## _cr11340

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---

### Recent developments
- Output expanded by "2.7 percent in 2010", driven largely by electricity, wholesale, and retail trade.
- Twelve-month inflation was nil in 2010; picked up to "0.9 percent y-o-y for the quarter ending in February".
- Growth in 2011 is projected at "2.5 percent", supported by wholesale and retail trade and manufacturing.
- External current account deficit narrowed from "6.1 percent of GDP in 2009 to 3.1 percent in 2010".
- Gross international reserves strengthened to "3¼ months of imports at end-2010, or 300 percent of 2011 external financing needs".
- Overall fiscal deficit widened to "1.5 percent of GDP in FY 2010/11", despite a GST increase from "10 percent to 12½ percent".
- Public debt continues to hover at around "80 percent of GDP".
- Banking sector:
  - NPLs decreased slightly to "19.8 percent of total loans at end-June 2011", from "21.3 percent at end-March 2011" and above end-December 2010 level.
  - Provisioning covers "28 percent of NPLs" system-wide.
  - Capital adequacy appears high but is overstated for the system as a whole due to provisioning and collateral valuation practices.
- Central Bank (CBB) policy changes:
  - Cash reserve requirement lowered to "8½ percent" from "10 percent" of average deposit liabilities.
  - Introduced a Treasury bill holding requirement of "6½ percent" (security requirement lowered from "6½ percent to 5 percent in January 2011, to 3 percent in April 2011, and eliminated in October 2011").
  - Mandatory minimum rate on saving deposits lowered by "100 basis points, to 3.5 percent in November 2010".
- Sovereign and corporate events:
  - Nationalizations of Belize Telemedia (BTL) and Belize Electricity Limited (BEL) led to S&P downward revision and a "sharp drop (25 percent) in the price of the sovereign Superbond", which "now trades at a 35 percent discount".
  - The Superbond has a "12-year grace period and a 10-year semi-annual repayment period starting in August 2019".
- Social indicators:
  - Poverty rate rose from "34 percent in 2002 to 41 percent in 2009".
  - Unemployment at "13 percent in September 2009".
  - Social protection spending about "5.7 percent of GDP in 2009".

### Outlook and risks
- Short-term projections:
  - Output growth for 2011 projected at "2.5 percent".
  - Inflation expected to be "slightly above 4 percent by year-end" (2011).
  - External current account deficit projected to remain at "about 3 percent of GDP".
  - Reserve coverage expected to remain at "around 3 months of imports by year-end".
- Medium-term staff projection:
  - Output growth subdued at "2½ percent per annum".
  - Total contingent liabilities, including pending compensation for nationalizations, estimated at "around 17 percent of GDP".
  - Staff scenario: targeting a primary surplus of "4 percent of GDP (starting in FY 2013/14)" would reduce debt-to-GDP to "about 45 percent of GDP" and gross financing needs to "about 1.2 percent of GDP by 2019".
  - Under authorities’ fiscal path, gross financing needs would rise from "4 percent of GDP in 2013 to around 7½ percent by the end of this decade".
- Downside risks:
  - Jobless U.S. recovery; decline in commodity prices; sluggish tourist arrivals; uncertainty in the sugar industry; delays in public investment program; accumulation of contingent liabilities from nationalizations; gradual contraction in oil output.
- Upside risks:
  - Possible new oil discoveries and fuller development of tourism and agricultural sectors.

### Main policy recommendations (fiscal consolidation and contingent liabilities)
- Fiscal anchors and targets:
  - Authorities adopted a medium-term primary surplus target of "2 percent of GDP, starting in FY 2011/12".
  - Staff recommended tightening to a primary surplus of "3 percent of GDP" for FY 2011/12 (from "2.2 percent of GDP in the budget") and reaching "4 percent of GDP (starting in FY 2013/14)" over the medium term.
- Revenue measures:
  - Strengthen revenue administration: reinforced tax auditing; integrate the two domestic tax departments; implement remaining reforms (new customs bill, amending GST and income tax legislations) on a clear timetable.
  - Raise additional revenues, including: (i) gradually raise the GST rate to "15 percent"; and (ii) reverse tax concessions equivalent to "½ percent of GDP" granted in FY 2010/11.
  - Authorities estimate further enforcement and administrative measures could yield up to "½ percent of GDP over the next six months".
- Expenditure and fiscal management:
  - Contain spending growth and streamline capital spending in line with implementation capacity and grant disbursements.
  - Reverse upward trend in wage bill (was "10 percent of GDP in FY 2010/11").
  - Reduce fiscal costs of civil servants’ pension plan: increase retirement age in line with life expectancy and introduce contributions.
  - Better targeting of social spending.
  - Create a policy committee of senior public officers, headed by the Ministry of Finance, to monitor and evaluate capital spending.
  - Adopt debt targets and a medium-term debt management strategy; improve coordination with the central bank.
- Contingent liabilities management:
  - Record all explicit contingent fiscal liabilities in the debt statistics.
  - Disclose the fiscal impact of the operating balance of nationalized companies in the budget presentation.
  - Save all dividends earned from nationalized entities until legal status resolved.
  - Compensation plans should account for future capital investment needs and include a timetable for compensating former owners.
  - Staff notes contingent liabilities estimated at "around 17 percent of GDP" and calls for early action in fiscal consolidation plans.

### Pension reform; fiscal policy framework; and tax regime
- Pension reform:
  - Authorities awaiting IDB consultancy findings; previous actuarial reports recommended changes in pension age and worker contributions.
  - Trade unions have previously opposed those recommendations.
  - Authorities noted pension reforms should be linked to wage negotiations.
  - Staff recommendation: make the pension system sustainable (see Staff appraisal, paragraph 36).
- Fiscal policy framework and tax regime:
  - Priorities: strengthen fiscal policy framework, public financial management practices, and the tax regime.
  - Agreement on need for setting specific medium term debt targets, supporting consistent fiscal objectives, and a coherent debt management strategy.
  - Authorities requested TA for assessment of existing tax regime before further adjustments.
  - Authorities negotiating with the CDB a policy based loan to help finance reform initiatives.

### Financial sector vulnerabilities and recommended reforms
- FSAP short-term priorities:
  - Accumulation of NPLs at some domestic banks (particularly in tourism and construction); uncertain valuation of collateral; large exposures; lack of consolidated supervision.
  - Minimal reporting requirements and limited oversight of the non-bank offshore sector.
  - Weak bank resolution and crisis management schemes.
- Recommended actions:
  - Issue revised loan classification and provisioning guidelines by year-end and closely monitor banks’ capital adequacy.
  - Establish consolidated supervision of holding companies and bank affiliates.
  - Strengthen rules relating to bank-related parties and limit large exposures.
  - Amend resolution framework to provide for a statutory administrator with sufficient legal power and a mechanism for orderly liquidation.
  - Strengthen Central Bank autonomy (budget determination, governor’s appointment terms, bank regulation/supervision) and provide more resources to the Supervision Department.
  - Implement appropriate supervision scheme for the Development Finance Corporation (DFC).
- Monetary and payment system reforms:
  - Conduct monetary policy via market based instruments.
  - Phase out interest rate controls on savings deposits; standardize methodology for banks to calculate deposit interest rates.
  - On October 1, 2011, authorities reduced the floor on saving deposit interest rate from "3.5 percent to 2.5 percent".
  - CBB announced banks’ holdings of Treasury bills could be used to collateralize interbank borrowing and repurchase agreements.
  - Plans to upgrade payment system: automated clearing house, real time gross settlement facility, security settlement system.

### Exchange rate assessment and external stability (Box 4)
- Real exchange rate:
  - Real exchange rate depreciated "some 12 percent from June 2010 to July 2011" and "has now reached its lowest level since 1980."
  - On balance, exchange rate appears broadly in line with fundamentals; deviations moderate (under 10 percent) under alternative approaches.
- Staff approaches:
  - External sustainability (ES) approach: modest depreciation of "½ percent" would stabilize NFA position.
  - Macroeconomic balance (MB) approach: depreciation of "2 percent" would bring projected external current account deficit of "6.3 percent of GDP" down to norm level of "5½ percent of GDP".
  - ERER approach suggests Belize dollar is moderately "(8 ¾ percent) below its equilibrium value at end-2010."
- External debt and vulnerabilities:
  - Non-interest current account path consistent with moderately declining external debt ratio to "some 60 percent of GDP by 2016", but vulnerable to shocks.
  - Annual gross external financing needs will remain high at "5–8 percent of GDP".
  - If current account widens, reserve coverage could fall to under "2 months of imports by 2019".
- Policy implication: small outward real depreciation (order of magnitude: "½ percent to 2 percent") indicated; maintain resilience given "high annual external financing needs of 5–8 percent of GDP".

