Belize Budget Speech 2014: Economic Performance Review

Bettering People, Building Belize - A Budget For All 1

REVIEW OF THE ECONOMY, 2013

[THIS DOCUMENT IS AN ANNEX TO THE 2014 BUDGET SPEECH]


REVIEW OF THE ECONOMY 2013

Table of Contents

INTRODUCTION ....................................................................................................................................................... 3

INTERNATIONAL AND REGIONAL DEVELOPMENTS .................................................................................. 4

THE INTERNATIONAL ECONOMY ................................................................................................................................ 4

REGIONAL ECONOMIC PERFORMANCE ....................................................................................................................... 4

ECONOMIC DEVELOPMENTS IN BELIZE - 2013 .............................................................................................. 6

THE REAL ECONOMY ................................................................................................................................................. 6

Gross Domestic Product (GDP) ........................................................................................................................... 6

Prices .................................................................................................................................................................... 7

Employment .......................................................................................................................................................... 7

CENTRAL GOVERNMENT OPERATIONS ....................................................................................................................... 8

Projected Outturn ................................................................................................................................................. 8

Revenue Performance ........................................................................................................................................... 8

Expenditure Performance ..................................................................................................................................... 9

Central Government’s Debt ................................................................................................................................ 11

THE EXTERNAL SECTOR ........................................................................................................................................... 12

MONETARY AND FINANCIAL DEVELOPMENTS ......................................................................................................... 15

ANNEX ....................................................................................................................................................................... 17


INTRODUCTION

This publication focuses on economic performance during 2013 and is one of the supporting

documents associated with the 2014 Budget Speech.

Honourable Members', citizens and agencies that need to engage in detailed examination of the

national Budget will find it useful.


INTERNATIONAL AND REGIONAL DEVELOPMENTS

THE INTERNATIONAL ECONOMY

While world output grew by an estimated 3.0% in 2013, this was still well below the global

economic potential. The emerging market economies continued to lead world growth although

some weakening occurred due to supply-side constraints, infrastructural bottlenecks, lower

domestic demand and the financial impact of the US Federal Reserve's reduced bond purchases.

The United States, which accounts for roughly a quarter of the world's output, grew by 1.9

percent, and both Canada and the United Kingdom registered increases of 1.7 percent. The Euro

area also emerged from recession in 2013 and would appear to be turning the corner although

with some divergence between core countries and southern Europe. The People’s Republic of

China continues to steam ahead in the meanwhile even as measures are taken to rebalance its

development strategy.

REGIONAL ECONOMIC PERFORMANCE

The challenges faced by the CARICOM member states remained broadly unchanged as countries

continued to grapple with balance of payments pressures, high debt levels, limited fiscal space

and declining competitiveness. Commodity exporters such as Guyana, Suriname and Trinidad

and Tobago proved to be resilient. But in the tourism-dependent economies of the Bahamas,

Barbados, Jamaica and islands of the Eastern Caribbean Currency Union, structural weaknesses

were compounded by low, or in some cases, flat visitor arrivals coupled with a decline in major

tourism-related construction activity. In the case of Jamaica and Barbados, this led to the need

for painful adjustments.

With its debt-to-GDP ratio exceeding 140.0 percent, Jamaica committed to an ambitious

fiscal consolidation program in May as part of a 4-year US$932 million funding facility

under the International Monetary Fund’s Extended Fund Facility. The Inter-American

Development Bank and the World Bank also joined in, pledging an additional US$510

million each for a total financing package of US$2 billion over the next four years.

In Barbados, output is estimated to have contracted by 0.7 percent in 2013 while

international reserves declined, the fiscal deficit widened significantly and the Central

Government debt-to-GDP ratio rose to 94.0 percent. The government therefore embarked


on home-grown fiscal reforms aimed at addressing underlying weaknesses in public

finances and alleviating external pressures. In addition to imposing a freeze on wages, the

Barbados government has committed to reducing the size of the civil service and the

number of employees at State Owned Enterprises by 3,000 workers in the first quarter of

2014.


