Public Information Notice: IMF Concludes Article IV Consultation with Belize

September 22, 1998

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On August 28, 1998, the Executive Board concluded the Article IV consultation with Belize1.


Following a sharp weakening in performance in the early 1990s, the authorities have been adopting measures aimed at improving the fiscal and external positions. However, the actual fiscal adjustment achieved in 1993–1996 was modest, and the public sector’s recourse to credit from the central bank has remained high, contributing to pressures on the external reserve position. The authorities have sought to stem such pressures by tightening credit policy, increasing foreign borrowing on commercial terms, and introducing some exchange restrictions. In 1997, the fiscal imbalance widened again because of a rise in capital outlays, but the loss in international reserve was limited as the fiscal deficit was largely financed by external borrowing, including on commercial terms.

In 1997, real economic growth in Belize picked up to more than 3 percent on the strength of agriculture, agriculture-related manufacturing, and a recovery in fishing. Inflation has remained low, reflecting the exchange rate peg to the U.S. dollar and the openness of the economy. The external current account deficit widened towards 6 percent of GDP in 1997 (1 percent of GDP in 1996) mainly because of an increase in imports associated with the rise in public sector capital outlays and in economic growth. Export revenue grew only modestly as a strong performance of export volume of agriculture and agriculture-related products was offset by a fall in international prices. The capital account surplus increased in 1997 but was not sufficient to cover the current account deficit and the overall external position shifted to a small deficit (from a surplus of 3¼ percent of GDP in 1996). The stock of net international reserves stood at about US$51 million in mid-August 1998, with gross reserves equivalent to 1.7 months of imports of goods and nonfactor services.

Executive Board Assessment

Executive Directors noted that the fiscal measures adopted by the authorities in 1993–96 had made a start toward correcting Belize’s fiscal and external imbalances and had helped contain the weakening in the foreign reserve position and improve confidence. However, Directors were concerned that corrective measures were not sustained in 1997, when the fiscal deficit widened again and the public sector’s recourse to the central bank was large.

Directors observed that in the absence of a determined fiscal adjustment, the authorities have tightened credit policy, introduced foreign exchange restrictions, and increased public sector external indebtedness on commercial terms. They emphasized that those policies are not sustainable and could eventually undermine the present exchange rate peg. In this regard, they stressed the importance of strengthening without delay the fiscal and external positions on a sustained basis, refraining from borrowing on commercial terms or using proceeds from privatization to finance the deficit, and accelerating structural reforms to enhance economic efficiency.

Directors strongly supported the staff recommendation to implement sufficient measures to increase public savings, while allowing for an increase in expenditure on social and basic infrastructure. On the revenue side, there was a need to improve tax administration, broaden the base of the value-added tax and departure tax, and limit tax exemptions. On the expenditure side, Directors encouraged the authorities to freeze public service employment and limit wage adjustments strictly to those already considered in the budget, and introduce cost recovery schemes in health and education. Directors welcomed the authorities’ intention to use resources released by the debt reduction from bilateral sources for poverty alleviation programs.

Directors emphasized that credit policy will need to remain restrained and recommended the introduction of open-market operations to allow for some reduction of reserve requirements on bank deposits.

Directors stressed the importance of preserving a sound banking system by strengthening prudential regulations and supervisory oversight of the financial system. In this regard, Directors encouraged the authorities to move expeditiously to extend to the credit unions the supervisory and prudential principles and practices that now apply to banks.

Directors noted that the present exchange rate peg has served Belize well in maintaining price stability and improving investor confidence, and emphasized that maintenance of competitiveness in Belize hinges crucially on eliminating fiscal imbalances.

Directors commended the authorities for reducing both the maximum import duty and the import duty dispersion in the context of the CARICOM common external tariff agreement, and urged the authorities to eliminate promptly existing quantitative restrictions, replacing them with tariffs to help improve efficiency and widen the tax base. Directors stressed that structural actions are required to reduce existing impediments to private sector activity. They encouraged the authorities to streamline public procurement procedures and increase the transparency of government operations.

Belize: Selected Economic Indicators

  1993 1994 1995 1996 1997 1998

Real economy (change in percent)  
Real GDP 3.3 1.8 3.3 2.0 3.5 3.1
CPI (average) 1.4 2.5 2.9 6.3 1.0 1.5
Public finance (in percent of GDP)  
Nonfinancial public sector savings 5.7 4.4 4.1 4.0 4.2 3.3
Nonfinancial public sector capital expenditures1 14.1 11.6 7.7 8.2 12.0 12.0
Nonfinancial public sector overall balance (before grants)1 -7.7 -6.8 -2.8 -2.4 -6.7 -8.0
Money and credit (End of year, percent change)2  
Money and quasi-money 4.3 7.6 15.7 3.8 7.4 4.7
Credit to the private sector 2.8 4.2 5.8 6.5 10.5 5.5
Interest rates (percent)  
Average deposit rate (end of period) 6.0 6.1 7.2 6.2 6.7 ...
Average lending rate (end of period) 14.6 15.0 16.2 16.2 16.4 ...
Balance of payments (percent of GDP)  
Trade balance -27.7 -19.1 -17.0 -13.7 -16.9 -17.4
Current account -8.9 -4.1 -1.7 -1.1 -5.7 -6.5
Net official international reserves (US$ million) 29.1 24.7 28.1 49.2 48.8 36.5
Reserve cover (months of imports of GNFS) 1.1 1.0 1.2 1.9 1.7 1.3
Public external debt3 31.8 32.7 30.3 34.9 36.4 38.9
Exchange rate  
Real effective rate (depreciation - )4 1.6 -7.0 1.1 4.2 3.0 ...
Terms of trade (deterioration -) 2.2 1.3 -0.8 4.4 -6.9 ...

Sources: Central Bank of Belize; Ministry of Finance; and Fund staff estimates.

1Includes expenditures related to the construction of the new central bank building during 1996–1998.
2 In relation to liabilities to the private sector at the beginning of the period.
3There are no data available on private external debt.
4End of period.

1Under 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 directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6278 Phone: 202-623-7100