7; -0.1; 1.0; 0.4; 0.8; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- Domestic (net): 0.0; -0.2; 0.4; -1.3; 0.7; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- External 1/: 13.6; 0.0; 0.6; 1.7; 0.1; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0

### Flow of funds — Uses (selected, percent of GDP)
- Debt service 1/: 20.5; 10.7; 11.1; 8.8; 6.2; 6.0; 6.0; 6.6; 6.3; 6.1; 6.0; 5.6; 5.3; 5.2; 5.7
- Interest payments: 7.5; 5.8; 5.3; 3.8; 3.7; 3.9; 4.0; 4.2; 4.4; 4.2; 3.9; 3.7; 3.5; 3.2; 3.0
  - Domestic interest: 0.7; 0.9; 0.7; 0.8; 1.0; 0.8; 0.7; 0.7; 0.7; 0.6; 0.6; 0.6; 0.5; 0.5; 0.5
  - External interest: 6.8; 4.9; 4.6; 3.0; 2.7; 3.0; 3.3; 3.5; 3.8; 3.6; 3.4; 3.1; 2.9; 2.7; 2.5
- Principal repayments: 13.0; 5.0; 5.8; 5.0; 2.6; 2.1; 1.9; 2.3; 1.9; 1.9; 2.0; 1.9; 1.9; 2.0; 2.7
- New financing requirement 2/: 0.0 (series for 2005–2019 are all 0.0 in Table 6b)

### Key macroeconomic and financial assumptions (selected)
- Nominal GDP (US$ millions): 1,115; 1,214; 1,277; 1,359; 1,352; 1,431; 1,500; 1,591; 1,688; 1,791; 1,900; 2,016; 2,139; 2,269; 2,407
- Nominal GDP growth rate (percent): 5.6; 8.9; 5.2; 6.4; -0.5; 5.9; 4.8; 6.1; 6.1; 6.1; 6.1; 6.1; 6.1; 6.1; 6.1
- Real GDP growth rate (percent): 3.1; 5.6; 1.2; 3.8; 0.0; 2.0; 2.3; 3.5; 3.5; 3.5; 3.5; 3.5; 3.5; 3.5; 3.5
- Annual inflation (deflator, in percent): 2.5; 3.1; 4.0; 2.6; -0.5; 3.8; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5
- Assumed domestic borrowing rate (percent): 7.7; 8.0; 8.0; 8.0; 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): 13.3; 13.8; 8.6; 7.7; 7.4; 8.4; 9.7; 10.3; 10.4; 10.4; 10.4; 10.4; 10.4; 10.4; 10.4
- Assumed 10-year U.S. T‑Bond (percent): 4.3; 4.8; 4.6; 3.7; 3.4; 4.4; 5.7; 6.3; 6.4; 6.4; 6.4; 6.4; 6.4; 6.4; 6.4
- Spread over 10-year U.S. T‑Bond (percent): 9.0; 9.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0
- Nominal external multilateral/bilateral borrowing rate (percent): 4.8; 6.3; 6.3; 4.0; 2.1; 1.6; 1.8; 2.4; 3.4; 4.3; 4.3; 4.3; 4.3; 4.3; 4.3
- Six‑month LIBOR rate (percent): 3.8; 5.3; 5.3; 3.0; 1.1; 0.6; 0.8; 1.4; 2.4; 3.3; 3.3; 3.3; 3.3; 3.3; 3.3
- Spread over LIBOR rate (percent): 1.0 (constant series across years)

### Memorandum items (selected)
- Overall central government balance (calendar year, percent of GDP): -5.4; -1.7; -1.2; 1.5; -2.9; -1.1; 0.5; 0.2; 0.1; 0.3; 0.6; 0.8; 1.0; 1.3; 1.5
- Implicit nominal interest rate (percent): 7.9; 6.3; 6.0; 4.8; 4.6; 5.1; 5.5; 6.2; 6.9; 6.9; 6.9; 7.0; 7.0; 7.1; 7.2
- Gross financing requirement (percent of GDP): 18.0; 6.6; 5.7; 3.4; 5.5; 3.2; 1.4; 2.1; 1.8; 1.6; 1.5; 1.1; 0.8; 0.7; 1.2

