BELIZE-IMF projects economic growth of three percent this year for Belize

WASHINGTON, CMC – The International Monetary Fund (IMF) Friday said that after contracting by nearly 14 percent in 2020, actual gross domestic product (GDP) growth rebounded to more than 15 percent in Belize the following year and over 11 percent last year.

In addition, the Washington-based financial institution is projecting that real GDP growth is projected at three percent this year.

This week, an IMF delegation headed by senior economist Jaime Guajardo concluded a two-week visit to Belize, holding discussions with officials.

According to the IMF, economic activity has rebounded strongly from the coronavirus (COVID-19) pandemic, while inflation has risen. It said the rebased national accounts show that, after contracting by 13.4 percent in 2020, real GDP rebounded by 15.2 percent in 2021 and 11.6 percent in the first three quarters of 2022, driven by retail and wholesale trade, tourism, and business process outsourcing.

Visitor arrivals reached 74 percent of pre-pandemic levels in 2022 as COVID-19 restrictions eased amid vaccination efforts in Belize and source markets. The unemployment rate fell from 10.2 percent in 2021 to five percent in the second half of 2022.

Inflation increased to 3.2 percent in 2021 and 6.3 percent in 2022, driven by higher global food and fuel prices despite the fixing of domestic diesel and regular gasoline prices at the pump since April 2022.

The IMF said that economic activity and inflation are projected to moderate. Real GDP growth was projected at 11.4 percent in 2022 and three percent in 2023 as tourism activity returns to pre-pandemic levels. The business process outsourcing sector continues to develop.

“The output gap is projected to close in 2023, with real GDP growth stabilizing at two percent over the medium term. Average inflation is projected to moderate to 4.1 percent in 2023 and 1.2 percent over the medium term, in line with the projected decline in global commodity prices and global inflation.”

The IMF said that the Belize government had achieved a significant reduction in public debt, adding that the rebasing of the national accounts led to a significant reduction of the general debt-to-GDP ratio in 2020, from 133 percent of the old to 101 percent of the new GDP.

It said public debt fell further to 80 percent of GDP in 2021 due to sizable fiscal consolidation, the obligation for marine protection swap with The Nature Conservancy, and strong GDP growth. The primary balance increased from minus 6.4 percent of GDP in the financial year 2020 to 1.4 percent in 2021 due to strict expenditure containment, including a temporary 10 percent cut in public sector wages and the suspension of wage increments during the financial year 2021-23, and a strong recovery of revenue.

Public debt declined further to 64.1 percent of GDP in 2022, led by continued expenditure containment, a material discount on the debt owed to Venezuela under PetroCaribe of US$129 million or 4.4 percent of GDP, and strong GDP growth.

The primary balance is projected to remain in surplus in 2022 despite the fuel tax cut and costs arising from Hurricane Lisa. The prior ratio is projected to decline slightly to 1.2 percent of GDP in 2022 due to the reinstatement of the 10 percent public sector wage cut in July 2022, the fuel tax cut to fix diesel and regular gasoline prices at the pump, and an increase in capital expenditures, including one-off spending related to Hurricane Lisa.

The recovery of other revenue and the containment of additional expenditure partly offset this. In an unchanged policies scenario, the primary balance is projected to remain at 1.2 percent of GDP over the medium term, with public debt falling to 53 percent by 2028.

“This level of public debt is assessed as sustainable, although with high near-term risks. The current account deficit is projected to remain financed by foreign direct investment (FDI) and official loans, with international reserves remaining at manageable levels,| The IMF said.

It noted that the rent account deficit is projected to rise to 8.5 percent of GDP in 2022 due to higher imports, larger profit repatriation, and lower remittances, partly offset by higher tourism receipts, and to fall gradually after as commodity prices decline and tourism recovers.

“These deficits are projected to be financed by FDI and multilateral and bilateral loans, with international reserves staying above three months of imports during 2023-28.”

But the IMF warned that risks to financial stability remain elevated due to legacies from the pandemic. It said domestic banks’ regulatory capital at 16.6 percent of risk-weighted assets in 2022 is higher than the minimum requirement but lower than before the pandemic.

Nonperforming loans (NPLs) increased from 5 percent of gross loans in 2021 to seven percent in 2022 as the COVID-19 forbearance measures expired, but banks more exposed to the sectors most affected by the pandemic have experienced more significant increases in NPLs.

“Risks to the outlook remain tilted to the downside. While the risk of intensifying the pandemic has receded, other threats have become more prominent, including a sharp slowdown in advanced economies and climate-related disasters, which could weaken tourism recovery.

“Further increases in food and fuel prices due to Russia’s invasion of Ukraine could exacerbate imported inflation, widening the current account deficit, and reduce international reserve buffers. A sharper slowdown in domestic economic activity could also exacerbate existing vulnerabilities in the banking sector.” the IMF said.