IMF warning for Belize
BELMOPAN, Belize – The International Monetary Fund (IMF) says while Belize’s economic recovery is continuing, the pace is slowing.
An IMF delegation headed by the Deputy Division Chief in the IMF Western Hemisphere Department, Daniel Leigh, has ended a two week visit to the Caribbean Community (CARICOM) country holding talks with Prime Minister Dean Barrow, the Governor of the Central Bank of Belize, Joy Grant as well as Joseph Waight, Financial Secretary; and representatives of the opposition, private sector, and public sector unions.
In a statement, the Washington-based financial institution said real gross domestic product (GDP) grew by 3.2 per cent last year and by an estimated four per cent in the first quarter of this year.
It said that unemployment rate reached a historic low of 7.6 per cent in April this year, with inflation near zero. Tourist arrivals grew by double digits in 2018, reflecting marketing initiatives, more flights from major cities, and strong trading-partner growth.
However, the IMF said recent data indicate a slowdown in economic activity, with a minor contraction in the second quarter of this year, reflecting a severe drought.
“Growth for 2019 as a whole is projected at one and a half per cent. The current account deficit widened to 7.9 per cent of GDP in 2018 from 7.7 per cent in 2017, despite higher tourism earnings, reflecting increased imports of construction materials, including for large foreign-financed projects.”
The IMF said that the government implemented significant fiscal consolidation over the past two years, but the pace of adjustment has slowed.
It said the primary fiscal surplus reached 2.1 per cent of GDP in the financial year 2018/19, a four per cent of GDP rise from two years ago.
The IMF said that the approved 2019/20 budget targeted a primary fiscal surplus of just above two per cent of GDP, but recent data indicate more spending on wages and public investment and weaker revenue than expected, putting the budget’s target at risk.
The IMF said that the medium-term outlook remains challenging with real GDP growth projected at just below two per cent over the medium term, in line with recent trends.
“The current account deficit is projected to remain large, reflecting structural weaknesses, with international reserves projected at about three months of imports of goods and services over the medium term. A primary fiscal surplus that is larger than targeted in the 2019/20 budget is needed to reduce public debt from its end-2018 level (94 per cent of GDP) to prudent levels over the long term and build buffers against shocks,” the IMF said.
It said downside risks remain substantial, with external risks include weaker United States growth, which would impact tourism; higher oil prices; and natural disasters to which Belize remains highly vulnerable. The IMF warned that elevated rates of crime pose risks to growth and competitiveness.
“Reputational risks from potential financial misuse of the international financial services sector’s entities, and governance concerns, could weaken investor confidence and renew pressures on correspondent banking relationships (CBRs).
“Belize’s inclusion on the European Union list of non-cooperative tax jurisdictions, and uncertainty regarding standard setters’ expectations, could disrupt investment and trade flows. The government continues to contest legacy claims which could lead to large public and external financing needs. On the upside, an intensification of structural reforms could further raise investment, income, and employment,” it added.
The international financial institution said that reinforcing Belize’s economic growth hinges on improving the business environment.
It said reform priorities include facilitating access to credit by establishing a credit bureau and collateral registry; streamlining regulations for starting a business; expanding technical and vocational training programmes; fighting corruption by implementing and enforcing the asset declaration regime through the Integrity Commission and strengthening the rules on conflict of interest; and ensuring public safety, including through community programmes that steer youth toward formal employment and away from crime.
The IMF said that to support the authorities’ poverty alleviation strategy, enhancing social programmes merits consideration, noting that Belize’s last poverty assessment is almost ten years old and an update is needed for improving the targeting and effectiveness of social policies.
“Campaigns to increase awareness of Belize’s flagship targeted social protection programmes, such as Building Opportunities for Our Social Transformation (BOOST), Food Pantry, and the Conditional Cash Transfer (CCT) Programme, and amplifying support for them, are warranted. Belize’s recently launched National Financial Inclusion Strategy is a step toward making growth inclusive by increasing the share of the population with access to financial services.”
On the issue of building resilience to natural disasters and climate change, the IMF said intensifying efforts to build resilience to natural disasters would reduce economic volatility and raise long-term growth.
“Belize should continue making substantial investments into climate-resilient infrastructure, guided by the National Climate Resilience Investment Plan. Costing and prioritising projects and designing financing strategies with development partners is a priority,” it said. (CMC)