## _cr1692 - 7.9 percent. The banking system remained highly liquid. Non-performing loans (NPLs) declined

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### Recent developments: growth, inflation, and reserves
- Real GDP growth: 3.6 percent in 2014; Q1 2015 real GDP growth: 7 percent (y/y).  
- Nominal GDP (US$ millions): 1,699.2 in 2014; projected 1,762.8 in 2015.  
- Consumer prices (end of period): -0.2 percent in 2014; inflation at end-June 2015: -0.8 percent (y/y).  
- Core inflation: rose from 0.2 percent in December 2013 (y/y) to 1.2 percent in December 2014 (y/y).  
- Gross international reserves (US$ millions): 486.8 at end-2014; 504.5 projected for 2015.  
- Reserves in months of imports: 5.2 at end-2014; about 5 months at end-April 2015.  
- External current account: -7.6 percent of GDP in 2014 (widened from -4.4 percent in 2013).  
- Exports of goods Jan–May 2015: declined by 9 percent y/y.  
- Imports of goods Jan–May 2015: rose by 1.5 percent y/y.

### Fiscal developments and public debt
- Central government primary balance (percent of GDP): -1.2 in 2014; projected -2.6 in 2015.  
- Central government overall balance (percent of GDP): -3.9 in 2014; projected -5.2 in 2015.  
- Revenue and grants (percent of GDP): 29.2 in 2014; projected 27.5 in 2015.  
- Current expenditure (percent of GDP): 24.6 in 2014; projected 25.6 in 2015.  
- Capital expenditure and net lending (percent of GDP): 8.5 in 2014; projected 7.0 in 2015.  
- Public and publicly guaranteed debt (percent of GDP): 76.0 in 2014; projected 78.1 in 2015.  
- Financing FY 2014/15 fiscal deficit: drawdown of PetroCaribe deposits and official external loans.  
- Additional spending executed outside normal budget process in FY 2014/15: equivalent to 2.6 percent of GDP, approved by parliament only after execution.

### Banking and financial sector developments
- Broad money (M2) growth: 7.9 percent in 2014.  
- Credit to the private sector: 4.7 percent growth in 2014; 6.0 percent (y/y) in April 2015.  
- Banks’ NPLs to total loans: 15.7 percent at end-December 2014 (17.6 percent at end-2013).  
- Net NPLs (after provisions): 6.3 percent at end-2014 (9.4 percent at end-2013).  
- Banking system CAR: stayed above 21 percent at end-2014; system CAR 23.7 percent at end-March 2015 (noted as "very likely inflated" due to under-provisioning).  
- System ROA: 0.5 percent at end-March 2015; ROA by bank type at end-2014: international banks 3.2 percent; domestic banks -1.0 percent.  
- Systemic bank (selected): NPLs to total loans 23.2 percent at end-May 2015 (9.9 percent net); CAR 16.2 percent at end-May 2015.  
- Systemic bank notable items: sale of real estate US$23 million; large tax payment US$4.75 million; large provision expense US$7.9 million on disputed claim; disputed claim excluding amount US$21.5 million.  
- Provisioning rule: NPLs classified as losses, fully collateralized and free of specific provision before December 2011 are provisioned at 50 percent for domestic banks.  
- Under this rule, all domestic banks met provisioning requirements except the systemic bank (21 percent of banking system assets at end-March 2015), which was granted an extension.  
- Deadline: Banks have until November this year to write off these NPLs; doing so would "seriously erode the capital buffers" of two banks (26 percent of the banking system’s assets at end-March 2015), including the systemic bank.  
- Banking vulnerabilities: challenges in collateral valuation, weak loss absorption capacity in illiquid markets, heightened risks from termination of some correspondent banking relationships.  
- Policy actions/recommendations: prepare financial crisis management plan and bank resolution templates; conduct asset quality review (AQR) of all banks; gradually increase provisioning to fully cover all loan losses (secured and unsecured); prepare financial stability reports and bank stress tests accounting for provisioning shortfalls; raise capital buffers and tighten dividend/distribution restrictions for weak banks.

### External sector and correspondent banking
- Decline in petroleum exports and subdued agricultural export growth widened current account deficit.  
- PetroCaribe and other official disbursements continued to finance the current account deficit and help build international reserves.  
- Termination of some correspondent banking relationships with Belizean banks (e.g., Bank of America terminated a major CBR with the systemic bank in early 2015): so far limited impact but could have significant implications.  
- Mitigating actions: Central Bank and Visa/MasterCard supported new arrangements; international transactions not disrupted to date.  
- Directors urged regulators of international banks to better clarify expectations for dealing with local banks perceived as “high risk.”

### Outlook and risks
- Short-to-medium term growth: expected to hover around 2.5 percent (consistent with the 2014 Article IV assessment).  
- Real GDP growth 2015: expected to fall to 2.2 percent; growth in 2016–17: expected to accelerate to about 3 percent as a new large sugar firm starts production.  
- Inflation: expected to remain subdued owing to the exchange rate peg and moderate inflation in trading partners.  
- Fiscal outlook risk: could worsen due to excess spending and a political climate that exacerbates spending pressures and hinders revenue-enhancing reforms.  
- Primary fiscal balance: projected to remain in deficit for a while.  
- External risks: expansionary fiscal policies would increase imports amid modest export growth, widening the external current account deficit and potentially causing international reserves to decline—especially if compensation for nationalized utilities is paid and repatriated.  
- Main risks: court decisions leading to larger-than-expected liabilities from nationalizations; weaknesses in the systemic bank; loss of additional correspondent banking relationships; external shocks (persistent U.S. dollar strength; Cuba entering Caribbean tourism market; end of PetroCaribe financing; larger-than-expected drop in sugar prices after EU sugar reform in 2017).

### Executive Board assessment and key policy recommendations
- Directors’ diagnosis: sluggish growth, weak fiscal stance, external and financial sector vulnerabilities; significant contingent liabilities from nationalizations could further raise debt levels.  
- Fiscal policy recommendations:
  - Progressively raise the primary balance to levels consistent with debt sustainability; staff advised improving the primary fiscal balance to about 4.5 percent of GDP in the medium term.  
  - Remove exemptions and zero-ratings from GST; strengthen revenue administration to contain leakages; limit current spending, including reform of the public officers’ pension scheme.  
  - Supplement measures with cuts in transfers and address PFM weaknesses (internal/external controls, procurement) to contain low-quality spending.  
- Financial sector recommendations:
  - Continue addressing banking vulnerabilities: raise capital buffers; tighten distribution of dividends and lending for banks with lowest capital buffers.  
  - Conduct AQR of all banks; gradually increase provisioning to 100 percent on all loan losses (secured and unsecured) over a transition period; forbid dividend distributions during transition for under-provisioned banks.  
  - Continue FSRs and stress tests that fully take shortfalls in provisioning into account.  
- Growth strategy recommendations:
  - Implement comprehensive medium-term growth strategy; mobilize domestic resources through enhanced revenue collection and spending rationalization; mobilize external resources via international partners and well-designed PPPs.  
  - Ensure well-functioning financial markets, supporting infrastructure and regulation for key sectors (agriculture and tourism), an attractive business environment, greater liberalization of domestic markets (including labor markets), and diversification of export markets.  
- AML/CFT and correspondent banking:
  - Most CFATF deficiencies addressed; Belize exited CFATF follow-up and monitoring. Important reforms remain to ensure effective AML/CFT implementation in line with recent FATF standards. Directors urged clearer guidance from regulators of international banks terminating correspondent relationships.

### Implementation status and staff appraisal highlights
- Implementation of staff advice and authorities’ commitments: mixed.  
- Primary fiscal balance: turned negative in FY 2015 (April–March), well below authorities’ 2013 restructuring commitment of 2 percent of GDP.  
- Review of tax exemptions promised in the 2014 budget speech has not yet started.  
- Positive developments: preparation of a financial crisis management plan and progress in modernization of the payment system.

### Banking system FSIs and systemic bank (early 2015)
- Gross NPLs to total loans: 16.1 percent at end-March 2015 (6.1 percent net of provisions).  
- Provisioning rule: 50 percent provisioning for certain legacy fully collateralized NPLs (pre-December 2011) for domestic banks.  
- Two banks (26 percent of system assets at end-March 2015) would see capital buffers "seriously eroded" if legacy NPLs are written off by November deadline.  
- System CAR at end-March 2015: 23.7 percent (very likely inflated due to under-provisioning in a few banks).  
- Systemic bank specifics: NPLs 23.2 percent at end-May 2015 (9.9 percent net); CAR 16.2 percent at end-May 2015; liquidity action included sale of investment portfolio in US to meet international subsidiary depositor claims.

### Debt dynamics, DSA highlights and scenarios
- Reported public and publicly guaranteed debt (percent of GDP): 76.0 in 2014; 78.1 in 2015; projected 101.1 in 2016 under staff assumptions recognizing liabilities from nationalized companies (about 20 percent of GDP).  
- DSA baseline projections (selected):
  - Public and publicly guaranteed debt (percent of GDP): 2014 = 76.0; 2015 = 78.1; 2016 = 101.1; 2017 = 98.8; 2018 = 97.9; 2019 = 97.0; 2020 = 96.1.  
  - Nominal GDP (US$ millions): 2015 = 1,763; 2016 = 1,841; 2017 = 1,931; 2018 = 2,021; 2019 = 2,114; 2020 = 2,207.  
  - Real GDP growth (percent): 2015 (proj) = 2.2; 2016 (proj) = 3.2; 2017 (proj) = 3.0.  
  - Public gross financing needs examples: 2016 = 8.7 (percent of GDP) rising to 31.1 by 2020 in some series.  
- Contingent-liabilities recognition scenario: recognition of contingent liabilities could raise debt by 22 percent of GDP in 2016; staff mid-point assumed compensation payments at BZ$726 million (20 percent of GDP) with use of BTL share sale proceeds BZ$75 million and remaining paid in installments (source text truncated).  
- DSA stress results and sensitivities:
  - Under baseline, public debt remains high and unsustainable without fiscal consolidation; at a primary surplus of 1 percent of GDP it would take about 30 years to reach 60 percent of GDP.  
  - Asymmetric fan chart: public debt could reach 140 percent of GDP in medium term.  
  - Exchange rate shock: 10 percent real depreciation combined with recognition of nationalization liabilities (20 percent of GDP) would boost total public debt to 105 percent of GDP in 2016.  
  - Financial sector contingent liability shock: one-time increase in non-interest expenditures equivalent to 10 percent of banking sector assets would raise total public debt to 107 percent of GDP in 2015.  
- Policy implications: need for ambitious fiscal consolidation, more robust debt management, development of domestic debt market, and supportive growth-enhancing reforms.

### Revised baseline and settlements (after BEL settlement and BTL developments)
- BEL deed of settlement (parliament approved September 4, 2015): cash US$35 million and return of BEL shares (book value US$59 million).  
- Staff revised projections after BEL settlement (selected):
  - Public debt (percent of GDP) after BEL settlement: 2016 = 94.7; 2017 = 92.2; 2018 = 91.3; 2019 = 90.3; 2020 = 89.4 (staff numbers preserved as presented).  
  - Gross financing needs shifted down by 2–5 percentage points of GDP over 2017-2020; now projected gross financing needs about 26 percent of GDP by 2020 (revised).  
  - Revised baseline still assumes BTL liabilities recognized end-2016 with payments over five years in staff baseline; revised scenarios quantify alternate paths (selected values preserved in source).  
- DSA assumption example: DSA assumes government repays US$94 million (2 percent of GDP) in 2017 for land compensation; issuance of new US$2,038 bonds up to US$75 million possible but DSA assumes no new U.S. dollar bond issuance.  
- Revised baseline policy recommendation maintained: progressively raise primary fiscal balance to 4–5 percent of GDP to bring debt to sustainable path; under such adjustment public debt could be reduced toward mid-term targets (examples in source: 74–77 percent of GDP by 2020 under ambitious adjustment scenarios).

### External Stability Assessment (Annex II) — REER and reserves
- REER assessment: real exchange rate assessed as moderately overvalued.  
- ES approach NFA assumptions: from -114 percent of GDP at end-2014 to -100 percent of GDP by 2024 (baseline) and -90 percent of GDP by 2024 (alternative).  
- Implied average REER overvaluation: about 10 percent (baseline) and 12 percent (alternative).  
- EBA-lite result: indicated real exchange overvaluation of 11.5 percent.  
- Reserves adequacy projections:
  - Standard metrics suggest reserves would fall below 3 months of imports and below 20 percent of broad money by 2019 without policy adjustment.  
  - Risk-weighted measures indicate reserves would fall below comfortable adequacy region by end-2018 (First risk-weighted measure: 87 percent of adequate level at end-2018; SIDS-adjusted: reserve coverage decline to 57 percent in 2018 from comfortably above 75 percent at end-2014).  
- Drivers of reserve pressures: expected capital outflows from 2017 for external debt service and potential repatriation of compensation payments; projected widening of current account deficits; limited external financing access.

### Balance of Payments stress tests (selected results)
- Baseline current account (percent of GDP): 2015 = -6.3; 2016 = -7.1; 2017 = -7.4; 2018 = -7.0; 2019 = -6.7; 2020 = -6.5.  
- Stress scenarios and current account impacts (percent of GDP):
  - Tourism shock: 2015 = -9.0; 2016 = -14.2; 2017 = -14.4; 2018 = -14.0; 2019 = -13.7; 2020 = -13.3.  
  - Exports shock: 2015 = -15.6; 2016 = -16.3; 2017 = -16.2; 2018 = -15.7; 2019 = -15.2; 2020 = -14.9.  
  - Oil price shock: 2015 = -10.3; 2016 = -11.2; 2017 = -11.7; 2018 = -11.1; 2019 = -10.8; 2020 = -10.6.  
- Impact on gross international reserves (months of next year's imports):
  - Baseline: 2015 = 5.2; 2016 = 4.9; 2017 = 4.2; 2018 = 3.4; 2019 = 2.7; 2020 = 1.9.  
  - Tourism shock: 2017 = 1.2; 2018 = -0.9; 2019 = -3.0; 2020 = -5.1.  
  - Exports shock: 2017 = -0.7; 2018 = -3.0; 2019 = -5.5; 2020 = -7.8.  
  - Oil price shock: 2017 = 1.9; 2018 = 0.4; 2019 = -1.0; 2020 = -2.4.  
  - Discontinuation of PetroCaribe financing: 2017 = 3.2; 2018 = 2.0; 2019 = 0.9; 2020 = -0.3.  
- Key stress-test finding: external position is highly vulnerable; reserves largely depleted by 2017–18 under stress scenarios; export shock produces largest deterioration.

