## _cr14280

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### Real Sector Developments — Background and Recent Outcomes
- Political and fiscal context
  - Forthcoming municipal elections in March 2015 are building pressure for more government spending.
  - Government created a new public bank in September 2013 to provide loans to public employees and teachers on concessional terms.
  - Authorities announced sizeable wage increases for public employees and committed to allocating half of the annual growth in recurrent revenues to increases in public sector wages during FY2014/15–FY2016/17.
- Social conditions
  - Unemployment stood at 14.2 percent in September 2013.
  - CPA 2009: share of households living in poverty increased from 25 percent to 33 percent since 2002; share in severe poverty rose from 8 percent to 10 percent.
  - 2013 UN Global Study on Homicide: Belize has 44.7 homicides per 100,000 inhabitants.
- Recent macro outcomes
  - Real GDP growth: 0.7 percent in 2013 (down from 4 percent in 2012).
  - Average inflation eased to 0.5 percent in 2013 from 1.3 percent a year earlier; March 2014 inflation = 1.4 percent (y/y).
  - External current account deficit: -4.5 percent of GDP in 2013 (from -1.2 percent in 2012).
  - January–February 2014: export revenues fell by 16.5 percent (y/y); imports fell by 1.0 percent.
  - International reserves: 4.7 months of imports at end-March 2014 (up from 3.3 months at end-2012).
- FY2013/14 fiscal outcomes (fiscal year ends in March)
  - Central government primary surplus estimated at 1 percent of GDP (down from 1.4 percent of GDP in FY2012/13).
  - Revenue better-than-budgeted; substantial increases in wages and salaries, transfers and interest payments raised current expenditure.
  - Capital expenditures higher than budgeted to rebuild infrastructure damaged by rain.
- Monetary and financial sector summary (selected)
  - Private sector credit grew by 3.8 percent (y/y) in March 2014; broad money grew by 5.2 percent.
  - Commercial banks’ excess cash reserves and liquid asset reserves were 120 percent and 70 percent of requirements respectively at end-March 2014.
  - In one domestic bank, excess liquidity is over 200 percent of required reserves and accounts for 60 percent of system’s total.
  - T-bill rates below 1 percent; NPLs = 16.7percent of total loans at end-March 2014.
  - Banking system CAR improved to 23.4 percent; loan write-offs amounted to 2.5 percent of private sector credit in 2013; total write-offs for last three years = 3.4 percent of total assets of the banking system at end-2013.
- AML/CFT and external financial relations
  - Authorities adopted new AML/CFT legislation after CFATF called for counter measures in November 2013.
  - Some foreign financial institutions restricted transactions with Belize after CFATF’s November statement; impact limited.
  - CFATF public statement of May 2014 noted Belize had made significant progress addressing AML/CFT deficiencies.

### Macroeconomic Outlook, Risks, and Staff Projections
- Growth and inflation outlook (staff)
  - Real GDP growth: weaker near term; hover around 2.5 percent over the medium term as declining oil production is partially offset by higher output of other commodity exports, tourism and construction.
  - Inflation: remain low due to exchange rate peg and subdued inflation in trading partners.
- Fiscal trajectory and debt risks
  - Authorities’ medium-term plans would maintain the primary surplus around 1 percent of GDP (as in FY2013/14).
  - Low primary surpluses and recognition of nationalization-related debt would bring public debt-to-GDP ratio to about 90 percent by FY2019/20 (more than 5 percentage points above 2013 Article IV projections).
  - Debt sustainability uncertain.
- External sector risks
  - Expansionary fiscal policies, including large wage increases, would fuel higher domestic consumption and upward pressures on the external current account deficit.
  - International reserves would decline substantially over the medium term due to shortfalls in capital inflows and assumed repatriation of compensation payments for nationalized companies.
  - PetroCaribe flows will continue to play a major role in financing the budget and the external current account deficit.
  - Exchange rate is estimated to be moderately overvalued, reflecting the current unsustainable policy mix.
- Main downside risks (selected)
  - Lower-than-projected primary balances.
  - Court decision leading to larger-than-expected compensation to former owners of nationalized companies.
  - Banking sector vulnerabilities, especially a systemic bank’s low capital buffers.
  - Fiscal risks from state-owned entities.
  - Cost of the new public bank and of policy initiatives (e.g., expansion of national health insurance).
  - Additional external vulnerabilities from protracted weak growth in advanced economies or end of PetroCaribe financing.
- Upside mitigating factors: new oil discoveries and growth-enhancing projects.

### Quantified Baseline and Active Scenarios (Text Table 1 — selected series)
- Baseline Scenario (2013–2019)
  - Real GDP growth: 0.7 (2013), 2.0 (2014), 2.5 (2015–2019).
  - Central government primary balance: 1.0 (2013–2019).
  - Overall balance: -2.3 (2013), -1.7 (2014–2015), -2.1 (2016), -3.3 (2017), -3.4 (2018), -4.6 (2019).
  - Public and publicly guaranteed debt: 76.4 (2013), 77.4 (2014), 76.7 (2015), 97.3 (2016), 94.1 (2017), 91.9 (2018), 89.8 (2019).
  - Current account balance: -4.5 (2013), -4.9 (2014), -5.5 (2015), -5.9 (2016), -6.1 (2017), -6.4 (2018), -6.5 (2019).
  - Gross official reserves (months of imports): 4.3 (2013), 4.7 (2014), 4.8 (2015), 4.6 (2016), 3.1 (2017), 1.7 (2018), 0.3 (2019).
- Active Scenario (2013–2019)
  - Real GDP growth: 0.7 (2013), 1.5 (2014), 1.8 (2015), 2.6 (2016), 2.8 (2017), 3.0 (2018), 3.2 (2019).
  - Central government primary balance: 1.0 (2013), 3.5 (2014), 4.6 (2015), 4.4 (2016), 4.6 (2017), 4.7 (2018–2019).
  - Overall balance: -2.3 (2013), 0.7 (2014), 1.9 (2015), 1.4 (2016), 0.5 (2017), 0.6 (2018), -0.6 (2019).
  - Public and publicly guaranteed debt: 77.5 (2013), 76.8 (2014), 73.4 (2015), 71.6 (2016), 83.2 (2017), 77.0 (2018), 70.6 (2019).
  - Current account balance: -4.5 (2013), -3.6 (2014), -3.3 (2015), -2.8 (2016), -2.5 (2017), -2.9 (2018), -3.4 (2019).
  - Gross official reserves (months of imports): 4.4 (2013), 4.7 (2014), 5.3 (2015), 5.8 (2016), 5.3 (2017), 4.7 (2018), 4.1 (2019).

### Assumptions and Liabilities Related to Nationalizations (Text Table 2)
- Staff assumes a court decision in 2016 that government owes compensation equivalent to about 20 percent of GDP to former owners of nationalized companies (BTL and BEL), including capitalized accrued interest.
- Valuation figures (end-2012 and end-2016 capitalization as presented)
  - Authorities’ valuation (end-2012): US$85 million.
  - Claimants’ valuation (end-2012): US$450 million.
  - Mid-point: US$268 million.
  - Capitalization of accrued interest (as of end-2016): Authorities US$56 million; Claimants US$180 million; Mid-point US$95 million.
  - Total liabilities (as of end-2016): Authorities US$141 million; Claimants US$630 million; Mid-point US$363 million.
  - In percent of GDP: Authorities 7.8; Claimants 34.9; Mid-point 20.1.
- Staff assumes compensation paid in five installments starting in 2017, adding to external outflows.

### Authorities’ Valuation Scenario (Authorities’ 8 percent of GDP view) — Implications
- Authorities’ valuation of nationalized companies: 8 percent of GDP (BZ$281 million).
- Under authorities’ valuation and current policies, projected outcomes by 2019:
  - Public and publicly guaranteed debt would decline to about 75 percent of GDP by 2019 (Text Table 4 shows 75.5 percent for 2019).
  - Gross official reserves cover would decline to about 3 months of imports (Text Table 4 shows 2.9 months for 2019).
- Authorities argue this more favorable outlook, combined with forthcoming fiscal measures and potential upside growth risks, could enable reaching their debt target in the medium term.

### Policy Discussions and Recommendations — Fiscal Consolidation
- Overall advice
  - Staff urged authorities to put fiscal policy on a sustainable path, create buffers to address vulnerabilities, and boost inclusive growth prospects.
  - Continue strengthening the financial sector and buttressing external sector resilience.
- A. More ambitious fiscal stance to restore debt sustainability
  - Staff recommendation: raise primary surplus to 3.5 percent of GDP in FY2014/15 and then closer to 4–5 percent of GDP in the medium term to bring debt to about 70 percent of GDP by FY2019/20.
  - Continued efforts thereafter to reduce debt below 60 percent of GDP a few years later; adopt below-60 percent as medium-to-long term target.
  - Staff assumes possible court-ordered compensation (about 20 percent of GDP) related to nationalizations.
- Measures to achieve credible fiscal consolidation
  - Revenue measures
    - FAD TA report: realistically collect more than 1–2 percent of GDP additional non-oil revenue by removing exemptions and zero-ratings from GST.
    - Step up modernization of tax administration using information technology and frequent publication of reports.
    - Currently less than a third of active businesses registered with tax administration are current on tax filing obligations.
    - Ratio of import duty to total imports and ratio of GST collected on imports to total imports both close to 4 percent.
    - Import duty rates range from 10 to 90 percent; GST rate is 12.5 percent.
  - Expenditure measures
    - Undo commitment to allocate half of annual growth in recurrent revenue to public wages.
    - Adopt a wage negotiation framework to ensure fiscal sustainability.
    - Contain primary expenditures by freezing spending on goods and services in real terms; limit wage bill and wage-related transfers through attrition; ask public employees to contribute 10 percent of wages to pension fund (currently noncontributory); adjust pensions only with changes in cost of living.
    - Update pensions legislation to increase flexibility on contribution rates and maximum pensionable salary.
  - Public Financial Management (PFM)
    - Strengthen PFM and procurement to control outlays on goods and services.
    - Government financial statements for last three fiscal years must be submitted to Auditor General and then to parliament for budget review laws.
    - Implement PEFA assessment recommendations, including strengthening internal controls and internal audit.
  - Debt management
    - Forthcoming IMF TA mission on debt management to establish sound debt management framework and identify refinancing and borrowing strategies.
- Quantified consolidation package (Text Table 3: percent of GDP)
  - Total spending measures: 2.3 (2014), 2.9 (2015–2016), 3.3 (2017), 3.6 (2018–2019).
  - Goods and services (freeze in real terms): 0.8 (2014), 1.1 (2015), 1.0 (2016), 1.1 (2017), 1.2 (2018–2019).
  - Salaries (attrition): 0.2 (2014), 0.4 (2015), 0.6 (2016), 0.8 (2017), 1.0 (2018), 1.1 (2019).
  - Contribution to pension fund (10% of salaries): 1.3 (2014–2016), 1.3 (2017), 1.2 (2018–2019).
  - Pensions (adjusted by inflation): 0.0 (2014–2016), 0.1 (2017–2019).
  - Revenue measures: 0.1 (2014), 0.7 (2015), 0.5 (2016), 0.2 (2017), 0.1 (2018–2019).
  - Total adjustment measures: 2.4 (2014), 3.6 (2015), 3.4 (2016), 3.6 (2017), 3.7 (2018), 3.7 (2019).
- Risks of weak adjustment
  - Weak adjustment would produce a debt path well above levels staff consider sustainable, undermine credibility and investor confidence, deplete reserves, and force high-cost international borrowing.

### Financial System — Progress, Vulnerabilities, and Recommendations
- Progress since 2011 FSAP
  - NPLs on a declining trend, including through loan write-offs.
  - CARs and provisioning of NPLs improving.
  - Loan classification strengthened; banks required to meet provisioning standards by 2016.
  - Revised Domestic Banks and Financial Institutions Act strengthened Central Bank powers.
- Remaining vulnerabilities and concerns
  - NPLs remain high at a systemic bank: 32 and 35 percent of domestic banks’ assets and deposits respectively.
  - Capital buffers may be overestimated because provisioning of NPLs is still insufficient.
  - Stress tests indicate capital shortfalls in some adverse scenarios; with the exception of two banks, capital buffers may not be large enough to absorb sizable but plausible losses.
- Staff recommendations (selected)
  - Undertake an asset quality review (AQR) of all banks.
  - Move to forward-looking stress tests in line with 2011 FSAP practices.
  - Strengthen Central Bank supervision department, including recruiting IT-specialist examiners.
  - Request IMF TA to strengthen Central Bank supervision and provide guidance on loan classification and provisioning under IFRS.
  - Ensure the Central Bank can enforce remedial action on banks without prior consultation with or approval of the Minister of Finance.
  - Improve frameworks for international banking, credit unions, domestic insurance, financial stability analysis, crisis management and bank resolution, and AML/CFT—especially transparency and regulation of IBCs and trusts.
- Financial soundness indicators (selected figures)
  - Capital/risk-weighted assets (percent): 2007: 22.7; 2008: 20.4; 2009: 22.2; 2010: 23.9; 2011: 24.2; 2012: 20.5; 2013: 22.3; Mar-14: 23.4.
  - NPLs/total loans (percent): 2007: 6.9; 2008: 11.7; 2009: 14.0; 2010: 18.7; 2011: 21.4; 2012: 20.3; 2013: 17.6; Mar-14: 16.7.
  - Provisions/NPLs (percent): 2007: 31.2; 2008: 24.1; 2009: 18.1; 2010: 15.5; 2011: 24.4; 2012: 38.3; 2013: 46.7; Mar-14: 49.7.
  - Excess statutory liquidity (percent of statutory liquidity requirement): Mar-14: 104.3.

