IMF says Belize rev­enue col­lec­tion re­mains in line with bud­get targets

The Pak Banker - - COMPANIES/BOSS -

The Ex­ec­u­tive Board of the In­ter­na­tional Mone­tary Fund (IMF) con­cluded the Ar­ti­cle IV Con­sul­ta­tion with Belize. Real GDP growth reached 3.6 per­cent in 2014, up from 1.5 per­cent in 2013 and well above the five-year av­er­age of 2.9 per­cent. A re­bound in agri­cul­ture, strong per­for­mances in tourism, elec­tric­ity, con­struc­tion and ser­vices off­set the sig­nif­i­cant de­cline in oil-re­lated ac­tiv­i­ties. The fall in in­ter­na­tional oil and food prices pushed head­line in­fla­tion (y/y) to -0.2 per­cent as of De­cem­ber 2014. De­spite strong tourism re­ceipts, fall­ing ex­ports and rel­a­tively strong im­ports widened the ex­ter­nal cur­rent ac­count deficit to 7.6 per­cent of GDP in 2014, up from 4.4 per­cent of GDP in 2013. PetroCaribe and other of­fi­cial dis­burse­ments con­tin­ued to finance the cur­rent ac­count deficit and help build in­ter­na­tional re­serves (equiv­a­lent to 5 months of im­ports at end-De­cem­ber 2014).

The fis­cal stance de­te­ri­o­rated sig­nif­i­cantly in FY 2014/15 (April-March). The pri­mary fis­cal bal­ance recorded a deficit of 1.5 per­cent of GDP, down from a re­vised deficit of 0.2 per­cent of GDP in FY 2013/14 and well be­low the sur­plus of 1 per­cent of GDP en­vis­aged in the FY 2014/15 bud­get.

Rev­enue col­lec­tion re­mained in line with bud­get targets. Spend­ing con­tin­ued to grow well above bud­get targets. Fi­nanc­ing of the fis­cal deficit es­sen­tially came from a draw­down of PetroCaribe de­posits and of­fi­cial ex­ter­nal loans. Rel­a­tively strong GDP growth helped main­tain pub­lic debt around 76 per­cent of GDP.

Pri­vate credit growth re­cov­ered and reached 4.7 per­cent in 2014, up from 3.5 per­cent in 2013, sup­ported by strong real estate credit and loans to the sugar sec­tor, while broad money grew by 7.9 per­cent. The bank­ing sys­tem re­mained highly liq­uid. Non-per­form­ing loans (NPLs) de­clined to 15.7 per­cent at endDe­cem­ber 2014, down from 17.6 per­cent at end-2013. The bank­ing sys­tem's re­ported cap­i­tal ad­e­quacy ra­tio (CAR) stayed above 21 per­cent. The ter­mi­na­tion of ma­jor cor­re­spon­dent bank­ing re­la­tion­ships with Belizean banks has so far had a lim­ited im­pact on the fi­nan­cial sys­tem and eco­nomic ac­tiv­ity.

Growth over the short-to-medium term would hover around 2.5 per­cent, in line with the as­sess­ment made dur­ing the 2014 Ar­ti­cle IV Con­sul­ta­tion. In­fla­tion would re­main sub­dued ow­ing to the ex­change rate peg and mod­er­ate in­fla­tion in trad­ing part­ners. How­ever, the fis­cal outlook could be worse due to ex­cess spend­ing. The pri­mary fis­cal bal­ance would re­main in deficit for a while as the po­lit­i­cal cli­mate fur­ther ex­ac­er­bates spend­ing pres­sures and hin­ders rev­enue-en­hanc­ing re­forms. Ex­pan­sion­ary fis­cal poli­cies would in­crease im­ports in the con­text of mod­est growth of ex­ports, widen­ing the ex­ter­nal cur­rent ac­count deficit. In­ter­na­tional re­serves could de­cline to un­com­fort­able lev­els, es­pe­cially if com­pen­sa­tion for the na­tion­al­ized util­i­ties is paid and repa­tri­ated.

IMF Ex­ec­u­tive Direc­tors noted the re­cent im­prove­ment in eco­nomic ac­tiv­ity, de­spite the sig­nif­i­cant de­te­ri­o­ra­tion in the fis­cal stance and the widen­ing ex­ter­nal cur­rent ac­count deficit. Belize's eco­nomic outlook is char­ac­ter­ized by slug­gish growth, weak fis­cal stance, and ex­ter­nal and fi­nan­cial sec­tor vul­ner­a­bil­i­ties. They wel­comed the set­tle­ment reached on one of the two na­tion­al­ized com­pa­nies but noted that sig­nif­i­cant con­tin­gent li­a­bil­i­ties from these na­tion­al­iza­tions re­main, which could fur­ther raise the al­ready el­e­vated debt lev­els. Against this back­drop, Direc­tors called for a con­certed ef­fort to re­duce vul­ner­a­bil­i­ties, re­build pol­icy buf­fers, and ac­cel­er­ate medium-to-long term growth. Direc­tors un­der­scored the im­por­tance of prompt and cred­i­ble fis­cal ef­forts that would boost in­vestor con­fi­dence and pri­vate in­vest­ment. In this con­text, they urged the au­thor­i­ties to be­gin to pro­gres­sively raise the pri­mary bal­ance to lev­els con­sis­tent with debt sus­tain­abil­ity. This could be achieved by re­mov­ing ex­emp­tions and zero-rat­ings from GST, build­ing a stronger rev­enue ad­min­is­tra­tion that con­tains leak­ages, and lim­it­ing cur­rent spend­ing, in­clud­ing through re­form of the pub­lic of­fi­cers' pen­sion scheme.

Direc­tors agreed that pub­lic sec­tor re­forms and stronger pub­lic fi­nan­cial man­age­ment, es­pe­cially in­ter­nal con­trols, au­dits and pro­cure­ment prac­tices, would re­duce low- qual­ity spend­ing and should not be de­layed.

Direc­tors wel­comed the au­thor­i­ties new Growth and Sus­tain­able Devel­op­ment Strat­egy (GSDS). In or­der to en­sure cred­i­ble im­ple­men­ta­tion of the GSDS, Direc­tors rec­om­mended that the au­thor­i­ties seek to tap into all avail­able re­sources, do­mes­tic and ex­ter­nal.

Do­mes­tic re­sources can be mo­bi­lized through en­hanced do­mes­tic rev­enue col­lec­tion and spend­ing ra­tion­al­iza­tion, which would cre­ate the fis­cal space needed for greater in­vest­ment in hu­man cap­i­tal. Ex­ter­nal re­sources can be mo­bi­lized through in­ter­na­tional part­ners and well-de­signed pub­lic pri­vate part­ner­ships.

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