Economic studies
Belize

Belize

Population 0.4 million
GDP per capita 4,862 $USD
D
Country risk assessment
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Business Climate
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Synthesis

Major Economic Indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 1.4 3.0 2.0 -12.0
Inflation (yearly average, %) 1.1 0.3 0.4 1.0
Budget balance * (% GDP) -3.9 -0.3 -0.4 -0.8
Current account balance (% GDP) -7.7 -7.9 -6.1 -6.5
Public debt (% GDP) 93.3 93.6 94.2 91.8

 

(e): Estimate. (f): Forecast. *Including grants, fiscal year from April 2020 to March 2021. 

STRENGTHS

  • Tourism potential
  • Highly competitive tourism industry compared to regional peers
  • Support from international lenders

WEAKNESSES

  • Poor fiscal health
  • Undiversified exports
  • Underdeveloped manufacturing sector
  • Agricultural sector exposed to natural disasters
  • Crime

Risk assessment

Weaker growth among the country’s main trading partners will weigh on activity

Growth is expected to slow further in 2020, after slackening initially in 2019. Given the importance of agricultural and tourism exports, activity will be affected by feebler growth among the country’s main partners. With 70% of tourists coming from the United States, the increase in the number of flights between the two countries since the beginning of 2019 is not expected to offset the effects of slower activity in the United States. Nevertheless, tourism should continue to attract foreign direct investment, particularly in infrastructure, following the establishment of large hotel chains. On the agricultural front, the sector is expected to rebound, mainly due to a base effect after the prolonged drought in 2019, which severely affected harvests (corn and sugar cane). However, the extent of the recovery should be limited by the lower activity in the United States and the United Kingdom, the main destinations for exports in the sector. Construction is expected to benefit from the infrastructure development included in the 2019/2020 budget plan (Capital III plan). Public consumption is expected to remain moderate, limited by fiscal consolidation efforts. Private consumption will benefit from the low level of inflation, supported by the Belizean dollar’s peg to the US dollar. However, the rising unemployment rate, which stood at 9.4% at the end of 2018, and tax increases will limit growth in this regard.

 

A heavy public debt burden and a fragile external position

Despite boasting a revenue-to-GDP ratio that is higher than the regional norm, Belize continues to have a significant level of public debt, amounting to 94% of GDP at the end of 2018. An agreement with external private creditors in March 2017 allowed USD 526 million in sovereign bonds to be restructured to reduce debt service. As part of the agreement, the government committed to maintaining a primary surplus of at least 2% over the next three years. It achieved its target in 2018/2019, but in 2019/2020 the surplus is set to fall short of expectations owing to weaker than predicted economic activity and higher spending on wages and infrastructure. As the November 2020 elections approach, the increase in pension contributions introduced in July 2019 may not be enough to achieve the equilibrium objective of a 4% primary surplus in the medium term. Accordingly, to finance its infrastructure plan, the government is relying on assistance from international development partners (World Bank Group, Inter-American Development Bank and Caribbean Development Bank), as well as Taiwan's participation in road projects. External public debt amounted to 66% of the total at the end of 2018.

In addition to suffering from poor fiscal health, the country also has to cope with considerable external imbalances linked to the substantial goods deficit (20% of GDP), which is in turn largely due to the weak manufacturing sector. With cheap oil deliveries through the PetroCaribe alliance ending as a result of the crisis in Venezuela, this trade balance is under additional strain, compounding the pressure already on it via agricultural exports (cane sugar, citrus fruits), which are highly exposed to climatic risks and therefore volatile. This deficit is not fully offset by the services surplus, which is mainly due to tourism activities. As a result, the current account continues to show a deficit, and the gap is expected to widen in 2020 against a backdrop of weaker agricultural and tourism exports. The deficit will not be entirely financed by foreign direct investment, which is slowing, putting the already low foreign exchange reserves under pressure. Equivalent to 3.6 months of imports at the end of 2018, the reserves were exhausted by the court-ordered payment made at the end of 2017 in compensation for the nationalisation of Belize Telemedia Limited.

 

A little time now before new developments

After announcing that he was leaving his post before the end of his term for health reasons, Prime Minister Dean Barrow finally reversed his decision. As a result, power struggles within his United Democratic Party have eased, but are likely to resume as the November 2020 elections approach, because the constitution prohibits Mr Barrow from running for a fourth term. Tax reforms and the fight against drug trafficking will likely be the government's priorities until the elections. Improving the business environment will also remain one of the main challenges, a process initiated with the adoption of a new law to promote an adequate level of economic substance for companies paying their taxes in the country and thus comply with the European Union’s tax transparency requirements.

In terms of international affairs, the main issue remains the border dispute with Guatemala, which claims half of Belize's territory. In May 2019, 55% of Belizeans voted in favour of using the International Court of Justice (ICJ) to settle the dispute, following Guatemala's approval of such a settlement in a referendum in 2018. These votes have allowed the two countries to engage in a reconciliation process.

 

Update: February 2020

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