### Authorities’ Views and Planned Actions (Financial and External Policies)
- Debt sustainability target
  - Authorities believe debt should be in the range of 60–65 percent of GDP to be considered sustainable.
  - They concurred that achieving 60–65 percent would require an annual primary balance close to 5 percent of GDP.
- Measures and commitments
  - No commitment to specific measures to achieve 60–65 percent target.
  - Prime Minister’s 2014 budget speech: set up a committee to review exempted and zero-rated items under GST.
  - Agreed to hold revenue administration more accountable.
  - Considered backtracking on February 2014 wage agreement politically infeasible; determined to implement a fiscally sustainable wage negotiation framework and plan to sign an MOU with labor unions.
  - Permanent committee established under 2014 wage agreement will identify budget savings and consider pension framework reforms.
- On Central Bank independence
  - Authorities agreed that ideally Ministry of Finance approval should not be required for corrective measures but emphasized the approval requirement in the Domestic Banks and Financial Institutions Act (2012) was intended to prevent abuses and ensure coordination.
  - Planned measures include hiring an in-house legal expert, groundwork for a national credit bureau, modernizing the national payments system, and requesting IMF TA.

### Competitiveness, Growth-Enhancing Reforms, and Social Priorities
- Staff recommendations to enhance competitiveness and external stability
  - Aim for current account balance consistent with external stability: about -3 percent of GDP.
  - Reduce production costs and the cost of doing business.
  - Fiscal measures: reduce/eliminate government charges that raise labor costs (especially for low-skilled workers); remove exemptions and zero-ratings on the GST; broaden business income tax to include capital gains and income from capital; discontinue tax and dividend holidays for specific economic zones.
  - Spending priorities: enhance human and physical capital, target education and means-tested health programs, improve agricultural infrastructure, promote e-government, public safety, and strengthen institutions (judiciary, land registry).
  - Monetary and financial policies: foster stronger and affordable credit to private sector and farmers; remove interest rate floor of 2.5 percent on savings deposits; promote competition among banks; modernize financial market infrastructure and use information technologies; accelerate disbursement of existing credit lines for farmers.
  - Recognize need to reassure investors that additional nationalizations are not part of development strategy.
- Authorities’ views on external policies
  - Authorities view the nominal exchange rate peg as a key anchor.
  - Noted actions: reviewing GST exemptions and zero-ratings; upgrading road network; attracting more FDI in tourism and agriculture.
  - Authorities accept budget may need to finance modernization of financial market infrastructure.

### Public Debt, DSA Findings, and Stress Tests
- Public debt stock and composition (selected excerpts)
  - Total public and publicly guaranteed debt (percent of GDP series): 84.6 84.6 80.5 75.6 76.4 77.4 76.7 97.3 94.1 91.9 89.8.
  - Central government (percent of GDP series): 77.4 79.3 75.9 72.0 74.4 75.5 74.9 95.6 92.5 90.4 88.4.
  - External debt (percent of GDP series): 70.1 67.3 64.8 61.4 64.1 65.6 65.4 63.8 60.7 57.5 53.7.
- Key DSA findings
  - Total public debt was 76.4 percent of GDP (US$1,235 million) at end of 2013; 85 percent external, 15 percent domestic.
  - Recognition of liabilities related to nationalizations could raise debt by 22 percentage points of GDP in 2016 (assumed compensation payments of about BZ$726 million = 20 percent of GDP).
  - Under baseline with recognition of liabilities, public debt would rise to 97 percent of GDP in 2016 and decline slowly thereafter at a primary surplus of about 1 percent of GDP.
  - Financing conditions deteriorate: public sector gross financing needs projected to increase to 20 percent of GDP in 2019.
- Stress-test highlights (selected)
  - 10 percent real depreciation in 2014 combined with recognition of additional liabilities (20 percent of GDP) would boost total public debt to 105 percent of GDP in 2016.
  - A financial sector contingent liability shock that increases public spending by the equivalent of 10 percent of banking sector’s assets would raise total public debt to 120 percent of GDP (projection year as given).
- Macro and debt-service assumptions (selected)
  - Nominal GDP (US$ millions): 1,339 1,398 1,489 1,573 1,615 1,666 1,733 1,805 1,881 1,961 2,044.
  - Real GDP growth rate (percent): 0.3 3.1 2.1 4.0 0.7 2.0 2.5 2.5 2.5 2.5 2.5.
  - Annual inflation (deflator, in percent): -2.5 1.3 4.3 1.5 2.0 1.1 1.5 1.6 1.7 1.7 1.7.
  - Nominal external multilateral/bilateral borrowing rate (percent): 2.1 1.5 1.5 1.7 1.4 1.4 1.8 2.9 3.9 3.9 3.9.
  - Six-month LIBOR rate (percent) 4/: 1.1 0.5 0.5 0.7 0.4 0.4 0.8 1.9 2.9 2.9 2.9.
  - Memorandum: Implicit nominal interest rate (percent): 4.5 4.4 4.2 3.7 2.3 3.6 3.6 3.7 4.5 4.9 4.8.
  - Gross financing requirement (percent of GDP): 5.5 2.2 2.4 3.2 6.1 3.8 3.9 4.1 6.0 6.3 6.8.

### Reserves Adequacy and External Financing
- Reserves trajectory (months of imports, selected)
  - Gross international reserves (US$ million): 2013 = 391; 2014 = 442; 2015 proj. = 459.
  - Reserves in months of imports: 2013 = 4.3; 2014 = 4.7; 2015 = 4.8; projected decline to 0.3 months by 2019 under baseline.
- Reserves adequacy ratios (selected)
  - Ratios of Reserves to Optimal Reserves (in percent, selected): 2013 Risk-Weighted Measure = 110; 2014 = 120; 2015 = 120; 2016 = 117; 2017 = 80; 2018 = 45; 2019 = 5.
  - SIDS Measure: 2013 = 74; 2014 = 82; 2015 = 82; 2016 = 79; 2017 = 53; 2018 = 29; 2019 = 8.
  - Staff projection: reserves adequacy indicators decline sharply, falling below comfortable thresholds by 2017 and reaching very low levels by 2019.
- External financing needs and sensitivity
  - Gross external financing needs are high: 8.5 percent of GDP on average annually over the next 5 years (series shown).
  - Under a 30 percent real depreciation: external debt peaks at 100 percent of GDP in 2016 and is 84 percent of GDP in 2019.

### AML/CFT Framework Progress and Capacity Needs
- CFATF timeline and legal reforms
  - 2011 CFATF evaluation identified deficiencies; listed Belize in November 2011.
  - CFATF called in November 2013 for counter measures; warned of possible referral to FATF ICRG if insufficient progress by May 2014.
  - February 2014 legal/regulatory measures enacted: six laws and three regulations, including amendments to MLTPA and Financial Intelligence Unit Act.
  - CFATF public statement of May 2014 noted significant progress and recommended continued work; Belize to report further progress in November 2014.
- Implementation constraints and TA
  - Fund TA delivered guidance on RBA supervision and FIU capacity; implementation impeded by limited resources and capacity.
  - Staff recommendations: ensure CBB, FIU and all agencies are properly resourced; strengthen transparency and regulation of IBCs and trusts.

### Data, Monitoring, and Surveillance
- Data adequacy
  - Data provision broadly adequate for surveillance but with shortcomings in national accounts, labor, and fiscal statistics.
  - SIB plans: comprehensive business census in 2014; labor force survey twice a year going forward; publish metadata online.
  - Consolidated public sector operations data unavailable; need to compile comprehensive list of institutions and improve capital expenditure recording.
  - Plans to produce annual and quarterly IIP for 2011–2013 during the second half of the year.
- Executive Board Assessment and recommended next steps
  - Directors noted weakened macro performance and key risks: contingent compensation payments for nationalized companies, banking sector vulnerabilities, and adverse global developments.
  - Recommended policy responses:
    - Renew fiscal consolidation efforts; many Directors: frontload consolidation; some: gradual adjustment.
    - Moderate goods and services and wage-related outlays; reform public employees’ pension system; broaden GST base.
    - Protect infrastructure, public safety, and flagship social programs.
    - Strengthen PFM and procurement, debt management, and financial sector resilience (AQR, strengthened supervision, crisis management plan).
    - Continue AML/CFT implementation and structural reforms to improve business environment and competitiveness.

*Source: _cr14280 — IMF staff report excerpts provided in the supplied content.*

### 1. Real Sector Developments ____________________________________________________________________ 21

### 1. Real Sector Developments

### Background
- Political and fiscal context
  - Forthcoming municipal elections in March 2015 are building pressure for more government spending.
  - Government created a new public bank in September 2013 to provide loans to public employees and teachers on concessional terms.
  - Authorities announced sizeable wage increases for public employees and committed to allocating half of the annual growth in recurrent revenues to increases in public sector wages during FY2014/15–FY2016/17.
- Social conditions
  - Unemployment stood at 14.2 percent in September 2013 and was on an upward trend since its lowest level in 2008.
  - Country poverty assessment (CPA) 2009: share of households living in poverty increased from 25 percent to 33 percent since 2002; share in severe poverty rose from 8 percent to 10 percent.
  - According to the 2013 UN Global Study on Homicide, Belize has 44.7 homicides per 100,000 inhabitants.
- Authorities’ record on Fund advice
  - Mixed: large wage increases agreed; fiscal space from March 2013 debt restructuring not used to put fiscal position on a sustainable path.
  - Primary surplus remains well below levels recommended by staff.
  - Authorities plan to review exemptions and zero-ratings under the GST.

### Recent Developments
- Real economy and inflation
  - Real GDP growth: 0.7 percent in 2013 (down from 4 percent in 2012), mainly due to declines in oil production and weak agricultural output (sugarcane and citrus).
  - Average inflation eased to 0.5 percent from 1.3 percent a year earlier; in March 2014 inflation picked up to 1.4 percent (y/y) driven by food and housing, water, electricity, gas and other fuels.
- External sector
  - External current account deficit widened to 4.5 percent of GDP in 2013 (from 1.2 percent in 2012) as exports of oil and agricultural products fell while imports of fuel and electricity increased.
  - January–February 2014: export revenues fell by 16.5 percent (y/y); imports fell by 1.0 percent.
  - International reserves: 4.7 months of imports at end-March 2014 (up from 3.3 months at end-2012), aided by PetroCaribe financing and private inflows.
- Fiscal outcomes FY2013/14 (fiscal year ends in March)
  - Primary surplus estimated at 1 percent of GDP (down from 1.4 percent of GDP in FY2012/13).
  - Revenue better-than-budgeted (robust tax revenues); substantial increases in wages and salaries, transfers and interest payments raised current expenditure.
  - Capital expenditures higher than budgeted to rebuild infrastructure damaged by rain.
- Monetary and financial sector
  - Private sector credit grew by 3.8 percent (y/y) in March 2014; broad money grew by 5.2 percent.
  - Commercial banks’ excess cash reserves and liquid assets reserves were 120 percent and 70 percent of requirements respectively at end-March 2014.
  - In one domestic bank, excess liquidity is over 200 percent of required reserves and accounts for 60 percent of system’s total.
  - High liquidity helped keep T-bill rates below 1 percent; commercial banks’ lending rates are slowly declining.
  - Non-performing loans (NPLs) remained high at 16.7percent of total loans at end-March 2014.
  - Banking system capital adequacy ratio (CAR) improved to 23.4 percent but masks weaknesses in a systemic bank.
  - Loan write-offs by the banking system amounted to 2.5 percent of private sector credit in 2013; total write-offs for last three years represented 3.4 percent of total assets of the banking system at end-2013.
- AML/CFT and financial relations
  - Authorities adopted new AML/CFT legislation after the Caribbean Financial Action Task Force (CFATF) called for counter measures in November 2013 due to unresolved deficiencies (Annex I).
  - After CFATF’s November statement, some foreign financial institutions began restricting transactions with Belize; impact limited.
  - CFATF public statement of May 2014 noted Belize had made significant progress addressing AML/CFT deficiencies.

### Macroeconomic Outlook and Risks
- Growth and inflation projections (staff assessment)
  - Real GDP growth weaker near term; hover around 2.5 percent over the medium term as declining oil production is partially offset by higher output of other commodity exports, tourism and construction.
  - Inflation would remain low due to exchange rate peg and subdued inflation in trading partners.
- Fiscal trajectory and debt
  - Authorities’ medium-term plans would maintain the primary surplus around 1 percent of GDP (as in FY2013/14) (Annex II).
  - Fiscal outturn in FY2013/14 considerably worse than expected; government gross financing requirement in 2017–2019 revised upward considerably.
  - Low primary surpluses together with recognition of debt related to nationalizations would bring public debt-to-GDP ratio to about 90 percent by FY2019/20, more than 5 percentage points of GDP above projections during the 2013 Article IV Consultation (Annex III).
  - Debt sustainability uncertain.
- External sector risks
  - Expansionary fiscal policies, including large wage increases, would fuel higher domestic consumption and upward pressures on the external current account deficit.
  - International reserves would decline substantially to very uncomfortable levels over the medium term due to shortfalls in capital inflows and assumed repatriation of compensation payments for nationalized companies.
  - PetroCaribe flows will continue to play a major role in financing the budget and the external current account deficit.
  - From external stability perspective, the exchange rate is estimated to be moderately overvalued, reflecting the current unsustainable policy mix (Annex IV).
- Main downside risks (Annex V and other annexes)
  - Lower-than-projected primary balances.
  - Court decision leading to larger-than-expected compensation to former owners of nationalized companies.
  - Banking sector vulnerabilities, especially systemic bank’s low capital buffers.
  - Fiscal risks from state-owned entities (Annex VI).
  - Cost of the new public bank.
  - Cost of new policy initiatives such as expansion of the national health insurance scheme (Annex VII).
  - Additional external vulnerabilities from protracted weak growth in advanced economies or end of PetroCaribe financing.
  - Upside mitigating factors: new oil discoveries and growth-enhancing projects underway or envisaged.