---

### Banking system stability (Appendix I, end‑June 2010 indicators and findings)
- Systemic deterioration: three banks with large NPLs.
  - Two small banks: NPLs of 35 percent and 44 percent of total loans; together they held 7 percent of deposits in the system (8.25 percent of GDP).
  - One large bank: NPLs doubled to 34 percent of total loans over the first half of the year after reclassification; capital charges applied for assets under litigation since 2008.
  - Other banks: capital adequacy ratio of 25 percent (Appendix table 1); NPLs net of provisions amount to 8 percent of loans or 27 percent of capital.
- Prudential and resolution framework shortcomings:
  - Supervisory powers exist but implementation capacity limited; central bank needs enhanced human capital and in‑house legal counsel.
  - Bank resolution framework requires ministerial and judicial approval for statutory administration; Supreme Court approval required for reorganization; no clear time limit; depositors/creditors have veto powers; no deposit insurance; central bank lacks legal powers for “purchase and assumption” resolutions or imposing capital structure changes.
  - Prudential rules exempt collateralized portion of distressed loans from provisioning and fail to adjust for overvaluation of collateral.
- Staff recommendations to strengthen stability:
  - Containment actions: conduct on‑site inspections simultaneously and regularly at banks; ask shareholders to develop credible recapitalization plans for affected banks.
  - Regulatory upgrades: promptly put in place upgraded regulatory and bank resolution frameworks; strengthen loan classification and provision rules, including eligibility of collateral and its valuation, in line with international best practice.

Appendix I — Banking system indicators (as of end‑June 2010; in percent)
- Capital to risk-weighted assets: 23.7; 25.0; 22.9; 24.7; 27.5; 25.8 (columns as presented)
- NPLs to total loans: 20.1; 8.1; 20.0; 7.9; 20.4; 9.1
- Provisions to NPLs: 15.5; 28.8; 15.5; 31.8; 15.5; 12.7
- NPLs to capital: 86.1; 32.6; 93.6; 35.4; 54.4; 22.8
- NPLs net of provisions to capital: 72.8; 23.1; 79.1; 24.1; 46.0; 19.9
- Liquid assets to total assets: 25.2; 26.0; 24.0; 24.6; 32.4; 33.6

### Debt Sustainability Analysis (Appendix II) — key messages
- DSA projects somewhat higher public debt ratios than the 2009 Article IV consultation due to weaker fiscal performance and slower growth from 2008–09 shocks.
- Baseline scenario:
  - Public debt remains high and vulnerable; debt stays at slightly under 80 percent of GDP through 2015.
  - Public sector financing needs reach 6.3 percent of GDP by 2015.
  - Debt ratio sensitive to depreciation (about 90 percent of public debt was foreign‑currency denominated in 2009); a 30 percent depreciation would raise total debt to about 115 percent of GDP.
  - Debt trajectory also sensitive to shocks in growth, primary balance, interest rates, and contingent liabilities (e.g., pensions or bank recapitalization).
- Active (strengthened policy) scenario:
  - Public debt declines steadily to under 60 percent by 2015; targeted 40 percent reached by end of decade.
  - Public sector financing needs under 2 percent of GDP per year.
  - Reduced vulnerability to standard shocks relative to baseline, though a 30 percent depreciation produces a substantial step‑increase followed by steady decline.
- Baseline fiscal numbers (selected, percent of GDP):
  - Baseline public sector debt (percent of GDP): 99.5; 98.7; 92.5; 84.7; 78.7; 80.2; 78.1; 77.2; 76.6; 76.5; 76.8; 77.2
  - Identified debt-creating flows (4+7+12): -10.7; -4.5; -6.4; -4.1; -5.5; 3.3; -2.1; -0.9; -0.6; 0.0; 0.2; 0.4
  - Primary deficit (percent of GDP): -0.8; -1.2; -3.8; -3.9; -4.3; -0.7; -1.5; -1.5; -1.5; -1.5; -1.5; -1.5
  - Gross financing need (percent of GDP): 18.2; 18.4; 7.0; 6.2; 2.6; 5.4; 4.5; 4.6; 4.9; 5.6; 5.9; 6.3
- Bound tests (baseline): real interest rate, growth, primary balance, combined shocks, 30 percent depreciation, and 10 percent of GDP contingent liability shocks all show meaningful impacts on debt trajectories (figures and sequences as presented in Appendix II).

