Recently published data by the Central Bank of Belize (CBB) shows that despite the precipitous drop in the Tourism sector’s foreign exchange (FOREX) inflows, the country’s overall balances remain relatively stable.
According to the CBB’s “Weekly Monetary Aggregates” for July 31st 2020, the (overall) Net Foreign Assets of the Banking System amounts to approximately BZD $886.5 million (or USD 443.25 million). This figure, when compared to the overall figure for the same period last year (BZD $877.4), is up by just about one percent. A similar increase is observed even when viewed as year to date (YTD).
Signs of this slight increase were visible from May, when the CBB, in its Monthly Economic Highlight for that month, wrote: “The net foreign assets of the banking system rose by $6.6mn (0.8%) over the year to date after declining by $21.9mn in May.” The regulator added, “During the month, domestic banks’ foreign asset position weakened by $19.5mn with the collapse in tourism revenue because of the adverse impact of the Coronavirus disease 2019 (COVID 19) pandemic. Concurrently, Central Bank’s holdings dipped by $2.4mn mainly as a result of facilitating Central Government’s debt service payments.”
In a country operating a Fixed Exchange Rate regime this is welcome news, especially considering the virtual ‘locking down’ of the tourism sector—an industry that contributes more than 40 percent of Belize’s FOREX inflow, but a natural question becomes “how are these results possible during COVID 19”. For the first six months of the year, a blend of reduced outflows matched with less-than-expected drops in export earnings have, inter alia, aided in preserving the foreign assets’ balance up to this point. In addition to an observable rationing on the part of the banking sector, the Statistical Institute of Belize (SIB) reports that imports are down by 15.6% from January to June this year, while, for that same period, exports have, hitherto, dipped by only 7.8%. To date, Belize’s export performance beats the World Trade Organization (WTO)’s prediction that “all regions will suffer double-digit declines in exports and imports in 2020”. Nevertheless, it is yet to be seen how things progress in the latter half of the year. Additionally, other supplementary inflows from multilateral agencies as well as the proceeds from the US $30 million Fixed Rate (Treasury) Note have played their part in buffering the foreign assets balance up to this point.
Keeping with the CBB’s foreign assets, thus far, the published statistics also show an uptick in the External Asset Ratio(the Ratio), which section 25 of the Central Bank Act (“the Act”) mandates should remain at or above 40% of “the aggregate amount of notes and coins in circulation and of the Bank’s liabilities to customers in respect of its sight and time deposits”. As of the July 22nd, this Ratio—which is a key component of the mechanisms established to help preserve the country’s Fixed Exchange Rate Peg—stood at 56.0%, which is 16.0 percent points above the statutory minimum laid out in the Act. Interestingly, the Ratio is even higher than where it stood at the end of March (just prior to the April State of Emergency) when it was reported at 52.7%.
It is undoubtedly these statistics that the Belizean Prime Minister had in mind when speaking at a recent press event he described the country’s FOREX position as “stable”. The numbers—of course taken into a context of reduced imports, banking sector rationing, and the Government of Belize’s request for interest rate capitalization on US-Dollar Bond 2014 (‘Superbond’)—do appear to support that depiction. This also includes the fact that the well-known import coverage ratio is also above the three-month benchmark.
At issue, however, is the way forward. While the ‘building up’ of foreign assets is exactly what the authorities should be doing, the high levels of uncertainty and market disruptions being brought about by COVID 19 makes it difficult to say whether these buffers are sufficient. Furthermore, the presence of other potential external shocks such as natural disasters also creates additional downside risks that must be weighed. Add to the forgoing the climbing interest payments on external debt obligations, and it becomes clear that there is need for continued vigilance on the part of all stakeholders.