Caribbean & Central America - September 2014 (ISSN 1741-4458)

*** IMF KEEPS UP PRESSURE ON BELIZE. Belize’s United Democratic Party (UDP) government led by Prime Minister Dean Barrow is proud of having successfully undertaken two sovereign debt restructurings in recent times, in 2006-7 and again in 2012-13, without the help of the International Monetary Fund (IMF).  This has encouraged the government to resist IMF pressure to undertake “frontloaded macroeconomic adjustment policies”.

At the end of July, Barrow made clear what he thought of this pressure when he said: “I wouldn’t set too much store by what the IMF says…I am in no program with them, have no need to get into any program with them, and we therefore in this government and in this country are our own masters.”

The IMF, however, is keeping up the pressure on Belize.  The results of its latest Article IV consultation were published on 4 September, with the IMF warning that “the medium-term outlook is worse than envisaged during the 2013 Article IV consultation”.  According to the IMF, while growth may get back to around 2.5% in the medium term, “growth would be weaker than expected in the near term”.

On the specific question of debt, the IMF said: “The authorities’ policy plans would maintain the primary surplus around 1% of GDP in FY14/15 and in the medium term.  Low primary surpluses together with the assumed recognition of debt related to nationalizations will increase the public debt-to-GDP ratio.”  The debt-to-GDP ratio for 2014 is estimated to be just under 78%.

In its 4 September statement, the IMF added: “Directors emphasized the need to renew fiscal consolidation efforts to ensure debt sustainability and create policy buffers in case downside risks materialize.”  It called for “a vigorous policy response…to reduce vulnerabilities”.

On the external front, the current account deficit widened to 4.5% of GDP in 2013 up from 1.2% in 2012, as exports of oil and agricultural products fell sharply while imports of fuel and electricity picked up.  The IMF is now warning that “expansionary fiscal policies, including large wage increases, would fuel higher domestic consumption and upward pressures on the external current account deficit”.

*** TRINIDAD’S “ELECTION BUDGET”. On 8 September, Trinidad & Tobago’s Finance Minister Larry Howai presented the People’s Partnership (PP) administration’s fifth budget, which was immediately dubbed an “election budget” by the opposition (an election is due in 2015).  However, although the total government expenditure for 2014/15 of US$10bn is the highest ever, and includes populist items such as increases in the minimum wage and pensions and a payout to new mothers to help them buy baby products, the fiscal deficit is in fact projected to decline from 3.6% of GDP in 2014 to 2.3% in 2015.

*** BAHAMAS DOWNGRADE. On 2 September Moody’s ratings agency downgraded The Bahamas’ sovereign credit rating from Baa1 to Baa2.  The agency explained its move by saying: “The government’s debt-to-GDP ratio has increased from 31.7% in 2007 to 59.0% in 2013, and Moody’s expects it to peak in 2015.  At this level it is almost 20 percentage points above the median for Baa-rated sovereigns (39.5% in 2013).”

However, Moody’s changed its categorization of the country’s economic outlook from negative to stable, in part because of the plans to introduce a 7.5% value-added tax in 2015 and in part because the associated fiscal consolidation plan should coincide with stronger economic growth in the US.  The agency believes that The Bahamas’ GDP growth in 2015 will be in the 2%-2.5% range.  From the time of the global financial crisis in 2008 until end-2013, the country averaged just 1.1% growth.

• “Belize’s United Democratic Party (UDP) government led by Prime Minister Dean Barrow is proud of having successfully undertaken two sovereign debt restructurings in recent times, in 2006-7 and again in 2012-13, without the help of the International Monetary Fund (IMF).  This has encouraged the government to resist IMF pressure to undertake ‘frontloaded macroeconomic adjustment policies’.”