Caribbean & Central America - April 2023

Belize’s public debt as a proportion of GDP has been more than halved from 133% down to 64.1%, according to the concluding statement of an International Monetary Fund (IMF) mission to the country from 2-14 February. This eye-catching statistic came amid a general improvement in the economic outlook as the country emerged from the coronavirus (Covid-19) pandemic.

A combination of factors explains the remarkable reduction in Belize’s debt burden. One is the re-basing of the national accounts which shows GDP has been significantly larger than earlier estimated. This alone cut the official estimate of the public debt burden in 2020 from 133% of GDP down to 101%. Further fiscal consolidation, including a temporary 10% cut in public sector wages and a debt-for-marine protection swap with US-based not-for-profit organisation, The Nature Conservancy, as well as strong GDP growth, brought it down further to 80% of GDP in 2021. In 2022 there was in addition a “material discount” of US$129m (equivalent to 4.4% of GDP) on oil debts owed to Venezuela under its discounted oil initiative PetroCaribe programme, coupled with further economic growth, that took the total public debt burden down to 64.1% of GDP.

Overall, the IMF strikes an optimistic tone about the country’s economic outlook. After contracting by 13.4% in 2020 – the worst year of the pandemic – GDP rebounded by 15.2% in 2021 and by 11.6% in the first nine months of 2022, led by wholesale and retail trade, tourism, and business process outsourcing. Tourism visitor arrivals recovered to three quarters of their pre-pandemic levels. Unemployment halved, but inflation persisted (3.2% in 2021 and 6.3% in 2022) as a result of higher global food and fuel prices despite a government cap on petrol and diesel prices. 

The IMF expects economic growth to moderate as the Covid rebound plays out, with 11.4% expansion in 2022 slowing to 3.0% in 2023, and stabilising at around 2% over the medium term.  It expects medium-term inflation to ease to about 1.2% per annum. The primary fiscal balance will remain in surplus in fiscal year 2022 despite the reinstatement of the 10% cut in public sector salaries and the costs of Hurricane Lisa. The medium-term outlook is for the primary balance to remain at around 1.2% of GDP, with public debt falling to a sustainable 53% of GDP by 2028.

The current account deficit will widen to 8.5% of GDP, but it will be financed by foreign direct investment, meaning international reserves will remain at manageable levels.  The IMF warns, however, that risks to financial stability remain high, with non-performing loans (NPLs) rising from 5% of total lending in the banking system in 2021 to 7% in 2022. The Fund calls on the government to implement structural reforms to boost growth and make it more inclusive and resilient to natural disasters, while remaining vigilant over financial sector risks.

Blue economy

Interest in the blue or marine-based economy has been growing, with various initiatives underway including a World Bank project called Unleashing the Blue Economy of the Caribbean (UBEC) with an initial US$56m phase focused on the Eastern Caribbean. Private sector estimates are that the world ocean economy is worth around US$1.5tn and growing fast. Discussions in the Caribbean have focused on fisheries, tourism, shipping, energy, and natural resources. Proposals have include reducing plastics pollution and using sargassum to generate green hydrogen.

Small islands go blue

Trinidad and Tobago and Antigua and Barbuda could gain significant benefits by developing “sustainable blue economies”. That was the conclusion of a joint report published in March by the Commonwealth Secretariat, the United Nations (UN) Environment Programme (UNEP), the University of Portsmouth, and consultancy Howell Marine Consulting. The report provided a rapid readiness assessment (RRA) of the transition to a greater marine-based economy.

In the case of Trinidad and Tobago the RRA highlighted the role of the oil and gas sector, tourism, and fisheries, and called for more integrated cross-sector ocean polices and legislation. In Antigua and Barbuda, the government is working on a National Ocean Policy; the RRA called for marine spatial planning and better coordination.