### Quantified baseline and active scenarios (Text Table 1)
- Baseline Scenario (2013–2019)
  - Real GDP growth: 0.7 (2013), 2.0 (2014), 2.5 (2015–2019).
  - Central government primary balance: 1.0 (2013–2019).
  - Overall balance: -2.3 (2013), -1.7 (2014–2015), -2.1 (2016), -3.3 (2017), -3.4 (2018), -4.6 (2019).
  - Public and publicly guaranteed debt: 76.4 (2013), 77.4 (2014), 76.7 (2015), 97.3 (2016), 94.1 (2017), 91.9 (2018), 89.8 (2019).
  - Current account balance: -4.5 (2013), -4.9 (2014), -5.5 (2015), -5.9 (2016), -6.1 (2017), -6.4 (2018), -6.5 (2019).
  - Gross official reserves (months of imports): 4.3 (2013), 4.7 (2014), 4.8 (2015), 4.6 (2016), 3.1 (2017), 1.7 (2018), 0.3 (2019).
- Active Scenario (2013–2019)
  - Real GDP growth: 0.7 (2013), 1.5 (2014), 1.8 (2015), 2.6 (2016), 2.8 (2017), 3.0 (2018), 3.2 (2019).
  - Central government primary balance: 1.0 (2013), 3.5 (2014), 4.6 (2015), 4.4 (2016), 4.6 (2017), 4.7 (2018–2019).
  - Overall balance: -2.3 (2013), 0.7 (2014), 1.9 (2015), 1.4 (2016), 0.5 (2017), 0.6 (2018), -0.6 (2019).
  - Public and publicly guaranteed debt: 77.5 (2013), 76.8 (2014), 73.4 (2015), 71.6 (2016), 83.2 (2017), 77.0 (2018), 70.6 (2019).
  - Current account balance: -4.5 (2013), -3.6 (2014), -3.3 (2015), -2.8 (2016), -2.5 (2017), -2.9 (2018), -3.4 (2019).
  - Gross official reserves (months of imports): 4.4 (2013), 4.7 (2014), 5.3 (2015), 5.8 (2016), 5.3 (2017), 4.7 (2018), 4.1 (2019).

### Assumptions on liabilities related to nationalizations (Text Table 2)
- Staff assumes court decision in 2016 that government owes compensation equivalent to about 20 percent of GDP to former owners of nationalized companies (BTL and BEL), including capitalized accrued interest.
- Staff valuation assumptions:
  - Authorities’ valuation (end-2012): US$85 million.
  - Claimants’ valuation (end-2012): US$450 million.
  - Mid-point: US$268 million.
  - Capitalization of accrued interest (as of end-2016): Authorities US$56 million; Claimants US$180 million; Mid-point US$95 million.
  - Total liabilities (as of end-2016): Authorities US$141 million; Claimants US$630 million; Mid-point US$363 million.
  - In percent of GDP: Authorities 7.8; Claimants 34.9; Mid-point 20.1.
- Staff assumes compensation paid in five installments starting in 2017, adding to external outflows.

### Policy Discussions and Recommendations
- Overall advice
  - Staff urged authorities to put fiscal policy on a sustainable path, create buffers to address vulnerabilities, and boost inclusive growth prospects.
  - Continue strengthening the financial sector and buttressing external sector resilience.
- A. A more ambitious fiscal stance to restore debt sustainability and create credible policy buffers
  - Staff recommendation: raise primary surplus to 3.5 percent of GDP in FY2014/15 and then closer to 4–5 percent of GDP in the medium term to bring debt to about 70 percent of GDP by FY2019/20.
  - Continued efforts thereafter to reduce debt below 60 percent of GDP a few years later; adopt below-60 percent as medium-to-long term target.
  - Staff assumes possible court-ordered compensation (about 20 percent of GDP) related to nationalizations (paragraph 8).
- Measures to achieve credible fiscal consolidation (Text Table 3)
  - Revenue measures
    - FAD TA report: realistically collect more than 1–2 percent of GDP additional non-oil revenue by removing exemptions and zero-ratings from GST.
    - Step up modernization of tax administration using information technology and frequent publication of reports to increase accountability.
    - Currently less than a third of active businesses registered with tax administration are current on tax filing obligations.
    - Ratio of import duty to total imports and ratio of GST collected on imports to total imports both close to 4 percent.
    - Import duty rates range from 10 to 90 percent; GST rate is 12.5 percent.
  - Expenditure measures
    - Undo commitment to allocate half of annual growth in recurrent revenue to public wages.
    - Adopt a wage negotiation framework to ensure fiscal sustainability; example framework presented to authorities.
    - Contain primary expenditures by freezing spending on goods and services in real terms; limit wage bill and wage-related transfers through attrition; ask public employees to contribute 10 percent of wages to pension fund (currently noncontributory); adjust pensions only with changes in cost of living.
    - Update pensions legislation to increase flexibility on contribution rates and maximum pensionable salary to support consolidation and strengthen actuarial position.
  - Public Financial Management (PFM)
    - Strengthen PFM and procurement to control outlays on goods and services.
    - Government financial statements for last three fiscal years must be submitted to Auditor General and then to parliament for budget review laws.
    - Implement PEFA assessment recommendations, including strengthening internal controls and internal audit.
  - Debt management
    - Forthcoming IMF TA mission on debt management to establish sound debt management framework and identify refinancing and borrowing strategies.
- Quantified consolidation package (Text Table 3: percent of GDP)
  - Total spending measures: 2.3 (2014), 2.9 (2015–2016), 3.3 (2017), 3.6 (2018–2019).
  - Goods and services (freeze in real terms): 0.8 (2014), 1.1 (2015), 1.0 (2016), 1.1 (2017), 1.2 (2018–2019).
  - Salaries (attrition): 0.2 (2014), 0.4 (2015), 0.6 (2016), 0.8 (2017), 1.0 (2018), 1.1 (2019).
  - Contribution to pension fund (10% of salaries): 1.3 (2014–2016), 1.3 (2017), 1.2 (2018–2019).
  - Pensions (adjusted by inflation): 0.0 (2014–2016), 0.1 (2017–2019).
  - Revenue measures: 0.1 (2014), 0.7 (2015), 0.5 (2016), 0.2 (2017), 0.1 (2018–2019).
  - Total adjustment measures: 2.4 (2014), 3.6 (2015), 3.4 (2016), 3.6 (2017), 3.7 (2018), 3.7 (2019).
- Risks of weak adjustment
  - Weak adjustment would produce a debt path well above levels staff consider sustainable, undermining credibility and investor confidence.
  - Unfavorable global developments could quickly deplete Central Bank reserves and force high-cost international borrowing to rebuild reserves.
  - Higher debt path would raise debt service and crowd out growth-enhancing spending.

### Authorities’ Views
- Debt sustainability target
  - Authorities believe debt should be in the range of 60–65 percent of GDP to be considered sustainable.
  - They acknowledged such a target would create needed policy buffers and reduce interest payments and gross financing needs.
  - They concurred that achieving 60–65 percent would require an annual primary balance close to 5 percent of GDP.
- Measures and commitments
  - No commitment to specific measures to achieve 60–65 percent debt target.
  - Prime Minister’s 2014 budget speech: set up a committee to review exempted and zero-rated items under GST.
  - Agreed to hold revenue administration more accountable.
  - Considered backtracking on February 2014 wage agreement politically infeasible; determined to implement a fiscally sustainable wage negotiation framework and plan to sign an MOU with labor unions on such a framework.
  - A permanent committee established under 2014 wage agreement will identify budget savings through tighter controls on goods and services spending, recruitments and ghost workers; tasks will be extended to consider pension framework reforms with stakeholders.

*Source: _cr14280 - 1. Real Sector Developments (Belize), IMF staff report content provided.*

### 13. The authorities reiterated that the true value of the nationalized companies is

### _cr14280 - 13. The authorities reiterated that the true value of the nationalized companies is

### Authorities' valuation scenario and macroeconomic implications
- Authorities’ valuation of nationalized companies: 8 percent of GDP (BZ$281 million).
- Under authorities’ valuation and current policies, projected outcomes by 2019:
  - Public and publicly guaranteed debt would decline to about 75 percent of GDP by 2019 (Text Table 4 shows 75.5 percent for 2019).
  - Gross official reserves cover would decline to about 3 months of imports (Text Table 4 shows 2.9 months for 2019).
- With this more favorable outlook on debt and reserves, combined with forthcoming fiscal measures and potential upside growth risks (see paragraph 6), authorities argue they should be able to reach their debt target in the medium term.

### Financial system: progress, vulnerabilities, and recommended actions
- Progress since 2011 FSAP:
  - NPLs on a declining trend, including through loan write-offs.
  - CARs and provisioning of NPLs improving.
  - Loan classification strengthened; banks required to meet provisioning standards by 2016 (most banks on track).
  - Revised Domestic Banks and Financial Institutions Act strengthened Central Bank powers and addressed gaps (related party transactions, consolidated supervision, bank resolution).
- Remaining vulnerabilities and concerns:
  - NPLs remain high at a systemic bank: 32 and 35 percent of domestic banks’ assets and deposits respectively.
  - Capital buffers may be overestimated because provisioning of NPLs is still insufficient.
  - Stress tests indicate capital shortfalls in some adverse scenarios; with the exception of two banks, capital buffers may not be large enough to absorb sizable but plausible losses.
- Staff recommendations:
  - Undertake an asset quality review (AQR) of all banks to complement Central Bank examiners’ reviews.
  - Move beyond static stress tests to forward-looking stress tests in line with 2011 FSAP practices.
  - Strengthen Central Bank supervision department, including recruiting IT-specialist examiners.
  - Request IMF TA to strengthen management of the Central Bank’s supervision department and to provide guidance on loan classification and provisioning under IFRS.
  - Ensure the Central Bank can enforce remedial action on banks without prior consultation with or approval of the Minister of Finance.
  - Improve frameworks for international banking, credit unions, domestic insurance, financial stability analysis, crisis management and bank resolution, and AML/CFT—especially transparency and regulation of IBCs and trusts.

### Financial soundness indicators (selected figures from Text Table 5)
- Capital/risk-weighted assets (percent): 2007: 22.7; 2008: 20.4; 2009: 22.2; 2010: 23.9; 2011: 24.2; 2012: 20.5; 2013: 22.3; Mar-14: 23.4.
- Capital/total assets (percent): 2007: 16.9; 2008: 15.6; 2009: 16.5; 2010: 16.5; 2011: 14.7; 2012: 11.9; 2013: 12.4; Mar-14: 12.0.
- Excess statutory liquidity (percent of statutory liquidity requirement): 2007: 49.2; 2008: 30.1; 2009: 33.5; 2010: 43.8; 2011: 64.3; 2012: 83.5; 2013: 79.1; Mar-14: 104.3.
- NPLs/total loans (percent): 2007: 6.9; 2008: 11.7; 2009: 14.0; 2010: 18.7; 2011: 21.4; 2012: 20.3; 2013: 17.6; Mar-14: 16.7.
- Provisions/NPLs (percent): 2007: 31.2; 2008: 24.1; 2009: 18.1; 2010: 15.5; 2011: 24.4; 2012: 38.3; 2013: 46.7; Mar-14: 49.7.
- Provisions/total loans (percent): 2007: 2.1; 2008: 2.8; 2009: 2.5; 2010: 2.9; 2011: 5.2; 2012: 7.8; 2013: 8.2; Mar-14: 8.3.
- NPLs net of provisions/capital (percent): 2007: 19.2; 2008: 40.0; 2009: 48.0; 2010: 62.8; 2011: 61.9; 2012: 58.5; 2013: 42.0; Mar-14: 36.6.
- Memorandum items (excluding BZ$43 million LCIA award): Capital/risk-weighted assets: 20.4 and 21.5; NPLs net of provisions/capital: 45.7 and 39.8.

### Authorities' responses and planned actions on financial sector
- Authorities agree with the thrust of staff-prepared stress tests and will improve stress-testing capacity.
- They recognized the usefulness of AQRs but did not commit to undertaking them.
- A Financial Management Plan for Banks and Financial Institutions has been prepared and is under review; elements include emergency liquidity assistance, a deposit insurance scheme, and a resolution process.
- On Central Bank independence:
  - Authorities agreed that ideally Ministry of Finance approval should not be required for corrective measures but emphasized the approval requirement in the Domestic Banks and Financial Institutions Act (2012) was intended to prevent abuses and ensure coordination.
  - They view the 2012 Act as a major improvement on prior law.
- Planned measures:
  - Hire an in-house legal expert to strengthen Central Bank legal capacity.
  - Continue groundwork for a national credit bureau.
  - Modernize the national payments system; complete legal framework this year.
  - Request IMF TA as recommended by staff.

### External sector resilience, competitiveness, and inclusive growth policies
- Staff urged acceleration of policies to bolster external sector resilience, enhance competitiveness, and support private-sector-led inclusive growth—especially important given wage increases that may weaken competitiveness and fiscal space.
- Staff noted fiscal consolidation would initially have an adverse impact on growth and improve the current account through import contraction (Text Table 1; assumed low multipliers: -0.3 in 2014 and -0.2 in 2015).
- Longer-term dynamics envisioned if reforms succeed:
  - Interest rates decline, banks’ balance sheets strengthen, investor confidence rises, private-sector-led growth supported by stronger exports and FDI.
- Policy recommendations to enhance competitiveness and external stability:
  - Aim for current account balance consistent with external stability: about -3 percent of GDP.
  - Reduce production costs and the cost of doing business.
  - Fiscal measures: reduce/eliminate government charges that raise labor costs (especially for low-skilled workers); remove exemptions and zero-ratings on the GST; broaden business income tax to include capital gains and income from capital; discontinue tax and dividend holidays for specific economic zones.
  - Spending priorities: enhance human and physical capital, target education and means-tested health programs, improve agricultural infrastructure, promote e-government, public safety, and strengthen institutions (judiciary, land registry).
  - Strengthen PFM, procurement and budget processes.
  - Monetary and financial policies: foster stronger and affordable credit to private sector and farmers; remove interest rate floor of 2.5 percent on savings deposits; promote competition among banks; modernize financial market infrastructure and use information technologies; accelerate disbursement of existing credit lines for farmers.
  - Recognize need to reassure investors that additional nationalizations are not part of development strategy.