### Illustrative medium-term scenarios (Box 2)
- Comparison of frameworks:
  - Under recommended (enhanced) policy framework, public debt would decline from "80 percent of GDP to 45 percent of GDP by the end of the decade".
- Baseline scenario (authorities’ announced policies):
  - Growth: about "2.5 percent" over the medium-term.
  - Fiscal stance: primary balance of "2 percent of GDP".
  - Public debt: remain high at "about 70 percent of GDP by the end of the decade".
  - Foreign reserves: decline to "about 1.5 months of imports".
  - Gross financing needs: rise from "4 percent of GDP in 2013 to around 7½ percent by the end of this decade".
- Alternative fiscal adjustment scenario (strengthened policies):
  - Growth: "2013: 3 percent"; remainder of decade: "3½ percent".
  - Fiscal stance: sustain primary surplus of "4 percent of GDP starting in 2013/14".
  - Public debt: decline to "45 percent of GDP by the end of the decade".
  - Foreign reserves: strengthen to "4 months of imports by the end of the decade".
- Staff-recommended fiscal actions:
  - Expenditure: reverse wage bill trend; limit growth in non-priority spending; make public officer’s pension scheme sustainable (introduce contributions); improve targeting of social expenditures; streamline capital spending.
  - Revenue: consider raising GST from "12.5 percent to regional levels around 15 percent" or phasing out 2010 tax concessions.
  - Social Security Board (SSB): gradually implement parametric actions from actuarial report to attain financial viability.

### Contingent liabilities and fiscal risk estimates
- Staff estimates contingent liabilities stand at "17 percent of GDP".
- For 2011, total fiscal contingent liabilities are estimated at "17 percent of GDP", with only "0.7 percent of GDP" recorded in official debt statistics.
- Contingent liabilities composition (2011, percent of GDP):
  - Total Explicit liabilities 1/ "16.9"
  - Loan Guarantees "0.7"
  - Nationalized Entities "12.5"
  - Pending Court Judgements "2.7"
  - Cancellation of contracts "1.0"
- Memorandum items (2011, percent of GDP):
  - Total Assets "12.6"
  - Explicit assets "12.5"
  - Nationalized Entities "12.5"
  - Outstanding taxes "0.1"
- Staff estimates contingent fiscal assets at approximately "12.6 percent of GDP in 2011", comprising:
  - net value of nationalized assets ("12.5 percent of GDP"), including BTL and BEL;
  - outstanding tax obligations from the private sector ("0.1 percent of GDP"), including those of NEWCO (airport concession).
- Box recommendations to protect the budget:
  - Extend qualitative fiscal framework to monitor fiscal risks and measure benefits associated with contingent fiscal liabilities.
  - Integrate fiscal risks, including contingent liabilities, in the budget process and present them in annual budget documents as a single statement of fiscal risks.
  - Establish clear guidelines for issuing government guarantees, limit scope and duration of contingent liabilities, and include terminating clauses for contingent claims.

### DSA, public debt, and flow projections (selected figures)
- Public and publicly guaranteed debt — levels (selected series as presented): Total: "1,123; 1,123; 1,083; 1,108; 1,167; 1,184; 1,212; 1,247; 1,284; 1,322; 1,363; 1,412; 1,469; 1,539".
- Public and publicly guaranteed debt — percent of GDP (selected series): Total: "92.5; 87.6; 79.4; 82.2; 83.3; 80.4; 78.1; 76.5; 74.9; 73.4; 72.1; 71.0; 70.4; 70.2".
- Flow of funds — sources (percent of GDP): Primary balance: "4.0; 4.1; 5.4; 0.7; 1.7; 2.2; 1.9; 1.9; 2.0; 2.0; 2.0; 2.0; 2.0; 2.0".
- Flow of funds — uses (percent of GDP): Debt service: "10.8; 11.4; 7.1; 6.2; 4.9; 5.2; 5.6; 6.0; 6.2; 6.2; 6.2; 6.4; 7.2; 9.5".
- Key assumptions (selected):
  - Nominal GDP (US$ millions): "1,213; 1,282; 1,364; 1,349; 1,401; 1,474; 1,552; 1,631; 1,713; 1,800; 1,891; 1,987; 2,088; 2,193".
  - Real GDP growth rate (percent): "4.7; 1.3; 3.6; 0.0; 2.7; 2.5; 2.8; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5".
  - Nominal external commercial borrowing rate (percent): "13.8; 8.6; 7.7; 7.3; 7.2; 7.5; 8.4; 9.4; 9.8; 10.0; 10.2; 13.0; 13.2; 13.5".
  - Spread over 10-year U.S. T-Bond (percent): "9.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 6.5; 6.5; 6.5".
- Memo / selected indicators and projections:
  - Overall central government balance (calendar year, percent of GDP): "-1.8 -1.2 3.2 -3.0 -1.3 -1.2 -1.8 -2.2 -2.1 -2.1 -2.2 -2.4 -2.7 -3.2".
  - Gross financing requirement (percent of GDP): "6.9; 7.0; 3.3; 5.5; 1.2; 3.0; 3.6; 4.1; 4.2; 4.2; 4.2; 4.4; 5.2; 7.5".
- DSA assessment — key findings:
  - Debt remains high and vulnerable to shocks despite slightly lower projected public debt ratios over the medium term.
  - About "85 percent of total public debt was denominated in foreign currency in 2010"; a "30 percent depreciation would raise total debt to about 111 percent of GDP".
  - A "17 percent of GDP shock to contingent liabilities would cause a proportional increase in debt levels and raise financing needs by some 1.5 percentage point of GDP over the medium term".

### Bank–Fund collaboration and development partner engagement (Annex II)
- Fund and World Bank teams met on "November 3, 2010 and February 4, 2011" to coordinate work for the next 12 months.
- World Bank CPS envelope likely to be around "US$20–28 million".
- Interim Strategy (March 2009–March 2011) included a "US$15 million municipal development loan approved on September 16, 2010".
- Agreed focus: enhance resilience to shocks; strengthen growth and social prospects; enhance banking system stability and debt sustainability; strengthen policy framework; reinforce implementation capacity.
- Planned Fund responsibilities:
  - TA (LEG and MCM) in forensic auditing and bank resolution framework.
  - TA on launching a revised Consumer Price Index (CPI) and other statistical support.
- World Bank responsibilities:
  - Assistance on external audit and public procurement capacity; conditional cash transfer design; municipal infrastructure.

### Fiscal outturn and Directors’ guidance (selected)
- Overall fiscal outturn: "1.5 percent of GDP, reflecting an increase in expenditure and weak grant disbursements."
- Central government (percent of GDP) series (selected):
  - Revenue and grants: "28.1, 28.6, 27.0, 27.4, 28.6, 27.4".
  - Current expenditure: "23.1, 23.3, 24.5, 24.0, 24.9, 24.6".
  - Capital expenditure and net lending: "5.7, 4.9, 3.7, 4.5, 5.4, 5.4".
  - Primary balance: "3.8, 4.2, 2.4, 1.9, 2.2, 1.8".
  - Overall balance: "-0.7, 0.4, -1.2, -1.5, -1.6, -2.5".
- Directors’ fiscal guidance:
  - "Further tighten the fiscal stance and rebuild macroeconomic buffers."
  - Gradually increase the primary surplus to keep financing needs manageable and place public debt on a downward path.
  - Monitor contingent liabilities closely; strengthen tax administration; reduce tax concessions.
  - Contain wage bill growth and "streamline capital spending in line with implementation capacity and grant disbursements."

### Staff appraisal: macroeconomic policy recommendations and risks (summary)
- Near-term prospects moderately positive; medium outlook uncertain.
- Key risks and concerns:
  - Sluggish growth; higher inflation from food and fuel; rising gross financing requirements under current policies; accumulation of contingent liabilities; banking system vulnerability; deteriorated investment climate and social indicators.
- Policy recommendations:
  - Strengthen macroeconomic management framework and coordination among ministries and with the Central Bank.
  - Tighten fiscal stance and rebuild macroeconomic buffers by gradually raising the primary surplus.
  - Measures include: entrenching revenue administration reforms; streamlining capital spending; containing wage bill growth; improving targeting of social spending; reducing tax concessions; raising the GST rate; making the pension system sustainable.
  - Continue close monitoring of the banking sector and promptly implement FSAP-recommended financial sector reforms.
  - Strengthen supervision department of the central bank and legislate greater CBB autonomy.
  - Gradually raise foreign reserves through fiscal consolidation.

