Posted: Friday, February 25, 2022. 11:09 am CST.
By Aaron Humes: The International Monetary Fund (IMF) in its preliminary findings on the state of Belize’s economy has declared its key priorities for Belize to be restoring debt sustainability and strengthening the currency peg. This requires ensuring that the recent improvements in the fiscal position are preserved over time and implementing additional fiscal consolidation and growth-enhancing structural reforms, with the objective of reducing public debt to 60 percent of gross domestic product (GDP) by 2031.
It recommends a target of debt reaching 60 percent of GDP, slightly more ambitious than the 70 percent in the Government’s own medium-term plan, meeting a threshold for sustainability. It has further set a target of primary balance being 3.5 percent of GDP by 2024 with implementation of 2.8 percent of additional fiscal consolidation measures over the next three years and maintaining the current efforts.
This would include increasing non-interest current expenditure in line with inflation between 2022 and 2024 and introducing more social expenditure programs in healthcare, education, and targeted social programs amounting to 1 percent of GDP over four years and creating a natural disaster contingency fund amounting to 1 percent of GDP.
In the area of revenue, it recommends removing certain non-necessity zero-rated items from general sales tax of 12.5 percent and bringing the hotel sector into GST for 1.5 percent increase in GDP by 2024 as well as taxing some exempted sources of income and increasing excise taxes and fees on vehicle registration, drivers’ licenses, and customs and tax administration.
The IMF further recommends efforts to modernize Public Financial Management (PFM) systems and procedures should continue; further easing of access to credit for small and medium enterprises; reducing entry barriers for businesses, enhancing human capital, upgrading infrastructure, and containing crime through reprioritizing public expenditure.
Additionally, the IMF recommends the adoption of a Disaster Resilience Strategy (DRS) to help plans to address mitigation and adaptation to climate change and begin populating the natural disaster contingency fund it created for frequent low severity events
The IMF noted that with the expiration of the forbearance measures introduced in 2020, the Central Bank has requested domestic banks and credit unions to self-assess their loan portfolio by end-February 2022. The Central Bank will review these self-assessments and agree on a plan going forward with each institution. In this context, it will be important that any agreed exceptional measures are time-bound and targeted, and financial institutions resume the regular classification and restructuring procedures as soon as possible. To support these efforts, the government increased the Central Bank’s capital by more than 0.5 percent of GDP in FY2021 despite its tight budget constraint. Efforts to strengthen enforcement of AML/CFT requirements on banks should also continue.
A full report is due later this year after the IMF Directors’ Board meets.
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