### Risk Assessment Matrix (selected high-likelihood, high-impact risks and policy measures)
- Fiscal policy implementation (Relative likelihood: High; Impact: High):
  - If realized: declining petroleum revenue, compensation liabilities, rollout of national health insurance, political spending pressures could prevent primary balance improvement; debt rises; gross financing needs increase.  
  - Policy measures: gradual fiscal consolidation to raise primary balance to 4-5 percent of GDP; cut non-essential spending; improve PFM; reduce GST exemptions.  
- Distress in banking system (High/High):
  - If realized: loss of CBRs, high NPLs, low provisioning, low capital buffers could require public recapitalization.  
  - Policy measures: allow temporary central bank platforms for international transactions with AML/CFT due diligence; order recapitalization; perform AQRs; maintain tight supervision.  
- Surge in contingent liabilities (High/High):
  - If realized: court-ordered compensation for nationalizations could raise debt tens of percentage points of GDP; costly external borrowing to rebuild reserves.  
  - Policy measures: support competitiveness, diversify exports, create fiscal buffers via consolidation.  
- Persistent U.S. dollar strength (High/High):
  - If realized: real appreciation under peg; weaker exports; widening current account.  
  - Policy measures: fiscal consolidation and competitiveness-enhancing reforms.  
- Persistently low energy prices (Medium/Medium): potential narrowing of current account but end of PetroCaribe financing risk—use savings to build reserves.

### Social security and pensions (fiscal relevance)
- Two schemes: Social Security Scheme (SSS) and Pension Plan for Public Officers (PPPO).  
- SSS actuarial report (2012): without reforms Social Security reserves would vanish by 2029. Recommended reforms: raise retirement age to 65; raise contribution rate from 8 percent to 9.5 percent; reduce administrative cost from 30 percent to 20 percent.  
- PPPO: unfunded, noncontributory; expense about 1.5 percent of GDP; recommendation to reform to ensure fiscal sustainability.

### Growth and Sustainable Development Strategy (GSDS) 2015–18 (Annex VI)
- GSDS objective: improve quality of life and lift long-term GDP growth to 5 percent.  
- CSF1 NCs to achieve growth: penetrate export markets; attract FDI; implement industrial policy focusing on agriculture, agro-processing, tourism, energy; enhance market efficiency; adequate infrastructure; adequate human capital.  
- Estimated required investment for better ports/transport to strengthen trade with Guatemala and Mexico: less than US$100 million.  
- Financing options: improve domestic revenue and spending efficiency; mobilize external resources and well-designed PPPs.  
- Fund/Bank technical assistance and cooperation listed (selected TA topics preserved as in source).

### Authorities’ positions and dissenting views
- Authorities committed to returning to primary fiscal surpluses but did not commit to specific target measures; considering PFM and growth-enhancing structural reforms.  
- Revenue plans: set up committee to review GST exemptions and zero-rated items; exploit revenue administration monitoring reports; consider integrated domestic tax department; make revenue-enhancing committee permanent.  
- Expenditure constraints: 2013 wage agreement costlier than envisaged; political constraints on backtracking; committees to consider pension reforms.  
- PetroCaribe resource management commitments: resources up to March 2015 for capital spending; resources Apr 2015–Mar 2016 saved to help pay compensation for nationalized companies; resources beyond Mar 2017 allocated to refinancing expensive external debt.  
- On provisioning and CBRs: authorities view 50 percent provisioning for fully secured legacy loan losses as prudent with transition; stress need for transparency from international banks and regulators regarding CBR terminations.  
- Authorities emphasize GSDS implementation and do not accept front-loaded austerity; they stress alternative scenarios and use of PetroCaribe resources for debt reduction or compensation.

### Implementation, data, and statistical issues
- Data provision: broadly adequate for surveillance but shortcomings in national accounts, labor, and fiscal statistics.  
- Priorities: improve consolidated public sector data; submit financial statements to Auditor General and parliament; adopt procurement law; finalize public debt management bill; modernize payments system; complete Automated Transfer System legal framework.  
- Statistical Institute of Belize (SIB) actions: business census planned; labor force survey frequency increases; website and metadata improvements.  
- Authorities committed to strengthen statistics and to subscribe to SDDS (no timetable specified).

### Select explicit numeric series preserved from the source (examples)
- Broad money (M2) in Table 3 (BZ$ millions): 2014 = 2,672; 2015 = 2,772; 2016 (proj) = 2,895.  
- Credit to the private sector (BZ$ millions): 2014 = 2,123; 2015 = 2,190; 2016 (proj) = 2,269.  
- Unemployment rate, Sep. 2014: 12.1 percent.  
- GNI per capita, 2013: 4,510 (current US$).  
- Life expectancy at birth, 2013: 74 years.  
- Current account balance (2014): -130 (US$ millions) = -7.6 percent of GDP.  
- Gross international reserves (2014): 487 (US$ millions); months of imports: 5.2 months.  
- Public and publicly guaranteed debt (Table 5 baseline medium-term): 2016 = 101.1; 2017 = 98.8; 2018 = 97.9; 2019 = 97.0; 2020 = 96.1 (percent of GDP).  
- Nominal gross public debt series example: 86.8, 76.1, 76.0, 78.1, 101.1, 98.8, 97.9, 97.0, 96.1 (years shown in source).  
- Contingent liabilities from nationalizations (2016 data): 22.3 (percent of GDP).  
- DSA scenario example: compensation payments at BZ$726 million (20 percent of GDP) assumed in one scenario.

*International Monetary Fund. Belize: Staff Report for the 2015 Article IV Consultation (September 1, 2015).*

### 7.9 percent. The banking system remained highly liquid. Non-performing loans (NPLs) declined

### _cr1692 - 7.9 percent. The banking system remained highly liquid. Non-performing loans (NPLs) declined

### Recent developments: growth, inflation, and reserves
- Real GDP growth: 3.6 percent in 2014, up from 1.5 percent in 2013; Q1 2015 real GDP growth: 7 percent (y/y).  
- Nominal GDP (US$ millions): 1,699.2 in 2014; projected 1,762.8 in 2015.  
- Consumer prices (end of period): -0.2 percent in 2014; inflation at end-June 2015: -0.8 percent (y/y).  
- Core inflation (excludes transportation, food and utilities): rose from 0.2 percent in December 2013 (y/y) to 1.2 percent in December 2014 (y/y).  
- Gross international reserves (US$ millions): 486.8 at end-2014; 504.5 projected for 2015.  
- Reserves in months of imports: 5.2 at end-2014; about 5 months at end-April 2015.  
- External current account: -7.6 percent of GDP in 2014 (widened from -4.4 percent in 2013).  
- Exports of goods Jan–May 2015: declined by 9 percent compared with the same period last year.  
- Imports of goods Jan–May 2015: rose by 1.5 percent compared with the same period last year.

### Fiscal developments and public debt
- Primary balance (central government, percent of GDP): -1.2 in 2014; projected -2.6 in 2015.  
- Overall balance (central government, percent of GDP): -3.9 in 2014; projected -5.2 in 2015.  
- Revenue and grants (percent of GDP): 29.2 in 2014; projected 27.5 in 2015.  
- Current expenditure (percent of GDP): 24.6 in 2014; projected 25.6 in 2015.  
- Capital expenditure and net lending (percent of GDP): 8.5 in 2014; projected 7.0 in 2015.  
- Public and publicly guaranteed debt (percent of GDP): 76.0 in 2014; projected 78.1 in 2015.  
- Financing of FY 2014/15 fiscal deficit sourced from drawdown of PetroCaribe deposits and official external loans.  
- A significant portion of additional spending in FY 2014/15, equivalent to 2.6 percent of GDP, was executed outside the normal budget process and approved by parliament only after execution.

### Banking and financial sector developments
- Banking system liquidity: described as highly liquid; broad money (M2) growth: 7.9 percent in 2014.  
- Credit to the private sector: 4.7 percent growth in 2014; 6.0 percent (y/y) in April 2015.  
- Banks’ non-performing loans (NPLs) to total loans: 15.7 percent at end-December 2014, down from 17.6 percent at end-2013.  
- Net NPLs (after provisions): 6.3 percent at end-2014, down from 9.4 percent at end-2013.  
- Banking system reported capital adequacy ratio (CAR): stayed above 21 percent at end-2014.  
- Return on assets (ROA): international banks 3.2 percent at end-2014; domestic banks -1.0 percent at end-2014.  
- Banking vulnerabilities noted: challenges in collateral valuation, weak loss absorption capacity in illiquid markets, and heightened risks from termination of some correspondent banking relationships.  
- Policy actions and supervision: preparation of a financial crisis management plan and bank resolution templates; recommendation for an asset quality review of all banks; recommendation for a gradual increase in provisioning to fully cover all loan losses (secured and unsecured); continued preparation of financial stability reports and bank stress tests that fully take shortfalls in provisioning into account.

### External sector and correspondent banking
- Decline in petroleum exports and subdued agricultural export growth contributed to widening current account deficit.  
- PetroCaribe and other official disbursements continued to finance the current account deficit and help build international reserves.  
- Termination of some correspondent banking relationships with Belizean banks: so far had a limited impact on the financial system and economic activity but could have significant implications; Directors urged regulators of international banks to better clarify expectations for dealing with local banks perceived as “high risk.”

### Outlook and risks
- Short-to-medium term growth: expected to hover around 2.5 percent (in line with the 2014 Article IV Consultation assessment).  
- Inflation: expected to remain subdued owing to the exchange rate peg and moderate inflation in trading partners.  
- Fiscal outlook risk: could worsen due to excess spending and a political climate that exacerbates spending pressures and hinders revenue-enhancing reforms.  
- Primary fiscal balance: projected to remain in deficit for a while.  
- External risks: expansionary fiscal policies would increase imports amid modest export growth, widening the external current account deficit and potentially causing international reserves to decline to uncomfortable levels—especially if compensation for the nationalized utilities is paid and repatriated.  
- Main risks highlighted: a court decision that leads to larger than expected liabilities to former owners of nationalized companies; weaknesses in the systemic bank.

### Executive Board assessment and key policy recommendations
- Executive Directors’ summary: Belize’s outlook characterized by sluggish growth, weak fiscal stance, and external and financial sector vulnerabilities; significant contingent liabilities from nationalizations could further raise debt levels. Directors called for efforts to reduce vulnerabilities, rebuild policy buffers, and accelerate medium-to-long term growth.  
- Fiscal policy recommendations:
  - Begin to progressively raise the primary balance to levels consistent with debt sustainability; staff advice specified improving the primary fiscal balance to about 4.5 percent of GDP in the medium term.  
  - Remove exemptions and zero-ratings from GST; build a stronger revenue administration to contain leakages; limit current spending, including through reform of the public officers’ pension scheme.  
  - Supplement prior measures (widening tax base, strengthening revenue administration, containing spending on goods and services, the wage bill, and pensions) with additional measures such as cuts in transfers.  
  - Address public financial management (PFM) weaknesses, including internal and external controls and procurement practices, to contain low-quality spending.  
- Financial sector recommendations:
  - Continue to address banking sector vulnerabilities, including raising capital buffers and tightening restrictions on the distribution of dividends and lending for banks with the lowest capital buffers.  
  - Conduct an asset quality review of all banks to fully assess their true strength; gradually increase provisioning to fully cover all loan losses (secured and unsecured); prepare financial stability reports and bank stress tests that account for provisioning shortfalls.  
- Growth strategy recommendations:
  - Implement a comprehensive medium-term growth strategy; mobilize domestic resources through enhanced domestic revenue collection and spending rationalization; mobilize external resources through international partners and well-designed public private partnerships.  
  - Ensure well-functioning financial markets, supporting infrastructure and regulation for key sectors (agriculture and tourism), an attractive business environment, greater liberalization of domestic markets (including labor markets), and greater diversification of export markets.  
- AML/CFT and correspondent banking:
  - Most CFATF deficiencies have been addressed; Belize exited the CFATF follow-up and monitoring process. Important reforms remain to ensure effective implementation of Belize’s AML/CFT regime in line with recent FATF standards. Directors urged clearer guidance from regulators of international banks terminating correspondent relationships regarding expectations for their dealings with local banks.

### Implementation status and staff appraisal highlights
- Implementation of staff advice and authorities’ commitments: mixed.  
- Primary fiscal balance: turned negative in FY 2015 (April–March), well below authorities’ 2013 restructuring commitment of 2 percent of GDP.  
- The review of tax exemptions promised in the 2014 budget speech has not yet started.  
- Positive developments: preparation of a financial crisis management plan and progress in modernization of the payment system.

*International Monetary Fund. Belize: Staff Report for the 2015 Article IV Consultation (September 1, 2015).*

### 6. The banking system’s financial soundness indicators (FSIs) in early 2015 highlighted

### 6. The banking system’s financial soundness indicators (FSIs) in early 2015 highlighted

### Banking system: key FSIs and vulnerabilities
- Gross NPLs to total loans: 16.1 percent at end-March 2015 (6.1 percent net of provisions).
- System CAR: 23.7 percent at end-March 2015, but "very likely inflated" because of under-provisioning of NPLs in a few banks.
- Provisioning rule: NPLs classified as losses, fully collateralized and free of specific provision before December 2011 are provisioned at 50 percent for domestic banks.
- Under the provisioning rule, all domestic banks met provisioning requirements except the systemic bank (21 percent of the banking system’s assets at end-March 2015), which was granted an extension.
- Deadline: Banks have until November this year to write off these NPLs; doing so would "seriously erode the capital buffers" of two banks (26 percent of the banking system’s assets at end March 2015), including the systemic bank.
- System return on assets (ROA): 0.5 percent at end-March 2015.

### The systemic bank: balance sheet developments
- NPLs to total loans: 23.2 percent at end-May 2015 (9.9 percent net of provisions).
- CAR (systemic bank): 16.2 percent at end-May 2015.
- Notable balance-sheet items and impact:
  - Sale of real estate: US$23 million (offset some impacts).
  - Large tax payment: US$ 4.75 million.
  - Large provision expense on a disputed claim against the government: US$7.9 million.
  - Disputed claim excluding amount: US$21.5 million; excluding this disputed claim, CAR would have been lower.
- Liquidity action: sale of part of the bank's investment portfolio in the US generated cash to pay out depositors of the bank's international subsidiary that was being wound down (noted as causing a strong increase in excess liquidity in March 2015).

### Correspondent banking relationship (CBR) termination
- Bank of America terminated a major CBR with the systemic bank in early 2015.
- Impact to date: limited effect on the financial system and economic activity.
- Mitigating actions: Central Bank and major credit card companies (Visa and MasterCard) supported new arrangements; international financial transactions have not been disrupted.

### Macroeconomic outlook and risks (short-to-medium term)
- Growth:
  - Short-to-medium term: would hover around 2.5 percent (consistent with 2014 Article IV assessment).
  - Real GDP growth 2015: expected to fall to 2.2 percent.
  - Growth in 2016–17: expected to accelerate to about 3 percent as a new large sugar firm starts production.
- Inflation: expected to remain subdued owing to the exchange rate peg and moderate inflation in trading partners.
- Fiscal outlook:
  - Primary fiscal balance: would remain in deficit for a while due to political environment and excess spending pressures.
  - Public debt: projected to continue rising to "unsustainable levels," exceeding 100 percent of GDP in 2016 under staff assumptions that liabilities related to nationalized companies (about 20 percent of GDP) are recognized in 2016.
- Financing and liquidity:
  - Limited external financing implies heavy reliance on domestic financing, especially from banks, to meet gross financing requirements—potential to significantly reduce banking system liquidity and crowd out private investment.
  - Expansionary fiscal policies (large wage increases, initiatives financed with PetroCaribe resources) would increase imports and widen the external current account deficit above levels consistent with external stability (about 3 percent of GDP or less), contributing to a moderate overvaluation of the exchange rate.
  - Without strong external inflows, international reserves could decline to uncomfortable levels, especially if compensation for the nationalized utilities is paid and repatriated.