*Source: IMF 2011 Article IV Report — Belize (content unit _cr11340).*

### 1.  Gross Contingent Fiscal Liabilities _____________________________________________________________ 17

### Gross Contingent Fiscal Liabilities

### Recent developments
- Output expanded by 2.7 percent in 2010, driven largely by electricity, wholesale, and retail trade.
- Twelve-month inflation was nil in 2010; picked up to "0.9 percent y-o-y for the quarter ending in February".
- Growth in 2011 is projected at 2.5 percent, supported by wholesale and retail trade and manufacturing.
- External current account deficit narrowed from 6.1 percent of GDP in 2009 to 3.1 percent in 2010.
- Gross international reserves strengthened to "3¼ months of imports at end-2010, or 300 percent of 2011 external financing needs".
- Overall fiscal deficit widened to "1.5 percent of GDP" in FY 2010/11, despite a GST increase from "10 percent to 12½ percent".
- Public debt continues to hover at around "80 percent of GDP".
- Banking sector:
  - NPLs decreased slightly to "19.8 percent of total loans at end-June 2011", from "21.3 percent at end-March 2011" and above end-December 2010 level.
  - Provisioning covers "28 percent of NPLs" system-wide (explicit in text: provisioning only covers 28 percent of NPLs).
  - Capital adequacy appears high but is overstated for the system as a whole due to provisioning and collateral valuation practices.
- Policy changes by the Central Bank (CBB):
  - Cash reserve requirement lowered to "8½ percent" from "10 percent" of average deposit liabilities.
  - Introduced a Treasury bill holding requirement of "6½ percent" (with later reductions noted in footnote: security requirement lowered from "6½ percent to 5 percent in January 2011, to 3 percent in April 2011, and eliminated in October 2011").
  - Mandatory minimum rate on saving deposits lowered by "100 basis points, to 3.5 percent in November 2010".
- Sovereign and corporates:
  - Nationalizations of Belize Telemedia (BTL) and Belize Electricity Limited (BEL) led to S&P downward revision and a "sharp drop (25 percent) in the price of the sovereign Superbond", which "now trades at a 35 percent discount".
  - The Superbond has a "12-year grace period and a 10-year semi-annual repayment period starting in August 2019".
- Social indicators:
  - Poverty rate rose from "34 percent in 2002 to 41 percent in 2009".
  - Unemployment at "13 percent in September 2009".
  - Social protection spending about "5.7 percent of GDP in 2009".

### Outlook and risks
- Short-term projections:
  - Output growth for 2011 projected at "2.5 percent".
  - Inflation expected to be "slightly above 4 percent by year-end" (2011).
  - External current account deficit projected to remain at "about 3 percent of GDP".
  - Reserve coverage expected to remain at "around 3 months of imports by year-end".
- Medium-term staff projection:
  - Output growth subdued at "2½ percent per annum".
  - Total contingent liabilities, including pending compensation for nationalizations, estimated at "around 17 percent of GDP".
  - Staff scenario: targeting a primary surplus of "4 percent of GDP (starting in FY 2013/14)" would reduce debt-to-GDP to "about 45 percent of GDP" and gross financing needs to "about 1.2 percent of GDP by 2019".
  - Under authorities’ fiscal path, gross financing needs would rise from "4 percent of GDP in 2013 to around 7½ percent by the end of this decade".
- Downside risks:
  - Jobless U.S. recovery, decline in commodity prices, sluggish tourist arrivals, uncertainty in the sugar industry, delays in public investment program, accumulation of contingent liabilities from nationalizations, and gradual contraction in oil output.
- Upside risks:
  - Possible new oil discoveries and fuller development of tourism and agricultural sectors.

### Main policy recommendations (fiscal consolidation and contingent liabilities)
- Fiscal anchor and targets:
  - Authorities adopted a medium-term primary surplus target of "2 percent of GDP, starting in FY 2011/12".
  - Staff recommended tightening to a primary surplus of "3 percent of GDP" for FY 2011/12 (from "2.2 percent of GDP in the budget") and reaching "4 percent of GDP (starting in FY 2013/14)" over the medium term.
- Revenue measures:
  - Strengthen revenue administration: reinforced tax auditing; integrate the two domestic tax departments; implement remaining reforms (new customs bill, amending GST and income tax legislations) on a clear timetable.
  - Raise additional revenues, including: (i) gradually raise the GST rate to "15 percent"; and (ii) reverse tax concessions equivalent to "½ percent of GDP" granted in FY 2010/11.
  - Authorities estimate further enforcement and administrative measures could yield up to "½ percent of GDP over the next six months".
- Expenditure and fiscal management:
  - Contain spending growth and streamline capital spending in line with implementation capacity and grant disbursements.
  - Reverse upward trend in wage bill (was "10 percent of GDP in FY 2010/11").
  - Reduce fiscal costs of civil servants’ pension plan: increase retirement age in line with life expectancy and introduce contributions.
  - Better targeting of social spending.
  - Create a policy committee of senior public officers, headed by the Ministry of Finance, to monitor and evaluate capital spending.
  - Adopt debt targets and a medium-term debt management strategy; improve coordination with the central bank.
- Contingent liabilities management:
  - Record all explicit contingent fiscal liabilities in the debt statistics.
  - Disclose the fiscal impact of the operating balance of nationalized companies in the budget presentation.
  - Save all dividends earned from nationalized entities until legal status resolved.
  - Compensation plans should account for future capital investment needs and include a timetable for compensating former owners.
  - Staff notes contingent liabilities estimated at "around 17 percent of GDP" and calls for early action in fiscal consolidation plans.

### Authorities’ stance and actions
- Constraints cited by authorities:
  - Economic slowdown, increased poverty, surge in crime, and need for increased citizen security constrained aggressive fiscal consolidation.
  - Resource limitations slowed public sector reforms.
- Revenue administration reforms underway:
  - Modernization of customs and excise, including ASYCUDA implementation.
  - Improved tax auditing via spot checks and staffing increases; widening tax auditing beyond Belize City.
  - Internal business practice improvements, including adoption of a code of conduct.
  - Legislative reforms: new customs, GST and income tax legislation scheduled to pass in early 2012.
- Public financial management reforms:
  - Fiscal Transparency and Responsibility Regulations passed under the Finance and Audit (Reform) Act of 2005 in FY 2010/2011.
  - Ongoing improvements to procurement and audit systems.
- Capital spending management:
  - Committee of relevant ministries formed; IDB provided TA on best practice PSIP management; new legislation expected to codify framework.
- On nationalizations and compensation:
  - Authorities committed to compensating former owners of nationalized companies.
  - Plan to use dividends from nationalized companies to service a bond issued as compensation.
  - Authorities will start payments and record obligations on government books once Belizean Courts make final rulings.

*BELIZE 2011 ARTICLE IV REPORT — INTERNATIONAL MONETARY FUND*

### 18.      In the area of pension reform, the

### 18.      In the area of pension reform, the

### Pension reform: status and recommendations
- Authorities are awaiting findings of a consultancy report by the IDB before moving forward.
- Authorities conceded the IDB recommendations are unlikely to be fundamentally different from previous actuarial reports, which recommended changes in:
  - pension age, and
  - worker contributions.
- Trade unions have previously opposed those recommendations.
- Authorities noted that, going forward, pension reforms should be linked to wage negotiations.
- Staff recommendation (implicit in text): make the pension system sustainable (see Staff appraisal, paragraph 36).

### Fiscal policy framework and tax regime: priorities and actions
- Priorities include further strengthening:
  - the fiscal policy framework,
  - public financial management practices, and
  - the tax regime.
- Agreement with staff on need for:
  - setting specific medium term debt targets,
  - supporting consistent fiscal objectives, and
  - a coherent debt management strategy.
- Authorities requested TA for an assessment of the existing tax regime, including its fairness and efficiency, before contemplating any further adjustments to existing taxes.
- Authorities negotiating with the CDB a policy based loan to help finance reform initiatives, including strengthening public financial management practices.

### Financial sector vulnerabilities and FSAP findings
- Recent FSAP identified short-term priorities:
  - (i) accumulation of NPLs at some domestic banks (particularly in the tourism and construction activities), exacerbated by the uncertain valuation of collateral and presence of large exposures both on the asset and liability side coupled with a lack of consolidated supervision;
  - (ii) minimal reporting requirements and limited oversight of the non-bank offshore sector; and
  - (iii) weak bank resolution and crisis management schemes.
- Effectiveness of banking supervision impacted by resource constraints at the CBB and other financial infrastructure shortcomings.
- Belize needs to devote more resources to effectively enforce AML/CFT rules in the financial sector; current deployed resources are focused on the protection of the integrity of the banking sector.
- Footnote: The CFATF Mutual Evaluation Report on Belize’s AML/CFT regime was adopted by CFATF in May 2011.

### Safeguarding public financial institutions
- New Act of the Development Finance Corporation (DFC) enables the CBB to supervise it, expected to improve risk management and, over time, prevent associated fiscal losses.
- CBB still has to develop a supervisory framework for the DFC.
- Social Security Board non-bank lending decisions may require closer follow-up to ensure adherence to prudential criteria and avoid undue risk taking.
- Staff welcomed authorities’ intent to use FSAP findings to rebuild momentum for financial sector reforms and ease vulnerabilities.

### Prudential and supervisory reforms underway and recommended
- Short-term actions taken or planned:
  - stepping up on-site examinations,
  - intensifying prudential requirements,
  - announcing planned regulatory reforms,
  - improving loan classification and provisioning.
- New regulations will require close monitoring of banks’ capital adequacy following the introduction of tighter provisioning requirements.
- Further steps needed:
  - establishing consolidated supervision of holding companies and bank affiliates,
  - strengthening rules relating to bank-related parties and limiting large exposures,
  - amending resolution framework to provide for a statutory administrator with sufficient legal power to undertake restructuring transactions and a mechanism for orderly liquidation.
- Recommendation: strengthen Central Bank autonomy and provide more resources to the Supervision Department.
  - Areas to improve in Central Bank Act: budget determination, governor’s appointment terms, and bank regulation/supervision.
  - Implement appropriate scheme of supervision for the DFC.

