AN ASSESSMENT OF BELIZE’S ECONOMIC PERFORMANCE IN 2009

In November 2009 this columnist sought to examine and review Belize’s economic performance for the first half of the year, in the essay entitled, A Policy Response to Belize’s Recession. Now at the beginning of the New Year 2010 we have been provided with data to indicate the economic performance for 3^rd quarter 2009, which covers the period July to September.  This writer will provide a review and analysis of the data, but before proceeding will provide a background as to how the data is presented and interpreted, so that our readers can have a clear understanding why the explanations sometimes seem contrary to the economic realities being faced by our people.

Gross Domestic Product or GDP, is the main measurement of economic activity within an economy.  It measures the real value of output produced, by all economic activity carried out within a country regardless of ownership (domestic or foreign) and it is calculated without subtracting any allowances for capital formation, which is the addition of plant and equipment within firms.  GDP is reported at both current and constant prices; constant prices are those that are adjusted for inflation using a reference year as a benchmark.  For data produced by the Statistical Institute of Belize, nominal GDP is presented using 2000 prices as the base period.  Nominal GDP is important for comparative purposes.  Thus, GDP will consist of personal consumption expenditures, gross private domestic investment, government purchases and the difference between imports and exports.  Therefore, GDP as an indicator is relatively accurate and useful for measuring how well an economy is performing; although it does have its shortcomings.  A few areas not addressed in this measurement are, nonmarket transactions, such as services provided by homemakers and the value of transactions individuals would do for themselves; under-ground or illegal activity are not recorded; improvement in quality of output; the social cost of negative by-products and their effect on the environment and lastly GDP fails to measure any changes in wellbeing or standard of living.  Due to those short comings other measurements are used to fill that gap.  For comparative purposes and to determine changes in GDP, a review is undertaken of the value of output for the same period in year 1 and year 2.  Therefore, for us to understand the performance or change in GDP for 3^rd quarter 2009 it is compared to 3^rd quarter 2008, with the change recorded as either positive or negative.

Table 1

Source: SICB Bz$ million at constant 2000 prices;

changes may vary due to rounding off.

Based on the performance for the first 6 months of 2009, the output for 3^rd quarter was expected.  As noted in the table 1, the economy contracted by 0.2% for the third consecutive quarter.  The economy contracted by 2.2% in the first quarter and 1.9% in the second quarter.  This situation is therefore identified as a recession – when real GDP falls for two consecutive quarters.  Therefore, this supports the recession that we already knew existed.  To understand the underlying factors behind the slowdown we must examine how the respective sectors performed as presented in table 2.

Table 2

Source: SICB Bz$ million at constant 2000 prices; changes may vary

due to rounding off.

The agriculture sector showed positive growth by 12.4% due in main to increased output from the banana industry.  The fishing sector contracted by 8.5% due to exports fetching lower prices on the international market.  The manufacturing sector grew by a modest 1.5% which was driven by increase oil production by some 25%.  Electricity and water sector contracted by 1.2% and transportation and communication likewise by 1.3%, this is reflected by lower consumption driven by both nationals and reduced activity from the tourism sector.  This is supported by the contraction in the hotel and restaurant sector which realized a reduction of 5.4%.  Total tourist arrivals for the period under review were 180,609 in 2009 versus 193,320 in 2008.  This represents a 7% decline in arrivals.  The construction industry registered stunning growth of 11.4%, which can be attributed to some government spending in this sector.  As private sector construction were limited to minor developments.  The wholesale and retail sector realized a reduction of 7.6% as consumers demand reduced which was further evident by the reduction in total imports.  January to October 2009 total imports were $1,104.09M while in 2008 for the same period total imports were $1,429.5M, a reduction of 22.7%.  Other private services which include financial services and other business services grew by 2.5% and government services also expanded by 9.7%.  Government’s continuous spending is reflected in this increase.  But with consumer demand being low and wholesale and retail trade contracting, government collection of taxes also suffered by a reduction of 8.2%.  Thus, as one reviews the performance of the various sectors the drivers of the economy in the 3^rd quarter were the agriculture and construction sectors.  But nonetheless, the economy contracted by 0.2%.

Table 3

Source: SICB Bz$ million

Belize’s trade balance showed less than stellar performance as noted in table 3.  With imports reduced by 22.7% due to reduced consumption domestically and significantly so within the commercial free zone, this is a direct reflection of the recession constraining Mexican consumption as well.  The value of our exports also reduced by 19.7% although oil production increased by 25%, prices fell and so were the returns from those exports.  Therefore, government’s ability to meet its budget deficit was eroded with the imposition of the windfall tax at a price level of US$90 per barrel.  The expected $100M were never realized.

Inflation went from an all time high of 6.4% in 2008 to negative inflation in 2009.  Inflation measures the persistent tendency for prices and wages to increase.  However, with prices having been on a steady increase and wages stagnant, prices were forced to be reduced in order for product stocks to not accumulate, hence the nose-dive to a negative 1.1% inflation in 2009.

Unemployment rate recorded as at September 2009 was 12.5% versus 13.1% in April 2009.  This decrease was attributed to an increase in the labour force by 15% or 24,775 persons.  As the data indicates that the unemployed population (those actively seeking employment) actually increased by 13%; while, persons not in the labour force (those no longer seeking employment) also increased by 15% or 12,223.  Therefore, the reduced unemployment recorded is disguised in its presentation.  For the ordinary Belizeans, work has been hard to come by as companies are not expanding their production but rather cutting back; and government projects being far and few in between professional services, remain in low demand.

In anticipation of the global slowdown government ought to have created an appropriate policy response mechanism to ensure sustained demand.  However, there was no appropriate policy response put in place from early to mitigate against the negative effects.  The $200M stimulus package presented by PM Barrow in January 2009 did not reflect any new financial initiatives undertaken by the newly elected UDP government, instead that was a manifestation of funding that were in the pipeline from 2008.  Most of those funds remain approved and undisbursed to date, due the lacuna in government’s institutional capacity.

None of the key areas driving the domestic economy has been adequately addressed, namely consumer spending, investments, government spending and Belize’s trade balance.  The last being the most important.  Due to the openness of the economy Belize’s trade policy is key to the medium term recovery efforts.  However, as we enter into the 1^st quarter of 2010 we can continue to expect that on all accounts economic growth will be sluggish and slow to recover as any sustained recovery is predicated on international trade flows.  Consequently the government response has been “no response” just sit and ride out the storm.  So our recovery will be driven by the performance of our major trading partners, namely the US and UK.  As stated in my last column of 2009, the global recovery is expected to be uneven and conditions for sustainable growth fragile, consequently Belize’s position must be anchored in its economic and political commitment to regionalism.  Therefore, Government is tasked with ensuring that policy formulation is concrete and congruent with Belize’s development objectives.  Participating and reaping the benefits of this regionalism can only be realized if Government is driven by the productive sector.  The productive sector is called upon to organize and be the driving force to lead Belize’s recovery efforts.

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