### Downside and upside risks
- Downside risks highlighted:
  - Other banks could lose their CBRs with global banks, severely impacting international financial transactions.
  - Worsening banking sector vulnerabilities, notably the systemic bank’s low capital buffers and banks’ exposure to an already over-indebted sovereign.
  - Lower-than-projected primary balances and larger-than-expected compensation payments for nationalized utilities.
  - External shocks that could erode international reserves: persistent U.S. dollar strength; Cuba entering the Caribbean tourism market; structurally weak growth in key advanced and emerging economies; end of PetroCaribe financing; larger-than-expected drop in sugar prices after EU sugar reform in 2017.
- Upside factors:
  - Low international oil prices and growth-enhancing projects currently being implemented or envisaged could mitigate some risks.

### Policy discussions and recommendations
- Overall staff advice: (i) raise the primary fiscal balance to levels that put public debt on a sustainable path and create credible policy buffers while addressing public financial management (PFM) weaknesses; (ii) continue to address banking sector vulnerabilities; and (iii) implement a comprehensive medium-term growth strategy accounting for human and financial resource constraints.
- Fiscal stance:
  - Staff recommended progressively raising the primary fiscal balance to 4−5 percent of GDP to signal fiscal consolidation, boost investor confidence, and allow room for growth-enhancing public expenditures.
  - Even with a 4−5 percent primary balance, public debt would reach about 85 percent of GDP by 2020 (above the 70 percent target from 2014 Article IV).
- "Plan B" option:
  - If the recommended adjustment is not feasible, staff suggested a "plan B" relying on weaker fiscal adjustment but more vigorous structural reforms.
  - Under "plan B," target a primary fiscal surplus of about 2 percent of GDP (the commitment during the 2013 debt restructuring) and implement structural reforms to lift medium-term growth to about 6 percent—allowing debt to reach about 84 percent of GDP in 2020 and 60 percent by 2026.
  - Staff cautioned that the growth impact of structural reforms takes time and that "plan B" carries significant risks.
- Specific fiscal and PFM measures encouraged:
  - Supplement 2014 Article IV measures with cuts in transfers and other spending actions.
  - Tax measures: remove exemptions and zero-ratings from the GST to realistically collect more than 1–2 percent of GDP.
  - Strengthen and modernize tax administration; enforce collection of undisputed tax arrears (3 percent of GDP in 2014); create an integrated domestic tax department.
  - Freeze goods and services spending at FY 2015 levels in real terms rather than FY 2014 levels to preserve projected savings.
  - Improve monitoring of transfers to achieve desired spending adjustment of 2–3.5 percentage points of GDP.
  - Pass a supplementary budget with consolidation measures promptly.
  - Implement PEFA recommendations: enhance internal and external controls and audits, and procurement practices.
  - Adopt more active debt management, including refinancing expensive debt with low-earning deposits (from PetroCaribe).
  - Consider civil service reform and making the public employees’ pension system contributory.
- Risks of delaying adjustment:
  - Investors may be reluctant to continue financing without credible consolidation signals.
  - Adverse external developments could deplete central bank reserves and force high-cost international borrowing to rebuild reserves.
  - Interest payments already exceed domestically-financed capital spending; a high debt path would raise crisis probability and future debt service, increasing necessary adjustment.

### Authorities’ position
- Valuation of nationalized companies:
  - Authorities maintain that the true value at nationalization was closer to their valuation; if courts accept their valuation (about 8 percent of GDP, BZ$281 million), the public debt path would be better.
  - Under the authorities’ valuation, debt would stabilize at about 85 percent of GDP in the medium term under current policies.
  - Authorities noted compensation for nationalized utilities is unlikely to be decided soon if litigation continues.
- Acknowledgement of fiscal needs:
  - Authorities recognize the need for greater fiscal effort to ensure public debt sustainability even if their valuation is accepted.
  - They accept that a combination of fiscal adjustment and vigorous growth-enhancing structural reforms is needed, aiming for public debt toward 60–65 percent of GDP in the medium-to-long term.

*Source: IMF staff report text (sections on financial sector FSIs, systemic bank developments, macroeconomic outlook, risks, and policy discussions).*

### 18. The authorities are committed to returning to primary fiscal surpluses but did not

### _cr1692 - 18. The authorities are committed to returning to primary fiscal surpluses but did not

### Fiscal stance and overarching commitment
- Authorities are committed to returning to primary fiscal surpluses but did not commit to any specific target or measure to kick start fiscal consolidation.
- A few options for policy adjustment are being considered, including PFM and growth-enhancing structural reforms.

### Revenue measures and administration
- Authorities plan to set up a committee to review the list of exempted and zero-rated items under the GST (as indicated in the Prime Minister’s 2014 budget speech).
- Commitments:
  - Fully exploit insights from revenue administration monitoring reports prepared with staff assistance.
  - Hold the revenue administration more accountable, especially on very low effective taxation.
  - Give due consideration to recommendations of recent IMF TA missions and the revenue-enhancing committee established under the 2013 wage agreement.
  - Improve collection of undisputed tax arrears and modernize revenue administration.
  - Consider creating an integrated domestic tax department (noting legislative difficulties) and improve information sharing among different revenue departments.
  - Make the revenue-enhancing committee permanent to continuously monitor revenue performances.
- Authorities recognize risks of largely relying on revenue measures to achieve significant fiscal consolidation.

### Expenditure commitments and constraints
- Authorities acknowledge some infrastructure spending is needed but note the 2013 wage agreement has been much costlier than initially envisaged.
- Political constraints:
  - Backtracking on commitments under the 2013 wage agreement would be politically difficult.
  - Future wage agreements will have to be conducted within a framework that takes into account fiscal sustainability; authorities remain committed to signing a memorandum of understanding with labor unions.
- Committees and reforms:
  - Recommendations of the cost-saving committee (established under the 2013 wage agreement) will be considered and its tasks extended to pension system reforms.
- Petrocaribe resource management (post-Petrocaribe Act):
  - Petrocaribe resources accumulated until March 2015 will continue to be used for capital spending.
  - Petrocaribe resources accumulated between April 2015 and March 2016 will be saved to help pay compensation for nationalized companies.
  - Petrocaribe resources accumulated beyond March 2017 will be allocated to the refinancing of more expensive external debt.

### Public Financial Management (PFM)
- Authorities acknowledged delays in submitting financial statements to the Auditor General and then to parliament as a major control weakness needing effective address.
- Commitments:
  - Address major PFM weaknesses identified by the recent PEFA mission (no timetable specified).
  - Adopt a procurement law to enhance transparency and value for money.
  - Strengthen debt management and finalize the draft public debt management bill prepared with IMF TA and submit it to parliament as soon as possible.

### Financial sector: supervision, provisioning, and stability
- Staff recommendations and observations:
  - Maintain tight banking supervision and conduct an asset quality review (AQR) of all banks to fully assess strength.
  - Continue full-scope onsite examinations and AML-focused onsite examinations; prepare quarterly financial stability reports (FSRs) including quarterly stress tests that fully take shortfalls in provisioning into account.
  - Monitor group risk, group capital adequacy, group governance and regulatory arbitrage following CARTAC TA on consolidated supervision.
- Provisioning guidance:
  - Staff urged raising provisioning requirements to 100 percent on all loan losses (secured and unsecured).
  - Banks with loan losses not fully provisioned should be ordered to gradually increase provisioning to 100 percent over a reasonable transition period; during transition dividend distribution is strictly forbidden and management fees contained.
- AML/CFT:
  - Encourage stepping up effective implementation of AML/CFT framework to meet the 2012 FATF standard (progress to date mostly addresses technical compliance with the 2003 FATF standard).
  - Priorities: implement risk-based approaches to AML/CFT supervision, enhance transparency of legal entities and arrangements, ensure operational and effective international cooperation of the financial intelligence unit.
- Crisis management and payment systems:
  - Staff welcomed the financial crisis management plan prepared with IMF TA, including bank resolution templates and an updated list of technical partners.
  - Draft credit bureau law approved by cabinet to be sent to parliament by the first half of next year.
  - Modernization of national payments system: draft legal framework and the Automated Transfer System are near completion.
  - Resources allocated to hire an in-house legal expert to strengthen the Central Bank’s legal department.

### Authorities’ views on financial sector measures
- Provisioning shortfalls:
  - Authorities view current provisioning rules as prudent but noted that 100 percent provisioning on all loan losses was considered in the past.
  - They decided that 50 percent provisioning for fully secured loan losses was prudent after discussions with banks, with a transition period for legacy loans.
  - Authorities view collateral values for secured loans as inflated, disincentivizing timely disposal.
  - They appreciate recent IMF TA on loan classification and provisioning and will give due consideration to TA recommendations.
- Financial stability reports:
  - Authorities will continue to prepare FSRs including stress tests and stronger analysis of group risks; delays were mainly due to capacity constraints being addressed.
  - A database to facilitate production of future reports is being finalized.
- Correspondent banking concerns:
  - Authorities emphasized that termination of some correspondent banking relationships could destabilize the Belizean financial system and criticized lack of transparency from international banks and their regulators.
- AML/CFT implementation:
  - Authorities are determined to implement their AML/CFT framework and cite Belize’s recent exit from CFATF follow-up and monitoring process as confirmation of progress.
  - They view the combination of favorable CFATF review and termination of correspondent relationships as sending contradictory messages and call for greater consistency in assessments.
- Crisis preparedness:
  - Authorities will continue to update the list of technical partners for potential crisis support and note regional supervision progress is held back by refusal of another regional supervisor to address a parallel banking issue.

### Medium-term growth strategy (GSDS) and structural reform priorities
- Growth performance and drivers:
  - Annual GDP growth averaged above 5.4 percent during 1981–2007, but declined to about 2.5 percent during 2008–13.
  - Growth accounting attributes the slowdown after 2008 mainly to slower total factor productivity (TFP) growth and less investment in fixed capital.
  - Staff suggests deficiencies in infrastructure, human capital and the business environment contributed to lower productivity.
- Growth and Sustainable Development Strategy (GSDS) 2015–18:
  - GSDS is the implementation plan of Horizon 2030 and the primary planning document during 2015–18.
  - GSDS seeks to help achieve real output growth of 5 percent annually over a prolonged period (growth impact of structural reforms not quantified).
  - Staff view: Belize can reach such targets if appropriate investments are made, especially in agribusiness, and strengthen access to neighboring markets, especially Guatemala and Mexico.
  - Note: strengthening agribusiness and trade with Guatemala and Mexico, including through better ports and transport infrastructure, would require less than US$100 million in investments.
  - Staff urged quick enhancement of domestic revenue collection and investment in human capital; encouraged tapping international partners and well-designed public private partnerships (PPPs).
- Three main reform themes urged by staff:
  - Macroeconomic policies that inspire confidence, enhance competitiveness, and support private sector-led and inclusive growth:
    - Fiscal policies must be sustainable and promote inclusive growth.
    - Fiscal tightening recommended by staff is expected to mostly reduce imports, not GDP growth, and boost investor confidence and private investment.
    - Staff analysis suggests the real exchange rate is moderately overvalued (Annex II).
    - Costs of nominal devaluation are high given high government external debt, large pass-through to inflation, and authorities’ commitment to the exchange rate peg; focus instead on external price competitiveness measures that lower production costs, liberalize the economy and increase labor and product market flexibility.
    - GSDS measures include cost savings from streamlining public services and reforms to strengthen tradable sector, attract foreign investment, improve export market penetration, and productivity-enhancing reforms.
    - Amending labor regulations to provide greater flexibility in working hours could help lower labor costs in business outsourcing and tourism.
  - Financial markets that work for the Belizean economy:
    - Low credit growth and high liquidity imply financial sector could do more to boost growth.
    - Policies should give greater role to competition in determining interest rates and asset prices and support a well-functioning credit bureau to improve lenders’ knowledge of borrowers.
    - Recent regulation administratively allocating foreign exchange to one importer falls short of best practice; staff advised against such measures and urged authorities to request IMF TA to strengthen the foreign exchange market.
    - Administrative allocation of foreign exchange does not breach Article VIII obligations if sale is at prevailing market rate; LEG is conducting a routine review of Belize’s overall foreign exchange regime.
  - Structural reforms supporting key engines of growth:
    - Key sectors: agriculture, agro-processing, energy and tourism.
    - Needed: rapid infrastructure build-out and appropriate regulations.
    - With expected drop in sugar prices after full liberalization of the EU sugar market after 2017, enhancing efficiency and productivity of sugar cane production is important (SIP on the sugar sector).
    - Lowering cost of energy could boost external competitiveness and real GDP growth, promoting agro-processing and tourism (SIP on the energy sector).
    - Improve business environment: quicker resolution of contract disputes, simplify procedures for starting a business and registering property, liberalize domestic markets (including labor markets), and diversify export markets.

### Authorities’ views on GSDS and growth policies
- Authorities will seek financial and human resources for GSDS implementation through enhanced domestic revenue collection and better expenditure design to boost human capital.
- Sectoral priorities: agro-business, tourism, and energy seen as key with highest growth potential.
  - Sugar sector: amendment of the Sugar Act to allow more flexibility for sugar farmers; developing a long-term strategic plan in collaboration with sugar farmers and Belize Sugar Industries (BSI), including liberalization of domestic sugar market.
  - Tourism: tourism master plan prepared and being implemented; recently helped increase tourism inflows to Belize.
  - Energy: implementing National Strategic Plan for 2012–17 aiming to reduce per capita energy intensity by at least 30 percent by 2033.
- Authorities agree with staff’s thrust on growth and competitiveness, acknowledge need for increased investment and greater access to foreign markets, and maintain the nominal exchange rate peg as a key anchor.
- They did not commit to any specific measures beyond those described in paras. 18, 23, and 31 and envisaged in the GSDS.

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

### 33. The authorities also shared some dissenting views on how to make Belize grow faster.

### 33. The authorities also shared some dissenting views on how to make Belize grow faster.

### Foreign exchange market and interest rates
- The authorities noted that the administrative allocation of foreign exchange to the fuel importer was necessary as some banks had been withholding foreign exchange in violation of their responsibilities as authorized dealers in foreign exchange.
- The authorities do not see the need for IMF TA to strengthen the functioning of the foreign exchange market.
- On interest rates, the authorities noted that past reductions of the interest rate floor did not produce a comensurate drop in lending rates as banks used most of the additional profit margins they gained to strengthen their balance sheets, including through increased provisioning.
- Since provision shortfalls remain significant in the banking system, the authorities are convinced that removing the interest rate floor at this juncture will not lower lending rates much further.
- The authorities stressed that the role of financial markets in supporting growth will be enhanced with adequate financial market infrastructure, including well-functioning capital markets, and greater transparency requirements for businesses.
- Financial and technical assistance will be needed in these two areas, which are also considered in their strategic development plans.