### Monetary policy and payment system reforms
- Monetary policy now conducted via market based instruments; reforms expected to improve macroeconomic governance and facilitate central bank overdraft operation within legal limits.
- Next steps:
  - phase out interest rate controls on savings deposits,
  - standardize methodology used by banks to calculate deposit interest rates.
- On October 1, 2011, authorities reduced the floor on saving deposit interest rate from 3.5 percent to 2.5 percent.
- CBB announced that banks’ holdings of Treasury bills could be used to collateralize interbank borrowing and repurchase agreements.
- Plans to upgrade payment system:
  - automated clearing house for small payments,
  - real time gross settlement facility for large payments,
  - security settlement system.
- Recommendation: authorities should set a feasible timetable for implementing payment system projects.

### Exchange rate and external vulnerabilities
- Fixed exchange rate (pegged to the U.S. dollar) provides an important anchor.
- Belizean dollar has depreciated significantly in real effective terms but currently stands broadly in-line with fundamentals.
- Medium-term risks:
  - weakening foreign reserve position and elevated external financing needs would increase vulnerability to shocks.
- Staff stressed need for early corrective actions to keep external financing manageable and gradually raise reserves to about 4 months of imports.
- Proposed fiscal consolidation would help achieve reserve and external stability goals.

### Authorities’ views on financial sector reform
- Authorities concurred with overall FSAP assessment and readiness to implement recommendations.
- Slow progress in implementing earlier TAs attributed mainly to limited capacity at the central bank.
- By end-year, authorities intend to:
  - issue new loan classification and provisioning standards, and
  - advance reform of the resolution framework by submitting a revised draft of the Banks and Financial Institutions Act to the government.
- Central bank has intensified surveillance, including stepping up on-site examinations.
- Authorities requested additional TA in bank supervision and regulation.

### Growth, business environment, and poverty reduction
- Growth trends and drivers:
  - Annual GDP growth averaged some 7 percent in the 1980s, declined to less than 4 percent during the last decade.
  - Potential growth has steadily declined since 1988 and converged to the subdued level of the rest of the Caribbean.
  - Growth accounting: capital contribution steady at 1.5 percentage points; labor expansion increasing importance; TFP growth has become negative after contributing 3¼ percentage points in the 1980s.
- Key constraints to improving medium-term growth:
  - weak business environment (enforcing contracts, trading across borders, starting a business),
  - infrastructure limitations (roads, ICT, port facilities),
  - limited availability of skilled labor,
  - cumbersome tax system (including absence of double tax treaties),
  - nonexistence of commercial courts.
- Illustrative business cost and judicial metrics:
  - Belize’s cost of export (US$ per container) is about 50 percent higher than in the rest of the Caribbean.
  - It takes about 2½ years to recover a commercial debt through the courts, compared with less than two years in other countries of the region.
- Staff recommendations:
  - specify modalities and timetable for compensating former owners of recently-nationalized companies once courts reach a final verdict,
  - establish a program to address core constraints, including clarifying focus of the DFC and Beltraide,
  - adopt a coherent and realistic program for improving physical and financial infrastructure, boosting skilled labor availability, and simplifying the tax system.
- Poverty reduction:
  - Achieving poverty reduction should remain a high priority.
  - Greater efforts needed in monitoring and evaluating program effectiveness relative to targets and cost.
  - World Bank Country Partnership Strategy (FY 2012–15) will support sustainable natural resources-based model and resilience to climate change and natural disasters.

### Staff appraisal: macroeconomic policy recommendations and risks
- Near-term prospects moderately positive; medium outlook uncertain.
- Key risks and concerns:
  - sluggish growth, somewhat higher inflation driven by food and fuel prices,
  - rising gross financing requirements under current policies,
  - accumulation of contingent liabilities reducing policy space,
  - banking system vulnerability due to protracted financial sector reforms,
  - deteriorated investment climate and social indicators.
- Policy recommendations:
  - strengthen macroeconomic management framework, including a coherent strategy for gradual fiscal consolidation and debt reduction, and enhance technical capacity and coordination among ministries, and between the Ministry of Finance and the Central Bank.
  - tighten fiscal stance and rebuild macroeconomic buffers.
    - Gradually raise the primary surplus to reduce the public debt ratio and limit gross financing needs.
    - Measures to achieve consolidation include:
      - entrenching reforms to revenue administration,
      - streamlining capital spending in line with implementation capacity and grant disbursements,
      - containing wage bill growth,
      - improving targeting of social spending,
      - reducing tax concessions,
      - raising the GST rate,
      - making the pension system sustainable.
  - Continue close monitoring of banking sector; be ready to take corrective measures if near-term risks deteriorate.
  - Promptly implement FSAP-recommended financial sector reforms: consolidated oversight, bank resolution frameworks, new loan classification and provisioning guidelines (circulated to commercial banks and scheduled to be implemented by year-end).
  - Strengthen supervision department of the central bank and legislate greater CBB autonomy.
  - Gradually raise foreign reserves through fiscal consolidation.

### Key statistics and fiscal risk estimates
- Staff estimates contingent liabilities stand at 17 percent of GDP.
- For 2011, total fiscal contingent liabilities are estimated at 17 percent of GDP, with only 0.7 percent of GDP recorded in the official debt statistics.
- Contingent liabilities composition (2011, percent of GDP):
  - Total Explicit liabilities 1/16.9
  - Loan Guarantees0.7
  - Nationalized Entities12.5
  - Pending Court Judgements2.7
  - Cancellation of contracts1.0
- Memorandum items (2011, percent of GDP):
  - Total Assets12.6
  - Explicit assets12.5
  - Nationalized Entities12.5
  - Outstanding taxes0.1
- Staff estimates contingent fiscal assets at approximately 12.6 percent of GDP in 2011, comprising:
  - net value of nationalized assets (12.5 percent of GDP), including BTL and BEL,
  - outstanding tax obligations from the private sector (0.1 percent of GDP), including those of NEWCO (airport concession).
- Box recommendations to fully protect the budget:
  - extend qualitative fiscal framework to monitor fiscal risks and measure benefits associated with contingent fiscal liabilities, integrating management with conventional debt;
  - integrate fiscal risks, including contingent liabilities, in the budget process and present them in annual budget documents as a single statement of fiscal risks;
  - establish clear guidelines for issuing government guarantees, limiting scope and duration of contingent liabilities and including terminating clauses for contingent claims.

*Source: IMF 2011 Article IV Report — Belize (content unit _cr11340 - 18.)*

### Box 2. Belize: Illustrative Medium-term Scenarios

### Box 2. Belize: Illustrative Medium-term Scenarios

### Comparison of frameworks
- Under the recommended (enhanced) policy framework, public debt would gradually decline from 80 percent of GDP to 45 percent of GDP by the end of the decade.
- The box compares the authorities’ fiscal policy stance (as announced in the 2011/12 budget) with the staff-recommended framework.

### Baseline scenario (authorities’ announced policies)
- Growth: projects growth of about 2.5 percent over the medium-term.
- Fiscal stance: based on a primary balance of 2 percent of GDP.
- Business environment: assumed weakened, leading to lower investment, including foreign direct investment, than in previous years.
- Public debt: by the end of the decade, the public debt ratio would remain high, at about 70 percent of GDP.
- Foreign reserves: would decline to about 1.5 months of imports.
- Financing composition: domestic financing would remain broadly stable, but the fiscal path implies increased reliance on external financing over the medium term.
- Gross financing needs: would rise from 4 percent of GDP in 2013 to around 7½ percent by the end of this decade.
- Feasibility concern: in the context of the recent downgrade of Belize’s sovereign debt by S&P, and the widening trading discount on the super bond, securing such financing would be unrealistic and hence the need for a higher primary balance.

### Alternative fiscal adjustment scenario (strengthened policies)
- Growth:
  - 2013: growth would rise to 3 percent.
  - Remainder of the decade: growth would remain at 3½ percent.
- Fiscal stance: based on sustaining a primary surplus of 4 percent of GDP starting in 2013/14.
- Reallocation and investment: assumes a reallocation of spending toward capital and social priorities, and increased private investment, including foreign direct investment, from an improved business environment.
- Public debt: would gradually decline to 45 percent of GDP by the end of the decade.
- Foreign reserves: would strengthen to 4 months of imports by the end of the decade.
- External financing needs: envisages faster growth and lower external financing needs relative to the baseline.

