WASHINGTON, USA — On November 12, 2018, the executive board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.
Belize’s economic recovery is strengthening, supported by a favourable global environment. Real GDP is estimated to have increased by 1.4 percent in 2017, and recent data indicate an acceleration in economic activity. This acceleration reflects growth in the tourism and agricultural sectors, on the back of economic expansion in Belize’s trade partners, expanded capacity, and foreign direct investment.
Unemployment decreased to 9.4 percent in April 2018 from 9.7 percent six months earlier, the current account deficit narrowed to 7.6 percent of GDP in 2017 from 8.4 percent of GDP in 2016, and the financial sector is strengthening. The government delivered a significant fiscal adjustment in FY2017/18, with a primary fiscal balance surplus of 1.3 percent of GDP.
The medium-term outlook remains challenging. Real GDP growth is projected at just below 2 percent in the medium term. The current account deficit is projected to gradually narrow, but remain significant, with international reserves projected below 3 months of imports of goods and services over the medium term.
A fiscal stance that is stronger than currently projected would be needed to reduce public debt from its end-2017 level (94 percent of GDP) to prudent levels over the long term and build buffers against shocks. Contested legacy claims, estimated at about 5 percent of GDP, could lead to large public and external financing needs.
The risk of renewed pressures on correspondent banking relationships (CBRs) remains. On the upside, additional foreign direct investment, including in connection with the tourism industry’s expansion, and a successful implementation of the Growth and Sustainable Development Strategy (GSDS) could result in a sustained rise in growth.
Executive Board Assessment
Belize’s economic recovery is strengthening and Directors welcomed the authorities’ progress in restoring fiscal sustainability and financial sector soundness. However, the medium‑term outlook remains challenging with elevated government debt and external imbalances. With this background, directors encouraged the authorities to implement reforms to raise economic growth and resilience, reduce government debt, and strengthen the financial sector.
Structural reforms are key to enhance the business climate and improve medium‑term growth prospects. Directors encouraged the authorities to take steps to facilitate access to credit, address labor market rigidities and skill gaps, improve governance, and amplify support for crime prevention. Directors welcomed the climate change policy assessment, conducted with support from the IMF and the World Bank, and emphasized the need to intensify ongoing efforts to build resilience to natural disasters, through investment in adaptation infrastructure, greater self‑insurance, and optimized use of risk management instruments.
Directors welcomed the significant fiscal consolidation achieved in FY2017/18 and further adjustment envisaged in the FY2018/19 budget. Reducing public debt to prudent levels would require additional fiscal reforms. Directors highlighted the need to broaden the tax base, strengthen tax administration, reduce wage spending and undertake pension reform.
To support the poverty alleviation strategy, directors saw merit in strengthening the social safety net by increasing the use of formal targeting mechanisms. They encouraged the authorities to support fiscal adjustment with a well‑designed fiscal rule.
Directors noted that the financial system is strengthening but should remain under tight supervision. They encouraged the authorities to fortify the bank resolution legal framework with more effective tools and greater regulatory autonomy, with IMF technical assistance. They also highlighted the need to undertake an asset quality review to assess banks’ capital buffers.
Directors welcomed recent progress in strengthening the AML/CFT framework and recommended further steps to enhance its effectiveness and support the recovery of correspondent banking relationships. They underlined the need to strengthen the regulatory, supervisory, and enforcement powers of the International Financial Services Commission.
Directors also encouraged the authorities to further develop their capacity to conduct AML/CFT risk‑based supervision. They saw merit in conducting a study on the overall benefits as well as the costs and risks of the offshore sector.