### Spillovers, correspondent banking, and data
- Most banks in Belize still maintain some CBRs with banks in the U.S. and Europe; the authorities and staff see termination of these remaining CBRs as the greatest spillover risk of the moment.
- The authorities will continue to strengthen their financial system and AML/CFT framework but do urge international partners to raise awareness of the negative consequences of some prudential regulations that are being implemented in advanced countries.
- Risks from Belize’s financial linkages with banks in Antigua and Barbuda that are currently under receivership with total exposures of around US$14million are being contained with greater provisioning.
- Spillover risks from trade channels are being contained through export diversification.
- Data provision is broadly adequate for surveillance. The authorities remain committed to strengthening statistics, but acknowledged that progress remains slows.
- The authorities are still committed to subscribing to the Fund’s Special Data Dissemination Standard as promised to investors during the 2013 debt restructuring.
- The authorities are preparing consolidated data on the public sector. There is no timetable for completing these two key projects.

### Staff appraisal — recent performance and outlook
- Real GDP growth reached 3.6 percent in 2014 and 7 percent (y/y) in the first quarter of 2015, owing mainly to strong performances in agriculture and tourism.
- Inflation remained subdued, but the external current account deficit has widened.
- The primary fiscal balance deteriorated sharply to a deficit of 1.5 percent of GDP.
- Credit growth is recovering, driven by loans to the sugar sector and real estate credit.
- The macroeconomic outlook broadly remains in line with the assessment made during the 2014 Article IV Consultation, but the fiscal outlook is expected to be worse due to excess spending.
- A weak GDP growth and an expansionary fiscal stance combined with the assumed recognition of liabilities from nationalization in 2016 (about 20 percent of GDP) would push public debt to about 96 percent of GDP in the medium term, more than 6 percentage points of GDP above projections during the 2014 Article IV Consultation.
- Expansionary fiscal policies would increase imports in the context of modest growth of exports, widening the current account deficit and contributing to a moderate overvaluation of the exchange rate.
- Without strong external inflows, international reserves would decline to uncomfortable levels, especially if compensation for the nationalized companies is paid and repatriated.

### Downside risks highlighted
- Compensation payments for the nationalized companies could be higher than in staff’s projections.
- Other banks could lose correspondent banking relationships with severe impact on international financial transactions.
- Cuba’s entrance in the Caribbean tourism market, the end of Petrocaribe financing, a significant drop in sugar prices, and a protracted period of weak growth in advanced and emerging economies could accentuate pressures on international reserves.

### Policy recommendations and reforms
- Public debt should credibly be brought back to a sustainable path and fiscal buffers created to safeguard against looming risks.
- A primary fiscal balance of 4–5 percent of GDP would contain the rise of public debt to 85 percent of GDP by 2020, which would still be unsustainable, and then reduce it about 60 percent of GDP by 2030.
- Measures to achieve this could include:
  - removing exemptions and zero-ratings from the GST,
  - building a stronger revenue administration that contains leakages,
  - limiting current spending, including through reform of the public officers’ pension scheme.
- More vigorous growth-enhancing reforms could help achieve the public debt targets above with a slightly weaker primary fiscal balance.
- PFM and public sector reforms that reduce low-quality spending should not be delayed.
- Efforts to strengthen the financial sector should continue, with emphasis on strengthening banks’ balance sheets.
  - An asset quality review of all banks will complement reviews currently done by the Central Bank and enhance confidence in the quality of banks’ books.
  - Given the challenges in collateral valuation in the context of illiquid markets, provisioning on loan losses (secured or unsecured) should be raised to 100 percent.
  - Preparation of financial stability reports must continue, including bank stress tests that fully take shortfalls in provisioning into account.
  - Efforts to effectively implement the AML/CFT framework must be stepped up.
- The national Growth and Sustainable Development Strategy (GSDS) must be vigorously implemented, taking into account constraints on financial and human resources.
  - A strategy to mobilize financial and human resources for the credible implementation of the GSDS should be published.
  - Enhancing revenue collection, tapping into resources available through international partners and well-designed public private partnerships, and boosting human capital, including through better public spending, will be essential.
  - Financial markets that work for the Belizean economy, engines of growth such as agriculture and tourism that are supported with the required infrastructure and regulation, an attractive business environment that reduces the cost of doing business, greater liberalization of domestic markets, including labor markets, and greater diversification of export markets will be key to the success of any growth strategy.

### Administrative
- It is recommended that the next Article IV be held on the standard 12-month cycle.

*Source: IMF staff report chapter titled "33. The authorities also shared some dissenting views on how to make Belize grow faster."*

### Box 1. The Authorities’ Response to Key IMF Policy Recommendations

### Box 1. The Authorities’ Response to Key IMF Policy Recommendations

### Fiscal consolidation
- IMF recommendation: Strengthen fiscal policy to rebuild macroeconomic buffers in the context of rollover risks and emerging contingencies.
- Authorities’ response: Acknowledged the need for a greater fiscal effort but did not commit to any specific fiscal target or measure.
- Staff assessment: Marginally consistent.
- Key fiscal outcomes and indicators:
  - Fiscal year 2014/15 primary balance outturn: "well below staff recommendation during the 2014 Article IV Consultation."
  - Projected primary balance for fiscal year 2015/16: "falls short of the target recommended by staff."
  - Table 2 (operations of the central government, selected lines, Est. 2014/15 and Projections):
    - Revenue and grants (2014/15): 1,001 (millions of BZ$)
    - Total expenditure (2014/15): 1,134 (millions of BZ$)
    - Primary balance (2014/15): -42 (millions of BZ$)
    - Overall balance (2014/15): -133 (millions of BZ$)
  - Table 1 fiscal aggregates (in percent of GDP):
    - Revenue and grants (2014/15): 29.2 percent of GDP
    - Primary balance (2014/15): -1.2 percent of GDP
    - Overall balance (2014/15): -3.9 percent of GDP
    - Public and publicly guaranteed debt (2014): 76.0; 2015: 78.1 (units as presented in table)
  - Box conclusion: "Despite the recent external debt restructuring, the primary fiscal balance and debt sustainability have deteriorated significantly in recent years."

### Financial sector reform
- IMF recommendation: Closely monitor elevated risks in the financial system and continue to implement the 2011 FSAP recommendations.
- Authorities’ response: Determined to address remaining weaknesses; continued implementation of key FSAP recommendations.
- Progress reported:
  - Prepared a crisis management plan and bank resolution templates with IMF TA.
  - Modernization of the national payment system underway.
  - Establishing a framework for consolidated supervision.
  - Stepped up efforts to strengthen AML/CFT framework compliance with FATF standards.
- Staff assessment: Broadly consistent.
- Banking and financial sector indicators (selected):
  - Broad money (M2) growth picked up in 2014; Money and quasi-money (M2) in Table 3: 2014 = 2,672 (BZ$ millions); 2015 = 2,772; 2016 (proj) = 2,895.
  - Credit to the private sector (by commercial banks), Table 3: 2014 = 2,123; 2015 = 2,190; 2016 (proj) = 2,269 (BZ$ millions).
  - Nonperforming loans remained high (chart commentary): "still high (albeit decreasing) NPLs."
  - Interest rate spreads: Belize has "one of the highest interest rate spreads in the region" (chart commentary).

### Structural reforms
- IMF recommendation: Remove key infrastructure bottlenecks and improve the environment for doing business to boost economic growth.
- Authorities’ response:
  - Developed a new Growth and Sustainable Development Strategy (GSDS) covering 2015–18 (Annex VI).
  - Actively seeking financial and human resources required for GSDS implementation.
  - Recent progress "most notably in the sugar and energy sectors."
- Staff assessment: Moderately consistent.
- Remaining constraints noted:
  - Bottlenecks persist in port facilities, energy, transportation, and education.
  - "Doing business indicators and investor confidence remain low."

### Real sector and social indicators (selected)
- Growth and inflation:
  - GDP growth reached 3.6 percent in 2014; supported by strong growth in agriculture, tourism, and services.
  - Consumer prices (end of period) 2014: -0.2 (percent); consumer prices (average) 2014: 1.2 (percent) — Table 1 entries preserved as presented.
- Labor and social:
  - Unemployment rate, Sep. 2014: 12.1 (percent) — Table 1.
  - GNI per capita, 2013: 4,510 (current US$) — Table 1.
  - Life expectancy at birth, 2013: 74 (years) — Table 1.

### External sector and reserves (selected)
- External position and financing:
  - Trade balance worsened in 2014 due to a decline in oil and subdued agricultural exports and higher imports; terms of trade declined.
  - Despite widening current account deficit in 2014, international reserves increased owing to Petrocaribe financing and cashflow relief from external debt restructuring.
- Key numbers from Table 4 and Table 1:
  - Current account balance (2014): -130 (US$ millions); Current account balance (percent of GDP, 2014): -7.6 percent — Table 4 / Table 5.
  - Gross international reserves (2014): 487 (US$ millions) — Table 1.
  - Gross international reserves (months of imports, 2014): 5.2 months — Table 1 / Table 4.
  - Gross external financing needs and related vulnerabilities signaled in figures and commentary: "gross external financing needs could further increase."

### Debt markets and restructuring
- Key developments:
  - Debt restructuring ("super-bond" exchange) provided substantial near-term cashflow relief but extended financing requirements by about 10 years.
  - Markets' perception: ratings moved from downgrades to an upgrade to B- after the bond exchange; bond price "has not completely recovered."
  - Debt outlook (Table 5 baseline medium-term):
    - Public and publicly guaranteed debt (percent of GDP): 2014 = 76.0; 2015 = 78.1; 2016 = 101.1 (Table 1 shows 2016 = 101.1 in the 2010–16 series) and Table 5 shows projected public and publicly guaranteed debt: 2015 = 78.1; 2016 = 101.1; 2017 = 98.8; 2018 = 97.9; 2019 = 97.0; 2020 = 96.1 (values preserved as presented).

### Baseline medium-term outlook (selected projections)
- Real economy (Table 5, annual percentage change):
  - GDP at constant prices: 2014 = 3.6; 2015 (proj) = 2.2; 2016 (proj) = 3.2; 2017 (proj) = 3.0; 2018 (proj) = 2.6; 2019 (proj) = 2.5; 2020 (proj) = 2.4.
- Prices (Table 5):
  - GDP deflator (annual change): 2014 = 1.0; 2015 (proj) = 1.5; 2016 (proj) = 1.2.
  - Consumer prices (end of period): 2014 = -0.2; 2015 (proj) = 0.7; 2016 (proj) = 1.7.
- Fiscal projections (Table 5, percent of GDP):
  - Revenue and grants: 2015 = 27.5; 2016 = 26.7; 2017 = 26.3; 2018 = 25.9.
  - Total expenditure: 2015 = 33.1; 2016 = 32.7; 2017 = 31.1; 2018 = 30.5.
  - Primary balance: 2015 = -1.2; 2016 = -1.2; 2017 = 0.1; 2018 = 1.0.
  - Overall balance: 2015 = -3.9; 2016 = -5.2; 2017 = -4.1; 2018 = -4.5.
- External sector projections (Table 5):
  - Current account balance (percent of GDP): 2015 = -6.3; 2016 = -7.1; 2017 = -7.4; 2018 = -7.0.
  - Gross official reserves (months of imports): 2015 = 5.2; 2016 = 4.9; 2017 = 4.2; 2018 = 3.4; 2019 = 2.7; 2020 = 1.9.

*Source: IMF staff compilation from the referenced country documents in the provided content unit.*

### 1. Public and publicly guaranteed debt

### 1. Public and publicly guaranteed debt

### Reported debt stocks (as presented in source)
- Total: 1,189 1,236 1,292 1,377 1,862 1,907 1,980 2,050 2,121
- Other public and publicly guaranteed external debt: 583 332 313 130 303 029
- Central government: 1,132 1,202 1,260 1,345 1,831 1,877 1,950 2,020 2,092
- Domestic debt: 167 165 172 224 672 703 798 908 1,033
- External debt: 965 1,037 1,088 1,122 1,159 1,174 1,152 1,112 1,058
- Multilateral: 253 270 278 283 291 294 293 291 290
- Bilateral and export credit: 169 240 284 296 290 282 263 242 224
- Commercial 1/: 542 527 527 527 527 527 527 513 485
- New commercial borrowing (net): 0 0 0 175 272 706 660

### Debt stocks (in percent of GDP, as presented in source)
- Total: 75.6 76.1 76.0 78.1 101.1 98.8 97.9 97.0 96.1
- Other public and publicly guaranteed external debt: 3.7 2.1 1.9 1.8 1.7 1.6 1.5 1.4 1.3
- Central government: 71.9 74.0 74.2 76.3 99.5 97.2 96.5 95.6 94.8
- Domestic debt: 10.6 10.2 10.1 12.7 36.5 36.4 39.5 43.0 46.8
- External debt: 61.3 63.8 64.0 63.6 63.0 60.8 57.0 52.6 47.9
- Multilateral: 16.1 16.6 16.4 16.0 15.8 15.2 14.5 13.8 13.1
- Bilateral and export credit: 10.7 14.8 16.7 16.8 15.8 14.6 13.0 11.5 10.1
- Commercial 1/: 34.5 32.4 31.0 29.9 28.6 27.3 26.0 24.3 22.0

(Note: figures labeled "(In percent of GDP, unless otherwise indicated)" in source.)

### Footnote excerpts from source table
- 1/ Amortization of the "Superbond" commences in 2019 according to the initial repayment terms.
- 2/ Includes repayment of additional liabilities to the former owners of BTL and BEL (at mid-point valuation between the authorities' assessment and the claims of the former owners of the companies) and land claims in equal installments in 2016-2020.
- 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.
- 4/ Latest World Economic Outlook assumptions.
- 5/ Interest on government debt in previous year divided by stock of debt.