### Authorities' views on external and financial policies
- Authorities concur with the need to strengthen external net inflows but did not commit to specific measures.
- They view the nominal exchange rate peg as a key anchor.
- They noted actions: reviewing GST exemptions and zero-ratings; upgrading road network; attracting more FDI in tourism and agriculture.
- Authorities emphasized nationalizations are not part of growth strategy; recent nationalizations of electricity and telecommunications were attributed to extraordinary circumstances and unacceptable demands by previous owners.
- Authorities acknowledged remaining constraints to credit expansion: weak bank balance sheets, inadequate financial market infrastructure, and business reluctance to meet transparency requirements.
- Monetary reform includes phasing out savings interest rate floor to lower lending rates; past reductions did not immediately lower lending rates because banks used margins to strengthen balance sheets via provisioning.
- As provisioning transition ends, lending rates expected to decline; recent loans have moved to single-digit average lending rates.
- Authorities accept budget may need to finance modernization of financial market infrastructure, to be recouped through higher growth, tax collection, or user fees.
- Authorities noted likely resistance from some businesses to capital market development due to transparency requirements.
- Inclusive growth measures in authorities’ growth and development strategy (Annex VIII) align with staff recommendations, though no specific labor market reforms were committed; authorities are preparing a strategy implementation document for the government term ending in 2017 and face financing constraints.

### Other issues: spillovers, data, and monitoring
- Spillovers and contagion monitoring:
  - Authorities monitor spillover risks from foreign-owned financial conglomerates and linkages with banks in Antigua currently under receivership.
  - Central Bank confident local banks will remain adequately capitalized if losses arise from linkages.
  - Central Bank supports stronger regional supervisory cooperation; contributed to a new MOU among regional supervisors with more stringent requirements.
  - Most banks maintain corresponding operations with one US bank—concentration risk—but authorities view risks from US banks as limited.
  - Trade spillovers from EU and US demand affect Belize; diversification of export base and markets recommended.
- Data provision:
  - Data provision broadly adequate for surveillance, though progress toward subscribing to the Fund’s Special Data Dissemination Standard has been very slow.
  - Staff encouraged addressing remaining data provision and capacity issues, including international investment position (IIP) data.

*Source: Belize — IMF staff report excerpts provided in the supplied content.*

### 31. Belize’s recent macroeconomic performance has been relatively weak. In 2013, real

### _cr14280 - 31. Belize’s recent macroeconomic performance has been relatively weak. In 2013, real

### Recent macroeconomic performance
- Real GDP growth in 2013 was 0.7 percent, hampered by declining oil production and weak agricultural output.
- Inflation remained subdued.
- The external current account significantly widened.
- The primary fiscal balance fell to 1 percent of GDP.
- Credit growth remained modest owing to continued weaknesses in the financial system.

### Outlook and risks
- The macroeconomic outlook has worsened compared with staff’s assessment during the 2013 Article IV Consultation.
- Recognition of liabilities from nationalizations (20 percent of GDP) combined with weak GDP growth and fiscal stance would raise debt to about 90 percent of GDP in the medium term, 5 percentage points of GDP above projections during the 2013 Article IV Consultation.
- International reserves would fall to uncomfortably low levels mainly because of the widening external current account deficits and the assumed repatriation of compensation payments for the nationalized companies.
- From the perspective of external stability, the exchange rate appears moderately overvalued, reflecting the current policy mix.
- Significant risks:
  - Courts may order the government to pay much more than staff’s current projected payments for the nationalized companies.
  - Banking sector vulnerabilities are significant.
  - Adverse developments in the global economy could accentuate pressures on the external current account deficit, potentially requiring the government to borrow in international markets to preserve international reserves.

### Fiscal strategy and recommendations
- Objective: place public debt on a sustainable path and create policy buffers against risks.
- Target fiscal stance:
  - A primary fiscal balance of 4–5 percent of GDP would reduce public debt to 70 percent of GDP by FY2019/20 and to below 60 percent of GDP a few years later.
- Revenue-side measures:
  - Bring many exemptions and zero-ratings under the GST into the tax net.
  - Make the revenue administration more accountable to reduce revenue leakages.
- Expenditure-side measures:
  - Allow outlays on goods and services to grow only with inflation.
  - Contain wage-related outlays by letting the labor force decline through attrition.
  - Ask public employees to contribute 10 percent of their wages to their pension system.
  - Adjust pensions only with changes in the cost of living.
  - Strengthen public financial management (PFM) and procurement to reduce low-quality spending.

### Financial sector reforms
- Continue efforts to strengthen the financial sector.
- Conduct an asset quality review to reassess banks’ actual strength given weaknesses in the supervisory framework.
- Strengthen the Central Bank’s supervision department with more examiners, including experts in information technologies.
- Require forward-looking stress tests to complement the banking system’s stress tests currently done at the Central Bank.
- Enable the Central Bank to take corrective measures against problem banks without approval from the Minister of Finance.
- Continue strengthening the AML/CFT framework, notably regarding transparency of IBCs and trusts.

### Competitiveness and growth-enhancing reforms
- Adequate reforms could enhance competitiveness and boost GDP growth.
- Given limited fiscal space, emphasize use of private resources, including well-designed public-private partnerships.
- Promote an attractive business environment and ensure growth strategies are inclusive to help reduce poverty, inequality, and crime.
- Given Belize’s small market size, prioritize export sectors and policies to reduce the cost of doing business and enhance competitiveness, including through better knowledge of foreign markets.

*BELIZE — INTERNATIONAL MONETARY FUND*

### 37. It is recommended that the next Article IV Consultation be held on the standard

### _cr14280 - 37. It is recommended that the next Article IV Consultation be held on the standard

### Real sector developments and social context
- Macroeconomic backdrop in 2013: weak growth and low inflation.
- Growth drivers and vulnerabilities:
  - Economic activity slowed because of declining oil production and weak agricultural output.
  - GDP per capita in Belize remains far below regional peers.
  - Frequent exposure to natural disasters (TS: Tropical Storm; TD: Tropical Depression; H: Hurricane) often undermines economic performance.
- Labor market and social indicators:
  - Unemployment rate, Sept. 2013 = 14.1 percent.
  - Adult literacy rate, 15 and up (percent), 2010 = 75.1.
  - Life expectancy at birth (years), 2011 = 76.
  - Under-five mortality rate (per thousand), 2009 = 18.
  - Poverty (percent of total population), 2009 = 42.
  - Population (thousands), 2013 est. = 349.7.
- Selected growth and inflation figures (annual):
  - Real GDP growth (2009–2013 shown in figures): series indicates low and volatile growth; specific series show Sept. 2013 = 14.2% (chart annotation).
  - Oil output contribution: series includes negative growth episodes (e.g., 2012 oil output = -1.2).
  - Consumer prices (end of period): 2013 = 1.6 percent; projections include 2014 = 2.0 percent, 2015 = 2.0 percent.
  - Consumer prices (average): 2013 = 0.5 percent; projections include 2014 = 1.8 percent, 2015 = 2.0 percent.

### External sector developments
- Trade and current account:
  - Trade balance widened in 2013 due to decline in oil and agricultural exports and higher imports.
  - Current account balance (percent of GDP): 2013 = -4.5 percent; 2014 (estimate) = -4.9 percent.
  - Exports of goods and services (US$ million): 2013 = 609; 2014 = 606; 2015 proj. = 611.
  - Imports of goods and services (US$ million): 2013 = 876; 2014 = 889; 2015 proj. = 914.
- Reserves and financing:
  - Despite widening current account deficit in 2013, international reserves increased owing to Petrocaribe financing and cashflow relief from external debt restructuring.
  - Gross international reserves (US$ million): 2013 = 391; 2014 = 442; 2015 = 459.
  - Reserves in months of imports (2013) = 4.3; 2014 = 4.7; 2015 = 4.8 (Table 1).
  - Gross external financing needs and potential erosion of reserves noted: “... though they could be eroded... as gross external financing needs could further increase.”
- Capital flows:
  - FDI flows declined, but were more than offset by Petrocaribe financing and cashflow debt relief.
  - Direct Investment, Net (chart): positive but lower in 2013 relative to earlier years.
- Balance of payments headline (US$ millions):
  - Current account balance: 2013 = -72; 2014 = -81; 2015 = -95; 2019 proj. = -133.
  - Overall balance: 2013 = 652; 2014 = 170; 2015 = -137; 2016 = -136.

### Fiscal sector developments and risks
- Fiscal performance (fiscal year Apr–Mar; percent of FY GDP unless stated):
  - Revenue and grants: 2013/14 = 27.7 percent of GDP.
  - Primary balance: 2013/14 = 1.0 percent of GDP (declining from earlier years).
  - Overall balance (deficit = -): 2013/14 = -2.3 percent of GDP (Table 2b indicates overall balance -2.3 in 2013/14).
  - Public and publicly guaranteed debt: 2013 = 76.4 percent of GDP; 2014 proj. = 77.4 percent of GDP (Table 1).
  - Debt service (percent): 2013 = 7.4 percent of GDP (Table 1).
- Composition of expenditures and pressures:
  - Primary spending growth driven by increases in wages, pensions, and teachers' salaries.
  - Low capacity to mobilize revenues; tax revenues (2013) close to regional average.
  - Interest payments are large and worsening the overall deficit.
- Debt restructuring and implications:
  - Two debt restructurings have occurred, providing substantial near-term cashflow relief but extending financing requirements by about 10 years.
  - Pace of debt reduction remains modest; burden of public debt remains high.
- Key fiscal numbers (central government, selected years):
  - Revenue (BZ$ millions): 2013/14 = 901; 2014/15 proj. = 956.
  - Total expenditure (BZ$ millions): 2013/14 = 975; 2014/15 proj. = 1,013.
  - Interest payments (BZ$ millions): 2013/14 = 92; 2014/15 proj. = 95.
  - Overall balance (BZ$ millions): 2013/14 = -74; 2014/15 proj. = -57.
- Policy conclusion:
  - “Despite the recent external public debt exchange, a more ambitious fiscal consolidation strategy is warranted to restore debt sustainability and create credible policy buffers.”

### Monetary and financial sector
- Liquidity and monetary aggregates:
  - Broad money (M2) growth slowed in 2013 as net domestic assets fell, offsetting an increase in the banking system's net foreign assets.
  - Money and quasi-money (M2) growth (percent): 2013 = 1.4 percent; 2014 proj. = 3.4 percent; 2015 proj. = 4.0 percent (Table 3 memorandum).
- Credit and banking sector health:
  - Credit to the private sector improved: 2013 = 3.5 percent; 2014 proj. = 4.1 percent; 2015 proj. = 4.5 percent.
  - Nonperforming loans (NPLs) remain high (albeit decreasing), eroding profitability.
  - Banks remain highly liquid, reflecting surge in deposits from the Social Security Board and prudent lending.
- Interest rates and spreads:
  - Interest rate spreads among highest in the region; Belize shown as having one of the highest spreads (Figure 4).
  - Reduction in key interest rates attempted to mobilize credit demand, but excess liquidity and high interest rate spreads continue to hold back financial intermediation.
- Central Bank balance-sheet highlights (BZ$ millions):
  - Net international reserves of the CBB (US$ millions): 2013 = 409; 2014 = 460; 2015 proj. = 476 (Table 3).
  - Base money (BZ$ millions): 2013 = 658; 2014 = 681; 2015 proj. = 708.

### Debt markets and sovereign credit
- Debt restructuring effects:
  - Debt restructuring improved credit ratings after the bond restructuring, but bond prices have not fully recovered.
  - The debt exchange provided near-term cashflow relief but extended financing needs by about 10 years.
- Market indicators:
  - Treasury bill yields fell and bid-to-cover ratios increased after restructuring, indicating improved domestic market perception.
  - S&P and Moody's downgrades occurred after the takeover of BEL and subsequent pledges to restructure the “super-bond”; later upgrades occurred on expected completion of the debt exchange.
- Debt-service profile (US$ millions, selected):
  - Debt service of old instruments and exchanged bond shown across maturities to 2037, indicating extended obligations out to the 2030s.
- Assessment:
  - “Markets' perception of Belize debt remains mixed, essentially cutting off the country from international commercial borrowing.”

### Medium-term outlook and projections (selected figures)
- Real economy projections:
  - GDP at constant prices (annual percent change): 2014 proj. = 0.7; 2015 proj. = 2.0; 2016–2019 proj. = 2.5 each year.
  - GDP at current market prices (annual percent change): 2014 proj. = 2.7; 2015 proj. = 3.1; 2016–2019 proj. ≈ 4.0–4.2.
- Fiscal outlook (percent of GDP):
  - Revenue and grants: 2014 proj. = 27.7; 2015 proj. = 28.4; 2019 proj. = 26.1.
  - Total expenditure: 2014 proj. = 29.9; 2015 proj. = 30.1; 2019 proj. = 30.8.
  - Primary balance: projected steady at 1.0 percent of GDP for 2014–2019 (Table 5).
  - Overall balance: 2014 proj. = -1.7 percent of GDP; 2019 proj. = -4.6 percent of GDP.
- External and reserves:
  - Current account balance (percent of GDP): 2014 proj. = -4.9; 2015 proj. = -5.5; 2019 proj. = -6.5.
  - Gross official reserves (in months of imports): 2014 = 4.7; 2015 = 4.8; 2019 = 0.3 (sharp projected decline by 2019 in Table 5).
- Public debt trajectory (percent of GDP):
  - Public and publicly guaranteed debt: 2014 proj. = 77.4; 2015 proj. = 76.4; 2019 proj. = 89.8.

