This 2005 Article IV Consultation highlights that the Belizean economy grew by 4½ percent in 2004, mainly reflecting strong performance in the agriculture, fisheries, and tourism sectors. Inflation remained subdued at about 3 percent. The overall fiscal deficit of the central government, however, widened to 8¾ percent of GDP in FY04/05. Executive Directors have underscored the urgency of addressing these imbalances to safeguard the country’s international reserves and ensure the sustainability of the pegged exchange rate system.
This note provides additional information on recent developments in Belize since the issuance of the staff report. The statement does not change the thrust of the staff appraisal.
The economy continued to grow at an annual pace of around 4½ percent during the first half of 2005. The economy’s strength reflects buoyancy in the tourism as well as wholesale and retail trade sectors.
Headline inflation has risen. Year-on-year CPI inflation increased from 3.0 percent at end-2004 to 3.7 percent in May 2005, driven mainly by higher costs for energy and transportation.
Fiscal adjustment has fallen somewhat short of the authorities’ goal. Preliminary data suggest that the deficit for the central government during the first fiscal quarter (April-June) was 1.6 percent of GDP, or 0.3 percent larger than planned. The shortfall reflected lower revenues and grants, as well as higher current expenditure, than initially projected.
The authorities plan to introduce a VAT-type tax by April 1, 2006. CARTAC has taken the lead in coordinating technical assistance in this regard, including from the Fund, IDB, and DFID. A mission from LEG is visiting Belize during September 19-23, 2005 to assist in preparations.
The government recently decided to re-nationalize the water company. This company had been privatized four years ago, and after years of legal disputes, the government agreed to repurchase a controlling majority for about the same price it sold it in 2001 (roughly equivalent to 2 percent of GDP). The purchase was financed through loans from the foreign owner and from Taiwan, Province of China. Although the authorities have indicated their intention to re-privatize the company as soon as possible, the decision and the additional debt it implies have exacerbated staff concerns regarding debt sustainability.
The authorities are continuing efforts to improve the statistical base. In September, the authorities started publishing monthly fiscal reports, which are accessible to the general public via the websites of the central bank and the ministry of finance. Efforts are also well underway to participate in the GDDS, and STA is reviewing metadata submitted by the authorities.