Belize: 2014 Article IV Consultation-Staff Report; Press Release

KEY ISSUESOutlook and risks. The economy will remain vulnerable over the medium term, withsluggish real GDP growth, rising public debt and widening external current accountdeficits. International reserves could decline to uncomfortably low levels. The financialsystem would continue to be hampered by high NPLs and low capital buffers, especiallyat a systemic bank. Main fiscal risks include a court decision that could lead to a largerthan expected compensation to the former owners of the nationalized companies,weaknesses in a systemic bank, and the cost of the new public bank.Focus of the Consultation. Discussions focused on measures that would place publicdebt on a sustainable path; address weaknesses in the financial system, particularly in asystemic bank; buttress external sector resilience; and enhance competitiveness andinclusive growth.Key policy advice.? Improve the primary fiscal balance to about 4.5 percent of GDP starting in 2015. Thiscould be achieved mainly by allowing spending on goods and services to rise only inline with inflation; containing the expansion in the wage bill; requiring public workers tocontribute to their pensions; and by widening the tax base and strengthening revenueadministration. Active debt management, including refinancing of expensive debt withlow-earning deposits (essentially from PetroCaribe), would support these efforts.? Address banking sector vulnerabilities through improving capital buffers.? Improve public financial management (PFM) to contain low-quality spending,strengthen budget formulation, preparation, and execution, and improve the coverageand accuracy of budget documents.? Further improve the business environment to attract more private investment, boostcompetitiveness, and enhance job-creating and inclusive growth.Implementation of staff advice. Implementation of recent staff advice is mixed. Thebreathing room provided by the debt restructuring was not used to improve the primaryfiscal balance. The authorities plan to review exemptions and zero-ratings under the GST.