### Staff-recommended fiscal actions
- Expenditure:
  - reversing the upward trend in the wage bill relative to GDP;
  - limiting growth in non-priority spending areas;
  - making sustainable, the public officer’s pension scheme, by introducing contributions on the public officer’s pension scheme while introducing a pension contributions, improving the targeting of the social expenditures, and streamlining capital spending in line with available grants, and implementation capacity.
- Revenue:
  - consideration could be given to raising the GST rate from 12.5 percent to regional levels around 15 percent or phasing out fully the 2010 tax concessions.
- Social Security Board (SSB):
  - starting to gradually implement the parametric actions proposed in the latest actuarial report, to bring generous benefits in line with contributions, with a view to attaining financial viability for the pension scheme for private sector workers, and reducing potential fiscal costs.

*Source: Box 2, Belize: Illustrative Medium-term Scenarios (IMF staff report).*

### Box 4. Belize—Exchange Rate Assessment and External Stability

### Box 4. Belize—Exchange Rate Assessment and External Stability

### Exchange rate assessment
- After a temporary appreciation in real effective terms in 2009, Belize’s currency retook its depreciation trend; the real exchange rate depreciated some 12 percent from June 2010 to July 2011 and "has now reached its lowest level since 1980."
- On balance, the exchange rate appears broadly in line with its equilibrium level; deviations from equilibrium remain moderate (under 10 percent) under alternative approaches.
- Two staff approaches yield similar small depreciation signals:
  - External sustainability (ES) approach: a modest depreciation of ½ percent would stabilize the net foreign asset (NFA) position at a stable level.
  - Macroeconomic balance (MB) approach: a depreciation of 2 percent would bring the projected external current account deficit of 6.3 percent of GDP down to its norm level of 5½ percent of GDP over the medium term.
- The equilibrium real exchange rate (ERER) approach suggests the Belize dollar is moderately (8 ¾ percent) below its equilibrium value at end-2010.

### Sensitivity analysis and scenario metrics (table excerpts)
- Equilibrium external current account (CA) 1/: -5.6  -5.6  -6.2  -3.3
- Underlying CA balance 2/: -6.3  -8.1  -6.3  -6.3
- CA elasticity to REER 3/: -0.37  -0.37  -0.37  -0.37
- Implied REER adjustment (in percent, "+" appreciation): -2.0  -6.9  -0.4  -8.3

Notes from table footnotes:
- 1/ Equilibrium external current account corresponds to a CA level consistent with a specific set of economic fundamentals. The ES approach assumes the medium/long-term real growth rate of 2.5 percent and inflation of 2.5. The benchmark NFA position is computed based on the updated and extended version of the Lane and Milesi-Ferretti (2007) dataset.
- 2/ External current account in 2016 unless otherwise indicated.
- 3/ Elasticity computed using long-run real exchange rate elasticities for imports (0.92) and exports (-0.71), and Belize’s medium-term export/import shares.

### External debt sustainability and vulnerabilities
- The path for the non-interest current account is consistent with a moderately declining external debt ratio over the medium term (to some 60 percent of GDP by 2016), but the debt trajectory is vulnerable to shocks.
- The external debt ratio is particularly sensitive to depreciation and current account shocks.
- Annual gross external financing needs will remain high at 5–8 percent of GDP, representing an additional source of vulnerability.
- Beyond the medium term, a widening of the current account would drive reserve coverage down to under 2 months of imports by 2019 (Table 5 projection).

### Implications and policy-relevant findings
- Small outward real depreciation (order of magnitude: ½ percent to 2 percent) is indicated by staff methodologies to restore consistency between external positions and fundamentals in the near/medium term.
- Maintaining resilience to shocks is important given:
  - High annual external financing needs of 5–8 percent of GDP.
  - Sensitivity of the external debt ratio to exchange rate and current account shocks.
  - Potential decline in reserve coverage to under 2 months of imports by 2019 if the current account widens.

*Source: Box 4. Belize—Exchange Rate Assessment and External Stability, IMF staff analysis in the Belize 2011 Article IV report.*

### 1. Public and

### 1. Public and

### Public and publicly guaranteed debt — levels (selected series as presented)
- Total: 1,123; 1,123; 1,083; 1,108; 1,167; 1,184; 1,212; 1,247; 1,284; 1,322; 1,363; 1,412; 1,469; 1,539
- Other public and publicly guaranteed external debt: 107; 107; 74; 72; 57; 57; 57; 57; 57; 57; 57; 57; 57; 57
- Central government: 1,016; 1,016; 1,009; 1,035; 1,110; 1,127; 1,155; 1,190; 1,226; 1,265; 1,306; 1,354; 1,412; 1,481
- Domestic debt: 105; 105; 101; 96; 167; 178; 179; 196; 200; 211; 223; 234; 245; 256
- External debt: 910; 912; 909; 939; 943; 949; 976; 994; 1,026; 1,053; 1,083; 1,121; 1,167; 1,225
  - Multilateral: 172; 198; 197; 219; 224; 233; 257; 272; 284; 287; 284; 268; 250; 233
  - Bilateral and export credit: 208; 161; 162; 173; 172; 170; 173; 162; 148; 132; 117; 103; 89; 78
  - Commercial: 531; 552; 550; 547; 547; 547; 547; 547; 547; 547; 547; 547; 547; 519
  - New commercial borrowing: 0; 0; 0; 0; 0; 0; 0; 14; 47; 87; 135; 203; 281; 395

### Public and publicly guaranteed debt — percent of GDP (selected series)
- Total: 92.5; 87.6; 79.4; 82.2; 83.3; 80.4; 78.1; 76.5; 74.9; 73.4; 72.1; 71.0; 70.4; 70.2
- Other public and publicly guaranteed external debt: 8.8; 8.3; 5.4; 5.4; 4.1; 3.9; 3.7; 3.5; 3.3; 3.2; 3.0; 2.9; 2.7; 2.6
- Central government: 83.7; 79.3; 74.0; 76.8; 79.2; 76.5; 74.4; 73.0; 71.6; 70.3; 69.0; 68.2; 67.6; 67.5
- Domestic debt: 8.7; 8.2; 7.4; 7.1; 11.9; 12.1; 11.5; 12.0; 11.7; 11.7; 11.8; 11.8; 11.7; 11.7
- External debt: 75.1; 71.1; 66.6; 69.7; 67.3; 64.4; 62.9; 61.0; 59.9; 58.5; 57.3; 56.4; 55.9; 55.9
  - Multilateral: 14.2; 15.5; 14.5; 16.3; 16.0; 15.8; 16.5; 16.7; 16.6; 16.0; 15.0; 13.5; 12.0; 10.6
  - Bilateral and export credit: 17.1; 12.6; 11.9; 12.8; 12.3; 11.5; 11.1; 9.9; 8.6; 7.3; 6.2; 5.2; 4.3; 3.6
  - Commercial: 43.8; 43.1; 40.3; 40.6; 39.0; 37.1; 35.2; 33.5; 31.9; 30.4; 28.9; 27.5; 26.2; 23.7
  - New commercial borrowing (percent of GDP): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.8; 2.8; 4.9; 7.2; 10.2; 13.4; 18.0

### Flow of funds — sources (percent of GDP)
- Primary balance: 4.0; 4.1; 5.4; 0.7; 1.7; 2.2; 1.9; 1.9; 2.0; 2.0; 2.0; 2.0; 2.0; 2.0
- Privatization proceeds 2/: 0.2; 0.3; 0.0; 0.0; 2.0; 0.7; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0
- Identified disbursements: 6.9; 7.0; 3.3; 5.5; 1.2; 3.0; 3.6; 3.3; 2.2; 2.0; 1.7; 1.0; 0.8; 0.8
  - Multilateral: 1.3; 2.9; 0.9; 2.6; 1.3; 1.5; 2.5; 2.0; 1.9; 1.3; 1.1; 0.5; 0.3; 0.3
  - Bilateral and export credit: 5.4; 1.8; 2.1; 2.1; 0.7; 0.8; 1.1; 0.2; 0.1; 0.0; 0.0; 0.0; 0.0; 0.0
  - Commercial: 0.2; 2.3; 0.4; 0.8; -0.8; 0.7; 0.1; 1.0; 0.3; 0.6; 0.6; 0.6; 0.5; 0.5
- Domestic (net): 0.0; 0.4; -1.4; 0.8; -0.8; 0.7; 0.1; 1.0; 0.3; 0.6; 0.6; 0.6; 0.5; 0.5
- External 1/: 0.1; 1.9; 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 (percent of GDP)
- Debt service 1/: 10.8; 11.4; 7.1; 6.2; 4.9; 5.2; 5.6; 6.0; 6.2; 6.2; 6.2; 6.4; 7.2; 9.5
- Interest payments: 5.8; 5.3; 2.2; 3.7; 3.0; 3.4; 3.7; 4.1; 4.1; 4.1; 4.2; 4.4; 4.7; 5.1
  - Domestic interest: 0.9; 1.0; 0.9; 1.0; 0.4; 0.5; 0.6; 0.6; 0.6; 0.7; 0.7; 0.7; 0.8; 0.8
  - External interest: 4.9; 4.3; 1.3; 2.7; 2.6; 2.9; 3.2; 3.5; 3.5; 3.5; 3.5; 3.7; 4.0; 4.4
- Principal repayments: 5.0; 6.1; 5.0; 2.6; 1.9; 1.9; 1.8; 2.0; 2.1; 2.1; 2.0; 2.0; 2.5; 4.4
- New financing requirement 2/: 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.8; 2.0; 2.2; 2.5; 3.4; 4.4; 6.8