### Key findings and policy recommendations (as presented)
- Findings:
  - Economic growth is weak and converging to regional low growth performance.
  - Inflation remains low reflecting low commodity prices.
  - High unemployment, especially among youth and women.
  - Fiscal deficits remain high and are worsened by large interest payments.
  - Banks are liquid but NPLs and high interest spreads hinder financial intermediation.
  - Debt restructuring provided short-term relief but extended maturities and left debt sustainability concerns.
- Policy recommendations and implications:
  - A more ambitious fiscal consolidation strategy is warranted to restore debt sustainability and create credible policy buffers.
  - Continue to monitor gross external financing needs closely, as reserves, while above regional average in months of imports, could be eroded if financing needs rise.
  - Strengthen revenue mobilization and contain primary spending pressures (wages, pensions, teachers' salaries) to reduce overall deficits.
  - Address financial sector distortions that contribute to high interest rate spreads to improve intermediation and support private-sector credit growth.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14280.pdf*

### 1. Public and publicly guaranteed debt

### 1. Public and publicly guaranteed debt

### Public debt stock and composition
- Total public and publicly guaranteed debt (levels by period listed in source): 1,132 1,182 1,199 1,189 1,235 1,289 1,329 1,756 1,771 1,803 1,837.
- Other public and publicly guaranteed external debt (levels): 967 468 583 332 313 130 130 3030.
- Central government (levels): 1,036 1,109 1,131 1,132 1,201 1,257 1,297 1,725 1,740 1,773 1,807.
- Domestic debt (levels): 981 671 661 671 651 641 645 745 986 45710.
- External debt (levels): 938 942 965 965 1,036 1,093 1,133 1,152 1,143 1,128 1,097.
- Multilateral (levels): 220 226 251 253 270 282 290 282 261 240 220.
- Bilateral and export credit (levels): 175 173 172 169 240 249 247 241 225 207 189.
- Commercial 1/ (levels): 543 543 543 542 527 527 527 527 527 527 512.
- New commercial borrowing (levels): 000003570102130154176.

- In percent of GDP (selected series as given):
  - Total: 84.6 84.6 80.5 75.6 76.4 77.4 76.7 97.3 94.1 91.9 89.8.
  - Central government: 77.4 79.3 75.9 72.0 74.4 75.5 74.9 95.6 92.5 90.4 88.4.
  - Domestic debt: 7.3 11.9 11.1 10.6 10.2 9.9 9.5 31.8 31.8 32.9 34.7.
  - External debt: 70.1 67.3 64.8 61.4 64.1 65.6 65.4 63.8 60.7 57.5 53.7.
  - Multilateral: 16.4 16.2 16.8 16.1 16.7 16.9 16.7 15.6 13.9 12.3 10.8.
  - Bilateral and export credit: 13.1 12.4 11.5 10.7 14.9 15.0 14.2 13.3 12.0 10.6 9.2.
  - Commercial 1/: 40.6 38.8 36.4 34.5 32.6 31.6 30.4 29.2 28.0 26.8 25.1.

- Notes:
  - 1/ Amortization of the "Superbond" commences in 2019 according to the initial repayment terms.
  - 3/ Includes partial coupon payment of US$11.7 million (out of full amount US$23 million) on the "super-bond", paid on September 20, 2012.

### Key findings on public debt dynamics
- Total public debt was 76.4 percent of GDP (US$1,235 million) at end of 2013.
  - Of this, 85 percent is external debt and 15 percent domestic debt.
  - Public external debt amounted to 66 percent of GDP at end of 2013, of which 25 percent was multilateral, 22 percent bilateral and 53 percent commercial (US$ 2038 bonds).
  - Venezuela (PetroCaribe) accounted for about 7 percent of total external debt (5.5 percent of GDP).
- Recognition of liabilities related to nationalization of two utilities could raise debt by 22 percentage points of GDP in 2016.
  - DSA assumption: government recognizes additional liabilities at end-2016, with compensation payments of about BZ$726 million (20 percent of GDP) — the mid-point valuation between the authorities’ assessment and former owners’ claims, including capitalized accrued interests since 2011 and assuming interest rates in the range 6-8 percent.
  - Assumed use of proceeds from sale of one utility’s shares: BZ$75 million to pay part of compensation.
  - Additional assumed repayment: US$94 million (2 percent of GDP) in compensation to owners of land appropriated by the government.
- Under the baseline with recognition of liabilities, public debt would rise to 97 percent of GDP in 2016 and decline slowly thereafter owing to a weak fiscal stance (primary surplus of only about 1 percent of GDP in the medium term) and relatively low growth.
- Financing conditions deteriorate: public sector gross financing needs projected to increase to 20 percent of GDP in 2019, mainly due to maturing principal of additional liabilities and high interest rates on domestic financing.
- Stress-test highlights:
  - A 10 percent real depreciation in 2014 combined with baseline recognition of additional liabilities (20 percent of GDP) would boost total public debt to 105 percent of GDP in 2016.
  - A financial sector contingent liability shock that increases public spending by the equivalent of 10 percent of banking sector’s assets would raise total public debt to 120 percent of GDP in (projection year as given).

### 2. Flow of funds and debt service

### Sources and uses (in percent of GDP as presented)
- 2.1 Sources of funds (selected series): 6.2 5.5 5.2 4.8 7.2 4.8 4.9 5.1 7.0 7.3 7.7.
  - Primary balance: 0.7 1.3 2.1 1.5 1.1 1.0 1.0 1.0 1.0 1.0 0.9.
  - Privatization proceeds: 0.0 2.0 0.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
  - Identified disbursements: 5.5 2.2 2.4 3.2 6.1 3.8 3.9 4.1 6.0 6.3 6.8.
  - Multilateral: 2.6 1.4 1.6 1.6 2.4 1.9 1.7 0.9 0.3 0.2 0.2.
  - Bilateral and export credit: 2.3 0.7 0.8 0.7 5.3 3.6 2.8 2.6 1.9 1.8 1.7.
  - Commercial: 0.6 0.1 0.0 0.9 -1.6 -1.7 -0.6 0.7 3.7 4.2 4.9.
  - Domestic (net) 2/: 0.6 0.1 0.0 0.9 -4.1 -1.7 -0.6 0.7 3.7 4.2 4.9.
  - External 3/: 0.1 0.0 0.0 0.0 2.5 0.0 0.0 0.0 0.0 0.0 0.0.

- 2.2 Use of funds — Debt service (selected series): 6.2 5.5 5.1 4.8 7.2 4.8 4.9 5.1 7.0 7.3 7.7.
  - Interest payments: 3.6 3.5 3.3 2.8 1.7 2.7 2.7 2.7 4.2 4.5 4.3.
    - Domestic interest: 0.9 0.9 0.5 0.4 0.4 0.4 0.4 0.4 1.9 1.8 1.7.
    - External interest: 2.7 2.6 2.9 2.4 1.3 2.3 2.3 2.3 2.3 2.7 2.6.
  - Principal repayments: 2.6 2.0 1.8 2.0 5.5 2.2 2.2 2.5 2.7 2.8 3.4.
    - Multilateral principal: 0.9 1.0 0.9 1.1 1.3 1.2 1.2 1.3 1.4 1.3 1.2.
    - Bilateral and export credit principal: 1.4 0.9 0.9 0.9 0.9 1.0 0.9 1.1 1.3 1.5 1.5.
    - Commercial, including parastatal: 0.3 0.0 0.0 0.0 3.3 0.0 0.0 0.0 0.0 0.0 0.7.

### 3. Macro and debt-service assumptions

- Nominal GDP (US$ millions): 1,339 1,398 1,489 1,573 1,615 1,666 1,733 1,805 1,881 1,961 2,044.
- Nominal GDP growth rate (percent): -2.3 4.5 6.5 5.6 2.7 3.1 4.0 4.1 4.2 4.2 4.2.
- Real GDP growth rate (percent): 0.3 3.1 2.1 4.0 0.7 2.0 2.5 2.5 2.5 2.5 2.5.
- Annual inflation (deflator, in percent): -2.5 1.3 4.3 1.5 2.0 1.1 1.5 1.6 1.7 1.7 1.7.
- Assumed domestic borrowing rate (percent): 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
- Nominal external multilateral/bilateral borrowing rate (percent): 2.1 1.5 1.5 1.7 1.4 1.4 1.8 2.9 3.9 3.9 3.9.
- Six-month LIBOR rate (percent) 4/: 1.1 0.5 0.5 0.7 0.4 0.4 0.8 1.9 2.9 2.9 2.9.
- 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.

- Memorandum items:
  - Overall central government balance (calendar year, percent of GDP): -2.9 -2.2 -1.2 -1.3 -0.6 -1.6 -1.7 -1.7 -3.2 -3.5 -3.4.
  - Implicit nominal interest rate (percent) 5/: 4.5 4.4 4.2 3.7 2.3 3.6 3.6 3.7 4.5 4.9 4.8.
  - Gross financing requirement (percent of GDP): 5.5 2.2 2.4 3.2 6.1 3.8 3.9 4.1 6.0 6.3 6.8.

### 4. Fiscal framework, budget and public financial management

### FY2014/15 budget and medium-term fiscal framework (summary)
- Authorities’ budget stance increases budget rigidity by scaling up spending on rigid wage-related items and leaves little room for growth-enhancing capital expenditure.
- Staff view: projected improvement in primary surplus for FY2015/16 and FY2016/17 would require drastic cuts in capital expenditure and is likely unrealistic.
- Salary policy:
  - Authorities committed to salary increases in addition to automatic annual salary adjustments of about 2.5 percent.
  - Policy: half of the growth in actual recurrent revenue collection between successive fiscal years will be allocated to additional salary increases.
  - First increase took effect on 1st April 2014, bringing the overall salary increase to about 7.5 percent in FY2014/15.
  - Salary increases will trigger automatic increases in pensions and transfers.
- Revenue measures:
  - Budget does not explicitly introduce any new revenue measure.
  - Reliance on improved tax administration and robust performance of newly acquired ship registries.
  - Review of exemptions could take place; no timeline provided for planned tax reforms.
- Public Expenditure and Financial Accountability (PEFA) issues identified at end-2013 to be addressed:
  - Lack of transparency in fiscal transfers to municipalities.
  - Fiscal risks from state-owned enterprises and municipal governments.
  - Insufficient forward expenditure estimates and program budgeting.
  - Weaknesses in procurement: legal framework, limited competition justification, transparency, appeals process.
  - Shortcomings in internal controls as indicated by Auditor General.
  - Challenges in preparing annual financial statements: comprehensiveness, accuracy, and delays.

### Summary of authorities' proposed FY14/15 budget and projections (selected figures)
- In millions of Belize dollars:
  - Total revenue: 837 872 901 956 982 1,017.
    - Taxes: 704 727 747 784 818 853.
    - Grants: 214 140 46 46 46 46.
  - Total expenditure: 854 934 975 1,013 882 884.
    - Current expenditure: 707 778 780 822 787 797.
    - Capital expenditure: 147 156 194 191 96 88.
  - Primary surplus: 4 13 5 33 35 19 22 25 (as table entries).
  - Overall balance (millions): -17 -61 -61 -74 -57 99 132.
  - Amortization (millions): -61 -64 -64 -69 -74 -74.
  - Gross financing (millions): 78 126 138 126 -25 -58.
- In percent of GDP (selected):
  - Total revenue: 26.5 25.9 27.9 28.4 28.1 27.9.
  - Total expenditure: 27.0 27.7 30.2 30.1 25.2 24.3.
  - Current expenditure: 22.3 23.1 24.1 24.4 22.5 21.9.
  - Capital expenditure: 4.7 4.6 6.0 5.7 2.7 2.4.
  - Primary surplus: 1.3 1.0 1.0 1.0 5.5 6.2.
  - Overall balance: -0.5 -1.8 -2.3 -1.7 2.8 3.6.
  - Amortization: -1.9 -1.9 -2.0 -2.1 -2.1 -2.0.
  - Gross financing: 2.5 3.7 4.3 3.8 -0.7 -1.6.

### 5. Debt sustainability analysis (DSA) and risks

### Baseline and projections
- Baseline outcome: public debt remains high and unsustainable due to recognition of liabilities and a weak fiscal stance despite March 2013 debt restructuring cash flow relief.
- Economic assumptions: medium-term real growth projected at 2.5 percent.
- Financing assumptions:
  - Authorities may opt to issue new US$ 2038 bonds up to a maximum US$75 million to pay part of compensation; DSA assumes no new issuance of new U.S. bonds.
  - Bulk of projected financing covered by domestic borrowing and asset reductions (mainly reserves).
  - Nominal interest of domestic borrowing expected to increase (assumed between 5 and 8 percent).
- Debt trajectory under baseline:
  - Public debt hikes to 97 percent of GDP in 2016 (assumption: recognition of liabilities equal to 20 percent of GDP).
  - At a primary surplus of 1 percent of GDP, it would take about 60 years to bring public debt to 60 percent of GDP.
  - Financing needs rise further starting in 2019 when amortization of new external bond starts.
- Vulnerabilities:
  - 86 percent of total public debt denominated in foreign currency at end of 2013 — high sensitivity to exchange rate shocks.
  - Increasing share of short-term debt assumed over time as perceived riskiness of government paper increases.
  - Refinancing risk rises with projected increase in gross financing requirements.

### Stress-test outcomes (selected)
- Exchange rate shock: 10 percent real depreciation in 2014 plus recognition of additional liabilities (20 percent of GDP) → total public debt to 105 percent of GDP in 2016.
- Financial sector contingent liability shock (public spending increases equal to 10 percent of banking sector’s assets) → total public debt to 120 percent of GDP (projection year as given).

