IMF mission team highlights urgency of restoring debt sustainability while providing near-term support to most vulnerable

The recovery of Belize’s economy from the COVID-19 pandemic is projected to be protracted with real gross domestic product (GDP) projected to grow at 1.5 per cent in 2021 and 6.2 per cent in 2022.

The International Monetary Fund (IMF), which made the projection assessed that Belize is regaining its pre-pandemic level only by 2025. In its Article IV consultation with Belize, the IMF reports the country was hit hard by the pandemic pointing out that after a successful containment of the first wave of the pandemic, the country experienced a second wave starting in June 2020.

This wave has been controlled but it left Belize with one of the highest numbers of cases and deaths per capita in the Caribbean. As a result, tourist arrivals remain subdued but are expected to pick up in late-2021 when vaccines become more widely available in advanced countries.

The pandemic led to a 72 per cent fall in tourist arrivals in 2020 and a decline in activity in contact-intensive sectors, resulting in a contraction of real GDP of 14.1 percent in 2020.

Deterioration in Belize’s fiscal position

The fiscal position deteriorated markedly, with the primary deficit widening from 1.3 per cent of GDP in FY2019-20 to 8.4 per cent in FY2020-21 and public debt increasing from 97.5 per cent of GDP in 2019 to 127.4 per cent in 2020.

However, the fiscal position is projected to improve over time in line with the fiscal consolidation measures included in the FY2021-22 budget and the expected recovery of revenue and unwinding of pandemic-related expenditure.

According to the IMF Mission team, “public debt would remain elevated, peaking at 132 per cent of GDP in 2021 and gradually declining after to 111 per cent in 2031. External financing is expected to gradually decline over time, worsening reserve adequacy and threatening the sustainability of the currency peg. Belize’s economic outlook is subject to substantial downside risks, including from a resurgence of the pandemic and natural disasters.”

IMF Directors assessment

Against this backdrop, IMF Directors highlighted the urgency of restoring debt sustainability while providing near-term support to the most vulnerable and implementing structural reforms to boost inclusive growth and enhance resilience. The Article IV consultation team reports that, “Directors agreed that restoring debt sustainability requires sufficient debt restructuring and ambitious fiscal consolidation, anchored in a credible medium-term strategy. They welcomed the significant consolidation measures approved this year, and encouraged a further gradual increase in the primary balance, relying on both revenue and expenditure measures, while strengthening the social safety net.”

Directors recommended broadening the tax base, strengthening revenue administration, and reprioritizing expenditures. They also encouraged the authorities to develop contingency plans in case downside risks materialise.

The Directors emphasised that growth-enhancing structural reforms would support public debt reduction. They encouraged steps to improve access to credit, reduce entry barriers for firms, enhance infrastructure, and strengthen law enforcement and social programs to reduce crime.

The Directors recommended further strengthening the resilience to climate change and natural disasters, including by developing a Disaster Resilience Strategy whilst noting that, “restoring debt sustainability would also help reduce external imbalances and strengthen the currency peg. They called on the authorities to limit central bank financing of the government, which together with fiscal consolidation, would help reduce the current account deficit, improve access to external financing, and boost reserves.