Abstract
IMF Country Report No. 22/133
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IMF Country Report No. 22/133
BELIZE
2022 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT
May 2022
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2022 Article IV consultation with Belize, the following documents have been released and are included in this package:
A Press Release
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on a lapse-of-time basis following discussions that ended on February 22, 2022, with the officials of Belize on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on April 20, 2022.
An Informational Annex prepared by the IMF staff.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PRESS RELEASE
PR22/146
IMF Executive Board Concludes 2022 Article IV Consultation with Belize
FOR IMMEDIATE RELEASE
Washington, DC – May 10, 2022: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Belize and endorsed the staff appraisal without a meeting on a lapse-of-time basis.2
The COVID-19 pandemic had a severe impact on Belize in 2020, leading to a 16.7 percent contraction in real GDP and an increase in public debt to an unsustainable level of 133 percent of GDP. To address this situation, the government presented a Medium-Term Recovery Plan (MTRP) to guide the recovery and lower public debt to 85 percent of GDP in 2025 and 70 percent of GDP by 2030 through the implementation of fiscal consolidation, growth-enhancing structural reforms, and debt restructuring. Encouraging progress towards restoring debt sustainability was made in 2021, including by implementing sizable fiscal consolidation and by completing a novel debt for marine protection swap with The Nature Conservancy, which not only reduced public debt by 12 percent of GDP in 2021, but also enhanced the protection of the marine environment going forward.
Economic activity is recovering strongly. Real GDP expanded by 9.8 percent in 2021 and is projected to grow by 5.7 percent in 2022 and 3.4 percent in 2023 led by the recovery of the tourism sector. End of period inflation increased to 4.9 percent in 2021 and is projected at 5.2 percent for 2022 as the war in Ukraine and related economic sanctions keep global energy and food prices elevated. The fiscal position improved significantly in FY2021, with the primary balance increasing to 1.7 percent of GDP in FY2021, led by a sharp cyclical recovery of revenue and a decline in expenditure due to fiscal consolidation, and public debt declining to 111 percent of GDP in 2021. Going forward, the primary balance is projected to decline to – 0.1 percent of GDP in FY2022 due to measures adopted by the government to mitigate the rise in fuel prices, and to stabilize at near 0.6 percent of GDP during FY2023-32 in a passive scenario with no additional measures. Public debt is projected to continue falling to 85 percent of GDP by 2032, although it would continue to be assessed as unsustainable in the absence of additional measures as it would remain above the 70 percent of GDP threshold for sustainability over the next decade.
Executive Board Assessment
Belize’s key policy priority is to restore debt sustainability. This requires preserving the fiscal savings achieved in FY2021, ensuring that the measures adopted to mitigate the rise in fuel prices are temporary, and implementing additional fiscal consolidation and growth-enhancing structural reforms with the goal of increasing the primary balance to 2.5 percent of GDP in FY2025 and reducing public debt to 60 percent of GDP by 2031. Anchoring this strategy on a medium-term fiscal strategy with clear targets and specific measures would enhance its credibility.
Fiscal consolidation should rely on both revenue and expenditure measures. Following the implementation of expenditure-based consolidation in FY2021 and a temporary relaxation in FY2022, the authorities should consider raising revenue by broadening the tax base and enhancing revenue administration, while containing current expenditure and expanding targeted social and resilience spending. Executing these plans will be challenging given limited capacity, political pressures, rising energy and food prices, and downside risks. In this context, it will be key to prepare contingency plans in case public debt does not fall as planned, including additional revenue and expenditure measures and debt operations.
Implementing growth-enhancing structural reforms would accelerate the reduction in public debt and reduce the burden on fiscal consolidation. A key priority is to strengthen the business climate by improving access to credit for SMEs; reducing entry barriers for new businesses; enhancing human capital and infrastructure; reducing crime by providing adequate resources to law enforcement and social programs; and building resilience to climate change and natural disasters by adopting a DRS focused on improving structural, financial, and post-disaster resilience and based on a consistent multi-year macro-fiscal framework.