ECONOMIC DEVELOPMENTS IN BELIZE - 2013

THE REAL ECONOMY

Gross Domestic Product (GDP)

Preliminary estimates by the Statistical Institute of Belize are that GDP growth decelerated from

4.0 percent in 2012 to 0.7 percent in 2013. The slowdown emanated in part from the primary

sector where unfavourable weather and diseases caused production of the major export crops -

banana, sugarcane and citrus – to decrease. The secondary sector also contracted due to the

concurrent decline in agro-manufacturing of sugar and citrus juices coupled with the continued

slide in petroleum extraction. On the upside, the services sector, which now accounts for

approximately 58.0 percent of the economy, performed well largely due to buoyancy in tourism

and an uptick in government services.

Following a record harvest in 2012, the banana crop returned to its customary output level,

declining by 4.7 percent to 98,820 metric tons. Citrus deliveries fell by 29.9 percent due to citrus

greening and unfavourable weather. Meanwhile, sugarcane deliveries declined by 21.9 percent as

the start of the harvest was postponed from December to January 2014 due to excessive rains that

damaged roads and crops in the field. A dispute also erupted between farmers and American

Sugar Refineries concerning payment for bagasse. Fortunately, this was resolved with a

compromise being reached on the way forward for this hot button issue. Deliveries for the

2013/2014 sugarcane season consequently commenced once weather and roads permitted. A

downturn in agro-manufacturing was linked to output reductions of 28.8 percent for citrus juices

and 17.3 percent for sugar. In addition, petroleum extraction contracted by 23.1 percent to

792,339 barrels. Production at the Never Delay field yielded only 5,533 barrels, 86.7 percent

below the 2012 production, while the fall in Spanish Lookout output was 20.4 percent.

There were some bright spots in both the primary and secondary sectors however.

Shrimp farming was on an upswing with two new farms being added in the last quarter of

2013. Meanwhile, with its first full year of operations since re-entering the industry in the

latter half of 2012, Belize Aquaculture Limited led production with 5.3 million pounds of

farmed shrimp.


Construction activity was strong and reflected public sector infrastructural works and

private sector projects, including an uptick in residential mortgages.

Output of domestic electricity surged ahead during the second half of 2013 and more than

compensated for the steep drop during the first half of the year. Starting August, the

same excessive rainfalls that caused increased crop losses and damaged the road

infrastructure, also boosted the output of hydroelectricity and contributed to a 12.9

percent increase in domestic electricity production during the year.

The services sector was the main engine of economic growth in 2013. Buoyancy in tourism was

supported by strategic marketing efforts and heightened publicity as well as by improvements in

the economies of Belize’s main source markets. Stay-over arrivals increased by 5.8 percent with

visitors from the US and EU, Belize’s primary markets, up by 4.1 percent and 8.6 percent,

respectively. Cruise ship disembarkations also rose by 5.7 percent to 609,612 visitors, reversing

the 11.9 percent contraction experienced during 2012. The growth momentum generated by the

tourism industry rippled across the services sector and heightened activities in “Wholesale and

Retail Trade”, “Hotels and Restaurants” and “Transport and Communication”.

Prices

Inflationary pressure eased in 2013 with the increase in the Consumer Price Index (CPI) slowing

down from an annual average of 1.3 percent in 2012 to 0.5 percent. This easing resulted as

higher prices for “Medical Care”, "Transport" and "Food and Non-Alcoholic Beverages" were

softened by the lower prices that were observed for “Miscellaneous Goods and Services” and

“Clothing and Footwear”.

Employment

As was the case in 2012, the SIB conducted the two rounds of its Labour Force Survey in 2013.

The first round of the survey, which coincides with seasonally higher levels of economic activity,

was in April. The second was in September when there are lower levels of activity in the sugar,

citrus and tourism industries. The average employment level for the 2013 rounds of the survey

suggests that 3,000 more persons with jobs as compared to 2012. Also, the unemployment rate

fell to an average of 12.9% in 2013 from 15.2% recorded in 2012.


