IMF Concludes Article IV Consultation With Belize

by Robert Lee, Tax-News.com, London

01 August 2001

According to details from the most recent annual report released in July this year from the International Monetary Fund (IMF) on Belize's economic developments and policies, the Belizean economy grew rapidly in 2000 while inflationary pressures remained low and net international reserves increased.

However, although the IMF has recognised that Belize is still recovering from Hurricane Keith, which struck last September causing an estimated $500 million in damages (the government said it spent 3% of its GDP on restructuring), the report expressed concern at the increasing size of the fiscal and external current account deficits to 'clearly unsustainable levels.' This has resulted in rapid increases in external public debt and debt service payments. The IMF therefore praised the Belizean government's decision to reduce the fiscal deficit to 1 per cent of GDP over the next three years. The adjustment was considered to be a key step in re-establishing a sustainable fiscal and external position including a manageable debt burden.

In a statement released by the government, Thomas Bernes of the Belize Executive Board, said: 'Without question, the authorities face a number of major challenges, some of which are directly linked to the impact of Hurricane Keith last fall and others which are more typical of those facing many small developing economies in adapting to a constantly evolving and increasingly globalized world.'

The authors of the report also commented on Belize's 'substantial tax revenue effort' which was seen as vital in achieving timely and sustained progress toward fiscal sustainability, and they welcomed the government's recent tax measures as a first step in this process. These included a 1.25% social fee for commercial free zone transactions, a 5% environmental tax and a 5% land speculation tax. 'The authorities have also established offices of a Revenue Commissioner, Contractor General and Ombudsman to enhance efficiency, transparency and accountability in public spending and revenue collection,' added Mr Bernes.

The IMF also noted that the capacity of Belize's central bank to supervise commercial banks was in need of strengthening and recommended that legislation be enacted to give the central bank supervisory authority over credit unions, other nonbank financial intermediaries, and the offshore financial sector.

The recent reduction in the maximum external tariff rate from 25 per cent to 20 per cent was also praised by the IMF but it was recommended that the remaining quantitative import restrictions be converted into tariffs. It was also advised that the authorities consider the elimination of ad hoc duty exemptions, which would improve transparency and resource allocation.

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