Restoring public debt sustainability would also strengthen the currency peg and lower external imbalances. Belize’s external position is assessed as weaker than justified by medium term fundamentals and desirable policies. Reducing the current account deficit to its equilibrium level and improving reserve adequacy requires preserving the fiscal savings achieved in FY2021, ensuring that the measures adopted to mitigate the rise in fuel prices are temporary, and implementing additional fiscal consolidation and growth-enhancing structural reforms. It also requires reducing central bank financing to the government and strengthening central bank independence.
The authorities should continue seeking financing for their ambitious climate change mitigation and adaptation agenda. Belize’s updated Nationally Determined Contribution presents the country’s ambitious plans for 2021-30, including large reductions in greenhouse gas emissions by restoring ecosystems and expanding renewable energy, and actions to adapt to climate change in agriculture, tourism, and fisheries. As these actions will be beneficial for Belize and the world, the authorities should continue seeking financing from donors and bilateral and multilateral creditors.
Safeguarding financial stability and strengthening the AML/CFT framework remain priorities. Following the review of the loan portfolios of banks and credit unions, the central bank should ensure that any extended measures are time-bound and targeted, and financial institutions resume the regular classification and restructuring procedures. Efforts to strengthen AML/CFT supervision of banks should continue and sanctions for non-compliance should be enforced. The authorities should also prioritize reforms to mitigate the ML/TF risks stemming from the IFS sector. Advancing these reforms will help protect the country’s correspondent banking relationships.
Belize: Selected Social and Economic Indicators
Fiscal year (April to March).
Public debt includes central government debt as well as external financial and non-financial public sector debt.
Including official grants.
Belize: Selected Social and Economic Indicators
| I. Population and Social Indicators | |||||||||
| Area (sq.km.) | 22,860 | Human development index (rank), 2020 | 110 | ||||||
| Population (thousands), 2021 | 432.5 | Under-five mortality rate (per thousand), 2020 | 11.7 | ||||||
| GDP per capita, (current US$), 2021 | 4,177 | Unemployment rate (percent), 2021 | 10.2 | ||||||
| Life expectancy at birth (years), 2019 | 74.6 | Poverty (percent of total population), 2018 | 52.0 | ||||||
| II. Economic Indicators | |||||||||
| Projections | |||||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| National income and prices | (Annual percentage changes, calendar year) | ||||||||
| GDP at constant prices | 2.0 | -16.7 | 9.8 | 5.7 | 3.4 | 2.0 | 2.0 | 2.0 | 2.0 |
| Consumer prices (end of period) | 0.2 | 0.3 | 4.9 | 5.2 | 2.5 | 2.0 | 2.0 | 2.0 | 2.0 |
| Consumer prices (average) | 0.2 | 0.1 | 3.2 | 4.8 | 3.7 | 2.2 | 2.0 | 2.0 | 2.0 |
| Central government 1/ | (In percent of fiscal year GDP) | ||||||||
