Caribbean & Central America - April 2021

Belize’s People’s United Party (PUP) has consolidated its victory in the November 2020 general election with a resounding victory in the municipal elections held in March. On 11 November 2020, the centre-right United Democratic Party (UDP) was beaten in a landslide 26-5 seat general election victory for the PUP thus ending a 12-year stretch in power for the UDP. On 3 March, the PUP followed this up by winning 65 out of 67 seats being contested in the municipal elections and winning all the mayoral seats except in the twin towns of Santa Elena and San Ignacio. Voter turnout was low, but this was nevertheless an important endorsement of Prime Minister John Briceño at a time of extreme economic difficulty due to the coronavirus (Covid-19) pandemic. It is hard to see how he will retain such levels of popularity given the bitter medicine now being recommended for the country by the International Monetary Fund (IMF).

Just over a week after the municipal elections, on 12 March, the IMF issued its Concluding Statement following its 2020 Article IV mission to Belize. It lays out the stark difficulties facing the Briceño government. As the IMF notes, tourism accounts for 40% of the country’s GDP, and the pandemic led to a 72% decline in tourist arrivals in 2020 and an overall economic contraction of 14.1%.

The debt position has become particularly difficult. The primary deficit in FY2019/20 of 1.4% of GDP rocketed to 8.3% of GDP in FY2020/21, with public debt rising from 98% of GDP in 2019 to 126% of GDP in 2020. Tourism is expected to remain subdued in 2021, with GDP projected to grow by just 1.9%. The IMF is expecting a stronger recovery in 2022, of 6.4%, but with a return to average growth levels of 2% over the medium-term. Public debt is expected to rise to 133% of GDP in 2021, falling gradually to 128% by 2031.

Among the recommendations put forward by the IMF are policies that would get public debt down to 60% of GDP by 2031, less than half the level currently projected. This, the IMF says, can be achieved by introducing a Fiscal Responsibility Law (FRL) “with explicit fiscal rules”. The IMF says: “To strike a balance between the need to support those affected by the pandemic in the near term and enable a large public debt reduction over the medium term, the authorities should gradually increase the primary balance to 3 percent of GDP in FY2024/25 and keep at that level until FY2031/32, which relative to the baseline scenario, implies a fiscal consolidation of 3.9 percentage points of GDP over the next four years.”

This fiscal adjustment, the IMF argues will need adjustments on both expenditure and revenue collection. It says: “With regard to expenditures, the authorities are appropriately focusing on reducing the wage bill and purchases of goods and services, both of which account for a larger share of GDP in Belize than in peer countries.” On revenues, the IMF says: “the authorities should focus on reducing the number of zero-rated items of the general sales tax (GST), taxing them at the standard GST rate instead, and raising the standard GST rate to a level in line with peer countries.”

Other recommendations from the IMF, including tackling “long-standing structural barriers to growth and diversification” and “reducing crime to promote entrepreneurship”, are less contentious. Nevertheless, there is little doubt that the central thrust of the IMF’s proposals will be politically difficult for the PUP, and it would seem unlikely that the party will be able to sustain the levels of electoral popularity displayed in November 2020 and again in March 2021 if it follows this path. The alternative, though, of trying to live with unsustainably high levels of public debt, would seem to be equally unpalatable.