### Flow of funds — Sources (percent of GDP, as presented)
- Total sources: 4.8 7.1 4.4 4.7 4.9 6.4 6.7 7.2 7.6
- Primary balance: 1.5 0.2 -1.0 -2.3 -1.5 -0.2 0.8 0.9 0.9
- Privatization proceeds: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Identified disbursements: 3.2 7.0 5.4 7.0 6.4 6.6 5.9 6.3 6.7
  - Multilateral: 1.6 2.4 1.6 1.5 1.7 1.5 1.2 1.1 1.0
  - Bilateral and export credit: 0.7 5.3 3.5 2.6 2.7 1.6 0.1 0.0 0.0
  - Commercial: 0.9 -0.7 0.4 2.9 2.1 3.4 4.7 5.2 5.7
  - Domestic (net) 2/: 0.9 -3.2 0.4 2.9 2.1 3.4 4.7 5.2 5.7
  - External 3/: 0.0 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0

### Flow of funds — Use of funds (percent of GDP, as presented)
- Debt service (total): 4.8 7.1 4.4 4.7 4.9 6.4 6.7 7.2 7.6
- Interest payments: 2.8 1.6 2.4 2.5 2.6 4.0 4.4 4.3 4.1
  - Domestic interest: 0.4 0.4 0.3 0.4 0.5 2.0 2.0 2.0 2.0
  - External interest 3/: 2.4 1.3 2.1 2.1 2.1 2.0 2.4 2.3 2.1
- Principal repayments: 2.0 5.5 2.0 2.1 2.3 2.4 2.3 3.0 3.5
  - Multilateral: 1.1 1.3 1.1 1.2 1.3 1.4 1.2 1.1 1.1
  - Bilateral and export credit: 0.9 0.9 0.9 0.9 1.0 1.0 1.1 1.2 1.1
  - Commercial, including parastatal: 0.0 3.3 0.0 0.0 0.0 0.0 0.0 0.7 1.3

### Assumptions (as presented)
- Nominal GDP (US$ millions): 1,574 1,624 1,699 1,763 1,841 1,931 2,021 2,114 2,207
- Nominal GDP growth rate (percent): 5.7 3.2 4.6 3.7 4.4 4.9 4.7 4.6 4.4
- Real GDP growth rate (percent): 3.8 1.5 3.6 2.2 3.2 3.0 2.6 2.5 2.4
- Annual inflation (deflator, in percent): 2.4 1.7 1.0 1.5 1.2 1.8 2.0 2.1 2.0
- Assumed domestic borrowing rate (percent): 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): 1.7 1.4 1.3 1.4 2.2 3.2 3.2 3.2 3.2
- Six-month LIBOR rate (percent) 4/: 0.7 0.4 0.3 0.4 1.2 2.2 2.2 2.2 2.2
- Spread over LIBOR rate (percent): 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

### Memorandum items (as presented)
- Overall central government balance (calendar year, percent of GDP): -1.3 -1.5 -3.4 -4.8 -4.1 -4.2 -3.6 -3.3 -3.2
- Implicit nominal interest rate (percent) 5/: 3.7 2.3 3.3 3.5 3.4 4.2 4.6 4.5 4.5
- Gross financing requirement (percent of GDP): 3.2 7.0 5.4 7.0 6.4 6.6 5.9 6.3 6.7

### Projections and policy-relevant findings (text excerpts)
- Public debt is projected to remain high and unsustainable because of recognition of liabilities and weak fiscal stance, despite the cash flow relief provided by the March 2013 debt restructuring.
- Main risk: amount of compensation that justice courts will order the government to pay for the two nationalized companies; staff assumes the mid-point valuation of these companies.
- Other risks: additional contingent liabilities from the financial sector, the fiscal cost of rebuilding central bank reserves, shocks to the primary balance, the exchange rate and GDP growth.
- Financing profile: Belize is expected to rely massively on domestic financing and asset reductions to meet gross financing requirements in the medium term as official external disbursements are projected to gradually decline and external commercial borrowing is expected to be very limited within the projection horizon.
- External debt trajectory: External debt would gradually decline over the medium term mainly because of non-debt creating inflows and asset reductions (mostly reserves).
- Policy implications highlighted:
  - Need for ambitious fiscal consolidation.
  - More robust debt management.
  - Development of the domestic debt market.

### Macroeconomic framework excerpts (text)
- Growth outlook: Economic growth is projected to remain relatively low at about 2.5 percent in the medium term.
- Growth drivers: Non-oil commodity exports, tourism, and construction, coupled with low inflation, are expected to support moderate real output growth and offset projected decline in oil production.
- Vulnerabilities: Growth remains vulnerable to external and weather-related shocks that could further deteriorate the debt outlook.
- Policy priorities: Improving the business environment and attracting FDI will be critical to improving growth prospects.

### Contingent-liabilities recognition scenario (text)
- Recognition of contingent liabilities could raise the level of debt stock by 22 percent of GDP in 2016.
- Assumed government actions in scenario:
  - Recognizes additional liabilities at end-2016.
  - Compensation payments at BZ$726 million (20 percent of GDP)—the mid-point valuation between the authorities’ assessment and the former owners’ claims, including capitalized accrued interests since 2011 and assuming interest rates in the range 6–8 percent.
  - Utilizes proceeds from the sale of BTL shares (BZ$75 million) to pay part of the compensation.
  - Pays the remaining balance in five equal payments starting in [text truncated in source].

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

### 2017. The DSA finally assumes that the government also repays US$94 million (2 percent of GDP) in

### _cr1692 - 2017. The DSA finally assumes that the government also repays US$94 million (2 percent of GDP) in

### Compensation and financing assumptions
- The DSA assumes the government repays US$94 million (2 percent of GDP) in compensation to owners of land appropriated by the government in 2017.
- Authorities may opt to issue new US$2,038 bonds up to a maximum US$75 million to pay part of the compensation, but the DSA assumes no new issuance of new U.S. dollar bonds given demand uncertainties.
- As a result, the bulk of projected financing would need to be covered by domestic borrowing and asset reductions (mainly international reserves).

### Public debt levels and projections
- Public debt experiences a hike to 101 percent of GDP in 2016 due to assumed recognition of liabilities equal to 20 percent of GDP to former owners of two nationalized utility companies.
- Under the baseline, public debt is projected to decline slowly because of:
  - a weak fiscal stance (primary surplus of only about 1 percent of GDP after 2018; elsewhere stated as 0.6 percent of GDP primary surplus on average in the medium term),
  - relatively low growth,
  - high interest rates.
- At a primary surplus of 1 percent of GDP, it would take about 30 years to bring public debt to 60 percent of GDP.
- Public sector gross financing needs are projected to increase to:
  - 28 percent of GDP by 2020 (earlier paragraph),
  - 31 percent of GDP by 2020 (summary assessment), mainly due to maturing principal of additional liabilities and high interest rates on domestic financing.
- The DSA assumes nominal interest on domestic borrowing increases (assumed between 5 and 8 percent) as public debt rises, increasing the nominal debt service burden.
- Short-term debt is assumed to represent an increasing share of debt as perceived riskiness of government paper rises.
- The asymmetric fan chart shows public debt could reach 140 percent of GDP in the medium term.
- Identified projected series (selected figures from Table/figure text):
  - Nominal gross public debt: 86.8, 76.1, 76.0, 78.1, 101.1, 98.8, 97.9, 97.0, 96.1 (years 2013–2020 sequence shown).
  - Public gross financing needs: 11.3, 6.7, 5.2, 7.0, 8.7, 14.6, 17.9, 24.5, 31.1 (2013–2020 sequence shown).
  - Real GDP growth (in percent): 2.9, 1.5, 3.6, 2.2, 3.2, 3.0, 2.6, 2.5, 2.4 (2013–2020 sequence shown).
  - Inflation (GDP deflator, in percent): 2.3, 1.7, 1.0, 1.5, 1.2, 1.8, 2.0, 2.1, 2.0 (2013–2020 sequence shown).
  - Effective interest rate (in percent): 5.3, 2.3, 3.3, 3.5, 3.4, 4.2, 4.6, 4.5, 4.5 (2013–2020 sequence shown).
  - Change in gross public sector debt (cumulative): -2.9, 0.5, -0.1, 2.1, 23.0, -2.4, -0.8, -1.0, -0.9, 20.0 (series shown).
  - Identified debt-creating flows (cumulative): -2.3, -0.9, 0.0, 2.1, 23.1, -2.3, -0.9, -0.9, -0.9, 20.1 (series shown).
  - Primary deficit ( - surplus): -2.3, -0.2, 1.0, 2.3, 1.5, 0.2, -0.8, -1.0, -1.0, 1.2 (series shown).
  - Primary (noninterest) revenue and grants: 26.2, 27.4, 28.8, 28.0, 27.2, 26.8, 26.4, 26.0, 25.6, 159.8 (cumulative noted).
  - Primary (noninterest) expenditure: 23.9, 27.3, 29.8, 30.2, 28.7, 26.9, 25.6, 25.0, 24.7, 161.2 (cumulative noted).
  - Automatic debt dynamics (interest rate/growth differential): 0.0, -0.7, -0.9, -0.2, -0.7, -0.7, 0.0, 0.0, 0.0, -1.7 (series shown).
  - Real interest rate contribution (in percent): 2.5, 0.4, 1.7, 1.4, 1.6, 2.2, 2.4, 2.3, 2.3, 12.2 (series shown).
  - Real GDP growth contribution (in percent): -2.5, -1.1, -2.6, -1.6, -2.4, -2.9, -2.4, -2.3, -2.2, -13.9 (series shown).
  - Contingent liabilities (2016 data): 22.3 (refers to liabilities resulting from past nationalization of utilities).
  - Residual, including asset changes (2013–2020 sequence shown): -0.7, 1.4, -0.1, 0.0, 0.0, -1.8, 0.0, 0.0, 0.0, -1.9.
  - Large residuals in 2013 and 2014 reflect accumulation of assets financed with PetroCaribe loans; data for 2017 refers to use of government deposits to pay for part of compensation of nationalized utilities.

### Risk assessment and fan charts
- Heat map indicates risks to debt sustainability remain high, with key vulnerabilities:
  - contingent liabilities,
  - market perception (high spreads),
  - external financing requirements,
  - residency of debt holders,
  - currency composition of debt.
- 87 percent of total public debt was denominated in foreign currency at end of 2014, making debt profile particularly sensitive to exchange rate shocks.
- Fan charts (symmetric and asymmetric) show possible medium-term debt evolution; asymmetric distribution indicates public debt could reach 140 percent of GDP.

### Stress tests and shock sensitivities
- Exchange rate shock:
  - A 10 percent real depreciation in 2014 combined with recognition of additional liabilities related to nationalization (20 percent of GDP) would boost total public debt to 105 percent of GDP in 2016.
  - Under a 30 percent depreciation of national currency, external debt would surge to 100 percent of GDP in 2016 and remain elevated at 80 percent of GDP in 2020.
- Financial sector contingent liability shock:
  - A one-time increase in non-interest expenditures equivalent to 10 percent of banking sector assets (recapitalization needs) would raise total public debt to 107 percent of GDP in 2015.
- Growth, interest rate, and primary balance shocks also materially affect debt-to-GDP ratio.
- Bound tests for external debt show sensitivity to nominal exchange rate depreciation and current account shocks.
- Gross external financing needs are high: 8 percent of GDP on average annually over the next 6 years (statement in text); Table A1.1 shows gross external financing need in percent of GDP series including values 4.9, 3.8, 3.8, 10.5, 10.0, 8.5, 9.6, 9.8, 9.4, 9.7, 10.0 (series shown for 2010–2020).

### External debt projections and dynamics
- External debt ratio is projected to gradually decline to around 50 percent of GDP by 2020 mainly because of non-debt creating inflows and asset reductions (mostly international reserves).
- External current account deficits would continue to put upward pressure on external debt.
- Identified external debt-creating flows (selected series shown):
  - External debt-to-exports ratio (in percent): 124.4, 109.5, 99.5, 101.3, 103.5, 105.9, 107.0, 105.1, 98.6, 92.7, 85.4 (2010–2020 sequence).
  - Gross external financing need (in billions of US dollars): 0.1 repeated across several years; specified as 0.1, 0.1, 0.1, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2, 0.2 (estimates).
  - In percent of GDP: 4.9, 3.8, 3.8, 10.5, 10.0, 8.5, 9.6, 9.8, 9.4, 9.7, 10.0 (2010–2020 sequence).
- Historical and scenario-bound tests show external debt vulnerability under CA shock, combined shocks, and large real depreciation events.

### Summary assessment and policy implications
- Under the baseline, Belize’s 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 (0.6 percent of GDP primary surplus on average in the medium term),
  - relatively low growth,
  - high interest rates.
- Liquidity conditions would deteriorate with public sector gross financing needs increasing to 31 percent of GDP by 2020.
- Belize is expected to rely massively on domestic financing and asset reductions to meet gross financing requirements as official external disbursements decline and external commercial borrowing is expected to be very limited.
- Refinancing risks are expected to increase with rising gross financing requirements.
- External debt would gradually decline mainly because of non-debt creating inflows and asset reductions (mostly reserves).
- Bound tests highlight high vulnerability to exchange rate shocks and contingent liabilities, including compensation for nationalized utilities and potential bank recapitalization needs.
- Policy recommendations and necessary actions:
  - Strong fiscal consolidation efforts are essential to bring public debt back to a sustainable long-run level.
  - Authorities should adopt a more ambitious medium- to long-term debt target around 50–60 percent of GDP.
  - In addition to fiscal adjustment, supporting policies should aim to:
    - improve growth,
    - deepen domestic financial markets,
    - improve public debt management.
  - Achieving the fiscal consolidation scenario that reaches a debt-to-GDP ratio of 84 percent by 2020 would require fiscal adjustment of 4.5 percent of GDP compared to 0.5 percent on average under the baseline; this implies cyclically adjusted primary balances above 3 percent of GDP.

*Source: Fund staff estimates, Belize Public Sector Debt Sustainability Analysis (DSA) excerpts from the provided document content.*

### Annex II. External Stability Assessment

### Annex II. External Stability Assessment

### Overall assessment
- The real exchange rate is assessed as moderately overvalued.
- The overvaluation largely reflects fiscal policy gaps projected to generate widening current account deficits and net external indebtedness.
- International reserves are at a comfortable level at present but are projected to decline below standard adequacy thresholds by 2018–19.

### Methodologies used
- External Stability (ES) approach and External Balance (EBA-lite) approach were applied.
- Tools are highly indicative for small countries like Belize and results should be interpreted with caution.

### External Sustainability (ES) approach — assumptions and implications
- Assumes a gradual strengthening of the NFA position from -114 percent of GDP at end-2014 to:
  - -100 percent of GDP by 2024 in the baseline scenario, and
  - -90 percent of GDP by 2024 in the alternative scenario.
- Stabilizing NFAs at these levels would imply maintaining current account deficits of:
  - -3.2 percent of GDP per year in the baseline scenario, and
  - -2.2 percent of GDP per year in the alternative scenario.
- Implied average REER overvaluation (calculated as the average of the minimum and maximum REER adjustment needed during the period):
  - about 10 percent in the baseline scenario,
  - 12 percent in the alternative scenario.

### External Balance Assessment (EBA-lite) — key results
- EBA-lite indicates a real exchange overvaluation of 11.5 percent, broadly consistent with the ES baseline.
- EBA-lite attributes the misalignment largely to fiscal policy gaps.

- External Balance Assessment table (preserve values as presented):
  - Reducing NFA to below -100 percent of GDP by 2024 (Baseline) / -90 percent of GDP by 2024 (Alternative)
  - Equilibrium external current account (CA) 1/: -3.2 (Baseline) -2.2 (Alternative) -2.2 (Baseline EBA-lite column)
  - Underlying CA balance 2/: [-6.3   -7.4] (Baseline) [-6.3   -7.4] (Alternative) -6.3 (EBA-lite)
  - CA elasticity to REER 3/: -0.4 (all cases)
  - Implied REER adjustment 4/ (in percent, "+" appreciation):
    - [-8  -11.7] (ES baseline)
    - [-10.5    -14.4] (ES alternative)
    - -11.5 (EBA-lite)
  - Note: Brackets indicate the minimum and maximum adjustment needed to bring the current account in line with the norm in the 2015-20 period.

