IMF Executive Board Concludes 2023 Article IV Consultation with Belize
IMF News, May 9, 2023
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- Published: May 9, 2023
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.
- Economic activity rebounded strongly from the pandemic, led by retail and wholesale trade, tourism, and business process outsourcing.
- Risks to the outlook remain tilted to the downside, including a sharp global slowdown, further increases in commodity prices, and climate-related disasters.
Growth and inflation
- Real GDP:
- Contracted by 13.4 percent in 2020.
- Expanded by 15.2 percent in 2021.
- Expanded by 12.1 percent in 2022.
- Projected to slow to 2.4 percent in 2023.
- Projected at 2 percent over the medium term as tourism returns to pre-pandemic levels.
- Inflation:
- Increased from near zero in 2020 to 3.2 percent in 2021.
- 6.3 percent in 2022, led by higher global energy and food prices despite domestic price-fixing measures since April 2022.
- Projected to fall to 4.1 percent in 2023.
- Projected at 1.2 percent over the medium term, in line with projected fall in commodity prices and global inflation.
Fiscal position and public debt
- Public debt and fiscal balances:
- Public debt declined from 101 percent of GDP in 2020 to 64 percent of GDP in 2022, driven by the debt for marine protection swap with The Nature Conservancy, a significant reduction in the fiscal deficit, strong growth, high inflation, and a discount in the Petrocaribe debt owed to Venezuela.
- The primary balance rose from –8.1 percent of GDP in FY2020 to 1.2 percent of GDP in FY2022 due to expenditure containment (including a temporary 10 percent cut in public sector wages and suspension of wage increments in FY2021-22) and a strong recovery of revenue.
- In an unchanged policies scenario, the primary balance is projected to remain at 1.2 percent of GDP over the medium term, with public debt declining to 53 percent of GDP by 2028.
- Public debt is assessed as sustainable over the medium term, although with still high near-term risks.
- Table highlights (selected):
- Revenue and grants (central government, percent of fiscal year GDP): 21.8 (2020), 21.7 (2021), 22.5 (2022), 22.7 (projection).
- Current non-interest expenditure (percent of fiscal year GDP): 20.0 (2020), 16.7 (2021), 15.4 (2022), 15.6 (projection).
- Capital expenditure and net lending (percent of fiscal year GDP): 10.0 (2020), 6.0 (2021), 5.9 (2022).
- Overall balance (percent of fiscal year GDP): -9.7 (2020), -1.3 (2021), -0.6 (2022), -0.5 (projection).
- Public debt (percent of calendar year GDP): 101.4 (2020), 80.1 (2021), 63.7 (2022), 60.4 (2023), 58.4 (2024), 56.9 (2025), 55.7 (2026), 54.6 (2027), 53.4 (2028).
- Gross international reserves (US$ millions): 349 (2020), 415 (2021), 481 (2022), 487 (2023), 494 (2024), 500 (2025), 503 (2026), 507 (2027), 513 (2028).
- Nominal GDP (BZ$ millions): 4,160 (2020), 4,983 (2021), 5,938 (2022), 6,332 (2023), 6,620 (2024), 6,858 (2025), 7,081 (2026), 7,310 (2027), 7,548 (2028).
Executive Board assessment and policy recommendations
- Board views:
- Directors agreed with the thrust of the staff appraisal and welcomed the strong recovery in economic activity and sharp reduction in public debt over the last two years.
- Directors highlighted that growth and inflation are projected to moderate and that risks are to the downside (sharp slowdown in advanced economies, further increases in commodity prices, climate-related disasters).
- Directors underscored the importance of reforms to address constraints to long-term growth and enhance resilience to shocks.
- Fiscal policy recommendations:
- Continue fiscal consolidation to further reduce public debt and ensure adequate buffers to respond to adverse shocks.
- Enhance revenues and reprioritize expenditures, while increasing priority spending on infrastructure, targeted social programs, and crime prevention.
- Important measures include expanding the tax base, strengthening revenue administration, and pension reform.
- Improve public financial management by strengthening multi-year budget preparations, fiscal risk assessment, and public investment management.
- A few Directors saw merit in adopting a Fiscal Responsibility Law to enhance credibility of the fiscal framework.
- Structural and financial sector recommendations:
- Growth-enhancing structural reforms should focus on easing access to credit for micro, small, and medium sized enterprises, enhancing governance, and building resilience to climate change and related disasters.
- Adopting a Disaster Resilience Strategy, based on a consistent multi-year macro-fiscal framework, could help unlock multilateral and donor funding.
- Implement planned fiscal consolidation and growth-enhancing structural reforms to reduce external imbalances, improve the adequacy of reserves, and strengthen the currency peg.
- Support these measures by limiting central bank financing to the government.
- Preserve financial stability and strengthen the AML/CFT framework; complete the update of the national assessment of Money Laundering/Terrorism Financing risks and the action plan ahead of the mutual evaluation by the Caribbean Financial Action Task Force in November 2023.
Risks and vulnerabilities
- Downside risks include:
- A sharp global slowdown.
- Further increases in commodity prices.
- Climate-related disasters.
- Near-term vulnerabilities:
- Although public debt is assessed as sustainable over the medium term, near-term risks remain high.
- Continued vigilance recommended for banking sector risks despite authorities’ effectiveness in resolving problem loans and strengthening domestic banks' balance sheets after the pandemic.
Press Release No. 23/141