Today the Government got the approval of the House of Representatives to issue a new US$565 million bond to refinance old debt, and also for a new US$25 million loan from Venezuela. At the same time the Government issued a press release, informing that the Inter-American Development Bank had approved a $25 million loan to Belize.
According to GOB, the loan will be disbursed in two tranches: the first is $10 million and the second is $15 million.
But why has GOB gotten the loan? GOB claims that the loan would be used to “bolster Belize’s public finances, as it takes steps to improve its fiscal position and debt management.”
The IDB loan, according to the Government, came with some pre-conditions that GOB had to meet.
One was the General Sales Tax (GST) that was implemented on April 1 this year. The second was a restructuring of the oil tax regime. Legislators recently approved an increase of the income tax rate from 25% to 40%, retroactively as of January 2006. The third is the liquidation of the Development Finance Corporation (DFC).
A major step towards that liquidation is the reorganization of the debt of Universal Health Services (UHS) from the DFC through a deal with the Government of Belize, under which the Government would acquire two-thirds ownership in the now private hospital. DFC had guaranteed a Belize Bank loan for UHS, and now GOB is settling that debt under the partnership agreement.
Currently the DFC is under the investigation of a Commission of Inquiry, which Government has asked to conclude its work by this month.
In its release on the IDB loan, GOB said, “It will also proceed with an orderly liquidation of the loss-making Development Finance Corporation.”
The US$25 million loan is for 20 years, with a five-year grace period and a LIBOR-based interest rate, said GOB.
On Friday, November 17, Minister of Finance, Prime Minister, Hon. Said Musa, went to the House to get approval for a US$25 million loan* from the Inter-American Development Bank (IDB).
According to P. M. Musa, the loan will be for 20 years with a 5-year grace period on the repayment of principal. GOB will have to make roughly 30 equal semi-annual payments.
The money, Musa said, would significantly assist GOB in macro-economic and public sector reform program. The money would help to finance the existing budget, improve the country’s reserve levels and balance of payments position.
The Government has described the loan as “fast-disbursing.” The first disbursement is expected next month, in December 2006, and the remaining $15 million, possibly, in mid 2007, the Prime Minister informed.
GOB also said, in today’s press release, that the loan is “to support Belize’s agenda of reforms to restore macroeconomic and financial stability, improve its business climate and bolster investor confidence.”
In a statement issued Friday, the IDB said, “Belize has made progress in addressing serious macroeconomic imbalances by following a homegrown strategy. Its authorities have expressed a firm commitment to maintaining stability through a comprehensive medium-term economic program, where reaching a cooperative agreement with private creditors on restructuring its external debt will be paramount.”
The IDB added that the loan would assist GOB, “which has taken steps to strengthen its fiscal position by raising revenues and cutting expenditures. Through those measures it has reduced the fiscal deficit from 8.7 percent of GDP in 2004 to 3.3 percent in 2005.”
(*We had first reported the IDB loan as US$50 million, but the loan, according to GOB, is for US$25 million.)