{
  "title": "Belize: Staff Concluding Statement of the 2020 Article IV Mission",
  "publication": "IMF News, March 12, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/03/12/mcs031221-belize-staff-concluding-statement-of-the-2020-article-iv-mission",
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  "summary": "COVID-19 impact:",
  "publishDate": "2021-03-12",
  "sections": [
    {
      "heading": "Recent developments, outlook, and risks",
      "content": "- COVID-19 impact:\n  - Real GDP contracted by 14.1 percent in 2020.\n  - Tourist arrivals declined by 72 percent in 2020.\n  - Tourism accounts for around 60 percent of foreign exchange earnings and 40 percent of GDP.\n  - Belize secured vaccines for just about one-third of its population.\n- Fiscal and external positions:\n  - Primary deficit rose from 1.4 percent of GDP in FY2019/20 to 8.3 percent in FY2020/21.\n  - Public debt rose from 98 percent of GDP in 2019 to 126 percent in 2020.\n  - International reserves increased from US$271 million (3.6 months of imports) in 2019 to US$346 million (4.3 months of imports) in 2020.\n  - Current account deficit narrowed owing to a sharp contraction in imports and lower repatriation of profits.\n- Outlook:\n  - Real GDP projected to grow by 1.9 percent in 2021, 6.4 percent in 2022, and return to potential growth of 2 percent over the medium-term.\n  - Real GDP expected to regain its 2019 level only by 2025.\n  - Baseline projections: primary budget deficit falls gradually from 8.3 percent of GDP in FY2020/21 to 0.9 percent from FY2023/24 onwards.\n  - Public debt projected to rise to 133 percent of GDP in 2021, and fall gradually to 128 percent in 2031.\n  - International reserves projected to fall to below 3 months of imports and 100 percent of gross external financing needs starting in 2024.\n- Risks:\n  - Substantial and tilted to the downside: intensification of the pandemic domestically and abroad, and natural disasters.\n  - Materialization of shocks would reduce activity, weaken revenue recovery, delay unwinding of pandemic expenditures, and accelerate reserve declines.\n- Debt sustainability assessment:\n  - Public debt assessed as unsustainable in staff’s baseline scenario.\n  - Public sector gross financing needs projected to remain above DSA sustainability thresholds over the next 10 years."
    },
    {
      "heading": "Policies to restore debt sustainability and strengthen the currency peg",
      "content": "- Strategic objective:\n  - Target reduction of public debt to 60 percent of GDP by 2031 to improve reserve adequacy and strengthen the currency peg.\n  - Strategy requires ambitious, yet realistic, fiscal consolidation, growth-enhancing structural reforms, and debt restructuring.\n\n- A. Balanced and sustained fiscal consolidation\n  - Near-term: maintain fiscal support to mitigate the socio-economic impact of the pandemic, then gradually unwind as the pandemic wanes.\n  - Medium-term fiscal strategy:\n    - Target public debt of 60 percent of GDP by 2031.\n    - Gradually increase the primary balance to 3 percent of GDP in FY2024/25 and keep at that level until FY2031/32.\n    - This implies a fiscal consolidation of 3.9 percentage points of GDP over the next four years relative to the baseline.\n  - Fiscal Responsibility Law (FRL) features proposed:\n    - (i) public debt anchor of 60 percent of GDP by 2031;\n    - (ii) gradual increase in the primary balance to 3 percent of GDP from FY2024/25 onwards;\n    - (iii) escape clause for major shocks triggered with approval by Parliament and a fiscal council;\n    - (iv) automatic correction mechanism triggered by large cumulative deviations from the primary fiscal balance target;\n    - (v) an independent fiscal council to produce unbiased forecasts and evaluate compliance.\n  - Policy measures for consolidation:\n    - Expenditure: reduce the wage bill and purchases of goods and services; prioritize infrastructure projects; establish a natural disaster reserve fund; increase targeted social spending.\n    - Revenue: reduce zero-rated GST items by taxing them at the standard GST rate; raise the standard GST rate to peer-country levels; tax the hotel sector at the standard GST rate instead of the 9 percent hotel tourist accommodation tax; lower the threshold for personal income tax exemption; increase excise taxes; enhance revenue and customs administration.