### 6. AML/CFT framework progress and capacity needs

### Recent developments and legal reforms
- CFATF actions:
  - 2011 CFATF evaluation identified deficiencies and listed Belize in November 2011 as a jurisdiction with significant strategic deficiencies.
  - CFATF called in November 2013 for member countries to consider counter measures against Belize.
  - CFATF warned of possible referral to FATF ICRG if insufficient progress by May 2014.
  - Following new laws/regulations in February 2014, CFATF public statement of May 2014 noted significant progress and recommended continued work and implementation; Belize to report further progress in November 2014.
- February 2014 legal/regulatory measures enacted (six laws and three regulations), including:
  - Comprehensive amendments to the Money Laundering and Terrorism Prevention Act (MLTPA), including establishment of the National Anti-Money Laundering Committee as a statutory body.
  - Amendments to the Financial Intelligence Unit Act to strengthen operational independence, enhance security of tenure for the FIU Director, and minimize political interference.
  - New regulations articulating supervisory regime applicable to Designated Non Financial Business Professionals (DNFBPs) and details on the National Anti-Money Laundering Committee constitution and procedures.
- Other reforms:
  - Domestic Banking and Financial Institutions Act amended to prohibit formation of and dealing with shell banks.
  - International Financial Services Commission (Licensing) Regulations amended to subject shareholders or owners of international financial service providers to a fit and proper test.
  - Companies Act amended to ensure information on beneficial ownership of registered companies is maintained in the Companies Register.

### Implementation and capacity gaps
- Belize received AML/CFT technical assistance (TA) from the Fund through the AML/CFT Topical Trust Fund focused on:
  - Strengthening AML/CFT regulatory and supervisory framework and practices for domestic and offshore banks via a risk-based approach (RBA).
  - Enhancing analytical and operational capability of the FIU.
  - Deliverables: guidance for reporting entities on suspicious transaction indicators; financial analysis operations manual; template for financial intelligence products; FIU policies and procedures; memorandum of understanding draft for collaboration between FIU and CBB.
- Implementation constraints:
  - Limited resources and capacity have impeded implementation of TA-initiated reforms, notably RBA supervision and development of FIU operational capacity and independence.
- Staff recommendations:
  - Authorities encouraged to continue strengthening and effectively implementing AML/CFT framework.
  - Important to ensure CBB, FIU and all agencies involved are properly resourced to implement changes.
  - Transparency and regulation of international business companies and trusts should be strengthened.

*Sources: Belizean authorities; and Fund staff estimates and projections as presented in the source document.*

### 2015. The debt-to-GDP ratio is also sensitive to shocks in growth, interest rate, and the primary

### _cr14280 - 2015. The debt-to-GDP ratio is also sensitive to shocks in growth, interest rate, and the primary

### Debt-to-GDP sensitivity and fiscal consolidation
- The fiscal consolidation scenario aiming at a debt-to-GDP ratio of 70 percent in 2019 requires a fiscal adjustment of 4.5 percent of GDP compared to 1 percent in the baseline scenario.
- The proposed fiscal adjustment path implies cyclically adjusted primary balances well above 3 percent of GDP, placing Belize in the top quartile of historical cross-country outturns.
- Staff identified feasible measures that could help achieve this consolidation path.

### External debt outlook and vulnerabilities
- The external debt ratio is projected to gradually decline to around 55 percent of GDP by 2019, mainly because of non-debt creating inflows and asset reductions, mostly international reserves.
- External current account deficits would continue to put upward pressures on external debt.
- Stress-test bound results:
  - Under a 30 percent depreciation of domestic currency, external debt would surge to 100 percent of GDP in 2016 and remain elevated at 84 percent of GDP in 2019.
  - A non-interest current account shock would boost external debt to above 68 percent of GDP over the medium-term horizon.
- Gross external financing needs are high: 8.5 percent of GDP on average annually over the next 5 years.
- Note: In the absence of data on private external debt, the external DSA was limited to external public debt.

### Summary assessment of public debt dynamics (baseline and risks)
- Under the baseline scenario, public debt will remain high and unsustainable because of recognition of liabilities and a weak fiscal stance.
- Debt reduction is projected to be slow due to:
  - Weak fiscal efforts under the baseline (1 percent of GDP primary surplus in the medium term).
  - Relatively low growth and high interest rates.
- Liquidity and financing pressures:
  - Public sector gross financing needs would increase to 20 percent of GDP in 2019, mainly due to maturing principal of additional liabilities and high interest rates on domestic financing.
  - Belize is expected to rely massively on domestic financing and asset reductions to meet gross financing requirements as official external disbursement is projected to gradually decline.
  - Refinancing risks are expected to increase with rising gross financing requirements.
- External debt would gradually decline over the medium term mainly because of non-debt creating inflows and asset reductions (mostly reserves), but external financing would remain a challenge.
- Bound tests highlight high vulnerability of the public debt trajectory to shocks, especially:
  - Exchange rate shocks.
  - Contingent liabilities, including compensation for nationalized utilities and potential recapitalization needs of a few banks.

### Policy recommendations and targets
- Further fiscal consolidation efforts are essential to bring public debt back to a sustainable path.
- Given repeated debt restructuring episodes, staff recommend the authorities adopt a more ambitious target around 50–60 percent of GDP for the medium to long term.
- Complementary policies needed:
  - Improve growth.
  - Deepen domestic financial markets.
  - Improve public debt management.

### Stress tests, scenarios, and key projection figures
- Baseline fiscal assumption: Primary Balance = 1.0 percent of GDP (2014–2018) with 0.9 percent in 2019 in some tables; historical scenario primary balance = 2.2 percent in projections shown.
- Projections and indicators shown (selected exact figures preserved as in source):
  - External debt baseline projection: 55 percent of GDP by 2019.
  - Under 30 percent real depreciation: external debt peaks at 100 percent of GDP in 2016 and is 84 percent of GDP in 2019.
  - Gross external financing need (in percent of GDP): 8.1, 4.9, 3.8, 3.8, 10.5, 7.4, 7.8, 8.5, 9.2, 10.0 (series shown in Annex III. Figure 6).
  - Identified external debt-creating flows and components (selected series):
    - Baseline external debt series (2009–2019 excerpt): 77.3, 72.6, 69.4, 65.0, 66.2, 67.5, 67.2, 65.5, 62.3, 59.0, 55.1, 50.9 (table rows).
    - Change in external debt (2009–2019 excerpt): 6.0, -4.7, -3.2, -4.4, 1.2, 1.3, -0.3, -1.7, -3.2, -3.3, -3.9 (table rows).
  - Key macro assumptions (selected exact figures):
    - Real GDP growth (baseline series across 2012–2019): 0.3, 3.1, 2.1, 4.0, 0.7, 2.8, 1.6, 2.0, 2.5, 2.5, 2.5, 2.5.
    - Nominal external interest rate (in percent): 3.7, 3.6, 4.2, 3.7, 2.0, 4.8, 1.7, 3.6, 3.6, 3.6, 3.7, 4.5, 4.5 (series as presented).
    - Current account balance, excluding interest payments (selected series): -2.1, 0.2, 1.8, 1.2, -3.2, -2.2, 4.3, -2.6, -3.2, -3.6, -3.8, -3.7, -3.9.

### External stability, reserves, and exchange rate assessment
- The exchange rate is estimated to be moderately overvalued from the perspective of external stability.
- Different approaches give varying equilibrium current account and REER implications:
  - ES approach implies an external current account deficit of -2.9 percent of GDP per year and a REER overvaluation of about 10 percent (as interpreted in text).
  - MB and ERER approaches point to equilibrium current account deficits of 6–7 percent of GDP and imply smaller misalignments.
- Reserves adequacy and projections (exact figures and adequacy benchmarks preserved):
  - Traditional and risk-weighted metrics suggest reserves fall below comfortable adequacy region in the medium term.
  - Ratios of Reserves to Optimal Reserves based on Various Measures (selected table entries, in percent):
    - 2013: Risk-Weighted Measure = 110, SIDS Measure = 74, 3 months of Imports = 144, 20% of Broad Money = 158, Short Term Debt = 1,092.
    - 2014: Risk-Weighted Measure = 120, SIDS Measure = 82, 3 months of Imports = 162, 20% of Broad Money = 173, Short Term Debt = 1,176.
    - 2015: Risk-Weighted Measure = 120, SIDS Measure = 82, 3 months of Imports = 163, 20% of Broad Money = 172, Short Term Debt = 1,033.
    - 2016: Risk-Weighted Measure = 117, SIDS Measure = 79, 3 months of Imports = 159, 20% of Broad Money = 165, Short Term Debt = 899.
    - 2017: Risk-Weighted Measure = 80, SIDS Measure = 53, 3 months of Imports = 107, 20% of Broad Money = 111, Short Term Debt = 587.
    - 2018: Risk-Weighted Measure = 45, SIDS Measure = 29, 3 months of Imports = 59, 20% of Broad Money = 61, Short Term Debt = 266.
    - 2019: Risk-Weighted Measure = 5, SIDS Measure = 8, 3 months of Imports = 11, 20% of Broad Money = 14, Short Term Debt = 143.
  - Adequate regions cited: Risk-Weighted Measure = 100–150, SIDS Measure = 75–100, 3 months of Imports = 100, 20% of Broad Money = 100, Short Term Debt = 100.
  - Staff projection: first risk-weighted measure indicates reserves were 110 percent at end-2013, expected to decline below the threshold in 2017 and reach just 8 percent by 2019.
  - SIDS-adjusted measure: current ratio of 74 percent (end-2013), projected decline to 5 percent by 2019.
- Implication: Expected widening of the current account deficit and limited access to external financing, coupled with projected depletion of international reserves, pose a risk to external stability and the budget as authorities would have to borrow to rebuild reserves.

### Authorities’ views
- Authorities noted that the debt sustainability assessment is significantly driven by staff’s assumption on the compensation for the nationalizations.
- Authorities agreed with staff’s analysis of the risks to debt sustainability.

*Source: IMF staff report contained in _cr14280 (as provided).*

### Annex V . Risks Assessment Matrix

### Annex V . Risks Assessment Matrix

### Risk 1 — Fiscal policy implementation
- Relative Likelihood: High
- Key findings:
  - Under current policies, the primary surplus for 2013/14 will likely be about 1 percent of GDP, well below the previously announced target of 2 percent.
  - Declining petroleum revenue, the announced increases in compensations for civil servants, and the rolling out of the national health insurance scheme have reduced the likelihood of a significant improvement in the primary balance.
  - The authorities are of the view that deteriorating social, infrastructure, and security conditions constrain Belize from tightening the fiscal stance beyond the primary surplus target of 1 percent of GDP.
- Impact if realized: High
  - Debt will continue to increase in an unsustainable manner.
  - Gross financing needs would rise sharply and continue to rise over the medium term.
  - Securing such financing would be a challenge due to undeveloped domestic market and limited external market access.

### Risk 2 — Distress in the banking system
- Relative Likelihood: Medium
- Key findings:
  - While declining, non-performing loans remain high, and while improving, provisioning remains relatively low.
  - Some domestic banks, including the largest bank, which is of systemic proportions, still have low capital buffers.
  - Raising new capital to avoid a deterioration of their capital adequacy ratios could be a challenge, increasing the risk of public sector intervention.
- Impact if realized: High
  - Credit intermediation could be damaged.
  - Absorption of the financial cost of recapitalizing distressed banks by the government could entail significant fiscal costs, putting additional pressure on public finances.

### Risk 3 — Surge in contingent liabilities
- Relative Likelihood: High
- Key findings:
  - Courts still have to rule on the size, modality, and timing of the compensation the government has to pay to the former owners of the two nationalized utility companies.
  - Payments could turn out to be closer to the claimants’(upper) valuation of 35 percent of GDP.
  - Nonresidents, who account for a significant portion of the compensation claims, would likely not roll over their debt holdings.
  - In addition to a possible intervention for the financial sector, the government may have to incur more external liabilities, just to build up reserves and support the current exchange rate peg should BOP pressures become more severe than envisaged.
- Impact if realized: High
  - Debt could suddenly increase by tens of percentage points of GDP because of the compensation for the nationalized companies, further threatening fiscal sustainability and aggravating refinancing risks as nonresident debt holders pull out.
  - Even though additional external borrowing was envisaged at the time of the 2013 debt restructuring, new external lending to Belize will likely be very costly.
  - It will also further weaken debt sustainability and undermine investors’ confidence in the Belizean economy and the currency peg.

### Risk 4 — Further decline in tourism and exports due to weaker advanced-economy growth
- Relative Likelihood: Medium
- Key findings:
  - A protracted period of weak demand could take a toll on productive capacity across advanced economies.
  - In Europe in particular, the risk of deflation has increased, and the adverse impact of public and private sector deleveraging on the real economy may be larger than currently expected.
  - The growth impact of increasing geopolitical tensions surrounding Russia/Ukraine on advanced countries is expected to be temporary.
- Impact if realized: High
  - A weak recovery in advanced economies, especially the US and Europe could significantly undermine growth in Belize, restrain public finances, and put pressures on the BOP and reserves.
  - Belize’s share of exports to the US and the EU is very high.
  - Growth in Belize is also very sensitive to tourist arrivals from major source markets, the US in particular.

