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IMF concludes Article 4 consultation

BELIZE CITY, Mon. June 14, 2021– The International Monetary Fund (IMF) concluded its Article IV consultation for Belize last week. In the report which it issued after that consultation, the IMF team, in addition to citing the economic fallout caused by the Covid-19 pandemic, stated that there is a dire need for debt restructuring and recommended an increase in taxes.

Under Article 4 of its Articles of Agreement, an IMF team visits member countries yearly to conduct such consultations. During those consultations, the team collects economic and financial data to determine the country’s economic and development policies and holds discussions with the country’s officials, including those with key roles in the Ministry of Finance and at the Central Bank of Belize.

The June 7 release from the IMF, in its assessment of Belize’s fiscal standing, states, “The fiscal position deteriorated markedly, with the primary deficit widening from 1.3 percent of GDP in FY2019/20 to 8.4 percent in FY2020/21, and public debt increasing from 97.5 percent of GDP in 2019 to 127.4 percent in 2020.”

The team further stated in their report that they expect a protracted path of recovery, as the country still grapples with reviving its tourism sector — an industry in which, they said, a rebound is likely to occur in late-2021 when vaccines are expected to become more widely available. On the basis of this anticipated rebound and other factors, the team is thus projecting 1.5% growth in real GDP this year, 2021, and at least a 6.2 % increase by 2022. They expect pre-pandemic levels of GDP growth to be regained near 2025.

“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,” the IMF release states.

The release does indicate, however, that public debt will remain high, peaking at 132 % of GDP in this fiscal year, with a gradual decline to 111% of GDP by 2031.

The release states, “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.”

With the low levels of vaccination in the country and the start of the Atlantic Hurricane season, these risks pose a serious threat to the recovery of the nation’s finances, the release noted, and thus the recommendations issued by the team include a recommendation that the government develop contingency plans and safeguard measures to create a buffer against these threats.

There are other recommendations in the report, however, that call for the government to take measures that are much more severe in nature, on the basis of the team’s bleak assessment.

Notably, the IMF executive board, after referencing unsustainable public debt, widening external imbalances, and vulnerability to natural disasters and climate change, highlighted the need for GoB to take steps to ensure debt sustainability while providing support to the most vulnerable populations.

The release states, “Directors agreed that restoring debt sustainability requires sufficient debt restructuring and ambitious fiscal consolidation, anchored in a credible medium-term strategy.”

Additionally, the IMF has recommended that the country sign on to a standby agreement, which the Briceño administration has adamantly opposed.

As mentioned, the country has decided to carry out a home-grown plan for recovery and has made provision for this in the budget for this fiscal year. The IMF directors indicated in their report that they welcome the measures and encouraged a further increase in the primary balance.

The release notes, “Directors recommended broadening the tax base, strengthening revenue administration, and reprioritizing expenditures.”

The IMF has called consistently for the country to increase taxes and strengthen revenue collection. They also underlined the need for growth-enhancing reforms to support public debt reduction and for the government to limit financing from the Central Bank.

The release stated, “Directors noted 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.”

Finally, the IMF team recommended the phasing out of forbearance and loan deferral measures that were put in place by the domestic banks and the strengthening of requirements and standards at those financial institutions as the “pandemic recedes.”

They also called for a strengthening of the rules that prevent money laundering activities within our system and called for sanctions for those persons and companies that are found to not be in compliance with those rules.

The conclusion of the IMF Article IV consultation has occurred in the midst of ongoing negotiations by Belize’s debt team with the Creditor’s Committee representing the holders of the country’s Superbond as they try to restructure the debt. Last week we reported that they accepted Belize’s amended Consent Solicitation, reopening the door for negotiations ahead of the revised payment schedule.

The country is looking to get an across-the-board discount from the bondholders on the almost $550 million so-called Superbond. While the bondholders have recommended that the country sign onto an IMF standby arrangement, at one point even refusing to dialogue if this was not agreed upon, the country has stuck to its intention to carry out a home-grown plan of recovery.

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