I.M.F. Outlook and Risk Issues Identified by the Visiting Team

Last night, we reported on the Concluding Statement or preliminary findings of the official visit of the International Monetary Fund. Tonight, we take a closer look at some of the outlook and risks identified by the visiting team, as well as the policies and reforms recommended for improved performance. The general findings showed that economic activity had rebounded strongly from the COVID-19 pandemic. After contracting by 13.4 percent in 2020, real G.D.P. rebounded by 15.2 percent in 2021 and 11.6 percent in the first three quarters of 2022.According to the I.M.F. team, the rebound was driven by retail and wholesale trade, tourism, and outsourcing of business processes. With respect to tourism, visitor arrivals reached 74 percent of pre-pandemic levels in 2022. And while the unemployment rate fell to 5.0 percent in the second half of 2022, inflation increased to 6.3 percent in 2022. This was, according to the team, driven by higher global food and fuel prices in spite of the government fixing diesel and regular gasoline prices at the pump since April 2022. The outlook described in the report is that economic activity and inflation are projected to moderate going forward. The primary balance is projected to remain in surplus in 2022 despite the fuel tax cut and costs from Hurricane Lisa. However, the slight decline of 1.2 percent of G.D.P. is due to the reinstatement of the 10 percent public sector wage cut in July, and also due to the fuel tax cut and an increase in capital expenditures, including hurricane expenses. Risks to financial stability remain elevated. Domestic banks’ regulatory capital is at 16.6 percent of risk-weighted assets in 2022, which is higher than the minimum requirement but lower than before the pandemic. Non-performing loans increased from 5 percent of gross loans in 2021 to 7 percent in 2022, and banks more exposed to the vulnerable sectors most affected by the pandemic have experienced more significant increases in Non-Performing Loans. In the aftermath of the pandemic, the Central Bank has been able to strengthen banks’ balance sheets and resolve problem loans, with some banks receiving enhanced supervision. Even so, banks remain vulnerable to shocks, and some may require recapitalization in 2023 if their loan portfolios continue to deteriorate. Key priorities for Belize include gradually increasing the primary balance; reducing public debt; expanding expenditure on infrastructure, targeted social programs, and crime prevention. The report also recommended increased targeted spending on conditional cash transfer programs like BOOST, which ensures children attend school and subsidizes childcare so more women can participate in the labor force. Increasing spending on crime prevention to help strengthen law enforcement, enhance the use of technology to prevent and address crime and support youth at risk. The I.M.F. representatives were in the country from February 2-14. The team met with Minister of State Christopher Coye, Joseph Waight, Financial Secretary; Mister Kareem Michael, Governor of the Central Bank; and other senior government officials, representatives of the opposition, private sector, and public sector unions.