BELIZE’S ECONOMIC RECOVERY NOT IN CLEAR VIEW

On July 1, 2010 the International Monetary Fund (IMF) completed its annual Article IV consultations in Belize.  During their meetings in country they met with the Prime Minister, government officials, private sector and civil society representatives.  The IMF team conducted an assessment on Belize’s economic performance for 2009 and provides an outlook for the remainder of 2010.   A preliminary review of their findings will be presented in addition to ascertaining Belize’s performance relative to the Latin American and Caribbean region.

Economic activity when previously assessed was noted to be poor with negative growth recorded for 3 consecutive quarters with some positive improvement noted in the fourth quarter of 2009.  The IMF concurred in their observation that inflation is on the increase due to increased fuel prices.  For 2010 the IMF is projecting some modest level of economic growth due in part to some slight recovery in export prices of commodities alongside some tourism receipts.  They also noted in their consultations that despite the recent tax revenue adjustment with the increase in GST to 12.5% this would not be sufficient to bridge government’s fiscal deficit for FY 2010/11, but instead that gap is expected to widen.  Government continues to maintain current expenditures without any evidence of cutbacks; while the public debt continues to remain high.  The IMF further noted in their preliminary statement that the banking sector appears very liquid but their concerns were registered for the high levels of nonperforming loans.  This observation was substantiated by this columnist review of the banks’ performance as at the end of March 2010, which recorded that the Heritage Bank Ltd and Belize Bank Ltd both had adversely classified loans as a percentage of total loans in excess of 28% of their loan portfolios.  The IMF advised Central Bank to be vigilant in its supervision of both domestic and offshore banks to ensure that there are sufficient loan loss provisions to cover nonperforming loans.  An elaboration of the IMF’s observation on their mission to Belize and clear recommendations to ensure sustainable economic recovery would be outlined when their Article IV consultation report is completed in a few months.  Thereafter further assessment could be conducted on specific recommendation put forward to government.

The IMF as part of its annual research and economic forecasting produces a regional economic outlook for the western hemisphere, the most recent being published in May 2010.  A review of their projections for Belize’s economic performance is dismal as all projections for 2010 into 2011 is that the global shocks will persist resulting on low growth performance.  The IMF in their analysis of regional economies classifies Belize as a tourism intensive commodity importing country.  This is due to the fact that tourism revenue is an important component of GDP along with the economy being further characterized by a high external debt burden and limited integration with external financial markets.   This characterization puts Belize alongside other CARICOM countries such as The Bahamas, Jamaica, Barbados and Grenada among others.  All indication for the remainder of 2010 is that these economies are expected to perform worst than other economies in the Americas.  This is due to the fact that weak employment and labour market performance in the developed economies are directly linked to tourism arrivals in the Caribbean, which has experienced continuous decline.  In addition to low levels of revenue from tourism, the elevation in commodity prices will weigh negatively on these economies.  The fact that Belize among other CARICOM countries has an extremely high external debt limits the ability for governments to have implemented any sustained or meaningful fiscal stimulus, so the effects of such policy options were never forthcoming, as is evident in Belize.

The dilemma for Belize and the current government is how best to develop and implement economic policies to ensure economic growth in the face of prolonged recessionary conditions.  The recovery of the tourism sector will be slow in coming and will required some targeted efforts by government to market Belize as a choice destination.  The current level of external debt makes access to external financing rather limited.  So with limited borrowing opportunities and government increased levels of domestic debt that has been assumed over the recent years due to significant legal judgments against the government, the question is where will fiscal support come from.  Government will be forced to reassess current expenditures to guarantee value for money spent, so that it contributes to increased productivity.  This position also extends to the Social Security Board.  The state pension fund makes a notable contribution to GDP, but its investment portfolio did not reflected any meaningful growth for 2009.    The question is asked where is the people’s money going.  This writer opines that the expectation is that SSB funds are being earmarked for investment in Belize Telemedia Ltd; however such an investment would not fit the risk profile for a pension fund.  The IMF in their forecast challenges governments of the Caribbean and this writer concurs that government must be able to devise the necessary economic policies that will allow for the economy to weather the storm of recession that continues to blow.  While the grass grows, the cows starve and Belizeans are in need of a better possibility because people’s livelihoods remain at stake.

Gwyneth Sydney Nah

Comments welcome at GwynethNah@gmail.com

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