Our Belizean authorities thank the mission team for the consultations, valuable analysis, and constructive exchange of views. They share staff’s assessment of the economic outlook, risks, and policy priorities for the period ahead. They also welcome staff’s recognition of the ambitious Five-Year Homegrown Recovery Plan currently underway to address longstanding imbalances and move Belize towards sustained and inclusive growth.
The new government entered office in November 2020, inheriting an untenable macroeconomic position. Belize was already in a deep recession before the pandemic hit, with real GDP contracting by 6.3 percent year-on-year in the first quarter of 2020. Successive primary fiscal deficits had driven public debt from 79 percent of GDP in 2014 to 98 percent by 2019. The external position had also deteriorated before the pandemic, with growing current account deficits halving international reserves between 2014 and 2019 to just 3.2 months of import cover.
The COVID-19 pandemic hit Belize exceptionally hard. Despite a strict national lockdown, Belize suffered from one of the highest rates of cases and deaths in the Caribbean. With tourism making up some 40 percent of Belize’s economy, the pandemic quickly turned a pre-existing recession into a full-blown depression. Real GDP dropped more than 14 percent in 2020, one of the deepest shocks faced by a Fund member. Reduced revenues combined with urgent expenditures needed to save lives and livelihoods reduced the government’s primary balance from -1.2 percent of GDP in 2019 to -8.5 percent in 2020 and led to a further rise in public debt. Recognizing the depth of the crisis, our authorities have developed a multi-pronged strategy to restore macroeconomic sustainability and growth.
Belize is taking decisive steps to restore debt sustainability. Belize’s public debt ratio, today totaling 132 percent of GDP, is among the world’s largest. Our authorities concur with staff’s conclusion that Belize’s debt burden is “unsustainable” and are committed to rectifying it. Upon entering office, our authorities established a Debt Management Unit, comprised of senior officials and external advisors, to lay out a plan to reduce debt to 85 percent of GDP by 2025 and below 70 percent by 2030. Consistent with staff recommendations, Belize plans on restoring debt sustainability through balanced and sustained fiscal consolidation, growth-enhancing structural reforms, and debt restructuring:
Fiscal Consolidation: Belize’s 2021 Budget “Today’s Sacrifice: Tomorrow’s Triumph” presents very significant fiscal consolidation measures, including 10 percent reduction of public sector wages and 30 percent reduction in spending on goods and services, which together amount to 2 percent of GDP. Our authorities have also frozen non-interest current expenditure for two years, representing a further fiscal consolidation of 3 percent of GDP. These expenditure measures, together with a recovery of revenues, are projected to raise the primary balance from -8.5 percent of GDP in 2020 to -2.9 percent in 2021, +2 percent in 2022, and +3 percent over the medium term. As soon as the crisis abates, Belize plans to adopt a new “Fiscal Responsibility Law”, in-line with staff recommendations, that addresses public debt limits, budget performance targets, correction mechanisms, and establishes an independent Fiscal Oversight Council.
Growth-Enhancing Structural Reforms: Boosting inclusive growth is a key priority for the new government. To this end, our authorities are spearheading a dramatic transformation of the business environment. Belize will fast-track the approvals for strategic investments, accelerate real estate-related processes, relax constraints for small and medium size business to operate, pursue private-public partnerships, and improve road connectivity for farmers to raise agricultural production. New service standards are being introduced across government; laws are being modernized related to exchange control regulations, securities and capital markets and company and insolvency; and an E-governance campaign will provide online access to 90 percent of government services by 2025. Belize plans on improving access to credit by creating a credit bureau and credit collateral registry, as well as implementing labor market reforms to allow flexible working hours. Finally, our authorities are working to fight crime and corruption through improved surveillance, a Whistle Blowers’ law, and community-based social programs that keep at-risk youth out of crime. This ambitious reform agenda will also ensure a robust social safety net supports the poorest and most vulnerable.
Debt Restructuring: As staff conclude, even a deep fiscal consolidation and growth-enhancing structural reforms are not sufficient to restore debt sustainability in Belize. Our authorities are therefore engaged in negotiations with commercial creditors to restructure Belize’s US$557 million “superbond”. Recognizing that successive debt reprofilings have failed to restore debt sustainability in Belize, our authorities are now seeking an overall principal reduction to Belize’s superbond. They are also reviewing other public debts with a view to securing short-term fiscal space through write-offs, payment deferments, coupon reduction or discounted buyouts.
Belize’s currency peg is a key macroeconomic anchor. The currency peg has a long-proven track record of providing the stability needed to promote investment and growth in a small country like Belize. Our authorities are fully committed to strengthening the peg by restoring debt sustainability and enhancing international competitiveness, which in turn will help reduce the current account deficit and increase international reserves. An SDR allocation would further strengthen Belize’s external position.
Belize’s banking sector remains resilient with abundant liquidity and strong capital buffers. The Central Bank of Belize continues its close supervision of the banking sector. To help bridge vulnerable borrowers through the pandemic, the Central Bank extended a forbearance framework that allows commercial banks to extend flexible repayment terms. As the recovery picks up, asset quality, nonperforming loans, and bank capital will continue to be closely supervised. Belize is also committed to maintaining the highest level of compliance with international financial integrity standards. A national risk assessment has been concluded and an action plan developed to further strengthen the AML/CFT framework ahead of Belize’s comprehensive AML/CFT evaluation by the Caribbean Financial Action Task Force in 2023.
Climate change is a macro-critical threat to Belize. Belize is exceptionally vulnerable to increasingly frequent and severe climate shocks, including hurricanes, flooding, sea level rise, coastal erosion, coral bleaching, and sargassum. While building climate resilience is an urgent national priority, progress is constrained by Belize’s limited fiscal space and pandemic-related spending needs. To support resilience building efforts, our authorities will pursue climate finance grants and concessional loans from the Green Climate Fund and other development partners.
International cooperation is needed to end the COVID-19 pandemic. Belize’s outlook, like other countries, depends on the path of the global health crisis. To date, Belize has managed to order vaccines to cover 30 percent of its population. Recognizing the pandemic is not over anywhere until it is over everywhere, our authorities encourage the Fund membership to support the COVAX facility in increasing global vaccine coverage; ensure free cross-border flows of raw materials and finished vaccines; and reallocate surplus vaccines through the COVAX facility.
Our Belizean authorities highly value their close collaboration with the Fund. Belize’s homegrown adjustment plan was developed following close consultation with Fund staff. Our authorities are grateful for the Fund’s continued policy advice and technical assistance. They look forward to staying closely engaged with the Fund on implementing the Five-Year Homegrown Recovery Plan and building a Belize that works for everyone.
Our authorities consent to publish the staff report and all related documents.