Amandala | The 2010 report on the annual International Monetary Fund (IMF) consultation with Belizean authorities was published on Friday, after a delay of almost six months due to challenges from the Government of Belize (GOB) to its contents.
The preliminary recommendations released in July 2010 asked GOB to restrain current spending, prioritize investment, place the pension system on a strong and sustainable footing, and improve tax and customs administration.
The IMF, in its full report, says it is recommending that in order for Belize to achieve a 3.5% growth in its Gross Domestic Product (GDP) in the medium-term, plus halve its public debt to 40% of GDP by 2019, the government should raise the General Sales Tax—increased last year from 10% to 12.5%, as had been recommended by the IMF—to the regional rate of 15%.
Another measure it says the government could use to raise revenue is to put back the excise taxes on fuel, which had been reduced in 2008.
The report also presents a proposal to the government to stop increases in the wage bill and review what it describes as “generous contributions” for pensions and Social Security benefits.
With respect to the 2010-2011 budget, which will be in effect until the end of March, the IMF says the government should be more selective in its investment plan and intensify tax administration efforts.
According to the report, the Government of Belize has advised the IMF that putting the recommended revenue generation measures in effect would be difficult, given political and social conditions; however, they indicated a willingness to look at improved tax compliance and spending control.
“They acknowledged the need for fiscal reforms (mainly on wages and pensions), but explained that such reforms were strongly opposed by labor unions and the business sector,” the report adds. “However, the authorities expressed their willingness to engage various stakeholders to develop consensus on these reforms.”
The report also discusses the recent problems faced by Belize’s banking sector, including the high rate of non-performing loans (NPLs) at the country’s largest bank, the Belize Bank.
“The authorities recognized that the situation of the three banks [two domestic banks and an offshore bank], if not addressed, could threaten the stability of the banking system,” said the report. “In response to staff’s recommendations, they noted that these banks recognize the potential capital shortfalls associated with their NPLs, and have agreed to submit recapitalization plans to the Central Bank.”
The report states that although Belize was adversely affected by the 2009 global recession, the Belize economy has modestly recovered in 2010.
“The authorities seek to reinvigorate growth prospects and reduce the poverty rate to 35 percent by 2013,” it added. “The development plan for 2010–13 focuses on job creation and identifies sources of growth in tourism, agro-industry, and fishing.”
The plan, said the IMF report, rests on five pillars: developing small enterprises; strengthening export trade capacity; enhancing human development; addressing social dislocations and reducing crime; and managing environmental and natural disaster risk.
“The plan seeks to strengthen competitiveness by addressing infrastructure bottlenecks, high costs of financing, and red tape,” it added.