### Annex VI — Fiscal Risks from State-Owned Enterprises (SOEs)
- Overview:
  - Operational risks of SOEs to the budget appear limited at the moment, but are clearly on a rising trend.
  - Balance sheet risks are much more important mainly because of recent nationalizations.
- Key findings:
  - The consolidated balance of the three largest SOEs shows large volatility, pointing to a large deficit in FY2010/11 and a small surplus in FY 2011/12, underlying the SOEs’ risk to the public sector fiscal balance.
  - Overall revenues have been stagnant, while expenditures have increased.
  - Belize Electricity Limited (BEL) has posted the largest deficits, although declining; BEL is particularly vulnerable to weather conditions, which could reduce the domestic production of electricity and increase energy imports from Mexico.
  - Belize Telemedia Limited (BTL) has posted declining surpluses, while Belize Water Services (BWS) has turned into surplus in FY2011/12.
  - In addition to direct operational risks, Belize faces significant additional claims in relation to the 2009 nationalization of the BTL and the 2011 nationalization of the BEL. No agreement has been reached yet on the amount of compensation; the legal dispute may take a few additional years in courts.
  - Several arbitral awards related to land acquisition, overpayment of taxes, and non-observance of tax agreement have been ruled against the government and are pending enforcement.
- Belize: Operations of State Owned Enterprises (In millions of Belize dollars)
  - Revenue: 382.6 377.5 377.8 (2009/10 2010/11 2011/12)
  - Other revenue: 382.6 377.5 377.8
  - Expenditure: 379.1 396.3 375.2
  - Expense: 351.1 368.1 388.6
  - Net acquisition of nonfinancial assets: 28.0 28.3 -13.4
  - Gross operating balance: 31.5 9.4 -10.8
  - Net lending (+) / borrowing (-): 3.5 -18.8 2.6
- Belize: Operations of State Owned Enterprises (In percent of GDP)
  - Revenue: 14.1 13.3 12.5
  - Other revenue: 14.1 13.3 12.5
  - Expenditure: 14.0 13.9 12.4
  - Expense: 13.0 13.0 12.9
  - Net acquisition of nonfinancial assets: 1.0 1.0 -0.4
  - Gross operating balance: 1.2 0.3 -0.4
  - Net lending (+) / borrowing (-): 0.1 -0.7 0.1
- Notes:
  - Fiscal year ends in March; Belize Electricity Limited, which annual report ends December, was adjusted to be consistent with the other SOEs.
  - The public enterprises cover Belize Telemedia Limited, Belize Electricity Limited and Belize Water Services Ltd.

### Annex VII — National Health Insurance (NHI)
- Key policy change:
  - Following the inability of the Social Security Board to finance the expansion of the national health insurance program beyond its pilot phase, the authorities have decided to finance this expansion with budget resources, thus creating significant and rigid new outlays in the budget.
- Program design and governance:
  - The goal is to provide affordable and accessible quality care to the population.
  - A pilot project was established in the south side of Belize City in 2001 and expanded to the southern region of Belize in 2006.
  - A separate agency within the Social Security Board has been established to oversee the financing and purchasing duties for the NHI fund, while the Ministry of Health remains in charge of regulatory and policy-making functions.
  - An important component is a pay for performance system that provides financial incentives for meeting specified quality performance standards.
  - The authorities plan to expand the NHI program throughout Belize.
- Fiscal implications:
  - In the first phase, the pilot project was financed by the Social Security Board, which incurred a substantial financial burden (about BZ$40 millions).
  - Since late 2006, the government started to transfer funds from the budget to finance the program.
  - Currently the pilot NHI project is being entirely financed with transfers from the Ministry of Health at a cost of about 0.5 percent of GDP each year.
  - Containing the costs of the NHI as well as introducing a separate contribution to finance it will be a challenge.
- Belize: National Health Insurance Fund Operations (In millions of Belize dollars)
  - Government transfers: 12.8 14.2 14.0 14.0 (2009 2010 2011 2012)
  - Total revenues: 12.8 14.2 14.0 14.0
  - Benefits: 11.1 13.4 13.4 12.6
  - Operating expenses: 0.7 0.8 0.9 0.7
  - Total expenditure: 11.8 14.1 14.3 13.3
  - Balance: 1.0 0.1 -0.3 0.7
  - Percent of GDP: 0.04 0.004 -0.010 0.03
  - Memorandum items:
    - NHI Reserves: 2.0 2.1 1.8 2.5
    - Nominal GDP: 2,389 2,462 2,514 2,615

### Annex VIII — The National Development Framework for Belize 2010–2030 (Horizon 2030)
- Overview:
  - The authorities’ growth and development strategy is anchored by Horizon 2030 and centers around governance, education, health, economic resilience, and the environment.
  - Operationalizing this strategy through annual budgets remains a challenge.
- Four main pillars and selected objectives:
  - Democratic governance for effective public administration and sustainable development:
    - Ensure citizen participation, accountability of political leaders, and effective management of public resources.
    - Make the Senate an elected body; clarify roles and responsibilities at various levels of government; raise qualification requirements for police officers; implement infrastructural improvements to strengthen investigative capabilities; provide ongoing training for magistrates and police officers; strengthen laws regarding oversight of government ministries; implement multi-year planning and regular reporting on clear and measurable objectives; enforce transparent and fair hiring of public officers; and streamline government processes for efficient service delivery.
  - Education for development—Education for life:
    - Address that more than 11,000 primary school age children are not attending school and that almost 60 percent of the secondary school age population is not enrolled in school.
    - Provide quality education that is free and compulsory to at least the secondary school level.
    - Integrate expressive arts, sports and physical education, science and technology, environmental education, and entrepreneurship into the curriculum.
    - Reform allocation of financial resources to primary and secondary schools for equitable access; expand teacher education; develop salary and incentives packages; expand secondary school places, especially in rural communities; develop alternate delivery mechanisms (TV, radio, internet); expand schools feeding programmes; provide apprenticeship and mentorship programmes; expand the national library system.
  - Economic resilience—Generating resources for long-term development:
    - Increase agricultural production sustainably and increase local value added through agro-processing.
    - Increase government investment in technology, irrigation, seeds and green pesticides; provide technical support to farmers and rebuild demonstration plots; develop agricultural insurance options; create support mechanisms to pool resources and investment capital for entrepreneurs; develop support for small business including market information and management support; simplify the tax structure and make the system more equitable; enact legislation to protect and regulate microfinance; implement a coordinated credit referral system or credit bureau; and make key public investments in economic infrastructure, especially the road network and transportation system.
  - The bricks and the mortar—Healthy citizens and a healthy environment:
    - Implement a comprehensive natural resources and environmental policy including planning for climate change.
    - Provide incentives for reforestation; increase environmental professionals; provide incentives to promote energy saving and investment in renewable energy (wind, solar, biomass, geo-thermal and hydroelectricity); set up renewable energy purchase arrangements; provide tax and other incentives for households to adopt “green” technologies and impose penalties for hazardous materials; expand the NHI scheme countrywide; improve access to health services for rural communities including proper staffing and equipping of clinics; and invest more in primary healthcare and preventive health strategies.

*Source: _cr14280 - Annex V . Risks Assessment Matrix*

### 1.      The World Bank’s program in Belize is guided by a new four-year Country Partnership

### The World Bank’s program in Belize is guided by a new four-year Country Partnership Strategy (CPS) for FY2012–2015

### CPS objectives and scope
- Focus: assist Belize to achieve inclusive and sustainable natural resource-based growth and enhanced climate resilience.
- CPS builds on lessons learned from the Interim Strategy Note (ISN) for FY2009–2011.
- Overall CPS envelope size during the period: US$20–28 million.
- Notable approved activity: US$15 million municipal development loan, approved by the World Bank Board on September 16, 2010.
- Planned under CPS: an investment lending operation to support improvement and/or development of climate resilient infrastructure.

### Shared macroeconomic priorities (IMF and World Bank)
- Main challenges: enhance economy’s resilience to shocks, strengthen growth and social prospects.
- Agreed priorities:
  - Enhance banking system stability and debt sustainability.
  - Strengthen the policy framework.
  - Reinforce implementation capacity of Belizean authorities.

### Joint Bank–Fund coordination and programmatic lines of work
- Public Financial Management (PFM):
  - Fund assistance in reforming PFM processes and institutions by optimizing use of available information technology to ensure future ICT is geared to sound and best practice business processes.
- Medium-Term Debt Management:
  - Fund assistance to build analytical capacity for developing a debt management strategy and enhancing the domestic public debt market.
- Banking Sector:
  - Through CARTAC, assistance in preparation of guidance on corporate governance, internal controls, operational risks, and valuation of collateral.
  - CARTAC assistance to the central bank to develop its financial stability framework and preparation of its first financial stability report.
  - Fund readiness to assist in updating crisis management plan, bank restructuring and resolution framework.
  - Assistance to enhance regulatory and supervisory framework of the central bank to support adoption and implementation of a risk-based approach to AML/CFT.
- Infrastructure:
  - Through the Municipal Development Project, Bank support to improved access to basic municipal infrastructure and enhanced municipal management in selected town and city councils.
- Natural Resource Management:
  - Bank support for adopting a sustainable natural resources based economic model while enhancing resilience to climate change and natural hazards.
  - Potential activities: i) policies and strategies for mainstreaming of natural resources and climate resilience; ii) institutional capacity strengthening for natural resource management and climate change; iii) investments to strengthen climate resilience.

### Bank and Fund ongoing and planned activities (2014–2015) — selected items and dates
- Bank Work Program:
  - Municipal Development Project — November 2015
  - Improving Children’s Health — July 2015
  - Climate Resilience Infrastructure — August 2019
  - Marine Conservation and Climate Adaptation — In pipeline for FY15
  - Management and Protection of Key Biodiversity Areas — November 2016
- Fund Work Program:
  - Staff Visit — November 2014
  - Public Financial Management — Several short-term visits are planned in FY14
  - Medium-Term Debt Management — Ongoing
  - Article IV Consultation — April 2015; Expected delivery: June 2015

### IBRD Operations (As of May 2014) — selected portfolio figures (In U.S. dollars)
- IBRD Original Principal: 101,200,000.00
- Cancellations: 5,703,327.73
- Disbursed: 87,543,031.01
- Undisbursed: 7,953,641.26
- Repaid: 76,060,281.10
- Due: 11,482,749.91
- Exchange Adjustment: 0.00
- Borrower Obligation: 11,482,749.91

### IBRD gross disbursements and debt service during fiscal year (July 1–June 30) — (In millions of U.S. dollars)
- Disbursements: 0.7 0.0 0.0 0.0 0.0 1.1 0.7 4.5 1.0
- Repayments: 4.5 4.9 4.9 4.7 4.3 4.5 2.0 1.7 1.8
- Net: -3.8 -4.9 -4.9 -4.7 -4.3 -3.3 -1.3 2.8 -0.8
- Interest: 1.7 1.8 1.6 1.0 0.4 0.2 0.1 0.1 0.3
- Fees: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Note: * Estimated Debt Service.

### Inter-American Development Bank (IDB) engagement — summary
- Country Strategy with Belize (2013–2017) priorities: (i) education; (ii) tourism; (iii) transport; (iv) trade and tax policy.
- No approvals to date under the strategy; two new investment loans in the 2014 pipeline (education and road rehabilitation).
- Technical cooperation (grants) include: Tourism Master Plan implementation, feasibility studies for transport and water and sanitation projects, public financial management enhancement, Crime Information System development, pension reform analysis, teacher training and education governance support, credit union support, cocoa farmer assistance, competitiveness and investment promotion, natural disaster risk management.
- Strategy results: in early stage; initial results expected in the medium-term.
- Recent and ongoing analytical work includes studies on regional integration, trade, labor market performance, education sector challenges, public employment and pay policy, citizen security, water and sanitation, and transport.

### IDB 2014 program highlights
- Two lending operations in pipeline for 2014: education sector and transportation sector.
- New technical assistance areas: education, tourism, fiscal management, and road maintenance.

### IDB current portfolio (in US$ million)
- Total loan portfolio: 34.9; Undisbursed: 21.3 (61 percent undisbursed).
- Expected exits: Three of the five loans expected to exit the portfolio in 2015.
- Loan-level figures:
  - Solid Waste Management — Approved: 11.2; Undisbursed: 2.3
  - Agricultural Services Program — Approved: 3.7; Undisbursed: 1.1
  - Community Action for Public Safety — Approved: 5.0; Undisbursed: 3.5
  - Water and Sanitation Program–Placencia — Approved: 5.0; Undisbursed: 4.9
  - Belize City Flood Mitigation Infrastructure — Approved: 10.0; Undisbursed: 8.1
  - Total — 34.9 — 21.3

### IDB loan transactions (in US$ million)
- Net flows by year: 2009: 4.9; 2010: -2.0; 2011: 2.9; 2012: 4.7; 2013: 1.4; 2014*: -3.5
- Gross disbursements by year: 2009: 12.9; 2010: 5.7; 2011: 10.2; 2012: 12.8; 2013: 9.7; 2014*: 6.6
- Amortization by year: 2009: 4.2; 2010: 4.3; 2011: 4.3; 2012: 6.0; 2013: 6.6; 2014*: 7.5
- Interest and charges by year: 2009: 3.8; 2010: 3.1; 2011: 1.8; 2012: 1.9; 2013: 1.7; 2014*: 1.8
- *Projected

### Caribbean Development Bank (CDB) relations — portfolio summary (As of May 31, 2014)
- Loan portfolio under implementation (In millions of U.S. dollars):
  - TA - Modernization of Customs and Excise Department — Approved: 2.5; Undisbursed: 0.3
  - NDM – Bridge Rehabilitation — Approved: 8.8; Undisbursed: 2.4
  - Sixth Consolidated Line of Credit — Approved: 10.0; Undisbursed: 0.4
  - Belize River Valley Rural Water Project — Approved: 3.5; Undisbursed: 1.5
  - Belize Social Investment Fund II — Approved: 15.0; Undisbursed: 7.8
  - Fourth Road Project – Santa Elena – San Ignacio Bypass — Approved: 24.7; Undisbursed: 19.7
  - TA - Education Sector Reform Project — Approved: 2.0; Undisbursed: 1.9
  - Road Safety Project — Approved: 7.2; Undisbursed: 6.4
  - Youth and Community Transformation Project — Approved: 5.2; Undisbursed: 5.2
  - Fifth Road Project – Philip S.W. Goldson Highway — Approved: 29.1; Undisbursed: 29.1
  - Total — Approved: 108.1; Undisbursed: 74.7

