BELIZE-Belize key policy priority is to reduce public debt by 50 percent.

WASHINGTON, CMC – The Executive Board of the International Monetary Fund (IMF) says Belize’s key policy priorities include reducing public debt to 50 percent of gross domestic product (GDP) by the financial year 2030.

The Washington-based financial institution said the Caribbean Community (CARICOM) country intends to achieve this by raising the primary fiscal balance, which refers to the difference between government revenue (excluding interest payments) and non-interest expenditure, to two percent of GDP from the financial year 2025 onwards.

It also intends to increase priority spending on infrastructure, targeted social programs, and crime prevention, financed with additional revenues and expenditure reprioritization. These strategies, when implemented, will not only reduce public debt but also boost growth, make it more inclusive and resilient to natural disasters, and remain vigilant to risks to financial stability, painting a promising picture of Belize’s economic future.

Earlier, the IMF staff said real GDP growth and inflation moderated in 2023 during its annual Article IV of the Articles of Agreement.

It said that after growing by 8.7 percent in 2022, real GDP grew by 4.7 percent in 2023, led by tourism, construction, retail and wholesale trade, transport, and business process outsourcing. Inflation declined from 6.3 percent in 2022 to 4.4 percent in 2023, driven by lower prices of transport and utilities, partly offset by higher food inflation.

The executive board, in full support of Belize’s economic plans, said reducing public debt to 50% of GDP by 2030 would entrench debt sustainability and help build sufficient fiscal buffers, ensuring the country’s economic stability.

It said this debt level would be consistent with that in investment-grade emerging market economies and keep it below the 70 percent of GDP target in the authorities’ 2021 Medium-term Recovery Plan with a 95 percent probability over the medium term given historical shocks, such as natural disasters, global economic downturns, and financial crises.

The IMF said reaching this debt target requires implementing 0.8 percent of GDP of fiscal consolidation to raise the primary balance to two percent 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, such as increasing tax rates for high-income individuals and reducing non-essential government spending, could raise the primary surplus and fund additional spending on infrastructure, social programs, 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 percent of GDP while reforming the Pension Plan for Public Officers (PPPO) could lower government spending by 0.1 percent of GDP.

“Using these savings to increase the primary surplus – 0.8 percent of GDP – and expand priority spending -1.5 percent 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 labor 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 vital to increasing medium-term growth.

It said priority areas for improving 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 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 international reserves would strengthen the currency peg, noting that Belize’s external position is more vital 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 essential 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 (Anti-Money Laundering/Combating the Financing of Terrorism) framework and its enforcement, especially in the IFS (International Financial Services sector), to prevent illicit financial activities and maintain the integrity of the financial system.