### Key assumptions (selected)
- Nominal GDP (US$ millions): 1,213; 1,282; 1,364; 1,349; 1,401; 1,474; 1,552; 1,631; 1,713; 1,800; 1,891; 1,987; 2,088; 2,193
- Nominal GDP growth rate (percent): 8.8; 5.7; 6.4; -1.1; 3.9; 5.2; 5.3; 5.1; 5.1; 5.1; 5.1; 5.1; 5.1; 5.1
- Real GDP growth rate (percent): 4.7; 1.3; 3.6; 0.0; 2.7; 2.5; 2.8; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5
- Annual inflation (deflator, percent): 4.0; 4.3; 2.6; -1.0; 1.1; 2.6; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5; 2.5
- Assumed domestic borrowing rate (percent): 8.0 (constant across series)
- Nominal external commercial borrowing rate (percent): 13.8; 8.6; 7.7; 7.3; 7.2; 7.5; 8.4; 9.4; 9.8; 10.0; 10.2; 13.0; 13.2; 13.5
- Assumed 10-year U.S. T-Bond (percent): 4.8; 4.6; 3.7; 3.3; 3.2; 3.5; 4.4; 5.4; 5.8; 6.0; 6.2; 6.5; 6.7; 7.0
- Spread over 10-year U.S. T-Bond (percent): 9.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 4.0; 6.5; 6.5; 6.5
- Nominal external multilateral/bilateral borrowing rate (percent): 6.3; 6.3; 4.0; 2.1; 1.5; 1.4; 1.5; 1.6; 2.1; 2.1; 2.1; 3.8; 4.1; 4.3
- Six-month LIBOR rate (percent) 3/: 5.3; 5.3; 3.0; 1.1; 0.5; 0.4; 0.5; 0.6; 1.1; 1.1; 1.1; 1.3; 1.6; 1.8
- Spread over LIBOR rate (percent): 1.0; 1.0; 1.0; 1.0; 1.0; 1.0; 1.0; 1.0; 1.0; 1.0; 1.0; 2.5; 2.5; 2.5

### Memo / selected indicators and projections
- Overall central government balance (calendar year, percent of GDP): -1.8 -1.2 3.2 -3.0 -1.3 -1.2 -1.8 -2.2 -2.1 -2.1 -2.2 -2.4 -2.7 -3.2
- Implicit nominal interest rate (percent) 4/: 6.4; 6.0; 2.6; 4.6; 3.8; 4.2; 4.9; 5.5; 5.6; 5.8; 6.0; 6.4; 7.0; 7.7
- Gross financing requirement (percent of GDP): 6.9; 7.0; 3.3; 5.5; 1.2; 3.0; 3.6; 4.1; 4.2; 4.2; 4.2; 4.4; 5.2; 7.5

### DSA assessment — key findings (textual)
- The DSA projects slightly lower public debt ratios over the medium term relative to the 2010 Article IV consultation due to somewhat stronger fiscal performance and lower world interest rates, but notes that debt remains high and vulnerable to shocks.
- Macroeconomic framework:
  - Fiscal balance expected to deteriorate moderately; primary balance expected to stay at some 2 percent of GDP while overall fiscal deficit widens by 1 percentage point of GDP by 2016 driven by a step-up interest rate on restructured debt (which represented 47 percent of total public debt at end-2010).
  - Economic growth constrained at 2.5 percent over the medium term.
  - Financing assumptions: domestic debt broadly constant; multilateral and bilateral loans borrowed at LIBOR plus 100 bps; projected financing needs covered primarily by external commercial creditors at market interest rates; spread over the U.S. T-Bond assumed at 400 bps over the medium-term and at 650 bps over the second half of the decade; FDI inflows remain below historical levels.
- Baseline scenario:
  - Public debt would decline moderately to 72 percent of GDP by 2016.
  - Public sector financing needs will increase by 1.2 percentage points of GDP by 2016 (to 4.2 percent of GDP) because of step-up coupon rates and heavier reliance on commercial debt.
  - For the remainder of the decade, debt ratio broadly stable, but financing needs increase to 7½ percent of GDP by 2019 due to start of amortization payments on restructured debt.
- Vulnerabilities from bound tests and shocks:
  - About 85 percent of total public debt was denominated in foreign currency in 2010; a 30 percent depreciation would raise total debt to about 111 percent of GDP.
  - Debt ratio highly sensitive to shocks in growth and the primary balance.
  - A 17 percent of GDP shock to contingent liabilities would cause a proportional increase in debt levels and raise financing needs by some 1.5 percentage point of GDP over the medium term.

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

### ANNEX II.  BELIZE: BANK—FUND COLLABORATION

### ANNEX II.  BELIZE: BANK—FUND COLLABORATION

### Bank-Fund collaboration under the JMAP
- Meetings: Fund and World Bank teams met on November 3, 2010 and February 4, 2011 to coordinate work on Belize for the next 12 months; coordination occurred in context of the 2011 Article IV consultation and preparation of a new four-year Country Partnership Strategy (CPS) presented to the Board (World Bank) on September 8, 2011.
- World Bank CPS envelope: The overall size of the envelope during the new CPS period is likely to be around US$20–28 million.
- Interim Strategy (March 2009–March 2011): Re-established the Bank as a development partner in Belize through Analytical and Advisory Activities (AAA) and modest investment lending, including a US$15 million municipal development loan approved by the Board on September 16, 2010.
- CPS focus: Support the Government’s efforts to adopt a sustainable natural resource based economic model while enhancing the country’s resilience to climate change and natural hazards.
- Agreed macroeconomic challenges: Enhance economy’s resilience to shocks; strengthen growth and social prospects; enhance banking system stability and debt sustainability; strengthen policy framework; reinforce implementation capacity of Belizean authorities.

Planned lines of work and responsibilities:
- Banking system stability:
  - Fund providing TA (LEG and MCM) in forensic auditing and bank resolution framework.
- Governance and budget framework:
  - Bank providing assistance on project to develop and sustain institutional capacity in external audit and public procurement, focusing on the Audit Department and the Contractor-General’s Office.
- Social protection:
  - Bank assisting in design of a conditional cash transfer program targeting urban and rural vulnerable groups with conditionalities such as immunization, school attendance, and health and family education.
- Infrastructure:
  - Bank, through the Municipal Development Project, to improve access to basic municipal infrastructure and enhance municipal management in selected town and city councils.
- National accounts:
  - Fund to continue TA on launching a revised Consumer Price Index (CPI). SIB, in collaboration with CARTAC, developed a new basket of items; pending tasks include collection of price data and compilation of the CPI on a monthly basis.

Planned activities (November 2010–October 2011) — expected delivery dates and timing of missions (as listed):
- Bank Work Program:
  - Interim Strategy Note — December 2010.
  - Municipal Development Project — Approved by the Board on September 2010.
  - Conditional Cash Transfer — 2011Q1.
  - Country Strategy Partnership — Board Discussion September 2011.
- Fund Work Program:
  - Staff Visit — Expected delivery April 2011; Timing of Missions April 2011.
  - Article IV Consultation — Expected delivery August 2011; Timing of Missions October 2011.
  - MCM TA (Forensic accounting) — Expected delivery December 2010 and March 2011; Timing of Missions February 2011 and December 2010 (table lists both).
  - LEG TA (Bank resolution framework) — Expected delivery February 2011.
  - Joint Work FSAP/FSSA — Expected delivery July 2011; Timing of Missions October 2011.

### Financial relations with the World Bank Group (IBRD)
IBRD operations (In U.S. dollars):
- IBRD Original Principal 101,200,000
- Cancellations 5,703,328
- Disbursed 81,728,003
- Undisbursed 13,768,670
- Repaid 70,981,034
- Due 10,746,968
- Exchange Adjustment -11,042
- Borrower Obligation 10,735,926

Gross disbursements and debt service during fiscal year (July 1–June 30) (In millions of U.S. dollars):
- Disbursements (by year sequence as presented): 2006: 0.7; 2007: 0.0; 2008: 0.0; 2009: 0.0; 2010: 0.0; 2011: 1.2; 2012*: 2.0; 2013*: 3.0
- Repayments (by year sequence): 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 (by year sequence): 2006: -3.8; 2007: -4.9; 2008: -4.9; 2009: -4.7; 2010: -4.3; 2011: -3.2; 2012*: 0.0; 2013*: 1.3
- Interest (by year sequence): 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: 0.0 across listed years.
- Note: * Estimated Debt Service. Reflects estimated disbursements for US$15mn municipal development project.

