Belize: Staff Concluding Statement of the 2019 Article IV Mission

IMF News, October 7, 2019

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Real GDP grew by 3.2 percent in 2018 and by an estimated 4 percent (y/y) in 2019Q1.
The first release of real GDP data for 2019Q1 published on June 26 indicated growth of 5.2 percent (y/y).
Growth for 2019 as a whole is projected at 1½ percent.
Recent data indicate a slowdown in economic activity, with a minor contraction in 2019Q2, reflecting a severe drought.
The unemployment rate reached a historic low of 7.6 percent in April 2019, with inflation near zero.
Tourist arrivals grew by double digits in 2018.
The current account deficit widened to 7.9 percent of GDP in 2018 from 7.7 percent in 2017, reflecting increased imports of construction materials for large foreign-financed projects.
International reserves projected at about 3 months of imports of goods and services over the medium term.
Medium-term real GDP growth is projected at just below 2 percent.

The primary fiscal surplus reached 2.1 percent of GDP in FY2018/19 — a 4 percent of GDP rise from two years ago.
The approved FY2019/20 budget targeted a primary fiscal surplus of just above 2 percent of GDP, but more spending on wages and public investment and weaker revenue put the target at risk.
The authorities increased pension contribution rates in July 2019 to shore up the sustainability of the social security scheme.
Public debt was at an end-2018 level of 94 percent of GDP.
Reducing public debt to below 60 percent of GDP in 10 years and building buffers requires gradually raising the primary surplus to about 4 percent of GDP.

Downside external risks: weaker U.S. growth affecting tourism; higher oil prices; natural disasters.
Domestic risks: elevated rates of crime affecting growth and competitiveness.
Financial/reputational risks: potential financial misuse in the international financial services sector, governance concerns, and pressures on correspondent banking relationships (CBRs).
Policy/legal risks: Belize’s inclusion on the European Union list of non-cooperative tax jurisdictions and uncertainty regarding standard setters’ expectations.
Contingent liabilities: legacy claims contested by the government that could lead to large public and external financing needs.
Upside scenario: intensification of structural reforms could raise investment, income, and employment.

Improve the business environment:
- Establish a credit bureau and collateral registry to facilitate access to credit.
- Streamline regulations for starting a business.
- Expand technical and vocational training programs.
Strengthen governance and public safety:
- Fight corruption by implementing and enforcing the asset declaration regime through the Integrity Commission and strengthening rules on conflict of interest.
- Ensure public safety, including community programs that steer youth toward formal employment and away from crime.
Ease supply-side constraints to sustain tourism growth and diversification.

Belize’s last poverty assessment is almost 10 years old; an update is needed to improve targeting and effectiveness of social policies.
Consider campaigns to increase awareness of flagship targeted social protection programs: Building Opportunities for Our Social Transformation (BOOST), Food Pantry, and the Conditional Cash Transfer (CCT) Program, and amplify support for them.
The recently launched National Financial Inclusion Strategy is a step toward making growth inclusive by increasing population access to financial services.

Continue substantial investments into climate-resilient infrastructure guided by the National Climate Resilience Investment Plan.
Prioritize costing and financing strategies with development partners.
Strengthen implementation of building codes and land use regulations.
Increase self-insurance: establish a natural disaster fund; arrange ex-ante contingent lines of credit; optimize participation in regional insurance options.
Prepare a Disaster Resilience Strategy based on a multi-year macro-fiscal framework, with input from stakeholders, to guide donor coordination.

Revenue measures to mobilize resources:
- Further broaden the tax base by phasing out tax exemptions.
- Streamline tax incentives.
- Reinforce tax administration; the recent merger of the General Sales Tax (GST) and Income Tax departments should support this.
Expenditure measures to create space for priority investment:
- Restrain current spending, including by implementing a 2-5 replacement ratio to gradually reduce the number of public sector employees.
- Limit salary increments to the rate of inflation.
- Make the public-sector pension plan contributory.
Institutional reforms:
- Consider a fiscal responsibility law with rules to guide debt reduction.
- Create a public-private forum to monitor fiscal policy and strengthen public consensus.
- Adopt a multi-year budget framework to enhance planning, transparency, and continuity.

Replace the inefficient, turnover-based business tax with a more efficient Corporate Income Tax over the medium term.
Tighten conditions in special tax regimes that constitute a parallel tax system with much lower tax rates to reduce potential domestic revenue losses while maintaining an attractive system.
Tighten taxation for importation of goods through digital platforms and the purchase of digital services in Belize.

Conduct an asset quality review to assess banks’ capital buffers.
The Central Bank of Belize (CBB) implemented a cybersecurity framework in 2019.
Fortify the bank resolution legal framework to designate the CBB as the sole resolution authority and enable irreversible actions.
Strengthen CBB capacity and resources to conduct anti-money laundering and combating the financing of terrorism (AML/CFT) supervision and take effective enforcement actions.
Intensify supervision and enforcement in the international financial services sector to bolster investor confidence and prevent loss of CBRs.
Conduct an in-depth risk and cost assessment of the international financial services sector, including virtual assets, to inform policy making.
Policy priorities for the International Financial Services Commission (IFSC):
- Increase resources and capacity to license, regulate, and supervise international financial service providers.
- Impose dissuasive and proportionate penalties for breaches.
- Implement legal reforms informed by the risk assessment to apply international standards on virtual assets.
- Identify and sanction IFSC licensees providing virtual asset-related services without authorization.
- Ensure beneficial ownership information of legal persons and arrangements established by agents is accurate, up-to-date, and available without impediment.

Source: Belize: Staff Concluding Statement of the 2019 Article IV Mission (October 7, 2019).