CENTRAL GOVERNMENT OPERATIONS

Projected Outturn

The projected outturn for Fiscal Year (FY) 2013/2014 indicates that Central Government posted

a primary surplus equivalent to 0.9 percent of GDP, down from a budgeted 1.0 percent and an

overall deficit equivalent to 2.1 percent of GDP, compared to budgeted 1.8 percent. While the

total revenue and grants increased by $40 million to a record $912 million, this was outweighed

by a rise in total expenditure, which went up by $45 million to $979 million. The financed was

financed from external sources, mostly from the PetroCaribe proceeds, which also contributed to

a build of deposits in the banking system.

The total projected current revenue of $856 million for FY 2013/2014 is $44 million above the

$812 million collected in FY 2012/2013.

Actual Actual Approved Projected

Outturn Outturn Estimates Outturn

2011/2012 2012/2013 2013/2014 2013/2014

Total Revenue and Grants 835.7 837.4 872.5 900.6

Total Expenditure 867.3 854.0 933.8 974.6

Primary Balance 66.0 41.1 35.2 32.9

As % of GDP 2.2% 1.3% 1.0% 1.0%

Overall Deficit (31.6) (16.6) (61.4) (74.0)

As % of GDP -1.1% -0.5% -1.8% -2.3%

Amortization (56.2) (61.2) (64.5) (63.0)

Financing Requirement (87.8) (77.8) (125.8) (137.0)

GDP in current market prices 3,008 3,159 3,369 3,232

Summary of Budget Estimates, FY 2011/2012 to FY 2013/2014

(Bz$million)

Revenue Performance

The upswing in government receipts from Business Tax, GST on importation, IBC and

IMMARBE Registries and Dividends from BTL and BEL amounted to $59 million. However, a

$30 million contraction in collections from the domestic petroleum activities, International Trade

and Transactions and Excise tempered the increase in total revenue to $29 million.


The $11 million projected rise in Grants to $52 million is ascribed to several inflows from our

bilateral and international partners as well as from domestic sources.



2011/2012 2012/2013 2013/2014 2013/2014

Total Revenue and Grants 835.7 837.4 872.5 900.6

Total Revenue 802.5 816.0 831.4 860.6

Current Revenue 794.7 811.4 826.3 855.5

Tax Revenue 669.9 703.7 727.0 747.4

Taxes on Income & Profits 237.0 232.1 233.8 240.7

Taxes on Property 6.7 4.9 7.2 5.9

Taxes on Goods & Services 230.3 277.9 282.6 301.3

International Trade & Transactions 196.0 188.8 203.5 199.6

Non-Tax Revenue 124.8 107.7 99.3 108.0

Property Income 24.1 5.7 6.9 15.3

Licenses 12.6 14.8 15.8 14.3

Royalties 35.4 27.3 30.3 38.0

Ministries & Departments 41.5 32.2 36.9 39.4

Repayment of old loans 11.3 27.7 9.4 1.1

Capital Revenue 7.8 4.6 5.1 5.1

Grants 33.1 21.3 41.1 40.0

Summary of Revenue and Grants, FY 2011/2012 to FY 2013/2014

(Bz$ million)

Expenditure Performance

Some 80 percent of the projected total expenditure of $979 million for FY 2013/14 is for current

expenditure, and the remaining 20 percent is for development expenditure and net lending. The

$6 million expansion in current expenditure is due primarily to grants extended by the

Government for educational purposes and to municipalities for rebuilding works following the

unseasonal rains during the latter part of 2013.

In the case of development expenditure, the projected $39 million increase is entirely the result

of an upswing in Capital II outlays. This heightened expenditure is attributed infrastructure work

programs in municipalities and villages following the inclement weather of 2013, professional

fees and compensations for land acquisitions. These expenditures are responsible for the slippage

in the fiscal performance.