| Revenue and grants | 31.5 | 27.5 | 32.3 | 30.8 | 31.5 | 31.5 | 31.4 | 31.4 | 31.4 |
| Current non-interest expenditure | 25.9 | 27.0 | 24.0 | 24.2 | 24.1 | 24.1 | 24.1 | 24.1 | 24.1 |
| Interest payment | 3.4 | 1.7 | 2.4 | 2.7 | 2.7 | 2.8 | 2.7 | 2.8 | 2.8 |
| Capital expenditure and net lending | 6.8 | 9.0 | 6.6 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 |
| Capital expenditure | 6.5 | 8.7 | 6.5 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 |
| Net lending | 0.4 | 0.3 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Primary balance | -1.3 | -8.5 | 1.7 | -0.1 | 0.7 | 0.7 | 0.6 | 0.6 | 0.6 |
| Overall balance | -4.7 | -10.3 | -0.7 | -2.8 | -2.0 | -2.1 | -2.1 | -2.2 | -2.2 |
| Public debt | (In percent of calendar year GDP) | ||||||||
| Public debt 2/ | 96.3 | 133.1 | 111.0 | 102.5 | 97.7 | 95.9 | 94.2 | 92.8 | 91.4 |
| Domestic debt | 28.4 | 41.4 | 36.6 | 32.0 | 28.9 | 28.1 | 27.9 | 28.1 | 28.5 |
| External debt | 68.0 | 91.7 | 74.4 | 70.5 | 68.8 | 67.8 | 66.3 | 64.7 | 62.9 |
| Principal payment | 5.9 | 8.3 | 9.9 | 6.7 | 5.6 | 5.5 | 4.9 | 4.5 | 4.5 |
| Domestic | 3.9 | 5.3 | 6.4 | 4.7 | 3.3 | 2.6 | 1.8 | 1.8 | 1.9 |
| External | 2.1 | 3.0 | 3.5 | 2.0 | 2.3 | 2.9 | 3.0 | 2.7 | 2.6 |
| Money and credit | (Annual percentage changes, calendar year) | ||||||||
| Credit to the private sector | 5.8 | 2.2 | 3.5 | 5.0 | 7.2 | 4.3 | 4.0 | 4.0 | 4.0 |
| Money and quasi-money (M2) | 5.7 | 10.6 | 7.2 | 5.9 | 7.2 | 4.3 | 4.0 | 4.0 | 4.0 |
| External sector | (Annual percentage changes, unless otherwise indicated) | ||||||||
| External current account (percent of GDP) 3/ | -9.5 | -8.1 | -8.9 | -9.3 | -8.9 | -8.5 | -8.1 | -7.9 | -7.7 |
| Real effective exchange rate (+ = depreciation) | 0.1 | 0.0 | -1.5 | … | … | … | … | … | … |
| Gross international reserves (US$ millions) | 278 | 348 | 420 | 409 | 404 | 395 | 385 | 373 | 368 |
| In months of imports | 3.7 | 3.8 | 4.0 | 3.7 | 3.5 | 3.3 | 3.1 | 2.9 | 2.7 |
| Memorandum items | |||||||||
| Output gap (percent of potential output) | 2.0 | -15.9 | -8.6 | -4.3 | -2.1 | -1.3 | -0.7 | -0.3 | -0.1 |
| Nominal GDP (BZ$ millions) | 3,891 | 3,171 | 3,593 | 3,982 | 4,270 | 4,452 | 4,632 | 4,819 | 5,014 |
Fiscal year (April to March).
Public debt includes central government debt as well as external financial and non-financial public sector debt.
Including official grants.
Belize: Selected Social and Economic Indicators
| I. Population and Social Indicators | |||||||||
| Area (sq.km.) | 22,860 | Human development index (rank), 2020 | 110 | ||||||
| Population (thousands), 2021 | 432.5 | Under-five mortality rate (per thousand), 2020 | 11.7 | ||||||
| GDP per capita, (current US$), 2021 | 4,177 | Unemployment rate (percent), 2021 | 10.2 | ||||||
| Life expectancy at birth (years), 2019 | 74.6 | Poverty (percent of total population), 2018 | 52.0 | ||||||
| II. Economic Indicators | |||||||||
| Projections | |||||||||
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| National income and prices | (Annual percentage changes, calendar year) | ||||||||
| GDP at constant prices | 2.0 | -16.7 | 9.8 | 5.7 | 3.4 | 2.0 | 2.0 | 2.0 | 2.0 |
| Consumer prices (end of period) | 0.2 | 0.3 | 4.9 | 5.2 | 2.5 | 2.0 | 2.0 | 2.0 | 2.0 |
