Unusual economic times: The context of the Government of Belize’s pre-budget consultations

In the last two weeks, the Government of Belize (GOB) has commenced with marathon, pre-budget consultation sessions with various stakeholders, including employers’ and workers’ representatives such as the Belize Chamber of Commerce and Industry (BCCI) and the likes of the National Trade Union Congress of Belize (NTUCB). While the practice surely isn’t without precedent, the economic times certainly are, as the global, pandemic-induced recession has not only pushed down the country’s economic growth by approximately 16%, but has likewise impacted the government’s revenues. This week, TradeScape360 seeks to summarize the general economic backdrop and context of these consultations.

Revenues and Expenditures

Even when we intentionally limit ourselves to utilizing only publicly available information provided by the Central Bank of Belize (CBB) and the Statistical Institute of Belize (SIB) it is still possible to get a clear enough picture of the Government’s fiscal situation. To begin with, it is useful to recall the “relationship” between GOB’s total revenues and GDP. Over the last decade (see Figure 1), government revenues have averaged about 30% of GDP, with 2019 coming in at 31%.

Expenditure on the other hand tends to average about 32% of GDP. However, with output estimated to have fallen by about 16% in 2020, expenditure—even if maintained at 2019 levels—would represent 42% of economic output.

While expenditures likely remained at least at their pre-COVID levels (or even increased), revenues—being a function of national income—would naturally decline in tandem with GDP. Consequently, the estimated sharp decline in output would have likewise pushed down government revenues. Using publicly available CBB data (at the time of writing) for the first half (April to September) of FY 2020/21 compared to that same period for FY 2019/20, it was already possible to see that actual revenues had fallen off by more than 25%.

Official statements by the Government, however, have indicated that the average decline in revenues has so far been closer to 30%. This latter figure would imply that COVID-19’s “Great Lockdown Recession” has resulted in the Government of Belize collecting closer to $810 million in total revenues, down by almost $350 million relative to the previous year’s $1.16 billion in revenues.

Debt and Deficits

Again, keeping the assumption that expenditure levels had remained at their pre-COVID levels (i.e. $1.3 billion), the estimated $350 million revenue shortfall would possibly generate a FY 2020/21 deficit of roughly $520 million (see Figure 2).

Deficits, unfortunately, have to be financed, and financed by borrowing; therefore, the Government has had to add more than $500 million in public debt. At the start of the Fiscal Year, total public sector debt stood at $3.89 billion; therefore, an additional $500 million would bring this figure closer to about $4.3 billion by March 2021—the end of the fiscal year.

CBB data for up to November 2020 had already placed Belize’s total public-sector debt at $4.15 billion, which represented about 134% of GDP. This figure, however, all things remaining constant, is likely to have grown by at least one or two extra percentage points by the end of the financial year.

The Primary Balance

While the overall deficit and debt are important concerns, the government is likely especially troubled by the primary balance. Again, using publicly available information provided by the CBB for the first six months of the present fiscal year, the primary deficit had climbed to about $137 million. Putting that into perspective, it is important to note that there was an average primary surplus of approximately $43 million (or an average of 1.3% of GDP) for the last four fiscal years (2016 to 2019).

The reader may recall that the government, following the 2017 restructuring of the US-Dollar Bond 2034 (locally dubbed “The Superbond”), had committed to bondholders that it will endeavor to maintain a primary surplus of 2% of GDP. For 2017 and 2018, Belmopan had managed fiscal surpluses of 1.6% and 2.1% of GDP, respectively, before returning to a deficit in 2019 when prolonged dry weather (drought) conditions severely impacted the primary and secondary sectors’ production, thereby, leading to three out of the four quarters of 2019 being in recession.

Consequently, due to external factors—first dry weather conditions and later the global response to COVID-19—Belize has effectively been in recession for almost eight quarters or 24 months.

There is hope that the productive sector will be able to overcome the negative effects of the drought conditions that led to the downturn in 2019, and there is some optimism that the advent of the COVID 19 vaccine may return some life to the tourism sector, which represents more than 40% of Belize’s GDP when direct, indirect and induced effects are taken into account. For 2021, the International Monetary Fund (IMF) forecasts an 8% recovery relative to last years output levels; however, it is yet to be seen how much of that will actually be realized.