2011/2012 2012/2013 2013/2014 2013/2014

Total Expenditure 867.3 854.0 933.8 974.6

Current Expenditure 724.3 706.7 778.0 780.2

Wages and salaries 296.4 298.2 313.2 312.0

Pensions 51.6 54.5 55.2 54.8

Goods and services 174.1 165.7 181.0 173.0

Subsidies and current transfers 104.6 130.6 132.0 133.5

Interest payments & other charges 97.6 57.7 96.5 107.0

Capital Expenditure & Net Lending 142.9 147.3 155.8 194.4

Capital II 72.8 66.2 67.5 105.1

Capital III 65.3 77.8 85.2 86.2

Net lending 4.8 3.3 3.1 3.1

Amortization (56.2) (61.2) (64.5) (63.0)

Summary of Expenditure, FY 2011/2012 to FY 2013/2014

(Bz$ million)

Wages and salaries, $312 mn

Pensions, $55 mn

Goods and services, $182 mn

Subsidies & current transfers, $139 mn

Interest payments, $96 mn

Capital Expenditure & Net Lending, $194

mn

Chart 1: Distribution of Government's $975 million Expenditure in FY 2013/14


Central Government’s Debt

The outstanding development in the public sector debt position was the Government’s successful

closure of the US$548 million debt exchange offer on 8 March 2013, when 86.17 percent of

creditors signaled agreement versus the required creditor participation rate of 75.0 percent. The

new terms achieved a 43.3 percent reduction in net present value and significantly lowered

annual debt service costs in the short and medium terms.

ACTUAL ACTUAL PROJECTED FORECAST

2011/2012 2012/2013 2013/2014 2014/2015

Total Debt (Bz$ Million) 2,276.4 2,304.4 2,472.5 2,503.8

Domestic Debt 380.3 386.1 383.8 382.2

External Debt 1,896.1 1,918.3 2,088.7 2,121.6

Total Debt (AS Percent of GDP) 75.7% 72.9% 76.5% 74.5%

Domestic Debt 12.6% 12.2% 11.9% 11.4%

External Debt 63.0% 60.7% 64.6% 63.1%

Central Government's Debt

Disbursed Outstanding Debt

The main features of the exchange included:

a principal haircut of 10.0 percent,

an increase in maturity by 9 years to February 2038,

equal semi-annual principal amortizations commencing in August 2019,

a step-up coupon structure with the annual interest payments set at 5.0 percent for the

first four years after issuance of the new bond, then rising to 6.678 percent thereafter

through to maturity,

and the capitalisation of the unpaid portion of the August 2012 interest payment and

interest accrued from August 2012 through to 19 March 2013.

Reflecting this notable development, the public sector’s external debt service payments during

2013 declined by 23.6 percent, as principal payments to multilateral and bilateral creditors


amounted to $78 million, and interest payments summed to $44 million, compared to $78.6

million during 2012.

Disbursements from bilateral and multilateral creditors during the year amounted to $244

million, a significant increase, as Belize took full advantage of the concessionary line of credit

offered under the Venezuelan Petrocaribe Agreement. Disbursements under this agreement

totaled $143 million in 2013 and accounted for 60 percent of all foreign borrowing. With

disbursements exceeding principal payments, the external debt stock rose by 6.5 percent to

$2,161 million, and the debt to GDP ratio increased from 64.5 percent in 2012 to 67.8 percent

of GDP in 2013. A noteworthy development was a fall in the average interest rate on the public

sector external debt from 3.8 percent in 2012 to 2.04 percent in 2013. This fall was largely due

to the concessional nature of the Venezuelan loans (1.0 percent annual interest and repayment

period of 25 years) and only one of two biannual interest payments being made in 2013 on the

restructured bond.

External borrowings facilitated a reduction in domestic financing as Central Government’s

domestic debt contracted by 1.2 percent to $385 million, or 12.1 percent of GDP. The overdraft

balance held with the Central Bank settled at $55 million, which was below the legislated ceiling

of $69 million for the FY 2013/2014.

THE EXTERNAL SECTOR

On the external front, initial estimates are that the balance of payments current account deficit

increased from 2.1 percent of GDP in 2012 to 5.0 percent of GDP. The bulk of this was due to a

28.5 percent widening of the merchandise trade deficit as imports rose by $78 million against a

$41 million decline in exports. Most of the imports growth was for domestic use such as

electricity, cement, vehicles and pharmaceuticals. In the case of exports, higher receipts from

banana, marine products and papaya could not compensate for steep declines in earnings from

petroleum and citrus juices as well as a dip in commercial free zone sales.


Contributing to the expansion of the external current account deficit was a decline in net inflows

from services, as higher earnings from tourism were outweighed by increased outlays for freight

charges and miscellaneous expenses that included fees associated with the bond restructuring.