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

### Appendix II. Table 1. Belize: Public Sector Debt Sustainability Framework, 2004-2015

### Appendix II. Table 1. Belize: Public Sector Debt Sustainability Framework, 2004-2015

### Baseline external debt and projections
- Baseline: External debt (percent of GDP) — 91.2 (2004), 90.8 (2005), 83.8 (2006), 76.5 (2007), 70.7 (2008), 73.1 (2009), 71.2 (2010), 69.2 (2011), 67.3 (2012), 67.3 (2013), 67.6 (2014), 68.2 (2015).
- Change in external debt — -5.5 (2004), -0.4 (2005), -7.0 (2006), -7.3 (2007), -5.8 (2008), 2.4 (2009), -1.9 (2010), -2.0 (2011), -1.9 (2012), 0.0 (2013), 0.3 (2014), 0.5 (2015).
- Identified external debt-creating flows (4+8+9) — -2.8 (2004), 0.7 (2005), -14.0 (2006), -9.8 (2007), -9.2 (2008), 0.9 (2009), -0.4 (2010), 0.4 (2011), -0.7 (2012), 0.6 (2013), 1.2 (2014), 1.6 (2015).

### Components of external debt dynamics
- Current account deficit, excluding interest payments — 8.4 (2004), 6.8 (2005), -2.8 (2006), -0.5 (2007), 7.2 (2008), 4.1 (2009), 2.7 (2010), 3.4 (2011), 2.1 (2012), 2.9 (2013), 3.2 (2014), 3.4 (2015).
- Deficit in balance of goods and services — 8.0 (2004), 7.9 (2005), -2.1 (2006), -1.1 (2007), 8.0 (2008), 5.9 (2009), 3.0 (2010), 3.4 (2011), 1.9 (2012), 2.6 (2013), 2.8 (2014), 2.9 (2015).
- Exports (percent of GDP) — 51.5 (2004), 56.2 (2005), 65.1 (2006), 64.5 (2007), 62.8 (2008), 53.9 (2009), 51.8 (2010), 52.7 (2011), 54.0 (2012), 54.5 (2013), 54.7 (2014), 54.9 (2015).
- Imports (percent of GDP) — 59.5 (2004), 64.1 (2005), 63.0 (2006), 63.5 (2007), 70.7 (2008), 59.8 (2009), 54.9 (2010), 56.1 (2011), 55.9 (2012), 57.1 (2013), 57.5 (2014), 57.7 (2015).
- Net non-debt creating capital inflows (negative) — -11.3 (2004), -8.0 (2005), -8.7 (2006), -9.6 (2007), -14.8 (2008), -5.9 (2009), -4.7 (2010), -4.7 (2011), -4.7 (2012), -4.7 (2013), -4.7 (2014), -4.7 (2015).

### Automatic debt dynamics and contributions
- Automatic debt dynamics 1/ — 0.1 (2004), 1.9 (2005), -2.5 (2006), 0.4 (2007), -1.6 (2008), 2.7 (2009), 1.7 (2010), 1.8 (2011), 1.9 (2012), 2.5 (2013), 2.7 (2014), 3.0 (2015).
- Contribution from nominal interest rate — 6.3 (2004), 6.8 (2005), 4.9 (2006), 4.5 (2007), 3.0 (2008), 2.7 (2009), 3.0 (2010), 3.3 (2011), 3.6 (2012), 4.1 (2013), 4.3 (2014), 4.6 (2015).
- Contribution from real GDP growth — -4.2 (2004), -3.3 (2005), -4.7 (2006), -1.0 (2007), -2.7 (2008), 0.0 (2009), -1.4 (2010), -1.5 (2011), -1.6 (2012), -1.6 (2013), -1.6 (2014), -1.6 (2015).
- Contribution from price and exchange rate changes 2/ — -2.0 (2004), -1.5 (2005), -2.7 (2006), -3.2 (2007), -1.9 (2008), ... (2009–2015 entries suppressed in source excerpt).

