Caribbean & Central America - April 2016 (ISSN 1741-4458)

The latest International Monetary Fund (IM) report card on Belize, released on 28 March following the completion of an Article IV Consultation in mid-September, confirms that GDP growth rebounded to 3.6% in 2014 from 1.5% in 2013. This was well above the five-year average of 2.9% growth and was attributed to a strong performance in tourism, electricity, construction, and services as well as a rebound in agriculture, and growth is forecast to average 2.5% over the short-to-medium term. Growth for 2015, however, is estimated to have been 2.2%.

Another less encouraging figure was the current account deficit of 7.6% of GDP, largely financed by the PetroCaribe arrangement with Venezuela. The fiscal deficit in FY2014/15 (April-March) was also disappointing, at 1.5% of GDP, a deterioration from the 0.2% deficit recorded in FY 2013/14. Overall public debt is 76% of GDP.

The main concern expressed by the IMF is that the primary fiscal balance “will remain in deficit for a while as the political climate further exacerbates spending pressures and hinders revenue-enhancing reforms”. With this in mind, the IMF is urging “prompt and credible fiscal efforts” to boost investor confidence and private investment. As part of this effort, it is calling for the removal of exemptions and zero-ratings from Goods and Services Tax (GST).

But too many tax exemptions is just one side of the fiscal deficit coin. The IMF has also been critical of the government’s profligate spending and its budgetary procedures. In its latest report, the IMF notes that spending had continued to grow “well above budget targets” due to increases in wages, pensions, teachers’ salaries, and capital expenditure. It added: “A significant portion of this additional spending, equivalent to 2.6% of GDP, was executed outside the normal budget process, and approved by parliament in a revised budget only after its execution.”

In urging fiscal reforms, the IMF made the point that there should be no political impediments to taking strong action. The ruling United Democratic Party (UDP), led by Prime Minister Dean Barrow, decisively beat the main opposition People’s United Party (PUP) in the March 2015 municipal elections, taking 62 out of 67 seats and leaving just five to the PU, and it then followed this up with a snap general election in November 2015 to give Barrow an unprecedented third term in power. However, the centre-right UDP has in the past made political capital out of the way in which it has resisted IMF urgings. The UDP government presided over two sovereign debt restructurings (in 2006-7 and in 2012-13) without recourse to the IMF, and when, in mid-2014, the IMF urged Belize to carry out substantial reforms, Barrow responded by saying: “I wouldn’t put 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 is convinced that Barrow’s confidence is misplaced. On its calculations, even if the government moves towards a primary fiscal balance of 4%-5% of GDP (which the Fund is recommending), public debt would still reach around 85% of GDP by 2020, which is well above the recommended level of 70% and puts in severe doubt the government’s own target level for debt of 60% of GDP by 2030. At the very least, the IMF is urging the government to target a primary fiscal surplus of 2% of GDP, which was the level promised to investors during the 2013 debt restructuring.