Statement by the IMF Staff Representative October 15, 2010

The economy of Belize in recent years has been vulnerable to adverse shocks owing to its weak external position, policy rigidities, and reduced access to external financing. Executive Directors commended the authorities for their prudent macroeconomic management during the crisis. Directors emphasized the need for fiscal consolidation strategy, and stressed the need to strengthen the banking system. They supported plans to improve public financial management and tax administration. They welcomed monetary policy framework, liquidity management, and development plan policies, and offered expert assistance as well.

Abstract

The economy of Belize in recent years has been vulnerable to adverse shocks owing to its weak external position, policy rigidities, and reduced access to external financing. Executive Directors commended the authorities for their prudent macroeconomic management during the crisis. Directors emphasized the need for fiscal consolidation strategy, and stressed the need to strengthen the banking system. They supported plans to improve public financial management and tax administration. They welcomed monetary policy framework, liquidity management, and development plan policies, and offered expert assistance as well.

1. This statement summarizes information that has become available since the issuance of the Staff Report (SM/10/264). It does not alter the thrust of the staff appraisal

2. Economic developments have remained broadly in line with projections in the staff report. GDP growth reached 2.4 percent (y-o-y) in the second quarter of 2010, supported by government services and commerce, and is running at a pace of 2 percent for the year as a whole. After peaking in July, net international reserves fell slightly to US$215 million in August, as the government paid interest on its external bonded debt (Superbond). In the 12-month period through August, bank deposits remained stable while credit to the private sector contracted by 4 percent, signaling a pause in the pace of financial deepening observed in previous years. The authorities plan to lower the floor on the interest rate on saving deposits by 100 basis points to 3½ percent in early November.

3. Overdue loans in the banking system have declined somewhat. A large domestic bank has restructured some loan facilities and, as a result, its overdue loans have declined from 34 percent of total loans in June to 30 percent in August. The authorities have asked this bank to increase its capital, but are concerned that such increase may only materialize slowly. The financial situation of the rest of the banks in the system has remained broadly stable.

Belize: 2010 Article IV Consultation-Staff Report; Informational Annex; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Belize
Author: International Monetary Fund