| Consumer prices (average) | 0.2 | 0.1 | 3.2 | 4.8 | 3.7 | 2.2 | 2.0 | 2.0 | 2.0 |
| Central government 1/ | (In percent of fiscal year GDP) | ||||||||
| Revenue and grants | 31.5 | 27.5 | 32.3 | 30.8 | 31.5 | 31.5 | 31.4 | 31.4 | 31.4 |
| Current non-interest expenditure | 25.9 | 27.0 | 24.0 | 24.2 | 24.1 | 24.1 | 24.1 | 24.1 | 24.1 |
| Interest payment | 3.4 | 1.7 | 2.4 | 2.7 | 2.7 | 2.8 | 2.7 | 2.8 | 2.8 |
| Capital expenditure and net lending | 6.8 | 9.0 | 6.6 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 |
| Capital expenditure | 6.5 | 8.7 | 6.5 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 | 6.7 |
| Net lending | 0.4 | 0.3 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Primary balance | -1.3 | -8.5 | 1.7 | -0.1 | 0.7 | 0.7 | 0.6 | 0.6 | 0.6 |
| Overall balance | -4.7 | -10.3 | -0.7 | -2.8 | -2.0 | -2.1 | -2.1 | -2.2 | -2.2 |
| Public debt | (In percent of calendar year GDP) | ||||||||
| Public debt 2/ | 96.3 | 133.1 | 111.0 | 102.5 | 97.7 | 95.9 | 94.2 | 92.8 | 91.4 |
| Domestic debt | 28.4 | 41.4 | 36.6 | 32.0 | 28.9 | 28.1 | 27.9 | 28.1 | 28.5 |
| External debt | 68.0 | 91.7 | 74.4 | 70.5 | 68.8 | 67.8 | 66.3 | 64.7 | 62.9 |
| Principal payment | 5.9 | 8.3 | 9.9 | 6.7 | 5.6 | 5.5 | 4.9 | 4.5 | 4.5 |
| Domestic | 3.9 | 5.3 | 6.4 | 4.7 | 3.3 | 2.6 | 1.8 | 1.8 | 1.9 |
| External | 2.1 | 3.0 | 3.5 | 2.0 | 2.3 | 2.9 | 3.0 | 2.7 | 2.6 |
| Money and credit | (Annual percentage changes, calendar year) | ||||||||
| Credit to the private sector | 5.8 | 2.2 | 3.5 | 5.0 | 7.2 | 4.3 | 4.0 | 4.0 | 4.0 |
| Money and quasi-money (M2) | 5.7 | 10.6 | 7.2 | 5.9 | 7.2 | 4.3 | 4.0 | 4.0 | 4.0 |
| External sector | (Annual percentage changes, unless otherwise indicated) | ||||||||
| External current account (percent of GDP) 3/ | -9.5 | -8.1 | -8.9 | -9.3 | -8.9 | -8.5 | -8.1 | -7.9 | -7.7 |
| Real effective exchange rate (+ = depreciation) | 0.1 | 0.0 | -1.5 | … | … | … | … | … | … |
| Gross international reserves (US$ millions) | 278 | 348 | 420 | 409 | 404 | 395 | 385 | 373 | 368 |
| In months of imports | 3.7 | 3.8 | 4.0 | 3.7 | 3.5 | 3.3 | 3.1 | 2.9 | 2.7 |
| Memorandum items | |||||||||
| Output gap (percent of potential output) | 2.0 | -15.9 | -8.6 | -4.3 | -2.1 | -1.3 | -0.7 | -0.3 | -0.1 |
| Nominal GDP (BZ$ millions) | 3,891 | 3,171 | 3,593 | 3,982 | 4,270 | 4,452 | 4,632 | 4,819 | 5,014 |
Fiscal year (April to March).
Public debt includes central government debt as well as external financial and non-financial public sector debt.
Including official grants.
Title Page
BELIZE
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
April 20, 2022
KEY ISSUES
Context. The COVID-19 pandemic had a severe impact on Belize in 2020, leading to a 16.7 percent contraction in real GDP and a rise in public debt to an unsustainable level of 133 percent of GDP. To address this situation, the government presented a medium- term plan to lower public debt to 85 percent of GDP in 2025 and 70 percent in 2030 by implementing fiscal consolidation, structural reforms, and debt restructuring. Significant progress towards restoring debt sustainability was made in 2021.