\n  - Implementation challenges and contingencies:\n    - Limited implementation capacity, political pressures, and uncertainty about cyclical revenue recovery.\n    - Contingency plans should include further GST increases and larger cuts to nonpriority expenditure if the primary balance rise is weaker than expected.\n  - Public financial management (PFM) reforms:\n    - Modernize PFM including multi-year budgets, cash management, fiscal risk assessment, public investment management, and government account coverage.\n    - Ensure transparency and accountability in crisis-related spending, including publishing audit reports when available.\n\n- B. Growth-enhancing structural reforms\n  - Priority reforms:\n    - Create a credit bureau and credit collateral registry to improve access to credit.\n    - Accelerate registration processes to lower barriers to entry and exit.\n    - Introduce labor market reforms for more flexible working hours and lower labor market rigidities.\n    - Reduce skill mismatches by improving education and technical training.\n    - Enhance road infrastructure by reprioritizing investment projects.\n  - Crime reduction:\n    - Provide adequate resources to law enforcement and social programs targeting at-risk youth to promote investment and tourism.\n  - Climate and disaster resilience (in line with 2018 Climate Change Policy Assessment):\n    - Elaborate a comprehensive Disaster Resilience Strategy that internalizes resilience into the macroeconomic framework.\n    - Focus areas:\n      - (i) invest in climate-resilient infrastructure (roads, bridges, seawalls);\n      - (ii) enhance financial resilience by establishing a natural disaster reserve fund of 1 percent of GDP, use contingent lines of credit, and participate in regional insurance mechanisms;\n      - (iii) improve post-disaster resilience by reforming social protection programs to scale up quickly after a disaster.\n\n- C. Debt management and restructuring\n  - Authorities announced intention to approach external private sector creditors to seek a restructuring of the superbond to complement fiscal consolidation and structural reforms.\n\n- D. Monetary and financial policies\n  - External position:\n    - Assessed as substantially weaker than warranted by medium-term fundamentals and desirable policies.\n    - Current account deficit remains higher than its estimated level of equilibrium.\n    - Reducing external imbalances requires restoring debt sustainability and limiting government financing by the Central Bank of Belize (CBB) over the medium term.\n  - Financial stability:\n    - Banking system entered the pandemic with abundant liquidity and strong capital buffers.\n    - Non-performing loans (NPLs) were 5.8 percent of total loans as of end-2020 (partly reflecting forbearance measures).\n    - Recommendations:\n      - Maintain loan classification and provisioning rules; phase out forbearance measures and loan deferrals as the pandemic recedes; strengthen prudential standards.\n      - Restrict dividend payments until pandemic impact on capital is known.\n      - Conduct a comprehensive third-party asset quality review when the economy recovers.\n      - Continue efforts to strengthen AML/CFT supervision and enforce sanctions for non-compliance.\n  - AML/CFT and international financial services (IFS) priorities:\n    - (i) conduct a cost-benefit analysis of the international business sector and deepen understanding of financial integrity risks of IFS practitioners;\n    - (ii) increase resources and capacity of the IFSC to license, regulate, and supervise IFS practitioners; impose dissuasive and proportionate penalties for breaches;\n    - (iii) legal reforms informed by a risk assessment to implement AML/CFT standards on virtual assets and VASPs;\n    - (iv) identify and sanction IFSC licensees falsely claiming to be licensed to provide virtual asset-related services;\n    - (v) ensure beneficial ownership information of legal persons and arrangements is accurate, up-to-date, and available in a timely manner."