### Residuals and external debt sustainability indicators
- Residual, incl. change in gross foreign assets (2-3) 3/ — -2.7 (2004), -1.1 (2005), 7.0 (2006), 2.4 (2007), 3.5 (2008), 1.5 (2009), -1.6 (2010), -2.4 (2011), -1.1 (2012), -0.6 (2013), -0.9 (2014), -1.1 (2015).
- External debt-to-exports ratio (in percent) — 177.0 (2004), 161.5 (2005), 128.8 (2006), 118.5 (2007), 112.7 (2008), 135.6 (2009), 137.3 (2010), 131.2 (2011), 124.8 (2012), 123.5 (2013), 123.7 (2014), 124.2 (2015).
- Gross external financing need (in billions of US dollars) 4/ — 0.3 (2004), 0.3 (2005), 0.1 (2006), 0.1 (2007), 0.2 (2008), 0.14 (2009), 0.12 (2010), 0.14 (2011), 0.13 (2012), 0.15 (2013), 0.17 (2014), 0.19 (2015).
- Gross external financing need (in percent of GDP) — 27.0 (2004), 27.7 (2005), 8.1 (2006), 9.6 (2007), 15.3 (2008), 10.1 (2009), 8.6 (2010), 9.3 (2011), 8.1 (2012), 9.3 (2013), 9.8 (2014), 10.3 (2015).

### Scenario with key variables at historical averages 5/
- External debt (percent of GDP) under historical-average scenario — 73.1 (2004), 75.2 (2005), 75.5 (2006), 77.0 (2007), 78.8 (2008), 80.5 (2009), 81.9 (2010), -7.9 (note: entry in source appears truncated).

### Key macroeconomic assumptions underlying baseline
- Real GDP growth (in percent) — 4.6 (2004), 3.9 (2005), 5.6 (2006), 1.2 (2007), 3.8 (2008), 0.0 (2009), 2.0 (2010), 2.3 (2011), 2.5 (2012), 2.5 (2013), 2.5 (2014), 2.5 (2015).
- GDP deflator in US dollars (change in percent) — 2.1 (2004), 1.7 (2005), 3.1 (2006), 3.9 (2007), 2.6 (2008), -0.5 (2009), 3.8 (2010), 2.5 (2011), 2.5 (2012), 2.5 (2013), 2.5 (2014), 2.5 (2015).
- Nominal external interest rate (in percent) — 7.0 (2004), 7.8 (2005), 5.8 (2006), 5.6 (2007), 4.2 (2008), 3.8 (2009), 4.4 (2010), 4.8 (2011), 5.4 (2012), 6.3 (2013), 6.7 (2014), 7.1 (2015).
- Growth of exports (US dollar terms, in percent) — 10.0 (2004), 15.3 (2005), 26.0 (2006), 4.3 (2007), 3.5 (2008), -14.5 (2009), 1.8 (2010), 6.6 (2011), 7.5 (2012), 6.2 (2013), 5.4 (2014), 5.4 (2015).
- Growth of imports (US dollar terms, in percent) — -5.1 (2004), 13.9 (2005), 6.9 (2006), 6.0 (2007), 18.6 (2008), -15.9 (2009), -2.9 (2010), 7.2 (2011), 4.6 (2012), 7.5 (2013), 5.7 (2014), 5.5 (2015).
- Current account balance, excluding interest payments — -8.4 (2004), -6.8 (2005), 2.8 (2006), 0.5 (2007), -7.2 (2008), -4.1 (2009), -2.7 (2010), -3.4 (2011), -2.1 (2012), -2.9 (2013), -3.2 (2014), -3.4 (2015).
- Net non-debt creating capital inflows — 11.3 (2004), 8.0 (2005), 8.7 (2006), 9.6 (2007), 14.8 (2008), 5.9 (2009), 4.7 (2010), 4.7 (2011), 4.7 (2012), 4.7 (2013), 4.7 (2014), 4.7 (2015).

### Notes (definitions and methodology from source)
- 1/ Automatic debt dynamics derived as [r - g - ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms; g = real GDP growth rate; ε = nominal appreciation (increase in dollar value of domestic currency); α = share of domestic-currency denominated debt in total external debt.
- 2/ Contribution from price and exchange rate changes defined as [-ρ(1+g) + εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock; ρ increases with an appreciating domestic currency (ε > 0) and rising inflation.
- 3/ Residual for projection 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 in historical-average scenario: real GDP growth; nominal interest rate; dollar deflator growth; non-interest current account and non-debt inflows in percent of GDP.
- 6/ Debt-stabilizing non-interest current account: long-run, constant balance that stabilizes the debt ratio assuming key variables remain at their levels of the last projection year.

