IMF cautious, warns Belize must control its debt and develop contingencies

By Aaron Humes: The report of the Executive Board of the International Monetary Fund (IMF) on the conclusion of the annual Article IV consultation with Belize has been produced, following on from the staff report issued in March.

It warns that after a difficult year caused by the COVID-19 pandemic, a fall in tourist arrivals and subsequent decline in activity in contact-intensive sectors, Belize’s road to recovery is protracted.

The IMF’s Executive Board of Directors “highlighted the urgency of restoring debt sustainability while providing near-term support to the most vulnerable and implementing structural reforms to boost inclusive growth and enhance resilience.”

The Fund said it “welcomed the significant consolidation measures approved this year, and encouraged a further gradual increase in the primary balance, relying on both revenue and expenditure measures, while strengthening the social safety net.” This includes broadening the tax base, strengthening revenue administration, and reprioritizing expenditures. They also encouraged the authorities to develop contingency plans in case downside risks materialize.

Contrary to the bubbly pronouncement by Prime Minister John Briceno that tourism is

recovering faster than expected, the IMF say, “Tourist arrivals remain subdued but are expected to pick up in late-2021 when vaccines become more widely available in advanced countries.”

It predicts real gross domestic product (GDP) growth of 1.5 percent for 2021 and 6.2 percent for 2022, after a fall of 14 percent in 2020, regaining its pre-pandemic level only by 2025.

The primary deficit widened from 1.3 percent of GDP in FY2019/20 to 8.4 percent in FY2020/21, and public debt increased from 97.5 percent of GDP in 2019 to 127.4 percent in 2020. While the former is expected to improve with the fiscal consolidation measures included in the FY2021/22 budget, and the expected recovery of revenue and unwinding of pandemic-related expenditure, the latter is expected to reach 132 percent of GDP in 2021 and gradually declining after to 111 percent in 2031.

Belize’s economic outlook is subject to substantial downside risks, including from a resurgence of the pandemic and natural disasters. To guard against this, the IMF recommends developing a Disaster Resilience Strategy.

In pursuit of growth-enhancing structural reforms that would support public debt reduction, they encouraged steps to improve access to credit, reduce entry barriers for firms, enhance infrastructure, and strengthen law enforcement and social programs to reduce crime; limit central bank financing of the government, which together with fiscal consolidation, would help reduce the current account deficit, improve access to external financing, and boost reserves.

Belize has refused holders of the Superbond’s request to enter into a standby arrangement with the IMF as a condition of a haircut of the principal, balking at higher taxes and a reduced public workforce.

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