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IMF advises Belize to implement reforms to boost economic growth, reduce government debt, and strengthen the financial sector

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Posted: Saturday, November 17, 2018. 2:52 pm CST.

By BBN Staff: The executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize on November 12.

The IMF says that “Belize’s economic recovery is strengthening, supported by a favorable global environment.” The IMF reports that real Gross Domestic Product (GDP) is estimated to have increased by 1.4 percent in 2017 and recent data indicates an acceleration in economic activity.

This acceleration reflects growth in the tourism and agricultural sectors, on the back of economic expansion in Belize’s trade partners, expanded capacity, and foreign direct investment.

The report informs that unemployment decreased to 9.4 percent in April 2018 from 9.7 percent six months earlier, the current account deficit narrowed to 7.6 percent of GDP in 2017 from 8.4 percent of GDP in 2016, and the financial sector is strengthening.

However, the medium-term outlook remains challenging for Belize.

Real GDP growth is projected at just below 2 percent in the medium term. The current account deficit is projected to gradually narrow, but remain significant, with international reserves projected below 3 months of imports of goods and services over the medium term,” the report explains.

The executive board assessment cited that Belize’s economic recovery is strengthening and directors welcomed the authorities’ progress in restoring fiscal sustainability and financial sector soundness. However, the medium‑term outlook remains challenging with elevated government debt and external imbalances. With this background, directors encouraged Belizean authorities to implement reforms to raise economic growth and resilience, reduce government debt, and strengthen the financial sector.

Directors further encouraged the authorities to take steps to facilitate access to credit, address labor market rigidities and skill gaps, improve governance, and amplify support for crime prevention.

IMF directors welcomed the Climate Change Policy Assessment, conducted with support from the IMF and the World Bank, and emphasized the need to intensify ongoing efforts to build resilience to natural disasters, through investment in adaptation infrastructure, greater self‑insurance, and optimized use of risk management instruments.

The board also welcomed the significant fiscal consolidation achieved in FY2017/18 and further adjustment envisaged in the FY2018/19 budget. Reducing public debt to prudent levels would require additional fiscal reforms.

The directors also highlighted the need to broaden the tax base, strengthen tax administration, reduce wage spending and undertake pension reform. To support the poverty alleviation strategy, directors saw merit in strengthening the social safety net by increasing the use of formal targeting mechanisms. They encouraged the authorities to support fiscal adjustment with a well‑designed fiscal rule.

Directors noted that the financial system is strengthening but should remain under tight supervision.

They encouraged the authorities to fortify the bank resolution legal framework with more effective tools and greater regulatory autonomy, with IMF technical assistance. They also highlighted the need to undertake an asset quality review to assess banks’ capital buffers.

Directors welcomed recent progress in strengthening the Anti- Money Laundering / Combating the Financing of Terrorism (AML)/(CFT) framework and recommended further steps to enhance its effectiveness and support the recovery of Correspondent Banking Relationships.

They underlined the need to strengthen the regulatory, supervisory, and enforcement powers of the International Financial Services Commission.

Directors also encouraged the authorities to further develop their capacity to conduct AML/CFT risk‑based supervision. They saw merit in conducting a study on the overall benefits as well as the costs and risks of the offshore sector.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year.

A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.

On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

 

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.

 

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