- Footnotes preserved:
  - 1/ Equilibrium CA is defined as the CA that will bring NFA to the desired level in the ES approach and as the CA norm in the EBA-lite approach.
  - 2/ The values in brackets show the minimum and maximum projected current account deficits in the 2015-20 period.
  - 3/ This elasticity is computed using the standard long-run real exchange rate elasticities for imports (0.92) and exports (-0.71), as well as the medium-term values of Belize’s exports and imports of goods and services (in percent of GDP).
  - 4/ The brackets indicate the minimum and maximum adjustment needed to bring the current account in line with the norm in the 2015-20 period.

### Reserves adequacy — metrics and projections
- Both traditional and risk-weighted metrics indicate reserves would decline below adequacy thresholds in a few years without policy adjustment.
- Standard non-risk based adequacy metrics suggest reserves would fall below:
  - 3 months of imports and
  - 20 percent cover of broad money by 2019.
- Two risk-weighted adequacy metrics suggest reserves would fall below the comfortable adequacy region at end-2018:
  - First risk-weighted measure: reserves would represent only 87 percent of the adequate level at end-2018.
  - Second risk-weighted (SIDS-adjusted) measure: reserve coverage would decline to 57 percent in 2018 (from comfortably above the 75 percent benchmark at end-2014).

- Drivers of reserve pressures:
  - Expected increase in capital outflows from 2017 onward to cover increased external debt service and potential repatriation of compensation payments for the two nationalized companies.
  - Projected widening of the current account deficit and limited access to external financing.
  - Risk that authorities would have to borrow at high interest rates to rebuild reserves.

- Ratios of Reserves to Optimal Reserves based on Various Measures (In percent) — values as presented by year and metric:
  - Columns: Risk-Weighted Measure 1/ | SIDS Measure 2/ | 3 months of Imports | 20% of Broad Money | Short Term Debt
  - 2013: 1147 | 149 | 164 | 1,169
  - 2014: 1318 | 170 | 182 | 1,301
  - 2015: 1339 | 179 | 182 | 1,175
  - 2016: 1248 | 168 | 169 | 1,071
  - 2017: 1077 | 3145 | 143 | 916
  - 2018: 8757 | 171 | 145 | 74
  - 2019: 6743 | 9086 | 373 | 3
  - 2020: 4830 | 6460 | 272 | (value not shown directly)
  - Adequate Region benchmarks shown: Risk-Weighted Measure 100-150 | SIDS 75-100 | 3 months of Imports 100 | 20% of Broad Money 100 | Short Term Debt 100
  - Notes on measures:
    - 1/ Risk-Weighted Measure = 30% of STD at remaining maturity + 15% of other portfolio liabilities + 10% of broad money + 10% of exports (goods).
    - 2/ SIDS = 95% of STD at remaining maturity + 10% of broad money + 35% of exports (goods and services).

### Implication
- Decline in reserves after 2017 poses risks: rebuilding reserves could require costly borrowing and would be strained by widening current account deficits and limited external financing access.

---

### Risk Assessment Matrix (selected external and fiscal risks and policy measures)

- 1. Fiscal policy implementation
  - Relative likelihood: High
  - If realized (impact): High
    - Declining petroleum revenue, increases in compensations for civil servants, rollout of national health insurance, and political spending pressures reduce likelihood of significant improvement in primary balance.
    - Authorities view social, infrastructure, and security conditions as constraints against tightening beyond a primary surplus target of 1 percent of GDP.
    - Debt will continue to increase in an unsustainable manner; gross financing needs would rise sharply; securing financing is a challenge due to undeveloped domestic market and limited external access.
  - Policy measures:
    - Carry out fiscal consolidation gradually raising the fiscal primary balance to 4-5 percent of GDP by cutting non-essential spending, improving PFM, and raising more revenue by reducing exemptions and strengthening revenue administration.

- 2. Distress in the banking system
  - Relative likelihood: High
  - If realized (impact): High
    - Major Belizean banks have received termination of correspondent banking relationships with U.S. banks; finding replacements is difficult.
    - Non-performing loans remain high; provisioning relatively low. Some domestic banks, including the largest systemic bank, have low capital buffers; raising new capital could be challenging, increasing risk of public sector intervention.
    - Potential damage to financial intermediation, disruption to economic activity, and significant fiscal cost if government absorbs recapitalization.
  - Policy measures:
    - Temporarily allow banks to use central bank platforms to process international transactions while ensuring AML/CFT due diligence.
    - Order undercapitalized banks to raise more capital, perform asset quality reviews, and maintain tight supervision.

- 3. Surge in contingent liabilities
  - Relative likelihood: High
  - If realized (impact): High
    - Courts yet to rule on compensation for former owners of two nationalized utility companies; payments could approach claimants’ upper valuation of about 30 percent of GDP.
    - Nonresidents holding significant compensation claims may not roll over debt holdings.
    - Government may need to incur more external liabilities to build reserves and support the currency peg if BOP pressures intensify.
    - Debt could suddenly increase by tens of percentage points of GDP; new external lending likely costly and would weaken debt sustainability and investor confidence.
  - Policy measures:
    - Support external stability by strengthening competitiveness of key export sectors (sugar, banana, citrus, marine products).
    - Strengthen business environment and physical infrastructure to attract investment and support SME development.
    - Create fiscal buffers through fiscal consolidation (see point 1).

- 4. Structurally weak growth in key advanced and emerging economies
  - Relative likelihood: High
  - If realized (impact): High
    - Weak external demand could reduce tourism and exports; Belize’s export concentration to Europe and dependence on U.S. tourism arrivals are vulnerabilities.
  - Policy measures:
    - Diversify export mix to include a larger share of CARICOM countries.
    - Build fiscal and external buffers.
    - Broaden growth sources into less cyclical sectors.

- 5. Persistent U.S. dollar strength
  - Relative likelihood: High
  - If realized (impact): High
    - Pegged currency implies real appreciation; exports and services would decline and current account deficit would widen.
  - Policy measures:
    - Carry out fiscal consolidation and reforms to boost external competitiveness and curb real exchange appreciation through external price competitiveness measures.

- 6. Persistently low energy prices
  - Relative likelihood: Medium
  - If realized (impact): Medium
    - Current account deficit would narrow, but PetroCaribe soft financing would likely end; lower oil import bill partially offset by lower PetroCaribe financing.
  - Policy measures:
    - Use savings from lower oil prices to build reserves and enhance external stability.
    - Ensure pass-through of lower international oil prices to domestic prices to stimulate demand and competitiveness.

---

### Social Security and Pension Plan (summary points relevant to external/fiscal stability)
- Two public pension schemes: Social Security Scheme (SSS) and Pension Plan for Public Officers (PPPO).
- SSS: contributory, partially-funded, defined benefit; retirement from age 60 with at least 10 years of contributions; up to 60 percent of highest three years of earnings in the 15-year period preceding retirement.
  - 2012 actuarial report recommended adjustments (contributions, income ceilings, retirement age) for sustainability.
  - Left unreformed, Social Security reserves would vanish by 2029; government would have to pay pensions via budget allocations, sharp rise in contribution rates, and drastic cuts in pensions and benefits.
  - Reform package noted: raising retirement age to 65 and contribution rate from 8 percent to 9.5 percent, combined with reduction in administrative cost from 30 percent of total cost to 20 percent would rebuild Social Security reserves and substantially reduce pension and benefits, turning Social Security financially sustainable (Figure A4.1).
- PPPO: unfunded, noncontributory defined benefit; retirement from age 55 with at least 10 years service; up to 67 percent of average earnings of last three years; benefits adjusted in line with public employee salaries; expenses covered by central government budget.
  - PPPO expenses amount to about 1.5 percent of GDP.
  - Some public officers may obtain combined replacement rates (SSS + PPPO) of more than 100 percent of average salary.
  - Recommendation: Reform PPPO to become fiscally sustainable via awareness campaign and negotiation with public sector unions on reforms including contributions aligned with other countries and higher retirement age.

---

### Balance of Payments (BOP) Stress Tests — scenarios and quantitative results
- Baseline vulnerabilities:
  - Reserves at 5 months of imports as of end-2014; projected to decline below 3 months of imports by 2019 under baseline without policy change.
  - External risks: sluggish agricultural exports (sugar, banana, citrus), decline in oil exports, strong import demand, U.S. dollar strengthening, lower oil prices reducing PetroCaribe financing.
  - Expected shocks to BOP in 2017: potential changes to EU sugar regulations, higher external debt service, potential repatriation of compensation payments for nationalized utilities increasing capital outflows.

- Export and tourism concentration:
  - Tourism represented about 35 percent of total exports in 2014; U.S. accounted for about two thirds of tourist arrivals.
  - Largest export markets in 2014: U.S. (35 percent) and U.K. (29 percent).
  - Merchandise export composition: sugar (9 percent), banana (8 percent), marine products (9 percent), citrus (7 percent), oil (8 percent).

- Four negative shock scenarios examined:
  1. Tourism shock: shock to tourism growth triggered by U.S. slowdown.
  2. Exports shock: broad-based slowdown across export markets; sharp decline in merchandise exports.
  3. Oil price shock: international oil prices increase by 1.5 standard deviations in 2015 relative to 2014 and remain unchanged afterward.
  4. Discontinuation of PetroCaribe financing: PetroCaribe financing discontinued in 2015.
- Shocks specification: reduce baseline growth rate by 1.5 standard deviations in 2015 and 2016 for tourism and exports shocks (standard deviations based on 5 years of historical data), then revert to baseline.

- Impact on Current Account Balance (In percent of GDP) — values by year and scenario:
  - Years: 2015, 2016, 2017, 2018, 2019, 2020
  - Baseline: -6.3 | -7.1 | -7.4 | -7.0 | -6.7 | -6.5
  - Tourism shock: -9.0 | -14.2 | -14.4 | -14.0 | -13.7 | -13.3
  - Exports shock: -15.6 | -16.3 | -16.2 | -15.7 | -15.2 | -14.9
  - Oil price shock: -10.3 | -11.2 | -11.7 | -11.1 | -10.8 | -10.6

- Impact on Gross International Reserves (In months of next year's imports) — values by year and scenario:
  - Years: 2015, 2016, 2017, 2018, 2019, 2020
  - Baseline: 5.2 | 4.9 | 4.2 | 3.4 | 2.7 | 1.9
  - Tourism shock: 4.7 | 3.1 | 1.2 | -0.9 | -3.0 | -5.1
  - Exports shock: 3.5 | 1.6 | -0.7 | -3.0 | -5.5 | -7.8
  - Oil price shock: 4.1 | 3.2 | 1.9 | 0.4 | -1.0 | -2.4
  - Discontinuation of PetroCaribe financing: 4.9 | 4.2 | 3.2 | 2.0 | 0.9 | -0.3

- Key stress-test findings:
  - External position is highly vulnerable to these negative shocks; current account deficits widen by 4–9 percentage points compared to baseline on average and reserves are largely depleted by 2017–18 under stress scenarios.
  - The export shock produces the largest deterioration: current account deficit widens to 16 percent of GDP and import cover falls below 3 months of imports in 2016.
  - Oil price shock widens current account deficit but mitigates reserve impact somewhat via increased PetroCaribe financing.
  - Withdrawal of PetroCaribe financing has a significant negative impact on international reserves.

_Annex II. External Stability Assessment — IMF staff analysis as presented in the original content unit._

### Annex VI. Belize’s Growth and Sustainable Development

### Annex VI. Belize’s Growth and Sustainable Development Strategy 2015–18

### Overview
- The Growth and Sustainable Development Strategy (GSDS) translates Horizon 2030 (2010−30) into specific goals and policy actions for 2015–18.
- GSDS rests on three key pillars: a proactive role for the state, tapping into global markets, and innovative social policy.
- Belize is a “pilot country” within the United Nations system for sustainable development planning; GSDS incorporates poverty reduction and Sustainable Development Goals (SDGs).
- Single overarching objective: to improve the quality of life for all Belizeans in the short-term and long-term, anchored in four Critical Success Factors (CSF) each linked to Necessary Conditions (NC) and measurable targets.

### CSF1: Optimal national income and investment
- Goal: lift long-term GDP growth to 5 percent by improving productivity and competitiveness.
- Six Necessary Conditions (NCs):
  - NC1: Penetrating export markets
    - Maintain a positive growth trend in exports over the medium term.
    - Actions: exploit market access agreements, enhance market intelligence, improve compliance with export standards, increase access to export financing, and improve export promotion.
  - NC2: Attracting foreign investments
    - Objective: bring FDI back to levels achieved in the three-year period prior to the global crisis and sustain a positive real FDI growth thereafter.
    - Actions: reduce cost and ease of doing business (energy, transportation, telecommunications); combat crime; raise field productivity in the sugar sector; align tax incentives with World Trade Organization agreements.
  - NC3: Effective industrial policy based on Belize’s strengths
    - Actions: overcome small scale and scope of production; introduce new economic activities; develop priority sectors (agriculture, agro-processing, tourism and energy); improve access to financing; promote inclusive growth; encourage innovation and green technologies.
  - NC4: Enhancing market efficiency
    - Actions: strengthen regulatory framework of utilities sector; reduce the informal sector; improve labor market flexibility; strengthen the financial system; reduce cost of financing.
  - NC5: Adequate infrastructure
    - Actions: improve road network, sea ports, and airport infrastructure; promote investment in electricity generation capacity and renewable energy; strengthen investment climate and regulation of telecommunications sector.
  - NC6: Adequate human capital
    - Targets: attain universal primary and secondary education and higher rates of successful school completion.
    - Actions: increase school enrollment; enhance teaching effectiveness and quality; better align school curriculum with labor market needs.

### CSF2: Enhanced social cohesion and resilience
- Objective: eradicate poverty by 2030 and reduce homicides to fewer than 10 per 100,000 inhabitants.
- Other focuses: improve access to healthcare and education; optimize social security and social protection; improve working conditions and social inclusion.

### CSF3: Sustained or improved health of natural, environmental, historical and cultural assets
- Objective: ensure adequate management of natural resources, disaster risk, climate change and protection of the environment.

### CSF4: Enhanced governance and improved citizen security
- Focuses: improve technical and political governance; address social causes of crime; strengthen law enforcement and border control.

### Implementation, monitoring, and financing
- Implementation coordinated by the Ministry of Finance and Economic Development.
- Monitoring managed by inter-ministerial Working Groups chaired by the Statistical Institute of Belize and based on a set of performance indicators.
- GSDS introduces a prioritization framework to evaluate urgency, impact, availability of resources, and systemic contribution of policies to guide budget allocations.
- Financing:
  - Internal options: improve spending efficiency and revenue generation.
  - External options: identify projects with high growth potential; mobilize resources from international partners and through public-private partnerships.
- Recommendation: a detailed follow-up plan could specify measures to mobilize human and financial resources, internal and external, and identify concrete steps to access external resources.