### Relations with the Inter-American Development Bank (ANNEX III)
Country Strategy with Belize (2008–2012):
- Four development objectives:
  - (i) Ensure sound fiscal management and public sector transparency;
  - (ii) Create conditions for and restore sustainable, private sector led growth;
  - (iii) Improve human resource development and social protection;
  - (iv) Rehabilitation of basic infrastructure.
- Approvals to date under this strategy: US$72 million (nine projects).
- Approved program includes 6 investment loans targeting tourism, agriculture, infrastructure development, land management.
- A US$15 million policy based loan targeting reforms in education, health and fiscal policy sectors was concluded in April 2011.

Technical cooperation and strategy results:
- Numerous TC projects supporting fiscal transparency and responsibility, pension system assessment, institutional strengthening of credit unions, competitiveness and investment promotion, and natural disaster risk management.
- Strategy results to date include:
  - Introduction of a medium-term fiscal framework in the 2010/11 budget.
  - Approval of an amendment to the Education Act establishing the creation of the National Teaching Services Commission.
  - Reconstruction and localized repairs of road network, replacement and repair of culverts, and replacement of bridges and crossings damaged by the floods of 2008.

Current portfolio (in US$ million):
- Solid Waste Management — Loan Approved 11.2; Undisbursed 9.1
- Sustainable Tourism — Loan Approved 13.3; Undisbursed 11.6
- Land Management Program III — Loan Approved 2.5; Undisbursed 1.8
- Agricultural Services Program — Loan Approved 5.0; Undisbursed 3.8
- Community Action for Public Safety — Loan Approved 5.0; Undisbursed 5.0
- Water and Sanitation Program – Placencia — Loan Approved 5.0; Undisbursed 5.0
- Belize City Flood Mitigation Infrastructure — Loan Approved 10.0; Undisbursed 10.0
- Total — Loan Approved 52.0; Undisbursed 46.3

Loan transactions (in US$ million) — yearly sequence presented:
- Net flows: 2007: 12.3; 2008: -6.6; 2009: 4.9; 2010: -0.3; Proj. 2011: 10.2
- Gross disbursements: 2007: 20.2; 2008: 2.7; 2009: 12.9; 2010: 8.0; Proj. 2011: 18.4
- Amortization: 2007: 3.9; 2008: 4.2; 2009: 4.2; 2010: 4.4; Proj. 2011: 4.3
- Interest and charges: 2007: 4.5; 2008: 5.1; 2009: 3.8; 2010: 3.9; Proj. 2011: 3.9

### Relations with the Caribbean Development Bank (ANNEX IV)
Loan portfolio under implementation (As of August 31, 2011, in millions of U.S. dollars):
- Second Water Project — Approved 13.8; Undisbursed 0.3
- Health Sector Reform Program — Approved 5.6; Undisbursed 0.6
- Belize Social Investment Fund — Approved 7.1; Undisbursed 0.2
- Modernization of Customs and Excise Department — Approved 2.5; Undisbursed 0.3
- NDM – Bridge Rehabilitation — Approved 8.8; Undisbursed 5.5
- Feasibility Study – Water/Ambergris Caye — Approved 0.3; Undisbursed 0.1
- Sixth Consolidated Line of Credit — Approved 10.0; Undisbursed 4.3
- Belize River Water Project — Approved 3.5; Undisbursed 3.5
- Belize Social Investment Fund II — Approved 15.0; Undisbursed 14.8
- Fourth Road Project – Santa Elena – San Ignacio Bypass — Approved 24.7; Undisbursed 24.7
- NDM – Immediate Response – Hurricane Richard — Approved 0.8; Undisbursed 0.8
- Total — Approved 91.1; Undisbursed 55.1

Loan transactions — year sequence presented (2005–Year to August 2011):
- Net flows by year: 2005: 4.0; 2006: (1.7); 2007: 3.3; 2008: (0.4); 2009: 10.5; 2010: 2.0; Year to August 2011: (2.7)
- Gross disbursements by year: 2005: 9.4; 2006: 3.9; 2007: 20.0; 2008: 14.9; 2009: 21.3; 2010: 14.5; Year to August 2011: 6.2
- Amortization by year: 2005: 5.4; 2006: 5.6; 2007: 12.2; 2008: 10.1; 2009: 6.4; 2010: 7.6; Year to August 2011: 5.8
- Interest and charges by year: 2005: 4.5; 2006: 4.7; 2007: 4.5; 2008: 5.2; 2009: 4.4; 2010: 4.9; Year to August 2011: 3.1

Economic and sector work and lending highlights (2007–2010):
- Total CDB loan approvals during 2007–10: US$103.5 million.
- Approvals of grants during 2007–10: US$3.5 million (including US$2.8 million under BNTF V and VI).
- Policy Based Loan (PBL): US$25 million—first disbursement in 2007, second disbursement in first quarter 2009.
- Infrastructure projects:
  - US$12.6 million approved in 2007 to upgrade 33.4 kilometres Placencia Road; project completed in 2010 under budget.
  - US$8.8 million approved in 2008 for reconstruction of Kendall (Sittee River) and Mullins River bridges; reconstruction started in 2010 and is ongoing.
  - Fourth road loan of US$24.7 million approved in 2010 for bypass road (Loma Luz Boulevard and Joseph Andrews Drive) including new road and bridge crossing the Macal River.
- Feasibility study:
  - US$1.6 million approved in 2010 to conduct feasibility study for expansion of water and sewerage facilities on Ambergris Caye.
- Private sector development:
  - 2009 line of credit of US$10 million for projects in agriculture, industry, housing and education; funds managed by Development Finance Corporation (DFC).
- Social sector investments:
  - Approximately US$3.3 million approved in 2010 to establish potable water supply system in Belize River Valley for nine villages.
  - US$15 million loan approved in 2010 to Belize Social Investment Fund (BSIF) for small sub-projects in poor under-served communities; second loan to BSIF (first loan approved in 2003 amounted to USD7.07 mn).
- Human resource development:
  - Grant funding of US$260,000 in 2010 for consultancy services to assist GOBZ with education sector policy and strategic framework and school location plan.
- Proposed CDB strategy 2011–2015 and proposed lending program:
  - Proposed interventions to support macroeconomic stability, public financial management, infrastructure (road, water and sewerage), private sector development (focus on financial sector), education access and quality, and social interventions targeted at poor and vulnerable groups.
  - Overall proposed lending programme amount: US$172.8 million.
  - Proposed PBLs amounting to US$50 million to encourage maintenance of stable macroeconomic environment and support policy developments.

### Statistical issues (ANNEX V)
A. Assessment of data adequacy for surveillance
- General: Data are broadly adequate for surveillance. Quality, coverage, and timeliness permit adequate monitoring, but the multi-sector statistics report of July 2007 listed shortcomings in national accounts, prices, external trade, government finance, and labor statistics. Data concerning the balance sheet of the DFC requires improving.
- Real sector priorities:
  - Establish a user advisory committee.
  - Update the SNAPC-Belize application to reflect changes in economic structure.
  - Modify the concept of government industrial activity in line 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 and update the register of establishments.
  - Annotate all GDP tables to distinguish revision stages.
  - Collect data on informal activity.
  - SIB is assessing reliability of the 2006 establishment survey given low response rate; options include conducting a new survey for 2006–08 (would delay current time frame) or using GST and income taxpayers’ data to validate cost coefficient assumptions.
- Prices and labor statistics:
  - CPI is calculated for February, May, August, and November, released with a lag of about three months.
  - With Fund assistance, basket of goods and services has been updated.
  - SIB compiling a monthly CPI for food and fuels to be tentatively released in the fourth quarter 2011 with data from December 2010.
  - Labor market statistics are scarce and available at irregular intervals.
- Fiscal accounts priorities:
  - Prepare comprehensive list of institutions comprising central government, general government, and public sector.
  - Evaluate statutory bodies to determine proper sectorization.
  - Compile GFS for the social security fund.
  - Include social security fund and extra budgetary units in debt data coverage.
  - Treat all government transactions in line with GFSM 2001 guidelines.
  - Ensure annual financial statements for budgetary central government are audited timely.
  - Disseminate statistics for central government aggregates and debt per GDDS recommendations.
  - Disseminate available monthly data on budgetary central government revenue, expenditure and financing.
- Balance of payments:
  - Need to improve and expand compilation and dissemination of external sector statistics.
  - Authorities refining data collection enabling regular quarterly presentation.
  - International Investment Position (IIP) statistics are not compiled; additional staff and training highly recommended.
  - Priorities include modifying several annual balance of payments survey forms to improve data collection.
- Development Finance Corporation (DFC) priorities:
  - Record financial support provided by government to DFC in recent years.
  - Renew efforts to collect balance sheet data from DFC using GFSM 2001 principles and the draft Public Sector Debt Guide being prepared by STA.

B. Data standards and quality
- Participant in the General Data Dissemination System (GDDS) since September 27, 2006.
- No data ROSC is available.

C. Reporting to STA
- IIP statistics are not compiled.
- No fiscal data are being reported for publication in the Government Finance Statistics Yearbook or in the IFS.