*Source: Appendix II. Table 1. Belize: Public Sector Debt Sustainability Framework, 2004-2015 (IMF staff tables and notes).*

### Appendix II. Belize—Relations with the World Bank Group

### Appendix II. Belize—Relations with the World Bank Group (As of September 16, 2010)

### I. Projects
- The World Bank’s program in Belize is guided by a 2-year Interim Strategy, which was endorsed by the Board on March 17, 2009.
- The strategy envisions Analytical and Advisory Activities (AAA) and modest investment lending, consisting of a US$15 million municipal development loan, which was approved by the Board review on September 16, 2010.

### II. Financial Relations

#### IBRD Operations (In U.S. dollars)
- IBRD Original Principal: 86,200,000
- Cancellations: 5,703,328
- Disbursed: 80,496,672
- Undisbursed: 0
- Repaid: 66,263,178
- Due: 14,233,494
- Exchange Adjustment: -255,604
- Borrower Obligation: 13,977,890

#### Gross Disbursements and Debt Service During Fiscal Year (July 1–June 30) (In millions of U.S. dollars)
- Note: * Estimated Debt Service. Reflects estimated disbursements for US$15mn municipal development project.
- Disbursements by year: 2006: 0.7; 2007: 0.0; 2008: 0.0; 2009: 0.0; 2010*: 0.0; 2011*: 0.5; 2012*: 2.0; 2013*: 3.0
- Repayments by year: 2006: 4.5; 2007: 4.9; 2008: 4.9; 2009: 4.7; 2010*: 4.3; 2011*: 4.5; 2012*: 2.0; 2013*: 1.7
- Net (Disbursements minus Repayments) by year: 2006: -3.8; 2007: -4.9; 2008: -4.9; 2009: -4.7; 2010*: -4.3; 2011*: -4.0; 2012*: 0.0; 2013*: 1.3
- Interest by year: 2006: 1.7; 2007: 1.8; 2008: 1.6; 2009: 1.0; 2010*: 0.4; 2011*: 0.2; 2012*: 0.1; 2013*: 0.1
- Fees by year: 2006: 0.0; 2007: 0.0; 2008: 0.0; 2009: 0.0; 2010*: 0.0; 2011*: 0.0; 2012*: 0.0; 2013*: 0.0

*Appendix II. Belize—Relations with the World Bank Group (As of September 16, 2010)*

### 3.      Overdue loans in the banking system have declined somewhat. A large

### _cr1118 - 3.      Overdue loans in the banking system have declined somewhat. A large

### Banking system developments
- Overdue loans have declined from 34 percent of total loans in June to 30 percent in August for a large domestic bank following restructuring of some loan facilities.
- Authorities have asked this bank to increase its capital, but are concerned that such increase may only materialize slowly.
- The financial situation of the rest of the banks in the system has remained broadly stable.
- In the banking system overall, nonperforming loans have risen sharply in the recent period, while provisioning remains low.

### Macroeconomic context and near-term outlook
- GDP at constant prices: 4.7 (2006); 1.2 (2007); 3.8 (2008); 0.0 (2009); 2.0 (2010, projected).
- Nominal GDP (US$ millions): 1,213 (2006); 1,277 (2007); 1,359 (2008); 1,352 (2009); 1,431 (2010, projected).
- Gross domestic investment (percent of GDP, including inventory accumulation): 17.7 (2006); 16.9 (2007); 27.5 (2008); 22.0 (2009); 23.0 (2010, projected).
- Gross national savings (percent of GDP): 15.6 (2006); 12.9 (2007); 17.7 (2008); 15.2 (2009); 17.3 (2010, projected).
- Consumer prices (end of period): 2.9 (2006); 4.1 (2007); 4.4 (2008); -0.4 (2009); 5.9 (2010, projected).
- Real effective exchange rate (June for 2010): 0.9 (2006); -2.9 (2007); 0.5 (2008); 2.5 (2009); 2.3 (2010).
- Credit to the private sector (annual percentage change): 13.1 (2006); 13.9 (2007); 11.6 (2008); 4.8 (2009); 2.4 (2010, projected).
- Money and quasi-money (M2, annual percentage change): 17.3 (2006); 15.0 (2007); 14.0 (2008); 5.8 (2009); 2.9 (2010, projected).