Outlook and Risks. Real GDP grew by 9.8 percent in 2021 and is projected to growth by 5.7 percent in 2022 and 3.4 percent in 2023, led by the recovery of tourism. The fiscal position has strengthened in line with the economic recovery and fiscal consolidation, and debt dynamics have improved including because of the debt for marine protection swap with TNC. However, further actions are needed to restore debt sustainability. Risks to the outlook are tilted to the downside, including from an escalation of the pandemic, tighter global financial conditions, natural disasters, and higher commodity prices.
Policy Advice. The key policy priority is to restore debt sustainability, which would also strengthen the currency peg. This requires preserving the fiscal savings made in FY2021 and implementing additional fiscal consolidation and growth-enhancing structural reforms with the objective of reducing public debt to 60 percent of GDP by 2031.
Fiscal Policy. Restoring debt sustainability requires gradually raising the primary balance to 2.5 percent of GDP by 2025 by preserving the fiscal savings achieved in FY2021 and implementing 1.9 percent of GDP of additional fiscal consolidation over three years, relying on both revenue and expenditure measures.
Structural Reforms. Boosting growth requires easing access to credit for SMEs, reducing entry barriers, enhancing human capital and infrastructure, containing crime, and building resilience to natural disasters and climate change.
Monetary Policy. Improving reserve adequacy and strengthening the currency peg require restoring public debt sustainability and limiting government financing by the Central Bank, in line with the trends observed in 2021.
Financial Sector Policy. Preserving financial stability requires a careful transition out of the forbearance measures implemented in FY2020 and continued strengthening of the AML/CFT framework and enforcement.
Approved By
Patricia Alonso Gamo (WHD) and Andrea Schaechter (SPR)
Discussions took place virtually during February 10.22, 2022. The IMF team comprised Jaime Guajardo (Head), Thomas Dowling, Mariusz Sumli.ski (all WHD), and Ke Chen (LEG). Benjamin Rankin (OED) attended some of the meetings. Patricia Alonso-Gamo (WHD) and Philip Jennings (OED) attended the concluding meeting. The team met with the Honorable Mr. John Briceno, Prime Minister; Mr. Kareem Michael, Governor of the Central Bank of Belize; Mr. Christopher Coye, Minister of State, Mr. Joseph Waight, Financial Secretary; and other senior government officials, representatives of the opposition, private sector, and public sector unions. Sheng Tibung and Adam Siddiq contributed with excellent research assistance and administrative support.
Contents
CONTEXT
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
POLICY DISCUSSIONS
A. Balanced and Sustained Fiscal Consolidation
B. Growth-Enhancing Structural Reforms and Climate Change
C. Illustrative Reform Scenario
D. Monetary and Financial Policies
STAFF APPRAISAL
FIGURES
1. COVID-19 Cases, Deaths, and Vaccination
2. Real GDP Growth and Tourist Arrivals
3. Public Debt and Gross Financing Needs
4. Real Sector Indicators
5. Public Sector Indicators
6. External Sector Indicators
TABLES
1. Selected Social and Economic Indicators
2a. Operations of the Central Government (In millions of Belize dollars)
2b. Operations of the Central Government (In percent of GDP)
3a. Balance of Payments (In millions of US dollars)
3b. Balance of Payments (In percent of GDP)
4. Operations of the Banking System
5. Baseline Medium-Term Outlook
6. Domestic Banks: Financial Soundness Indicators
ANNEXES
I. Implementation of 2021 Article IV Consultation Recommendations
II. Debt for Marine Protection Swap
III. Debt Sustainability Analysis
IV. Risk Assessment Matrix
V. Updated Nationally Determined Contribution
VI. External Stability Assessment