### Fund relations and macroeconomic context
- Membership: Joined March 16, 1982.
- Quota and holdings (SDR Million):
  - Quota 18.80 100.00
  - Fund holdings of currency (Exchange Rate) 14.56 77.46
  - Reserve Tranche Position 4.24 22.55
- SDR Department (SDR Million):
  - Net cumulative allocation 17.89 100.00
  - Holdings 20.02 111.87
- Outstanding Purchases and Loans: None.
- Latest financial arrangement listed: Stand-By Dec. 03, 1984–May 31, 1986 Amount Approved 7.13 SDR Million Amount Drawn 7.13 SDR Million.
- Projected Payments to the Fund (in SDR Million) 2014–2018: Principal 0.00; Charges/Interest 0.00; Total 0.00.
- Exchange rate arrangement: Belize dollar pegged to the U.S. dollar since 1976 at the rate of BZ$2 per U.S. dollar.
- Last Article IV Consultation: concluded June 23, 2014; Belize is on the standard 12-month consultation cycle.

### Recent technical assistance (selected)
- STA: national accounts, supply and use tables; price statistics; balance of payments and international investment position statistics in July 2009.
- MCM: bank resolution framework (April 6–12, 2010 and September 6–9, 2010); forensic auditing (January and March 2011); first FSAP (July 2011); contingency planning (March 2012); workshop on network analysis (April 2012); bank resolution and crisis preparedness (May 2014); loan loss provisioning under IFRS (April 2015); debt management (April 2015).
- LEG: Banks and Financial Institutions Act improvements (February 2011); AML/CFT supervision structures and tools (April 2013); joint MCM-LEG on medium-term debt management and public debt legal framework amendments (July 2014).
- FAD: tax policy advice (February 2013); revenue administration (October 2014).
- MCM advised on debt management strategy development in November 2012.

### Bank-Fund collaboration under the JMAP and relations with multilateral development banks
- World Bank CPS envelope during FY 2012–2015: around US$45 million.
  - Activities highlighted: US$15 million municipal development loan; US$30 million climate resilient infrastructure loan (approved September 16, 2010 and August 27, 2014 respectively).
- Joint priorities and collaboration areas:
  - Public Financial Management (PFM): Fund assisting PFM reform and ICT optimization.
  - Medium-Term Debt Management: Fund assisting capacity building and domestic public debt market development.
  - Banking Sector: CARTAC and Fund assistance for corporate governance, internal controls, operational risks, valuation of collateral, financial stability framework, crisis management, bank restructuring and resolution framework, and AML/CFT risk-based supervision.
  - Infrastructure: World Bank Municipal Development Project supporting municipal infrastructure and management.
  - Natural Resource Management: Bank support for mainstreaming natural resources and climate resilience, institutional capacity strengthening, and climate resilience investments.
- Belize: Bank and Fund Ongoing and Planned Activities, 2015–2016 (timing and titles as listed):
  - Bank Work Program: Municipal Development Project November 2016; Improving Children’s Health January 2016; Climate Resilience Infrastructure August 2019; Marine Conservation and Climate Adaptation March 2020; Management and Protection of Key Biodiversity Areas September 2019; Promoting Sustainable Natural Resource-based Livelihoods November 2016.
  - Fund Work Program: Staff Visit January 2016; Article IV Consultation April/May 2016 June 2016.

### World Bank financial relations (as of June 2015)
- IBRD Operations (U.S. dollars):
  - IBRD Original Principal 131,200,000.00
  - Cancellations 5,703,327.73
  - Disbursed 91,401,934.63
  - Undisbursed 34,094,737.64
  - Repaid 77,585,011.10
  - Due 13,816,923.53
  - Borrower Obligation 13,816,923.53
- Gross disbursements and debt service during fiscal years (July 1–June 30) shown annually (2006–2015) with disbursements, repayments, net, interest, and fees as tabulated in the source.

### Relations with the Inter-American Development Bank (as of July 31, 2015)
- Country Strategy with Belize (2013–2017) focused on: education; tourism; transport; trade and tax policy.
- Approvals to date under strategy: Education Quality Improvement Program US$10 million; George Price Highway Rehabilitation Program US$27 million.
- Pipeline: one new US$15 million investment loan, Sustainable Tourism Program II (in 2015 pipeline).
- 2015 program: Sustainable Tourism Program II in the pipeline.
- Current loan portfolio: four investment loans totaling US$52 million, of which US$38.7 million (74 percent) remain undisbursed.
- Individual loans and undisbursed amounts:
  - Belize City Flood Mitigation Infrastructure Program 10.0 / 2.9
  - George Price Highway Rehabilitation Program 27.0 / 27.0
  - Community Action for Public Safety 5.0 / 1.1
  - Education Quality Improvement Program 10.0 / 7.7
  - Total 52.0 / 38.7

### Relations with the Caribbean Development Bank (as of July 31, 2015)
- Loan portfolio under implementation (US$ millions) — Approved / Undisbursed (selected):
  - Bridge Rehabilitation – Tropical Storm Arthur 8.8 / 2.0
  - Sixth Consolidated Line of Credit 10.0 / 0.1
  - Belize River Valley Rural Water Project 3.5 / 0.2
  - The Belize Social Investment Fund II 15.0 / 6.7
  - Fourth Road Project – Santa Elena – San Ignacio Bypass 24.7 / 15.7
  - Fifth Road project – Philip S. W. Goldson Highway Upgrading 29.7 / 29.6
  - Belize Education Sector Reform Program II 35.0 / 35.0
  - TOTAL 168.2 / 124.9
- Loan transactions (2009–Jan−Jul 2015): net flows, gross disbursements, amortization, and interest and charges presented annually in the source.
- CDB support has focused on transportation and water infrastructure, including rehabilitation of Kendall (Sittee River) Bridge (completed) and Mullins River Bridge (set for completion in July 2016), Fourth Road project completion delayed until early 2017, and commencement of Fifth Road loan works anticipated in the last quarter of 2015.

*Source: Annex VI. Belize’s Growth and Sustainable Development Strategy 2015–18; Staff Report for the 2015 Article IV Consultation (September 1, 2015).*

### 9.      With respect to water sector infrastructure, construction activity is complete on a

### 9.      With respect to water sector infrastructure, construction activity is complete on a

### Water sector infrastructure and projects
- Construction activity is complete on a potable water supply system to serve nine villages in the Belize River Valley; final disbursement on the project should be made in 2016.
- A loan approved in 2012 finances detailed designs for expansion of water and sewerage on Ambergris Caye, building on an earlier feasibility study.
  - The designs should be completed in the last quarter of 2015, when appraisal of the capital project is scheduled to begin.
  - The project is viewed as important to sustain and boost tourism activity in the area and to protect the sensitive environment.

### Caribbean Development Bank (CDB) support for private sector development
- CDB support is mainly through lines of credit managed by the Development Finance Corporation (DFC), which on-lends funds to agriculture, industry, housing, and education sectors.
  - The sixth such line of credit was fully committed as at end-2013.
  - A seventh line of credit was approved in July 2014, which included a small grant for a pilot project to support renewable energy/energy efficiency initiatives by private sector entities.
  - A small TA grant was provided for institutional strengthening of DFC in 2014; implementation of the consultant’s report is ongoing.
- CDB also supports private sector through its Caribbean Technological Consultancy Services (CTCS) network, under which micro, small and medium-sized enterprises (MSMEs) benefit from grant-funded technical assistance.

### CDB support for social programmes and community interventions
- CDB provided concessional lending and grant funding for social programmes aimed at poverty reduction.
  - Belize Social Investment Fund (BSIF) established in 1996 to appraise, finance, and supervise small and medium-sized sub-projects in underserved poor communities.
  - CDB made US$15 million available to BSIF through a second loan approved in 2010, following a loan of US$7 million approved in 2003.
  - Grant funding provided through the Basic Needs Trust Fund (BNTF), currently in its 8th cycle.
    - Belize’s allocation under the 7th cycle of US$6.1 million is still under implementation.
    - The 8th cycle allocation of US$1.6 million is currently being programmed.
  - Interventions under BSIF and BNTF are community-based and usually concentrated in water and sanitation, education, health, and infrastructure to facilitate community access.
  - CDB funds allow development of a comprehensive results-based monitoring and evaluation system.

### Education Sector Reform and investment
- With CDB grant assistance in 2010, GOB formulated a comprehensive Education Sector Strategy.
- In 2012, CDB approved a Technical Assistance loan for Education Sector Reform to underpin the strategy via institutional strengthening.
  - Under this project, a comprehensive school location plan was developed.
  - The plan informed the Belize Education Sector Reform Programme II approved in May 2015.
  - The capital loan aims to significantly expand the school plant in Belize and provide other supporting services to increase access to quality education, in line with the Education Sector Strategy.

### Youth and Community Transformation Project
- Approved in 2012 based on a previous CDB-financed feasibility study.
- Aims to contribute toward building human capital, particularly among youth and children from poor communities in Belize City, to reduce socially deviant behavior in line with GOB priorities on crime and citizen security.
- Project implementation is scheduled for completion by the end of 2017.

### Statistical issues (As of July 31, 2014) — assessment of data adequacy for surveillance
- General: Data provision has some shortcomings, but is broadly adequate for surveillance. Most affected areas: national accounts, labor, and fiscal sector statistics.
- Real sector:
  - Accuracy and reliability affected by inadequate source data.
  - Statistical Institute of Belize (SIB) faces human and financial limitations for surveys and processing.
  - Lack of reliable data on expenditure components hampers estimation of national savings and domestic investment.
  - SIB plans 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: prepare a comprehensive list of institutions comprising central government, general government, and public sector including extra budgetary units.
  - Difficulties persist in compilation of capital expenditure because some Capital II items (government-funded capital and project expenditures) that started as fixed-term project contributions have become permanent allocations.
  - Current accounting practices follow neither cash nor accrual basis, contributing to inconsistent accounting and reporting of assets, liabilities, revenues, and expenses.
  - Domestic debt data recording needs improvement.
- Monetary and financial statistics:
  - Data on financial soundness indicators of individual banks are 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 Corporations (OFC) subsector.
  - Social Security Board (SSB) is not treated as part of general government; Central Bank classifies SSB as other non-financial public corporation and includes its claims (deposits) on the banking system as part of broad money.
  - Plans ongoing to improve availability of statistics.
- Balance of payments:
  - Official grant and loan disbursements and repayments are generally well recorded, but inter-agency coordination between MOF and CBB should be strengthened.
  - Authorities compiled International Investment Position (IIP) statistics for 2009 and 2010, excluding offshore financial sector, and are reconciling discrepancies between balance of payments flows and IIP stock position on “currency and deposits” before publication.
  - Upon completion, authorities plan to produce annual and quarterly IIP for 2011-2013 during the second half of the year.
  - Current sourcing of FDI data appears adequate, but survey responses are very low; 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.

### Table of common indicators and frequencies (As of July 31, 2015) — selected entries (dates preserved exactly as in source)
- Exchange Rates: Date of Latest Observation 4/30/2014; Date Received 5/2/2014; Frequency of Data MMM
- International Reserve Assets and Liabilities of the Monetary Authorities 1/: Date of Latest Observation 3/31/2014; Date Received 5/2/2014; Frequency WWW
- Reserve/Base Money: Date of Latest Observation 3/31/2014; Date Received 5/2/2014; Frequency WWW
- Broad Money: Date of Latest Observation 3/31/2014; Date Received 5/2/2014; Frequency WWW
- Central Bank Balance Sheet: Date of Latest Observation 3/31/2014; Date Received 5/2/2014; Frequency MMM
- Banking System Balance Sheet: Date of Latest Observation 3/31/2014; Date Received 5/2/2014; Frequency MMM
- Interest Rates 2/: Date of Latest Observation 3/31/2014; Date Received 5/2/2014; Frequency MMM
- Consumer Price Index: Date of Latest Observation 6/30/2015; Date Received 7/29/2015; Frequency MMM
- Revenue, Expenditure, Balance and Composition of Financing — General Government 4/: Date of Latest Observation 3/31/2015; Date Received 7/6/2015; Frequency AANA
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of Latest Observation 3/31/2015; Date Received 7/6/2015; Frequency MMNA
- Stocks of Central Government and Central Government-Guaranteed Debt 5/: Date of Latest Observation 3/31/2015; Date Received 7/6/2015; Frequency MMNA
- External Current Account Balance: Date of Latest Observation 2015Q1; Date Received 7/6/2015; Frequency QQQ
- Exports/Imports of Goods and Services: Date of Latest Observation 2015Q1; Date Received 7/6/2015; Frequency QQQ
- GDP/GNP: Date of Latest Observation 2015Q1; Date Received 7/6/2015; Frequency QQQ
- Gross External Debt: Date of Latest Observation 3/31/2015; Date Received 4/29/2014; Frequency A, MA, MNA
- International Investment Position: Date of Latest Observation NA; Date Received NA; Frequency NA

### Supplementary information — recent developments and macro prospects (updates since Staff Report SM/15/234)
- Baseline fiscal outlook slightly more favorable following out-of-court settlement between authorities and owners of one of the two nationalized companies.
  - On September 4, 2015, parliament approved the deed of settlement between the government and former owners (“Fortis”) of Belize Electricity Limited (BEL), nationalized in 2011.
  - Government compensated “Fortis” with cash (US$35 million or about 2 percent of GDP) and by returning some BEL shares (with end-2014 book value of US$59 million or 3.4 percent of GDP).
  - Staff’s projected compensation payments for the other nationalized company (Belize Telemedia Limited or BTL) remain unchanged.
  - Compared with projections in the staff report, the projected path of public debt shifted downward by about 6 percentage points of GDP; staff now projects public debt to reach about 89 percent of GDP in 2020.
  - Gross financing needs shifted down by 2–5 percentage points of GDP over 2017-2020; gross financing needs now projected to reach about 26 percent of GDP by 2020.
- Contingent liabilities and risks:
  - The BEL deed contains a “Put Option” allowing “Fortis” (or transferees) to sell reacquired BEL shares back to the government after August 2019 (or earlier if deed clauses are violated).
    - If exercised, government must repurchase shares at book value, with payment available within 24 months after the “Put Notice”, in US dollars by wire transfer to a bank account outside Belize, free of taxes, duties, fees, imposts and deductions.
    - Revised baseline assumes “Fortis” will not exercise the “Put Option” after August 2019 and will keep the shares as BEL’s recent good performances are assumed to continue.
    - Staff notes exercising the “Put Option” is a non-negligible downside risk: public debt could jump at end-2019 by 3.4 percentage points of GDP and reserves drop by US$75 million (one month of imports) if exercised.
  - Legal proceedings for BTL are continuing; courts could impose compensation payments for BTL larger than amounts envisaged in the staff report (13 percent of GDP in 2016 payable in five years).
- Fiscal policy recommendation and scenario:
  - Staff maintains recommendation that authorities promptly begin to progressively raise the primary fiscal balance to 4–5 percent of GDP.
  - Under this fiscal adjustment, public debt would reach about 77 percent of GDP in 2020 and the authorities’ public debt target of 60 percent of GDP by 2023.