### CDB loan transactions (In millions of U.S. dollars)
- Net flows by period: 2008: (0.9); 2009: 10.0; 2010: 1.5; 2011: (3.8); 2012: (15.7); 2013: (3.2); Jan-May 2014: (3.2)
- Gross disbursements by period: 2008: 15.0; 2009: 21.0; 2010: 15.0; 2011: 8.7; 2012: 6.4; 2013: 10.7; Jan-May 2014: 4.0
- Amortization by period: 2008: —; 2009: 10.0; 2010: 6.4; 2011: 7.6; 2012: 7.8; 2013: 16.0; Jan-May 2014: 9.8; 5.0
- Interest and charges by period: 2008: 5.7; 2009: 4.8; 2010: 5.4; 2011: 4.7; 2012: 6.1; 2013: 4.1; Jan-May 2014: 2.2

### CDB economic and sector work — key project highlights
- Continued financing under CDB country strategy for Belize (2011–2015).
- Transport and water infrastructure:
  - US$8.8 million reconstruction of Kendall (Sittee River) and Mullins River bridges; Kendall Bridge reconstruction completed.
  - Fourth Road loan of US$24.7 million approved in 2010 for Santa Elena–San Ignacio bypass and new Macal River crossing; construction commenced in 2012; completion slated for early 2015.
  - Fifth Road loan of US$29.1 million approved May 2014 for Philip S. W. Goldson Highway upgrade; work expected to commence in 2015.
  - US$5.4 million loan in 2012 to enhance road safety on demonstration corridor on Western Highway from Belize City to Belmopan.
- Water and sewerage:
  - US$0.7 million approved in 2012 for detailed designs for Ambergris Caye water and sewerage expansion; procurement completed.
  - US$3.3 million approved in 2010 for potable water supply system to serve nine villages in the Belize River Valley; construction ongoing with works expected to be completed in 2014.
- Private sector development:
  - US$10 million line of credit approved in 2009 for agriculture, industry, housing, and education projects; fully committed as at end-2013.
  - TA grant for institutional strengthening of Development Finance Corporation (DFC); implementation ongoing.
- Social sector and community investments:
  - Belize Social Investment Fund (BSIF) supported with US$15 million loan in 2010 (second loan) following US$7 million in 2003.
  - Basic Needs Trust Fund (BNTF): 6th cycle US$3 million committed; 7th cycle allocation US$6.1 million being programmed.
  - Community-based interventions concentrated in water and sanitation, education, and health; support for results-based monitoring and evaluation system development.
- Education sector:
  - Grant-assisted 2010 formulation of policy and strategic framework for education sector.
  - 2012 Education Sector Reform Project loan of US$2.0 million to enhance learning outcomes and institutional strengthening; activities commenced on five of 12 planned consultancies, including a comprehensive school location plan nearing completion.

*Source: IMF staff summary of Bank and CDB engagement in Belize (as of May 2014).*

### 14.      In December 2012, CDB approved a loan of US$5.2 million to the GOB, for a Youth and

### _cr14280 - 14.      In December 2012, CDB approved a loan of US$5.2 million to the GOB, for a Youth and

### CDB loan for Youth and Community Transformation Project
- In December 2012, CDB approved a loan of US$5.2 million to the GOB for a Youth and Community Transformation Project, based on a previous CDB-financed feasibility study.
- Project aim: contribute towards building human capital, particularly among youth and children from poor communities in Belize City, as part of an attempt to reduce socially deviant behavior.
- Conditions precedents to first disbursement were met during 2013 and the project is currently in the initial stages of implementation.

### Assessment of Data Adequacy for Surveillance (As of May 15, 2014)
- General: Data provision has some shortcomings, but is broadly adequate for surveillance. Most affected areas are: national accounts, labor, and fiscal sector statistics.

- Real sector:
  - Accuracy and reliability affected by inadequate source data.
  - The Statistical Institute of Belize (SIB) faces human and financial limitations for undertaking surveys and processing data.
  - Lack of reliable data on expenditure components hampers estimation of national savings and domestic investment.
  - SIB plans to conduct a comprehensive business census in 2014 to complete the Statistical Business Register and compile supply and use tables.

- Price and labor statistics:
  - Labor market statistics are scarce and available at irregular intervals.
  - SIB plans to conduct the labor force survey twice a year going forward.
  - SIB is developing a new website with plans to make metadata on the CPI and other statistics available online.

- Fiscal accounts:
  - Data on consolidated operations of the public sector are unavailable.
  - Priorities include preparing a comprehensive list of institutions comprising central government, general government, and the public sector including extra budgetary units.
  - Difficulties persist in the compilation of capital expenditure due to Capital II items that started as fixed-term project contributions but became permanent funding allocations.
  - Current accounting practices follow neither a cash basis nor an accrual basis, contributing to inconsistent accounting and reporting of assets, liabilities, revenues, and expenses.
  - Domestic debt data recording needs improvement.

- Monetary and financial statistics:
  - Financial soundness indicators of individual banks available quarterly.
  - Very limited data on non-bank financial institutions, especially the offshore sector; information on domestic insurance companies is not publicly available.
  - Need to classify offshore banks as part of Other Financial Corporation’s (OFC) subsector.
  - The Social Security Board (SSB) is not treated as part of the general government; the Central Bank classifies it as other non-financial public corporation and includes its claims (deposits) on the banking system as part of broad money.
  - Plans are ongoing to improve the availability of statistics.

- Balance of payments:
  - Official grant and loan disbursements and repayments generally well recorded.
  - Strengthening inter-agency coordination in information sharing between the MOF and CBB is warranted.
  - Authorities compiled International Investment Position (IIP) statistics for 2009 and 2010, which exclude offshore financial sector, and are reconciling discrepancies between BOP flows and the stock position on “currency and deposits” on the IIP before publication.
  - Upon completion, authorities plan to produce annual and quarterly IIP for 2011-2013 during the second half of this year.
  - Current sourcing of FDI data appears adequate, but survey responses are very low and frequency could be improved.

### Data Standards and Reporting
- Participant in the General Data Dissemination System (GDDS) since September 27, 2006.
- No data ROSC is available.
- No fiscal data are being reported for publication in the Government Finance Statistics Yearbook or in the IFS.

### IMF Article IV Consultation — Key Developments and Outlook (Press Release No. 14/415, September 4, 2014)
- On June 23, 2014, the IMF Executive Board concluded the 2014 Article IV Consultation with Belize.
- Real GDP growth:
  - 2013: 0.7 percent (plummeted from 4 percent in 2012), mainly due to declines in oil production and weak agricultural output (sugarcane and citrus).
- Unemployment:
  - 14.2 percent in September 2013; on an upward trend since 2008.
- Inflation:
  - Average inflation eased to 0.5 percent in 2013 from 1.3 percent in 2012.
- External current account deficit:
  - Widened to 4.5 percent of GDP in 2013 from 1.2 percent in 2012.
- International reserves:
  - Improved to 4.7 months of imports at end-March 2014 (up from 3.3 months at end-2012), mainly owing to PetroCaribe financing and private inflows.
- Fiscal outcomes FY2013/14 (fiscal year ends in March):
  - Primary surplus is estimated to have fallen to 1 percent of GDP, from 1.4 percent of GDP in FY2012/13.
  - Revenue expected to be better-than-budgeted due to robust tax revenues offsetting declines in non-tax revenues.
  - Substantial increases in wages and salaries, transfers, and interest payments drove up current expenditure.
  - Capital expenditures higher than budgeted due to infrastructure rebuilding after rain damage.
- Financial sector:
  - Private sector credit grew by 3.8 percent (y/y) in March 2014.
  - Broad money grew by 5.2 percent.
  - Banking system remained highly liquid.
  - Non-performing loans (NPLs) at 16.7percent of total loans at end-March 2014 (declining but remain high).
  - Banking system capital adequacy ratio (CAR) improved to 23.4 percent.
  - Authorities stepped up efforts to address financial system weaknesses, including adoption of new AML/CFT legislation.

### Medium-term outlook and risks
- Medium-term growth outlook weaker than envisaged during the 2013 Article IV consultation: growth would hover around 2.5 percent over the medium term as declining oil production is partially offset by higher output of other commodity exports, tourism, and construction.
- Inflation expected to remain low due to the exchange rate peg and subdued inflation in trading partners.
- Authorities’ policy plans would maintain the primary surplus around 1 percent of GDP in FY14/15 and in the medium term.
- Low primary surpluses together with assumed recognition of debt related to nationalizations will increase the public debt-to-GDP ratio.
- Expansionary fiscal policies, including large wage increases, could fuel higher domestic consumption and upward pressures on the external current account deficit.
- International reserves could decline substantially over the medium term, especially if compensation for nationalized companies adds to external outflows.

### Executive Board Assessment — Policy priorities
- Directors noted weakened macroeconomic performance with decelerating growth and increasing fiscal and external imbalances.
- Key risks: contingent compensation payments for nationalized companies, banking sector vulnerabilities, and adverse global developments that could pressure international reserves and increase gross financing needs.
- Recommended policy responses:
  - Renew fiscal consolidation efforts to ensure debt sustainability and create policy buffers.
  - Many Directors: frontload consolidation given uncertainty around contingent liabilities; some Directors: gradual adjustment preferable given cyclical conditions.
  - Measures recommended to moderate goods and services and wage-related outlays, reform public employees’ pension system, and broaden the base for the general sales tax.
  - Protect spending on infrastructure, public safety, and flagship social programs.
  - Strengthen public financial management, with emphasis on procurement.
  - Strengthen debt management and design and implement a medium-term debt management strategy.
- Financial sector recommendations:
  - Reassess bank asset quality through a comprehensive review.
  - Strengthen central bank supervision, hire additional examiners, and broaden stress test methodology to include forward-looking analysis.
  - Finalize crisis management plan, including bank restructuring and resolution framework, using IMF technical assistance.
- AML/CFT:
  - Directors commended progress on AML/CFT framework and encouraged full implementation of recently approved laws and regulations.
- Structural reforms:
  - Improve business environment to encourage private investment, enhance external competitiveness, and diversify exports to address the widening current account deficit and boost job-creating inclusive growth.

### Selected Economic Indicators (annual / levels as presented)
- National income and prices:
  - GDP at constant prices: 2010: 3.1; 2011: 2.1; 2012: 4.0; 2013: 0.7; 2014 (Proj.): 2.0
  - Nominal GDP (US$ millions): 2010: 1,398.4; 2011: 1,488.9; 2012: 1,572.6; 2013: 1,615.3; 2014 (Proj.): 1,665.8
  - Gross domestic investment 1/ 2/: 2010: 12.8; 2011: 13.7; 2012: 13.2; 2013: 15.4; 2014 (Proj.): 16.1
  - Gross national savings 1/: 2010: 10.4; 2011: 12.6; 2012: 11.9; 2013: 10.9; 2014 (Proj.): 11.3
  - Consumer prices (end of period): 2010: 0.0; 2011: 2.5; 2012: 0.8; 2013: 1.6; 2014 (Proj.): 2.0
  - Consumer prices (average): 2010: 0.9; 2011: 1.7; 2012: 1.3; 2013: 0.5; 2014 (Proj.): 1.8
  - Real effective exchange rate: 2010: 1.4; 2011: -10.0; 2012: 1.9; 2013: -1.2; 2014 (Proj.): ...

- Money and credit:
  - Credit to the private sector: 2010: -3.6; 2011: -1.2; 2012: 1.1; 2013: 3.5; 2014 (Proj.): 4.1
  - Money and quasi-money (M2): 2010: -0.4; 2011: 5.6; 2012: 11.0; 2013: 1.4; 2014 (Proj.): 3.4

- Central government (In percent of GDP; fiscal year ends in March):
  - Revenue and grants: 2010: 27.4; 2011: 27.7; 2012: 26.4; 2013: 27.7; 2014 (Proj.): 28.4
  - Current expenditure: 2010: 24.0; 2011: 24.0; 2012: 22.3; 2013: 24.0; 2014 (Proj.): 25.1
  - Capital expenditure and net lending: 2010: 5.0; 2011: 4.7; 2012: 4.7; 2013: 6.0; 2014 (Proj.): 5.0
  - Primary balance: 2010: 1.7; 2011: 2.3; 2012: 1.3; 2013: 1.0; 2014 (Proj.): 1.0
  - Overall balance: 2010: -1.7; 2011: -1.1; 2012: -0.5; 2013: -2.3; 2014 (Proj.): -1.7

- External sector:
  - External current account 4/: 2010: -2.4; 2011: -1.1; 2012: -1.2; 2013: -4.5; 2014 (Proj.): -4.9
  - Overall balance of payments (US$ millions): 2010: 10.3; 2011: 35.1; 2012: 48.1; 2013: 96.5; 2014 (Proj.): 51.5
  - Public and publicly guaranteed debt: 2010: 84.6; 2011: 80.5; 2012: 75.6; 2013: 76.4; 2014 (Proj.): 77.4
  - Domestic debt: 2010: 11.9; 2011: 11.1; 2012: 10.6; 2013: 10.2; 2014 (Proj.): 9.9
  - External debt: 2010: 72.6; 2011: 69.4; 2012: 65.0; 2013: 66.2; 2014 (Proj.): 67.5
  - Gross international reserves (US$ millions): 2010: 218.0; 2011: 253.1; 2012: 298.4; 2013: 391.4; 2014 (Proj.): 442.0
  - In months of imports: 2010: 2.8; 2011: 3.0; 2012: 3.3; 2013: 4.3; 2014 (Proj.): 4.7

*Source: Belize authorities; and IMF staff estimates and projections.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14280.pdf_