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International Monetary Fund (IMF) reiterates measures to restore debt sustainability in annual consultation

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Posted: Tuesday, May 10, 2022. 12:34 pm CST.

By Aaron Humes: The Executive Board of the International Monetary Fund (IMF) has endorsed its staff appraisal of the annual Article IV consultation with Belize, it announced this morning.

The IMF cited “encouraging progress” toward restoring debt sustainability by fiscal consolidation and the introduction of the Blue Bond arrangement with The Nature Conservancy which reduced public debt by 12 percent of gross domestic product (GDP) and enhanced marine environmental protection.

However, while economic activity is said to be ‘recovering strongly’ with healthy growth of near 6 percent in 2022 and 3.4 percent in 2023, prices have risen due to elevated energy and food prices worldwide thanks to the war in Ukraine and international economic sanctions. The primary balance is projected to decline to – 0.1 percent of GDP for 2022 due to mitigation of fuel prices before stabilizing at near 0.6 percent for the next decade if no additional measures are taken. Public debt remains unsustainable even though it is projected to fall to 85 percent of GDP by 2032.

The IMF says that to continue restoring debt sustainability, Belize must work toward “fiscal savings achieved in FY2021, ensuring that the measures adopted to mitigate the rise in fuel prices are temporary, and implementing additional fiscal consolidation and growth-enhancing structural reforms with the goal of increasing the primary balance to 2.5 percent of GDP in FY2025 and reducing public debt to 60 percent of GDP by 2031. Anchoring this strategy on a medium-term fiscal strategy with clear targets and specific measures would enhance its credibility.

It calls for “broadening the tax base and enhancing revenue administration” while keeping expenditure down and carefully expanding targeted social and resilience spending and preparing contingency plans if public debt does not go down as planned.

The IMF further prescribes structural reform, including strengthening the business climate by improving access to credit for SMEs; reducing entry barriers for new businesses; enhancing human capital and infrastructure; reducing crime by providing adequate resources to law enforcement and social programs; and building resilience to climate change and natural disasters by adopting a DRS focused on improving structural, financial, and post-disaster resilience and based on a consistent multi-year macro-fiscal framework.

The IMF also approves seeking continued financing for the climate change mitigation and adaptation agenda, which aims at large reductions in greenhouse gas emissions by restoring ecosystems and expanding renewable energy, and actions to adapt to climate change in agriculture, tourism, and fisheries. It also asks Belize to work toward Safeguarding financial stability and strengthening the AML/CFT framework for financial institutions. Advancing these reforms will help protect the country’s correspondent banking relationships.

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