Archive for October, 2011

IMF concludes 2011 Article IV Consultation with Belize

Monday, October 31st, 2011

On October 21, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Belize.

According to the IMF, Belize has weathered the financial crisis relatively well, as compared with other Caribbean jurisdictions.

Output expanded by 2.7% in 2010 owing largely to activity in the electricity and wholesale and retail trade. 12-month inflation was 0 in 2010, which reflects primarily continued weakness in domestic demand, and picked up slightly in the quarter ending in May driven by higher food and fuel prices. The external position of Belize strengthened, as a narrowing in the current account deficit (from 6.1% of GDP in 2009 to 3% in 2010) underpinned an increase in foreign reserves to 3.25 months of imports at end-2010, equivalent to 300% of 2011 external financing needs. Public debt rose to 83% of GDP.

In Fiscal Year 2010-2011, the overall fiscal deficit widened by 0.3% point of GDP to
1.5% of GDP, which reflects an increase in expenditure and weak grant disbursements. However, it should be noted that this outturn was better than envisaged in the budget. Bank prudential indicators have remained weak, with high nonperforming loans (NPLs) and low provisioning. Bank liquidity remains ample. In July 2011, the authorities participated in their first Financial Sector Assessment Program (FSAP). Despite a cut in reserve requirements, bank credit growth has slowed as fewer investment opportunities and high NPLs continue to constrain new lending. Despite the allocation of significant resources to social protection, improvements in social indicators have been protracted.

The International Monetary Fund stated that Belize’s macroeconomic outlook for 2011 remains moderately positive. Output growth is projected at 2.5%, reflecting a strong performance in the 1st quarter. Higher food and fuel prices are projected to push inflation slightly upward. The external current account deficit is to remain at about 3% of GDP in the context of some improvement in trade. The reserve coverage would remain at around 3 months of imports by year-end.

Executive Directors commended the authorities for their macroeconomic management, which enabled Belize to weather the financial crisis relatively well. They emphasized the need to further tighten the fiscal stance and rebuild macroeconomic buffers. Also, they agreed that safeguarding financial sector stability should be a high priority. So, directors welcomed the authorities’ plans to use the findings of the recent FSAP in order to guide their reform agenda and strengthen the financial industry. In addition, directors emphasized the need to strengthen the macroeconomic framework and the business climate to tackle Belize’s low productivity growth, as well as stressed the importance of close collaboration between the IMF and development partners in these sphere.