BELIZE CITY, Mon. Mar. 15, 2021– As mentioned in another article in this edition of AMANDALA (See article, “IMF issues Belize 2020 Staff Concluding Statement”), on Friday, March 12, 2021, the International Monetary Fund (IMF) published a Staff Concluding Statement upon the completion of the IMF’s Article IV Belize Mission. Annually, technical experts from this financial body visit member countries like Belize to review the economic and fiscal health of the country, and subsequently publish their findings, but in a year such as this one, the effects of these findings on Belize could be wider and deeper than they’ve ever previously been.

To no one’s surprise, the Covid-19 pandemic hit Belize hard, particularly the tourism sector, which represents 40 cents of every dollar of economic productivity for Belize (so-called GDP) and 60% of foreign exchange earnings. The impact of tourism’s crash — a decline of 72% — was devastating for the economy. As business activity plummeted last March and various forms of Covid-19 lockdowns ensued, tax revenue to Government fell in tandem, resulting in a budget shortfall of 8.3% of GDP, which, according to the IMF numbers would be about $275m. This budget shortfall was exacerbated by the additional amount Government has to source to repay its debts, both interest and principal — a total that may have been as high as $182m. Taken together, Government’s borrowing to make ends meet in the last year is estimated at $457m. In a related article in this edition of the paper, several other aspects of the economy that are assessed by the IMF are discussed, but it is borrowing by Government, on the heels of an already elevated amount of public debt, that is the subject of the most jarring commentary by the IMF. “Public debt is assessed as unsustainable in staff’s baseline scenario. Public debt is projected to remain well above the thresholds for sustainability in the debt sustainability analysis (DSA) framework,” the IMF Statement declares. “Beyond the immediate response to the crisis, the key policy imperative for Belize is to restore public debt sustainability and strengthen the currency peg. This will require a fine balancing act involving ambitious, yet realistic, fiscal consolidation, growth-enhancing structural reforms, and debt restructuring, all aimed at targeting reduction of public debt to 60 percent of GDP by 2031,” the IMF further noted.

In the hours following the publication of the Statement by the IMF, the Government issued a press release acknowledging the Report, then pivoting to the political dimensions of the scathing assessment. “The IMF has now confirmed the grim assessment which Prime Minister Briceño outlined to the House of Representatives and the public during his report of January 8, 2021: that the economy was in a prolonged recession starting well before COVID-19; that the previous government had borrowed some $700 million in the pre-election period of 2019/2020; and that the UDP left behind an economic and fiscal wasteland,” proclaims the Government’s release.

And it is that unprecedented borrowing by the Government that has come in for emphatic scrutiny by the IMF. With a debt to GDP ratio of 133% projected for 2021, forecasted to fall only slightly to 128% over the next 10 years, Belize’s level of public debt is more than twice the recommended threshold of 60% of GDP. According to Government, 130% of GDP represents a dollar debt of $4.2 billion dollars or more than $10,000 in debt for every Belizean citizen. With this appraisal of public debt, Belize would be ranked the sixth most indebted country in the world standing behind only Japan, Greece, Sudan, Venezuela and Lebanon.

According to the IMF Report, Belize’s recovery “will require a fine balancing act involving ambitious, yet realistic, fiscal consolidation, growth-enhancing structural reforms, and debt restructuring, all aimed at targeting reduction of the public debt to 60 percent of GDP by 2031.” The Government has asserted its strong preference for a homegrown solution to the country’s economic and fiscal travails, refusing the route of a formal IMF Program, one that several other Caribbean countries have adopted, including Jamaica, Barbados and Grenada. In Central America, Costa Rica recently signed up for a formal support program from the IMF as well. Such IMF programs require targeted improvements to budget performance, very often including new tax measures and constraints to spending. The incentive for countries is the cheap funding the IMF makes available, used to buttress a country’s foreign reserves.

The new Briceno administration appears to have decided to tackle first the most difficult element of its fiscal recovery program – the reduction to the wages of public officers and teachers. In the past several weeks, negotiations have been ongoing, focusing on what Government sources have indicated is a 10% across-the board-reduction to salaries. Such a move has already received stiff, public resistance from the major labor unions, including the BNTU and the PSU. With a deadline approaching for the tabling of the Fiscal Year 2021/22 Budget to the House of Representatives, usually completed before the start of the new fiscal year on April 1, both Government and unions face looming deadlines.

One chilling prospect triggered by the public debate of this IMF Report and the related wage negotiations, is the matter of Belize’s currency peg. Hitherto unspeakable, the prospect of a devaluation has entered the discourse, with Government suggesting that only a comprehensive recovery plan will “preserve the peg.” Ominously, the IMF echoes this outlook, with the caution that “failure to restore debt sustainability would put the fiscal position and the currency peg at risk of disorderly adjustment.” Such a disorderly adjustment would unravel the $2 BZ-to $1-US dollar peg that has been in place for a number of decades.