The International Monetary Fund (IMF) issued a congratulatory report on the conclusion of annual consultations with Belize, but cautioned about rising poverty and the vulnerability of Belize’s banking sector against a “weak investment climate.”
The IMF mission in Belize, led by Gerardo Peraza, IMF Mission Chief for Belize, began on August 15 and concluded Thursday, August 25. IMF members concluded discussions with Belize on October 21, 2011, and the public information notice (PIN) based on the consultation was released this evening.
In its summary report, the IMF said its executive directors “commended the [Belizean] authorities for their macroeconomic management, which enabled Belize to weather the financial crisis relatively well.”
It cautioned, however, that, “While the near-term outlook is positive, challenges arise from the uncertain global environment, vulnerabilities in the banking system, rising gross financing needs of the public sector, and the weak investment climate.”
It added that, “The recent rise in poverty is also a cause for concern.”
They endorsed Belize’s attempt at developing social programs aimed at reducing poverty, the report said.
“They underscored that these programs should be cost-effective and better monitored and targeted,” the report added.
It also said that 12-month inflation (a general increase in prices and fall in the purchasing value of money) was nil in 2010, reflecting primarily continued weakness in domestic demand, but higher food and fuel prices drove it up in the quarter ending in May (the statistical year starts December). The report did not say, however, by how much these prices have increased.
The IMF report highlights continued concerns over nonperforming loans (NPLs) in the commercial banking system.
It noted that “bank prudential indicators have remained weak,” and that “safeguarding financial sector stability should be a high priority.”
“Despite a cut in reserve requirements [effected by the Barrow administration to encourage the shaving of lending rates], bank credit growth has slowed as fewer investment opportunities and high NPLs continue to constrain new lending,” said the IMF report.
The June 2011 financial report published by the Central Bank for the commercial banks indicates that the Belize Bank, the nation’s largest bank, and Heritage Bank (formerly The Alliance Bank) have excessively high NPL rates over 20%, whereas the rates for the remaining three commercial banks range from 7.03% to 8.45%. The prudential benchmark, according to the Central Bank, is 5%.
IMF directors agreed that “safeguarding financial sector stability should be a high priority.”
On a positive note, the report said: “Belize has weathered the financial crisis relatively well when compared with Caribbean Community peers. Output [Gross Domestic Product – the value of all goods and services sold by Belize] expanded by 2.7 percent in 2010, owing largely to activity in the electricity and wholesale and retail trade.”
The report on the country’s foreign reserve is good. The IMF report said the reserve was equal to 3.25 months of imports at the end of 2010. The IMF said this should stay more or less unchanged by year-end. A healthy foreign reserve position is important, because it provides the country with a cushion of foreign reserves in the event of such things as natural disasters.
The level of foreign reserves at the end of 2010, said the IMF, is equivalent to 300% of 2011 external financing needs.
The public debt, accrued by the Government, rose slightly from 82% to 83% of GDP for 2010, the IMF noted. A fall to 80% is forecast for 2011.
“Directors cautioned that growing contingent liabilities could put an additional burden on public finances, requiring close monitoring over the medium term,” said the report.
As for central government’s budget, the IMF noted that the overall fiscal deficit – the general difference between monies received versus monies paid out – widened by 0.3 percentage points to 1.5% of GDP. (This amounts to roughly BZ$75 million.)
“This outturn was, however, better than envisaged in the budget,” it went on to note.
The IMF notice said the macroeconomic outlook for this year, 2011, is “moderately positive.”
It pins the projected output growth (GDP) at 2.5%, while GDP growth is projected at 2.8% for 2012.
In the first quarter of 2011, GDP growth was led by “an expansion in manufacturing and electricity sectors, and a modest recovery in stay-over tourist arrivals.”
However, “Higher food and fuel prices are expected to push inflation slightly upward,” it added.
The IMF is urging a reduction in tax concessions, with improvement in overall tax collections.
“They also highlighted the need to contain the growth of the wage bill, and streamline capital spending,” the report added.
The IMF also “called for timely compensation to former owners of the nationalized entities, once the courts have reached a final verdict.”
(The full IMF Staff Report is pending.)