Caribbean & Central America - June 2024

On 15 May the International Monetary Fund (IMF) published one of its regular Article IV assessments of the Belize economy. Forecasting that in coming years the country will achieve modest economic growth with low inflation, the IMF notes progress made in reducing the public sector debt burden, and the need to continue further with this government policy priority.

An earlier IMF report released in February 2024 highlighted a significant fall in Belize’s public debt-to-GDP ratio from 103% of GDP in 2020 down to 66% in 2023. The background context for this improvement has been a series of debt rescheduling agreements achieved by the government of Prime Minister Johnny Briceño. One of these came in 2022 when there was agreement on a major discount on outstanding oil debts owed to Venezuela under the Petrocaribe programme, which represented a saving equivalent to 4.3% of GDP. The year before, in 2021, there had been an even larger saving (about 9% of GDP) resulting from a ‘blue loan’. Under that arrangement the government bought back all its sovereign US dollar bonds from investors, using funds supplied by environmental lobby group The Nature Conservancy (TNC), and in exchange for commitments to deliver a ‘blue’ or ‘ocean economy’ plan, to improve the productivity, sustainability, and resilience of the ocean eco-system by 2030.

In its report released mid-May, the IMF says GDP growth has been moderating, from 8.7% in 2022 (reflecting recovery following the Covid-19 pandemic) to 4.7% last year and to an expected 3.4% this year. Tourism (which accounts for around 40% of the economy), construction, retail and wholesale trade, transport, and business process outsourcing have been the leading sectors. Inflation fell from 6.3% in 2022 to 4.4% last year as a result of lower prices for transport and utilities, partly offset by higher food prices.  In 2024 the IMF expects inflation to dip to 3.1%. Looking at the medium term running to 2029, growth is likely to stabilise at 2.5%, with inflation coming down to 1.3%.

The IMF suggests that the big question facing the country is how to use the improved debt and fiscal position to make the economy more resilient, and to prepare for future natural disasters and climate change risks (Belize is seen as being particularly vulnerable on that front). The IMF executive board endorses the government’s aim to further reduce the debt-to-GDP ratio to 50% which will require aiming for a primary budget surplus equivalent to 2% of GDP from 2025 onwards (last year it was 1.2% of GDP).

The extra fiscal consolidation of 0.8% of GDP can be more than covered, it says by “Broadening the GST base [sales tax], raising excise taxes, rebalancing manufacturing taxes, and strengthening revenue administration.” It says extra revenues generated by these measures could also fund additional spending on enhancing roads, water, and sewer systems; expanding renewable energy generation and storage; subsidising childcare; and expanding women’s participation in the labour force. Spending can also be funded to reduce food insecurity and invest in climate-resilient infrastructure. The Fund also calls on the government to draft a disaster resilience strategy (DRS) which it sees as being key for increased medium-term growth.  

How far the Briceño administration goes down the IMF-suggested road of fiscal tightening remains to be seen. The government is wary about expanding the scope of the GST tax particularly if that boosts food prices. With the next elections expected in 2025 it may also be unwilling to impose too much fiscal austerity.

Action on corruption

As is the case affecting a number of Caribbean economies, the IMF calls for further action against corruption and money laundering in Belize. It says a strengthening of the AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) framework is required, and that the central bank “must remain vigilant to financial stability risks, keeping vulnerable institutions under enhanced supervision and requesting recapitalisation when needed”.