Key data reporting table highlights (dates shown as in source):
- Exchange Rates: Date of Latest Observation 8/16/2011; Date Received 8/16/2011; Frequency of Data MN; Frequency of Reporting A; Frequency of Publication NA.
- International Reserve Assets and Liabilities of the Monetary Authorities: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency of Data W; Frequency of Reporting W; Frequency of Publication NA.
- Reserve/Base Money: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency W; Frequency Reporting W; Frequency Publication NA.
- Broad Money: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency W; Frequency Reporting W; Frequency Publication NA.
- Central Bank Balance Sheet: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency W; Frequency Reporting W; Frequency Publication NA.
- Banking System Balance Sheet: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency M; Frequency Reporting M; Frequency Publication NA.
- Interest Rates: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency M; Frequency Reporting M; Frequency Publication NA.
- Consumer Price Index: Date of Latest Observation 3/31/2011; Date Received 5/31/2011; Frequency Q; Frequency Reporting Q; Frequency Publication NA.
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of Latest Observation 6/31/2011; Date Received 8/9/2011; Frequency M; Frequency Reporting M; Frequency Publication NA.
- Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation 5/31/2011; Date Received 8/9/2011; Frequency M; Frequency Reporting M; Frequency Publication NA.
- External Current Account Balance: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency Q; Frequency Reporting Q; Frequency Publication A.
- Exports/Imports of Goods and Services: Date of Latest Observation 3/31/2011; Date Received 8/9/2011; Frequency M; Frequency Reporting M; Frequency Publication NA.
- GDP/GNP: Date of Latest Observation 2011Q1; Date Received 7/13/2011; Frequency A; Frequency Reporting A; Frequency Publication NA.
- Gross External Debt: Date of Latest Observation 5/31/2011; Date Received 8/9/2011; Frequency A, MA, MNA.

### IMF Public Information Notice (PIN) No. 11/131 — Executive Board conclusion (summary)
- Date: FOR IMMEDIATE RELEASE October 31, 2011.
- IMF Executive Board concluded the 2011 Article IV consultation with Belize on October 21, 2011.
- Macroeconomic outcomes and indicators cited:
  - Output expanded by 2.7 percent in 2010, owing largely to activity in the electricity and wholesale and retail trade.
  - Twelve-month inflation was nil in 2010, picked up slightly in the quarter ending in May (driven by higher food and fuel prices).
  - Current account deficit narrowed from 6.1 percent of GDP in 2009 to 3 percent in 2010.
  - Foreign reserves increased to 3.25 months of imports at end-2010, equivalent to 300 percent of 2011 external financing needs.
  - Public debt rose to 83 percent of Gross Domestic Product (GDP).
- Fiscal year 2010/11: The overall fiscal deficit widened by 0.3 percentage point of GDP (further details beyond this sentence are not included in the supplied content).

*Source: _cr11340 - ANNEX II.  BELIZE: BANK—FUND COLLABORATION (IMF informational annex content as provided).*

### 1.5 percent of GDP, reflecting an increase in expenditure and weak grant disbursements. This

### _cr11340 - 1.5 percent of GDP, reflecting an increase in expenditure and weak grant disbursements. This

### Fiscal outturn and public finances
- Overall fiscal outturn: "1.5 percent of GDP, reflecting an increase in expenditure and weak grant disbursements."
- Outturn compared with budget: "This outturn was, however, better than envisaged in the budget."
- Fiscal-year reporting note: "Fiscal year ends in March. Budget projection for 2010"
- Central government (percent of GDP):
  - Revenue and grants: 28.1, 28.6, 27.0, 27.4, 28.6, 27.4
  - Current expenditure: 23.1, 23.3, 24.5, 24.0, 24.9, 24.6
  - Capital expenditure and net lending: 5.7, 4.9, 3.7, 4.5, 5.4, 5.4
  - Primary balance: 3.8, 4.2, 2.4, 1.9, 2.2, 1.8
  - Overall balance: -0.7, 0.4, -1.2, -1.5, -1.6, -2.5
- Directors' fiscal guidance:
  - "Further tighten the fiscal stance and rebuild macroeconomic buffers."
  - "A gradual increase in the primary surplus would keep financing needs manageable and place the public debt on a downward path."
  - Monitor contingent liabilities closely: "Directors cautioned that growing contingent liabilities could put an additional burden on public finances, requiring close monitoring over the medium term."
  - Strengthen tax administration and improve overall tax collections, including "a reduction in tax concessions."
  - Contain growth of the wage bill and "streamline capital spending in line with implementation capacity and grant disbursements."

### Banking sector and financial stability
- Prudential indicators: "Bank prudential indicators have remained weak, with high nonperforming loans (NPLs) and low provisioning."
- Liquidity and credit: "Bank liquidity remains ample." Despite "a cut in reserve requirements, bank credit growth has slowed as fewer investment opportunities and high NPLs continue to constrain new lending."
- FSAP: "In July, the authorities participated in their first Financial Sector Assessment Program (FSAP)."
- Directors' recommendations and observations:
  - "Safeguarding financial sector stability should be a high priority."
  - Use FSAP findings to guide reforms and strengthen the financial sector.
  - "Noting the high level of non-performing loans, Directors stressed the importance of issuing revised loan classification and provisioning guidelines by year-end as planned, and of closely monitoring bank’s capital adequacy."
  - Enhance supervisory capacity and "reinforce the bank resolution and consolidated supervision frameworks."
  - "Directors also called for greater autonomy of the central bank."
  - Ongoing efforts: "They welcomed the ongoing efforts to revamp the monetary policy framework."

### Macroeconomic outlook and external sector
- 2011 macro outlook summary: "The macroeconomic outlook for 2011 remains moderately positive."
- Output growth: "Output growth is projected at 2.5 percent, reflecting a strong performance in the first quarter—supported by an expansion in manufacturing and electricity sectors, and a modest recovery in stayover tourist arrivals."
- Inflation: "Higher food and fuel prices are expected to push inflation slightly upward."
- External current account: "The external current account deficit is projected to remain at about 3 percent of GDP in the context of some improvement in the terms of trade."
- Reserves: "The reserve coverage would remain at around 3 months of imports by year-end."
- Exchange rate policy: "Directors noted that the fixed exchange rate has provided an important anchor for macroeconomic policies."
  - Recommendation: "Given that rising gross external financing needs over the medium-term would increase vulnerability, they recommended building a higher level of foreign reserves as a buffer against shocks."

### Growth, poverty, and structural issues
- Social indicators: "Improvements in social indicators have been protracted, despite the allocation of significant resources to social protection."
- Poverty: "The recent rise in poverty is also a cause for concern."
- Directors' social policy guidance:
  - Endorsed "the authorities’ emphasis on developing social programs aimed at reducing poverty."
  - Programs should be "cost effective and better monitored and targeted."
- Productivity and business climate:
  - Need to strengthen macroeconomic framework and business climate to tackle "Belize’s low productivity growth."
  - Specific actions urged: "timely compensation to former owners of the nationalized entities, once the courts have reached a final verdict."
  - Longer-term growth requires "steady programs to enhance physical and financial infrastructure, promoting the formation of skilled labor, and reforming the tax system."
  - Importance of "close collaboration between the Fund and development partners in these areas."

### Key quantitative indicators (selected, as presented)
- National income and prices:
  - GDP at constant prices: 1.3, 3.6, 0.0, 2.7, 2.5, 2.8
  - Nominal GDP (US$ millions): 1,282, 1,364, 1,349, 1,401, 1,474, 1,552
  - Gross domestic investment (percent of GDP): 17.2, 26.4, 22.0, 18.0, 19.0, 19.0
  - Gross national savings (percent of GDP): 13.1, 15.8, 15.8, 15.0, 15.9, 14.6
  - Consumer prices (end of period): 4.1, 4.4, -0.4, 0.0, 4.2, 2.5
  - Real effective exchange rate (July for 2011): -4.9, -0.6, 4.5, -3.1, -5.6, ...
- Money and credit:
  - Credit to the private sector (annual percent change): 13.9, 11.6, 4.8, -3.6, 0.3, 1.5
  - Money and quasi-money (M2) (annual percent change): 15.0, 14.0, 5.8, -1.8, 4.2, 5.0
- External sector:
  - External current account (percent of GDP): -4.1, -10.6, -6.2, -3.0, -3.1, -4.4
  - Overall balance of payments (US$ millions): 22.9, 57.9, 47.2, 4.3, 3.9, 16.1
  - Gross international reserves (US$ millions): 108.5, 166.4, 213.7, 218.0, 221.8, 235.2
  - In months of imports: 1.6, 2.1, 3.3, 3.2, 2.9, 2.9
- Public and publicly guaranteed debt (percent of GDP): 87.6, 79.4, 82.2, 83.3, 80.4, 78.1
  - Domestic debt: 8.2, 7.4, 7.1, 11.9, 12.1, 11.5
  - External debt: 79.4, 72.0, 75.0, 71.4, 68.3, 66.6

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

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11340.pdf_