Posted: Tuesday, September 27 , 2016. 5:05 p.m. CST.
By BBN Staff: Just 10 months ago, Prime Minister Dean Barrow declared: “The best is yet to come!” Not even a year removed from the United Democratic Party’s (UDP) glorious third consecutive victory at the polls, Barrow has admitted the country is facing a recession and GOB may need to increase taxes.
In its latest report on Belize published on Monday, the International Monetary Fund (IMF) has painted another bleak picture for Belize’s economy and has urged GOB to increase the General Sales Tax (GST).
The IMF published the report as a result of its Article IV Consultation with the country. Apart from increasing GST, the IMF has recommended that the government reduce the public wage bill, reform the pension plan for civil servants and strengthen public financial management.
The IMF said addressing these issues “will be important moving forward”. It noted that GDP growth slowed to 1 percent in 2015 and turned to negative 1.5 percent in the first half of 2016 due to falling oil production and reduced output in primary commodity sectors.
According to the IMF, inflation was also up in early 2016 with higher food prices and the hike GOB put on fuel tax. Hurricane Earl also compounded the challenged economic climate, the IMF said.
“The shocks in the export sector have widened the current account deficit to 9.8 percent of GDP in 2015. Further decline in exports in the first half of 2016, combined with settling liabilities related to the two nationalized companies, reduced international reserves to 4.4 months of imports in late August 2016,” the IMF reported.
Central Bank Governor Glen Ysaguirre also warned of the country’s international reserves being near depleted in a leaked letter written to the Financial Secretary in July. Belize needs to have at least US $300 million (3 months of merchandise imports) to meet the international benchmark for exchange rate sustainability. Currently Belize’s reserves stand at about little more than US $400 million.
The IMF noted Belize’s few positives with a strong tourism sector in the first half of 2016 and an unemployment rate, which declined from 10.1 percent in April 2015 to 8 percent in April 2016.
Still, overall fiscal deficit has expanded to 8 percent of GDP in 2015. GDP is projected to decline by 1.5 percent in 2016, the IMF said.
“In the absence of a radical change in policies, rigid current fiscal spending, particularly the public sector wage bill, would fuel high fiscal deficits and add to the already high debt burden. Financing constraints would reduce public investment. The current account deficit would slowly improve due to a gradual recovery in major commodity exports, but would remain high, indicating a weak external position. This deficit, combined with remaining payments for nationalized companies and increased debt service, would reduce international reserves to uncomfortable levels,” the IMF warned.
The IMF stressed that placing public debt on a downward path is a key priority.
In speaking about the current “de-risking” crisis facing the country’s banking sector, the IMF said: “…the loss of remaining Correspondent Banking Relationships (CBRs) could have a negative impact on the financial sector and the wider economy and will require action on multiple fronts, both domestically and internationally.”
The IMF also highlighted that stronger implementation of the Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) framework and improved transparency in the offshore sector, with technical assistance where needed, would help further improve compliance with international standards and understanding of money laundering and terrorist financing risks, and help address the withdrawal of Correspondent Banking Relations (CBRs).
It is not looking like the best is yet to come even though the Prime Minister has said that struggling industries would recover in early 2017. The one consistently bright spot in the economy is tourism, and with that knowledge, the government should make every effort to continue development its sustainability and improvement.
In 2008 the Prime Minister promised that he would re-convene a National Tourism Council, which has not been done. This council should be convened and include all relevant stakeholders to help the industry grow even bigger than it currently is. GOB also need to look at ways to boost other industries and develop new ones.
Maybe the best is still a ways off from coming, maybe it’s almost here, maybe we should just be a little more patient. Then again, maybe not.
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