Belize economic outlook “worse than envisaged” – IMF

WASHINGTON D.C. United States, Friday September 5, 2014, CMC – The International Monetary Fund (IMF) says medium-term outlook for economic growth for Belize “is worse than envisaged” and that real gross domestic product (GDP) growth would be weaker than expected in the near term.

The IMF has just concluded its Article IV consultation with Belize noting that real GDP growth plummeted to 0.7 per cent in 2013, from four per cent the previous year mainly due to continued declines in oil production and weak agricultural output, especially sugarcane and citrus.

It said that unemployment stood at 14.2 per cent in September 2013 and is on an upward trend since it hit its lowest level in 2008.

The IMF said average inflation eased to 0.5 per cent from 1.3 per cent in 2012, as commodity price pressures abated.

“The external current account deficit widened to 4.5 per cent of GDP in 2013 up from 1.2 per cent in 2012, as exports of oil and agricultural products fell sharply while imports of fuel and electricity picked up. International reserves improved to 4.7 months of imports at end-March 2014…mainly owing to PetroCaribe financing and private inflows,” the IMF said.

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It said that the primary surplus for the financial year 2013/14 is estimated to have fallen to one per cent of GDP, from 1.4 per cent of GDP in the previus financial year.

The Washington-based financial institution said that revenue is expected to be better-than-budgeted, as robust tax revenues more than offset the decline in non-tax revenues.

“However, substantial increases in wages and salaries, transfers and interest payments drove up current expenditure. Capital expenditures were higher than budgeted because of the need to rebuild the infrastructure that was badly damaged by rain.

“Credit growth and monetary policy continued to be hampered by weaknesses in the financial system,” the IMF said, noting that private sector credit grew by 3.8 per cent while broad money grew by 5.2 percent.

It said that the banking system remained highly liquid with declining, non-performing loans (NPLs) remained high at 16.7per cent of total loans at end-March 2014.

“The banking system’s capital adequacy ratio (CAR) improved to 23.4 percent. The authorities stepped up their efforts to address other weaknesses of the financial system, including the adoption of new anti money laundering and combating the financing of terrorism (AML/CFT) legislation.”

But the IMF said that the medium-term outlook is worse than envisaged during the last Article IV consultation.

“Real GDP growth would be weaker than expected in the near term but hover around 2.5 per cent over the medium term as declining oil production would be partially offset by higher output of other commodity exports, tourism and construction.

“Inflation would remain low owing to the exchange rate peg and subdued inflation in trading partners. The authorities’ policy plans would maintain the primary surplus around one per cent of GDP in the financial year 2014-15 and in the medium term”.

The IMF warned that low primary surpluses together with the assumed recognition of debt related to nationalizations will increase the public debt-to-GDP ratio.

It said also that expansionary fiscal policies, including large wage increases, would fuel higher domestic consumption and upward pressures on the external current account deficit. International reserves could decline substantially over the medium term, especially if compensation for the nationalized companies adds to external outflows.

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Belize economic outlook “worse than envisaged” – IMF

Leading Barbados economists question Central Bank’s outlook

BRIDGETOWN, Barbados, Thursday July 17, 2014, CMC - Two leading economists Wednesday said that contrary to the Central Bank’s prediction of growth in economy from this year, there’s no sign of expansion in the near future and upward movement may begin in three years.

The Central Bank on Tuesday released its second-quarter report for the year, predicting growth in 2014 of 0.3 per cent based on expected performances in the foreign exchange earning sectors. The bank also stated that the economy is expected to pick up by 1.2 per cent in 2015, and 2.5 per cent in 2016.

“We at least believe at best a flat performance, but the realistic scenario would be that we expect a drop off at the end of the year,” said Jeremy Stephen, President of the Barbados Economic Society (BES).

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“I stick by the prediction that growth would be at least three years off… around 2017 you would see significant recovery.”

Stephen, an economic consultant and part-time lecturer at the University of the West Indies, said his disagreement with the Central Bank’s forecast is based on the quarterly report pointing to government’s continued heavy borrowing from the commercial banking sector.

“So the challenges we expect would remain going forward, particularly in arresting the fiscal deficit, using fiscal consolidation as a major strategy,” he said.

The Central Bank had stated that as of March this year, fiscal adjustment measures started last August, appeared to be restoring a balance of inflows and outflows of foreign exchange.

Those adjustments are part of an 18-month programme.

But Stephen cautioned, “We’re still in the middle of the 18-month adjustment programme…so we still have six months to go to see whether the fiscal consolidation would have been successful, but with where we are going right now it is very hard to say that it’s been significantly successful, I would say that at best it has been tepid”.

Ryan Straughn, immediate BES past president said, “I don’t really see where this growth is going to come from”.

“The government spent more in the period of September 2013 to March this year, so one would have to see some more significant cuts coming on stream this year if they are to meet any of the targets. They are looking to raise an additional $300 million (One BDS dollar = 50 US cents) in revenue this year, and I find that hard to achieve and obtain that growth which is being projected to the end of the year as well.”

He said more government fiscal adjustment measures are going to be necessary, “because the deficit was meant to be around eight per cent the end of March, 2014, but it turned out to be nearly 12 per cent.

“Therefore one would have to see a considerable adjustment, certainly between now and the end of March next year, if we are going to achieve any of the targets that would have been highlighted in the budget of last year.”

Although Barbados’ budget statement is presented in August, the financial year begins March 31 of the following year, hence the 2014-2015 fiscal period ends in March 2015.

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Leading Barbados economists question Central Bank’s outlook