### Fiscal and external balances
- Central government (percent of GDP):
  - Revenue and grants: 25.8 (2006); 28.2 (2007); 28.7 (2008); 26.4 (2009); 28.0 (2010, budget projection).
  - Current expenditure: 25.1 (2006); 23.2 (2007); 23.4 (2008); 24.4 (2009); 24.9 (2010, budget projection).
  - Capital expenditure and net lending: 4.6 (2006); 5.7 (2007); 4.9 (2008); 3.7 (2009); 5.3 (2010, budget projection).
  - Primary balance: 4.1 (2006); 3.8 (2007); 4.2 (2008); 1.9 (2009); 1.9 (2010, budget projection).
  - Overall balance: -3.9 (2006); -0.7 (2007); 0.4 (2008); -1.6 (2009); -2.2 (2010, budget projection).
- External current account (including official grants): -2.1 (2006); -4.0 (2007); -9.8 (2008); -6.8 (2009); -5.7 (2010, projected).
- Overall balance of payments (US$ millions): 49.8 (2006); 22.9 (2007); 58.6 (2008); 47.3 (2009); 7.9 (2010, projected).
- Public and publicly guaranteed debt (percent of GDP): 92.5 (2006); 84.8 (2007); 78.2 (2008); 80.2 (2009); 78.1 (2010, projected).
  - Domestic debt (percent of GDP): 8.7 (2006); 8.2 (2007); 7.4 (2008); 7.1 (2009); 7.0 (2010, projected).
  - External debt (percent of GDP): 83.9 (2006); 76.6 (2007); 70.8 (2008); 73.1 (2009); 71.2 (2010, projected).
- Gross international reserves (US$ millions): 85.6 (2006); 108.8 (2007); 167.1 (2008); 214.3 (2009); 222.2 (2010, projected).
- Reserves in months of imports: 1.3 (2006); 1.6 (2007); 2.1 (2008); 3.2 (2009); 3.4 (2010, projected).

### Key findings and projections highlighted by staff and Directors
- For 2010, the economy is projected to grow by 2 percent, supported by expansion in electricity generation.
- Inflation is projected to rise transitorily to 6 percent after a rebound in fuel prices and recent tax measures.
- External current account deficit projected to narrow to under 6 percent of GDP in 2010, reflecting lower energy and FDI-related imports.
- Foreign reserves projected to improve slightly.
- Budgeted fiscal deficit projected to widen to 2.2 percent of GDP in FY2010/11 (April–March), due largely to lower grant disbursements and increased investment.
- Public debt projected to decline slightly under 80 percent of GDP at year-end 2010.

### Executive Board assessment and policy recommendations
- Urgency to rebuild macroeconomic and financial buffers, strengthen the banking system, and promote private sector-led growth.
- Need for an ambitious fiscal consolidation strategy to reduce public debt to more sustainable levels over time.
- Support for plans to improve public financial management and tax administration, and to contain the public sector’s wage bill and put the pension system on a sounder footing.
- Importance of creating space for priority social spending and infrastructure investment within a medium-term budget framework.
- Protecting stability of the banking system is a priority:
  - Reach agreement on recapitalization plans for a few banks and implement them early.
  - Upgrade regulatory and bank resolution frameworks to align prudential rules with international best practices, with technical assistance from the Fund.
  - Intensify bank oversight and continue progress in supervision of the offshore and non-banking sectors.
- Welcome for improvements in the monetary policy framework and liquidity management, including a shift to more market-based monetary instruments.
- Emphasis that long-term stability of the fixed exchange rate regime depends on sustained fiscal consolidation, disciplined monetary policy, and strengthened financial stability.
- Endorsement of the authorities’ development plan to boost competitiveness and private investment; successful delivery and adequate donor support seen as important to raise medium-term prospects and reduce poverty.

*IMF Public Information Notice (PIN) No. 10/142, October 22, 2010 — IMF Executive Board conclusion of 2010 Article IV Consultation with Belize.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr1118.pdf_