### Liabilities related to nationalizations (selected figures)
- Valuation in the IMF staff baseline (2015 Art. IV Staff report):
  - BTL: 243.6 (In millions of U.S. dollars)
    - Of which: Capitalization of accrued interest 75.6
  - BEL: 119.5
    - Of which: Capitalization of accrued interest 19.5
  - Total liabilities from nationalized companies: 363.1
  - In percent of GDP: 19.7
  - Memorandum item: Public Debt at end-2016 (percent of GDP) 101.1
- BEL valuation in the deed of settlement:
  - BEL: 94.0
    - Of which: Shares returned at book value 2/: 59.0
    - Of which: Cash payments: 35.0
  - Valuation in the revised IMF staff baseline:
    - BTL: 243.6
    - TOTAL liabilities from nationalized companies: 243.6
    - In percent of GDP: 13.2
  - Memorandum item: Public Debt at end-2016 (percent of GDP) 94.7
- Sources listed in table: Government of Belize; Central Bank of Belize; and Fund staff estimates.
- Notes:
  - Returned shares are valued at their book value at end-2014.
  - In the staff report, staff assumed nationalization liabilities will be recognized for both companies end-2016. With the BEL settlement, government has recognized and paid compensation for BEL. In the revised baseline, staff continues to assume nationalization liabilities for BTL will be recognized at end-2016, with payments over five years.

### Baseline and Active macro-scenarios, 2014–20 (selected projections, values preserved exactly)
- Baseline Scenario (Staff Report and after BEL settlement):
  - Real GDP growth (2014–2020): 3.6, 2.2, 3.2, 3.0, 2.6, 2.5, 2.4
  - Inflation, end of period (2014–2020): -0.2, 0.7, 1.7, 2.0, 2.1, 2.0, 2.0
  - Staff Report Primary balance 1/ (2014–2020): -1.2, -2.6, -1.2, 0.1, 1.0, 1.0, 1.0
  - Staff Report Overall balance 1/ (2014–2020): -3.9, -5.2, -4.1, -4.0, -3.4, -4.5, -4.4
  - Staff Report Public debt 2/ (2014–2020): 76.0, 78.1, 101.1, 98.8, 97.9, 97.0, 96.1
  - Staff Report Gross financing requirements (2014–2020): 5.5, 7.0, 8.7, 14.6, 17.9, 24.5, 31.1
  - Staff Report Gross official reserves (months of imports) (2014–2020): 5.2, 5.2, 4.9, 4.2, 3.4, 2.7, 1.9
  - After BEL settlement Primary balance 1/ (2014–2020): -1.2, -2.6, -1.2, 0.1, 0.9, 1.0, 1.0
  - After BEL settlement Overall balance 1/ (2014–2020): -3.9, -5.2, -4.0, -3.6, -3.0, -4.3, -4.1
  - After BEL settlement Public debt 2/ (2014–2020): 76.0, 78.1, 94.7, 92.2, 91.3, 90.3, 89.4
  - After BEL settlement Gross financing requirements (2014–2020): 5.5, 9.0, 8.7, 13.0, 15.1, 20.6, 26.3
  - After BEL settlement Gross official reserves (months of imports) (2014–2020): 5.2, 4.8, 4.6, 3.9, 3.1, 2.4, 1.6
- Active Scenario (Staff Report and after BEL settlement) — selected series preserved exactly from source table:
  - Real GDP growth (2014–2020): 3.6, 2.2, 2.5, 2.4, 2.7, 2.8, 2.9
  - Inflation, end of period (2014–2020): -0.2, 0.7, 1.5, 1.7, 1.8, 1.6, 1.6
  - Staff Report Primary balance 1/ (2014–2020): -1.2, -2.6, 2.0, 3.5, 4.5, 4.5, 4.5
  - Staff Report Public debt 2/ (2014–2020): 76.0, 78.1, 100.0, 95.6, 92.2, 88.4, 84.3
  - After BEL settlement Public debt 2/ (2014–2020): 76.0, 78.1, 93.4, 88.8, 85.3, 81.4, 77.3
  - Gross official reserves (months of imports) (Active Scenario after BEL settlement): 5.2, 4.8, 4.9, 4.5, 4.1, 4.0, 3.9
- Memorandum items:
  - Primary balance (2014 Article IV): 1.0, 1.0, 1.0, 1.0, 1.0, 1.0...
  - Public debt (2014 Article IV) 2/: 77.4, 76.7, 97.3, 94.1, 91.9, 89.8...
  - Nominal GDP baseline (US$ million) (2014–2020): 1,704; 1,763; 1,841; 1,931; 2,021; 2,114; 2,207
  - GDP growth elasticity to fiscal adjustment: .. .. . .-0.20 -0.19 0.03 0.08 0.14

### Recent developments and agreements on nationalizations (document dated September 16, 2015)
- Authorities reached an out-of-court settlement on one nationalized company and signed an agreement with former owners of the other:
  - BEL deed of settlement signed on August 28, 2015 and approved by parliament on September 4, 2015.
    - Compensation to “Fortis”: cash US$35 million (about 2 percent of GDP) and return of some BEL shares (end-2014 book value US$59 million or 3.4 percent of GDP).
  - Settlement agreement on BTL signed on September 11, 2015; must be approved by parliament into legislation published by September 18, 2015 (“BTL settlement legislation”).
    - Under the agreement:
      - Former owners of BTL (“Dunkeld”) will stop legal challenge to constitutionality of nationalization.
      - Government recognizes liabilities of about US$48.5 million (2.8 percent of GDP) associated with the “British Caribbean Bank Loan”.
        - One business day following enactment of the “BTL settlement legislation”, government will pay off the “British Caribbean Bank Loan” in US dollars by wire transfer, free of all taxes or other government charges or counterclaims.
      - One business day following enactment, government will make a down payment of about US$32.5 million (1.9 percent of GDP) to “Dunkeld” toward compensation for BTL.
      - Government will recognize the ruling of the permanent court of arbitration on compensation for the nationalization of BTL (“Final award”).
        - Within 10 business days of issuance of the “Final award”, government will pay 50 percent of the “balance” on the award (i.e., amount in the “Final award” minus the down payment of about US$32.5 million).
        - The remaining 50 percent will be paid on the 12 month anniversary of the issuance of the “Final award”.
      - Almost all payments related to the “Final award” will be free of all taxes or other government charges and can be taken out of Belize free of foreign exchange restrictions and controls.
- Footnote on the British Caribbean Bank Loan:
  - The loan was extended to BTL almost 10 years ago. The original amount was US$22 million, but an arbitration court ruled the liability is now about US$48.5 million, including interest and other costs.

*Source: IMF staff report text provided in the content unit.*

### 2.      In the revised baseline, the early repayment of debt related to nationalizations has

### _cr1692 - 2.      In the revised baseline, the early repayment of debt related to nationalizations has

### Revised baseline: fiscal and external impacts
- Public debt trajectory:
  - Projected path of public debt has shifted downward by about 9 percentage points of GDP.
  - Staff now projects public debt to reach about 87 percent of GDP in 2020.
- Gross financing needs and reserves:
  - Near term gross financing needs have worsened by 2–5 percentage points of GDP but improved by similar amounts in the medium term.
  - Central bank reserves would significantly drop by 1–3 months of imports compared with projections in the staff report and would be wiped out by 2020 under staff assumptions.
- Assumptions on BTL arbitration:
  - Staff assumes the permanent court of arbitration will issue its ruling on BTL compensation by the end of 2016 (staff mid-point valuation).
  - As envisaged in the settlement agreement on BTL, the government will make the first payment in 2016 (one day after the ruling) and the second and last one in 2017. Staff assumes both payments will be made by accumulating new debt.

### Contingent liabilities from nationalized companies and downside risks
- BEL deed of settlement "Put Option":
  - Clause allows “Fortis” (or its transferees) to sell the newly reacquired BEL shares back to the government after August 2019 (or earlier if some clauses of the deed are violated).
  - Government must repurchase shares at book value, with payment available within 24 months after the date of the “Put Notice”.
  - Payment must be in US dollars and made by wire transfer to a bank account outside Belize, free of all taxes, duties, fees, imposts and deductions.
  - Revised baseline assumes “Fortis” will not exercise the “Put Option” after August 2019 and will keep the shares as BEL’s recent good performances are assumed to continue.
- Quantified downside if “Put Option” exercised:
  - Public debt could jump at end-2019 by 3.4 percentage points of GDP.
  - Reserves could drop by US$75 million (one month of imports).
- BTL arbitration and compensation risk:
  - Permanent court of arbitration could impose compensation payments larger than amounts envisaged in the staff report (13 percent of GDP in 2016 payable in five years).
  - Compensation payments now must be made within 12 months of the ruling and could seriously deplete central bank reserves.

### Policy recommendation: fiscal consolidation scenario
- Staff maintains recommendation:
  - Promptly begin to progressively raise the primary fiscal balance to 4–5 percent of GDP.
- Projected outcomes under this fiscal adjustment scenario:
  - Public debt would reach about 74 percent of GDP in 2020.
  - Authorities’ public debt target of 60 percent of GDP by 2023 could be met under this scenario.
- Expected additional effects:
  - Enhanced investor confidence would boost private investment and foreign direct investment inflows.
  - Fiscal buffers would allow the government to borrow in external markets to help rebuild central bank reserves if required.

### Clarifying impact of settlements on net vs. gross finances
- BEL and Dunkeld/BEL/BTL cash payments and asset reductions:
  - Payments for the “Dunkeld loan” (US$ 48.5 million) and the down payment of US$32.5 million toward compensation for the nationalization of BTL were made by running down assets rather than by accumulating new debt.
  - The revision to the gross debt-to-GDP ratio overstates the impact on net public finances, which benefited by just 1.4 percent of GDP relative to the staff report.

### Liabilities related to nationalizations (selected figures from staff comparison table)
- Valuation in the IMF staff baseline (2015 Art. IV Staff report):
  - BTL: 243.6
  - Of which: Capitalization of accrued interest: 75.6
  - BEL: 119.5
  - Of which: Capitalization of accrued interest: 19.5
  - Total liabilities from nationalized companies: 363.1
  - In percent of GDP: 19.7
  - Public Debt at end-2016 (percent of GDP): 101.1
- BEL valuation in the deed of settlement:
  - BTL: 105.6
  - Of which: Capitalization of accrued interest: 37.8
  - BEL: 94.0
  - Of which: Shares returned at book value: 59.0
  - Of which: Cash payments: 35.0
  - Total liabilities from nationalized companies: 105.6
  - In percent of GDP: 5.7
  - Public Debt at end-2016 (percent of GDP): 91.5
- Valuation in the revised IMF staff baseline:
  - BTL: 105.6
  - New borrowing to pay for BTL compensation: 105.6
  - In percent of GDP (new borrowing): 5.7

### Baseline and Active Macro-Scenario projections (selected series, percent of GDP unless otherwise indicated)
- Baseline Scenario (After BEL and BTL settlements):
  - Primary balance: -1.2 (2014), -2.6 (2015), -1.2 (2016), 0.1 (2017), 0.9 (2018), 1.0 (2019), 1.0 (2020)
  - Overall balance: -3.9 (2014), -5.2 (2015), -4.0 (2016), -3.4 (2017), -2.5 (2018), -4.0 (2019), -3.9 (2020)
  - Public debt: 76.0 (2014), 76.7 (2015), 91.5 (2016), 91.0 (2017), 89.6 (2018), 88.3 (2019), 87.2 (2020)
  - Gross financing requirements: 5.5 (2014), 10.8 (2015), 12.9 (2016), 19.3 (2017), 19.1 (2018), 22.4 (2019), 25.9 (2020)
  - Gross official reserves (months of imports): 5.2 (2014), 4.0 (2015), 2.6 (2016), 1.3 (2017), 0.9 (2018), 0.5 (2019), 0.1 (2020)
- Active Scenario (After BEL and BTL settlements):
  - Primary balance: -1.2 (2014), -2.6 (2015), 2.0 (2016), 3.5 (2017), 4.4 (2018), 4.5 (2019), 4.5 (2020)
  - Overall balance: -3.9 (2014), -5.2 (2015), -0.8 (2016), -0.1 (2017), 0.6 (2018), -0.7 (2019), -0.4 (2020)
  - Public debt: 76.0 (2014), 76.7 (2015), 88.2 (2016), 85.6 (2017), 82.1 (2018), 78.4 (2019), 74.3 (2020)
  - Gross financing requirements: 5.5 (2014), 9.0 (2015), 4.0 (2016), 5.9 (2017), 6.9 (2018), 9.7 (2019), 12.8 (2020)
  - Gross official reserves (months of imports): 5.2 (2014), 4.0 (2015), 2.7 (2016), 1.6 (2017), 1.6 (2018), 1.8 (2019), 2.0 (2020)
- Memorandum items:
  - Public debt (2014 Article IV): 77.4 (2014), 76.7 (2015), 97.3 (2016), 94.1 (2017), 91.9 (2018), 89.8 (2019)

### Authorities' statement highlights (Trevor Lessard and Michael McGrath, September 16, 2015)
- Main areas of agreement with staff:
  - Ensuring financial stability, preserving external sustainability, and placing debt on a more firm downward path.
- Disagreements with staff and alternative emphases:
  - Authorities disagree with characterizing Belize’s debt as unsustainable; note debt-to-GDP at 78.1 percent.
  - Concern that staff’s use of the midpoint valuation for contingent liabilities inflates debt for DSA purposes; point to BEL settlement being significantly below midpoint valuation.
  - Authorities recognize need for fiscal consolidation but disagree with front-loaded austerity to achieve a primary balance of 4-5 percent of GDP due to opportunity costs and potential economic and social destabilization.
  - Authorities intend to use additional Petro-Caribe financing to lower the debt burden through debt-buyback or compensate former owners of nationalized companies.
  - Authorities propose reviewing revenue and expenditure measures, including structure of the GST and rationalizing the public wage bill.
- Financial sector and correspondent banking relationships (CBR):
  - Note progress on NPL reduction, increased loan-loss provisions, FSAP recommendations, and exit from CFATF follow-up.
  - Concern about unexplained termination of correspondent banking relationships that could destabilize the financial system and harm SMEs.
  - Call for the Fund to play a proactive role in resolving correspondent banking issues, including developing concrete rules based benchmarks in collaboration with members and large financial institutions.
- Growth strategy:
  - Growth and Sustainable Development Strategy (GSDS) 2015-2018 aims to lift average real output growth to 5 percent, requiring improved investment climate, targeted investments, official partner support, and sector focus (e.g., agribusiness).
- Concluding view:
  - Authorities agree on main vulnerabilities but argue the Fund should more fully account for growth and structural reform needs and explore alternative fiscal scenarios rather than recommending what they view as overly harsh austerity.

*Source: _cr1692 - 2.      In the revised baseline, the early repayment of debt related to nationalizations has*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1692.pdf_