Belize debt to GDP ratio set to skyrocket amid COVID-19 economic shock

Published by BBN Staff at May 28, 2020

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Posted: Thursday, May 28, 2020. 9:03 am CST.

By Aaron Humes: Prime Minister Dean Barrow has conceded that there will be a need for a new budget in a few months’ time to address the heavy losses in recurrent expenditure.

At his press briefing two weeks ago, he maintained that he would borrow until he could no more and be determined not to cut salaries nor positions of public officers and teachers.

But that, along with contraction in gross domestic product (GDP) by an expected 20 percent, would likely lift the national debt to GDP ratio to 120 percent – in the range of countries like Jamaica (132 percent in 2014) and away from countries like Guatemala (23 percent in 2014).

The Prime Minister in discussing the position of the Public Service Union (PSU) and Belize National Teachers’ Union (BNTU) that forgoing increments has a long-term effect, projected a shortfall of recurrent revenues from $1.206 billion to $844 million, a loss of 30 percent (optimistically), resulting in a deficit of $373 million.

The Prime Minister broke down the allocations as follows for spending: $688 million for emoluments and pensions (salaries), including increments; $299 million for goods and services; and $230 million for debt service, interest and principal, for a total of $1.217.

Barrow suggested that even a 25 percent cut in goods and services (including health and education) would save $75 million, plus a potential suspension of Superbond interest payments ($52 million), would still leave a deficit of $246 million. It would take a 36 percent cut in salaries and/or positions in the Public Service to plug the gaping hole.

Meanwhile, Government has already borrowed $75 million from the Central Bank to fund the Food Assistance Program ($10 million) and the Unemployment Relief Program ($65 million + $10 million repayment from OFID). The Prime Minister had previously indicated that he would borrow unknown amounts domestically to continue paying salaries while waiting for potential debt relief from the International Financial Institutions (IFI’s) such as the World Bank, Inter-American Development Bank (IDB), Caribbean Development Bank (CDB) and so on.

The projected rise in debt would take it past $4 billion dollars, while the GDP would slump to approximately $3.1 or $3.2 billion for a debt to GDP ratio of 120 percent.

For context, according to Macrotrends.net, the previous highest peak of debt to GDP ratio was 103 percent in 2004 under the Musa administration. The number had grown exponentially since 1990. In 2008 the number stood at 78.8 percent (85 percent per CountryEconomy.com) and was actually on a reducing trend until 2016 when it rose again with the advent of infrastructure projects and other heavy borrowing costs).

Belize’s biggest creditors, leaving aside the Superbond, are Venezuela and Taiwan, the latter of whom has continued to give generously.

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