The International Monetary Fund (IMF) Executive Board has outlined Belize’s key policy objectives, emphasizing the reduction of public debt to 50 per cent of gross domestic product (GDP) by 2030.
The Washington-based financial institution said the Caribbean Community (CARICOM) country intends to achieve this by raising the primary fiscal balance to two per cent of GDP from the financial year 2025 onwards.
It also intends to increase priority spending on infrastructure, targeted social programmes, and crime prevention, financed with additional revenues and expenditure reprioritization as well as implementing structural reforms to boost growth and make it more inclusive and resilient to natural disasters; and remaining vigilant to financial stability risks.
Earlier, the IMF staff had during its annual Article IV of the Articles of Agreement, said real GDP growth and inflation moderated in 2023.
It said after growing by 8.7 per cent in 2022, real GDP grew by 4.7 per cent in 2023, led by tourism, construction, retail and wholesale trade, transport, and business process outsourcing. Inflation declined from 6.3 per cent in 2022 to 4.4 per cent in 2023, driven by lower prices of transport and utilities, partly offset by higher food inflation.
The executive board said reducing public debt to 50 per cent of GDP by 2030 would entrench debt sustainability and help build sufficient fiscal buffers.
It said this debt level would be consistent with that in investment-grade emerging market economies and would keep it below the 70 per cent of GDP target in the authorities’ 2021 Medium-term Recovery Plan with 95 per cent probability over the medium-term given historical shocks.
The IMF said reaching this debt target requires implementing 0.8 per cent of GDP of fiscal consolidation to raise the primary balance to two per cent of GDP from 2025 onwards.
It said anchoring this plan in a well-defined medium-term fiscal strategy and preparing for the adoption of a Fiscal Responsibility Law with well-designed fiscal rules would enhance its credibility.
The executive directors said revenue and expenditure measures can raise the primary surplus and fund additional spending on infrastructure, social programmes, and crime prevention.
They said broadening the General Sales Tax (GST) base, raising excise taxes, rebalancing manufacturing taxes, and strengthening revenue administration can raise revenue by 2.2 per cent of GDP, while reforming the Pension Plan for Public Officers (PPPO) could lower government spending by 0.1 per cent of GDP.
“Using these savings to increase the primary surplus – 0.8 per cent of GDP – and expand priority spending -1.5 per cent of GDP – would boost medium term growth and make it more inclusive and resilient to natural disasters.
“Priority spending includes enhancing roads, water, and sewer systems; expanding renewable energy generation and storage; subsidizing childcare and training for vulnerable women to enhance female labour force participation; expanding targeted transfers to protect against food insecurity; and investing in climate-resilient infrastructure.”
The executive board said improving the business climate and developing a disaster resilience strategy (DRS) are also key to increasing medium-term growth.
It said priority areas to improve the business environment include easing access to affordable credit for SMEs, including by establishing a credit bureau and a collateral registry; advancing the digitalization of the land and business registries; and improving the firms and government services.
“Developing a DRS that focuses on strengthening structural, financial, and post-disaster resilience and is based on a consistent macroeconomic framework would help unlock funding for climate mitigation and adaptation and reduce output volatility.”
The directors said increasing the level of international reserves would strengthen the currency peg, noting that Belize’s external position is assessed as stronger than implied by medium term fundamentals and desirable policies.
“However, international reserves are projected to remain below the ARA metric. Increasing the level of international reserves by implementing fiscal consolidation and structural reforms would strengthen the currency peg, especially given the projected rise in external financing needs when the repayment of the blue loan starts in 2032.”
The executive directors said limiting central bank financing of the government, preserving financial stability, and strengthening the AML/CFT framework are important priorities. “Gradually reducing central bank financing of the government would reduce excess liquidity and help develop the local capital market. The central bank must remain vigilant to financial stability risks, keeping vulnerable institutions under enhanced supervision and requesting recapitalization when needed.”
The directors said the authorities should continue strengthening the AML/CFT framework and its enforcement, especially in the IFS.