    },
    {
      "heading": "Key projections and selected indicators (from Table 1)",
      "content": "- Population and social indicators:\n  - Area (sq.km.): 22,860\n  - Human development index (rank), 2017: 106\n  - Population (thousands), September 2020: 421.5\n  - Under-five mortality rate (per thousand), 2017: 14.2\n  - GDP per capita, (current US$), 2020: 3,917\n  - Unemployment rate (percent), September, 2020: 13.7\n  - Life expectancy at birth (years), 2017: 70.6\n  - Poverty (percent of total population), 2009: 42.0\n- National income and prices (annual percentage changes, calendar year):\n  - GDP at constant prices: 2018: 2.9; 2019: 1.8; 2020: -14.1; 2021: 1.9; 2022: 6.4; 2023: 4.2; 2024: 2.0\n  - Consumer prices (average): 2018: 0.3; 2019: 0.2; 2020: 0.1; 2021: 1.0\n- Central government (In percent of fiscal year GDP; fiscal year April to March):\n  - Revenue and grants: 2018: 31.4; 2019: 31.2; 2020: 27.7; 2021: 28.4; 2022: 29.8; 2023: 31.3\n  - Current non-interest expenditure: 2018: 24.8; 2019: 26.1; 2020: 26.2; 2021: 25.7\n  - Interest payment: 2018: 3.2; 2019: 2.5; 2020: 4.5; 2021: 4.1; 2022: 4.0\n  - Capital expenditure and net lending: 2018: 6.5; 2019: 9.9; 2020: 8.6; 2021: 7.2; 2022: 6.0\n  - Capital expenditure: 2018: 6.2; 2019: 9.7; 2020: 8.3; 2021: 6.8; 2022: 5.5\n  - Net lending: 2018: 0.4; 2019: 0.5\n  - Primary balance: 2018: 2.1; 2019: -1.4; 2020: -8.3; 2021: -6.4; 2022: -3.1; 2023: -0.9\n  - Overall balance: 2018: -1.0; 2019: -4.6; 2020: -10.8; 2021: -10.9; 2022: -7.3; 2023: -5.1; 2024: -5.0; 2025: -4.9\n- Public debt (In percent of calendar year GDP):\n  - Public debt: 2018: 96.0; 2019: 97.5; 2020: 125.8; 2021: 133.0; 2022: 130.6; 2023: 128.5; 2024: 128.6\n  - Domestic debt: 2018: 27.8; 2019: 28.7; 2020: 39.4; 2021: 44.9; 2022: 47.3; 2023: 48.8; 2024: 51.0; 2025: 53.6; 2026: 56.5\n  - External debt: 2018: 68.2; 2019: 68.8; 2020: 86.5; 2021: 88.1; 2022: 83.4; 2023: 79.8; 2024: 77.6; 2025: 75.0; 2026: 72.1\n  - Principal payment: 2018: 7.7; 2019: 10.3; 2020: 10.7; 2021: 10.9; 2022: 10.8; 2023: 11.2; 2024: 11.6\n    - Domestic: 2018: 4.9; 2019: 3.9; 2020: 5.1; 2021: 6.7; 2022: 7.1; 2023: 7.0; 2024: 7.3; 2025: 7.6\n    - External: 2018: 2.2; 2019: 2.3; 2020: 2.6; 2021: 3.6; 2022: 3.7; 2023: 3.8\n- Money and credit:\n  - Credit to the private sector: 2018: 5.8; 2019: 8.5; 2020: 6.3\n  - Money and quasi-money (M2): 2018: 5.7; 2019: 10.6\n- External sector:\n  - External current account (percent of GDP): 2018: -8.1; 2019: -9.2; 2020: -8.0; 2021: -7.7; 2022: -7.4; 2023: -7.2\n  - Real effective exchange rate (+ = depreciation): 2018: -2.7\n  - Gross international reserves (US$ millions): 2018: 294; 2019: 278; 2020: 348; 2021: 360; 2022: 362; 2023: 345; 2024: 312; 2025: 285; 2026: 258\n  - In months of imports: 2019: 4.3; 2020: 3.4\n- Memorandum items:\n  - Nominal GDP (BZ$ millions): 2018: 3,765; 2019: 3,839; 2020: 3,302; 2021: 3,399; 2022: 3,688; 2023: 3,920; 2024: 4,078; 2025: 4,243; 2026: 4,414\n\nSource: IMF staff concluding statement of the 2020 Article IV mission (March 12, 2021).\n\n---\n\n\n References\n\n- Belize and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/03/12/mcs031221-belize-staff-concluding-statement-of-the-2020-article-iv-mission"
    }
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    "Published: March 12, 2021",
    "COVID-19 impact:",
    "Fiscal and external positions:",
    "Outlook:",
    "Risks:",
    "Debt sustainability assessment:",
    "Strategic objective:",
    "A. Balanced and sustained fiscal consolidation",
    "B. Growth-enhancing structural reforms",
    "C. Debt management and restructuring",
    "D. Monetary and financial policies",
    "Population and social indicators:",
    "National income and prices (annual percentage changes, calendar year):",
    "Central government (In percent of fiscal year GDP; fiscal year April to March):",
    "Public debt (In percent of calendar year GDP):",
    "Money and credit:",
    "External sector:",
    "Memorandum items:",
    "[Belize and the IMF](http://www.imf.org/external/country/BLZ/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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