Public Information Notice: IMF Concludes 2003 Article IV Consultation with Belize

April 16, 2004

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2003 Article IV consultation with Belize is also available.

On March 24, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.1


Since taking office in 1998, the current government embarked on a program to accelerate economic growth. The measures adopted included tax cuts, a sharp increase in government investment, and subsidized credit to the private sector through the state-owned Development Finance Corporation (DFC). The exchange rate has been pegged at BZ$2 per US$1 since 1976, and the authorities consider its maintenance a primary policy objective.

Real GDP growth increased to 12 percent in 2000, but slowed to 4-5 percent thereafter as a result of the effects of several hurricanes, the tourism slump that followed the terrorist attacks in the United States, and a shrimp virus epidemic. However, there has been a loss in confidence as the fiscal and external current account deficits remained at unsustainable levels. The central government deficit remained at levels of around 9 percent of GDP since FY 2000/01 (fiscal year begins April) and is projected to decrease only slightly in FY 2003/04. Sharply increased interest payments, continued support for the de facto insolvent DFC, and a lack of buoyancy of the tax regime are straining the public finances, making it more difficult to reduce the deficit despite a severe compression of investment expenditure. Net international reserves fell by about a third during 2003, while public and publicly guaranteed debt has reached 92 percent of GDP, contracted mostly as external debt on commercial terms. The large and continued fiscal imbalance and the accommodative monetary policy are threatening the sustainability of the exchange rate peg.

There is an urgent need to put in place comprehensive fiscal adjustment measures and tighten monetary policy to prevent a balance of payments crisis, return Belize to a sustainable policy path, and enable the country to regain a margin of resilience to exogenous shocks. The authorities agree that the central government deficit should be reduced to below 3 percent of GDP in FY 2004/05. Nonetheless, to achieve this target, there is a need implement a comprehensive tax reform to restore buoyancy to the system, freeze current expenditure, and reduce budget-financed capital expenditure further. Combined with a tightening of monetary policy, this adjustment in demand policies could halt the loss in international reserves in 2004.

Executive Board Assessment

Directors welcomed the recovery of Belize's economy and exports from the recent external shocks, including hurricanes, in an environment of price stability. However, Directors expressed concern that Belize's fiscal and external current account deficits have remained unsustainably large, putting pressure on international reserves and generating high and rapidly growing levels of public and publicly guaranteed indebtedness. The serious economic imbalances have also contributed to increasing costs in accessing international capital markets.

Directors agreed that, to re-establish a viable economic and financial position and help ensure the sustainability of the exchange rate peg, Belize will need to embark urgently on a comprehensive and sustained fiscal correction, to be supported by tight monetary policies and structural measures aimed at enhancing the long-term competitiveness of the economy. They were encouraged by the authorities' renewed commitment to adopt corrective policy measures, but stressed that these will need to be implemented vigorously and further strengthened in the period ahead.

Directors welcomed the authorities' intention to contain the fiscal year 2004/05 deficit to below 3 percent of GDP, as well as the recent adoption of a package of revenue enhancements. Against the backdrop of past budget overruns, Directors nevertheless considered that additional measures—beyond those currently envisaged—will most likely be needed to achieve the fiscal target as planned. To pave the way for a durable strengthening of the public finances, Directors urged the authorities to curtail nonpriority central government expenditures, freeze the wage bill, widen the tax base and reduce excessive and distortionary tax exemptions. Improvements in budget monitoring and control as well as in the management of Belize's public debt should also be given a high priority.

Directors welcomed the authorities' decision to restructure the Development Finance Corporation and to subject it to the supervision of the central bank. To contain the burden on the budget and limit further drain on scarce resources, it will now be important to curtail the lending and investment operations of the DFC in advance of the completion of its restructuring and partial disposition of its assets.

Directors supported the authorities' decision to tighten monetary policy and contain credit growth. A firm monetary stance will be helpful in the short run to reduce pressures on the exchange rate. It will be essential in the longer run, along with a strong fiscal adjustment, to protect the balance of payments and support Belize's exchange rate peg, which the authorities rightly continue to view as a critical anchor for confidence and stability.

Directors urged the authorities to take steps to increase the transparency and efficiency of the foreign exchange regime, in particular by adopting clearer rules for foreign exchange transactions by the central bank and the foreign exchange houses. They noted that progress in this area will help improve the efficiency of the foreign exchange system, and support the eventual unification of the exchange markets.

Directors encouraged the authorities to strengthen the oversight capacity and independence of the bank supervisory authority. In this regard, they welcomed the ongoing efforts to improve banking supervision and the decision to consider improvements in the legal framework for supervision of non-bank financial institutions. They also welcomed the authorities' efforts to combat money laundering and the financing of terrorism, and the authorities' decision to include a collective action clause in their last bond.

Directors urged the authorities to continue to give consideration to phasing out the existing import restrictions by converting them into tariffs, which will improve resource allocation, increase revenues, and reduce administrative costs. In view of the anticipated loss of Belize's preferential trade access for sugar and banana exports, Director underscored the importance of continuing strong efforts to improve competitiveness and diversify the export base. They welcomed the progress on privatization.

While welcoming recent improvements in Belize's statistical base, Directors encouraged the authorities to continue to work—with Fund technical assistance—to improve the quality and timeliness of data reporting, including by developing a set of high frequency indicators.

Belize: Selected Economic Indicators








(Annual percentage changes)

National income and prices


GDP at constant prices






Consumer prices (end of period)






Real effective exchange rate







(Annual changes in percent of liabilities to the private sector at beginning of period)


Money and credit


Credit to the private sector 1/






Money and quasi-money (M2)







(In percent of GDP)


Central government 2/


Primary balance






Overall balance






Central government borrowing requirement







External sector


External current account 3/






Public and publicly guaranteed debt 4/







In percent of exports of goods and services 5/






In percent of government current revenue 6/






Sources: Belize authorities; and IMF staff estimates and projections.

1/ Comprises credit by commercial banks and the Development Finance Corporation.
2/ Fiscal year starts on April 1.
3/ Including official grants.
4/ End of period.
5/ Public external debt. Includes refinancing operations in 2002.
6/ Central government debt. Includes refinancing operations in 2002.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities.


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