BELIZE will need to gradually increase its primary balance to 2.0 per cent of gross domestic product (GDP) if it wants to push its public debt below 50 per cent of GDP by 2028, according to the International Monetary Fund (IMF) in its latest assessment of the country.
The assessment, made by IMF staff in the Article IV Consultations concluding statement, noted, "In an unchanged policies scenario, debt would fall to 53 per cent of GDP by 2028, a level assessed as sustainable. However, reducing debt further to 50 per cent of GDP would ensure that the debt-to-revenue ratio remains manageable; would provide ample buffers for climate-related disasters; would ensure that public debt remains below the 70 per cent of GDP threshold for sustainability with high probability; and would strengthen the level of international reserves and the currency peg. Achieving this debt target requires gradually increasing the primary balance to 2.0 per cent of GDP from 2025 onwards," it said.
In 2020, Belize rebased its national accounts, which saw its public debt-to-GDP ratio falling from 133 per cent of the old GDP to 101 per cent of the new GDP. Public debt in that country fell further to 80 per cent in 2021 and 64.1 per cent in 2022.
So far, things are looking up for Belize. After contracting by 13.4 per cent in 2020, the country's economy has rebounded, posting 15.2 per cent growth in 2021 and 11.6 per cent growth in the first three quarters of 2022. Final data for the last quarter of 2022 are yet to be tabulated, but when that is done and the final figure for all of 2022 is available, the IMF expects it to show that country's economy grew by 11.4 per cent. The forecast is that with further growth of 3.0 per cent in 2023, Belize's economy will recover fully from the pandemic-induced fallout.
The growth, which has come chiefly through its retail and wholesale sectors, tourism and business process outsourcing, has pushed unemployment levels from 10.2 per cent in 2021 to 5.0 per cent in the second half of 2022.
But aside from pushing Belize to deal with its debt, the IMF said the plan should also have clear targets and specific measures to enhance its credibility. That includes expanding expenditure on infrastructure, targeted social programmes and crime prevention to boost growth and make the country more inclusive and resilient to climate change and related disasters.
"Increasing infrastructure spending by 0.8 per cent of GDP from fiscal year 2025 onwards would help enhance road connectivity, expand airport capacity, improve water and sewer systems, invest in renewable energy generation, and make infrastructure more resistant to storms and raising sea levels. Increasing targeted social spending by 0.5 per cent of GDP from fiscal year 2025 would allow expanding conditional cash transfer programmes such as BOOST, which support poor families and ensure that children attend school, and subsidising childcare to increase female labour force participation, which stood at 44 per cent in October 2022," it said.
The IMF also pointed out that increasing spending on crime prevention by 0.2 per cent of GDP from fiscal year 2025 onwards would help strengthen law enforcement, enhance the use of technology to prevent and address crime, and support the youth at risk.
To get funds to pay for some of the programmes, the country is being urged to increase the intake from taxes to the tune of 2.2 per cent of GDP by fiscal year 2025.
"Taxing some zero-rated items at the standard 12.5 per cent general sales tax rate could raise 1.6 per cent of GDP in revenue. Standardising personal income tax exemption thresholds could raise 0.2 per cent of GDP in revenue, while raising fees on vehicle registrations and driver licences, and increasing excises on fuel could raise another 0.2 per cent of GDP. Strengthening customs and tax administration further, including by improving the efficiency and autonomy of the Belize Tax Service Department (BTSD) and facilitating information exchange between the BTSD and the Belize Customs and Excise Department, could raise another 0.2 per cent of GDP in revenue," it said.
The Government was also urged to reform public sector pension, which it is estimated would reduce government spending by 0.2 per cent of GDP over three years and by much more in the long term. In Belize, the public sector pension scheme is a non-contributory, defined-benefits pension system with a low retirement age and high benefits. In 2021, it had a deficit totalling 1.1 per cent of GDP which is projected to reach 4.1 per cent of GDP by 2072, with the present value of the cumulated deficits estimated at 77.1 per cent of GDP.
"Gradually increasing the contribution rate to 10 per cent, raising the retirement age from 55 to 65, and reducing the replacement rate from 67.5 per cent to 50 per cent, would lower the public sector pension's long-run deficit by about two-thirds. The sooner these reforms are implemented, the more gradual and less disruptive they can be," the IMF said.