Other developments of note included a reduction in remittance inflows to workers and a

contraction in interest payments abroad due to the bond restructuring.

-1000.0

-500.0

0.0

500.0

1000.0

1500.0

2000.0

2008 2009 2010 2011 2012 2013

$ m

illio

ns

Chart 2: Current Account Balance and Trade Deficit

Current Account Balance Goods: Exports FOB

Goods: Imports FOB Trade Deficit

0.0

100.0

200.0

300.0

400.0

500.0

600.0

2008 2009 2010 2011 2012 2013

$ m

illio

ns

Chart 3: Travel Inflows


Meanwhile, the capital account surplus almost doubled to $75 million due to the 10.0 percent

haircut negotiated on the restructured super bond and grants from foreign donors. Net inflows on

the financial account more than doubled due to substantial loan disbursements to the

Government under the Venezuelan PetroCaribe Agreement. Foreign direct investment subsided

to a more customary level in 2013, after peaking in 2012 as a result of the ASR investment into

Belize Sugar Industries. The surge in financial and capital inflows not only financed the larger

current account deficit but also led to a $228 million increase in the gross international reserves

to $805 million, which is equivalent to 5.0 months of merchandise imports.

-

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

2008 2009 2010 2011 2012 2013

$ m

illio

ns

Chart 4: Foreign Direct Investment

Significant Investments

in the petroleum and

tourism industries Reflects

ASR

investment

into BSI


MONETARY AND FINANCIAL DEVELOPMENTS

Turning to the monetary and financial sector, an event of some note in 2013 was the opening of a

sixth domestic bank, the National Bank of Belize Limited, which is wholly owned by the

Government. The strategy of the National Bank will be to target low and middle income

customers including civil servants who have been marginalized by the traditional commercial

banks.

During the year, growth in the broad measure of money supply decelerated to 1.4 percent with

bilateral disbursements from Venezuela and the Republic of China/Taiwan dominating

developments. These disbursements along with other receipts from sugar and petroleum had the

twin effects of boosting Central Government's deposits with the Central Bank and the latter's

holdings of official foreign reserves. Commercial banks' liquidity remained elevated but its

persistent climb was halted for the first time since 2007. This was largely due to a $72 million

contraction in the net foreign assets holdings of the banks that reflected a widening of the

external current account deficit, lower foreign direct investment flows and a healthy increase of

$52 million in their loan portfolio, most of which occurred during the last quarter of 2013. This

credit growth occurred even after taking into account further write-offs of $51 million in non-

performing loans, which followed write-offs of $45 million in 2012 and $37 million in 2011.

Three successive years of balance sheet repair and Central Bank vigilance brought the ratio of

non-performing loans (net of specific provisions) to total loans to 8.8 percent at the end of 2013,

down from 14.4 percent at the end of 2011, and well on its way to the prudential benchmark of

5.0 percent. Disbursements were channelled mainly to the agricultural sector for grain

production, land acquisition, residential and commercial construction, residential real estate,

infrastructural development and personal loans.

Lending from the five largest credit unions was also upbeat as loans rose by $59 million (14.6

percent) compared to $36 million (9.9 percent) in 2012. Again, funds were directed mainly to

agricultural production and processing activities, commercial real estate and land acquisition,

residential construction and personal loans, the latter being especially to meet educational

expenses and vehicle purchases.


With commercial banks’ holdings of statutory liquid balances and cash exceeding requirements

by 56.3 percent and 102.8 percent, respectively, the weighted average interest rate spread

narrowed by 36 basis points to 8.95 percent. Led by a rate reduction of 80 basis points on

residential mortgage loans, the weighted average lending rate fell by 74 basis points to 11.12

percent. While the weighted average rate for residential mortgages stood at 9.69 percent, in some

instances, individual mortgage rates were offered below 7.0 percent during the last quarter of

2013. The weighted average interest rate on commercial loans also posted a 70 basis points

decline. Concurrently, the weighted average deposit rate fell by 38 basis points to 2.17 percent,

indicating a possible bottoming out due to the uneven distribution of liquidity, an uptick in credit

demand and an increase in competitive behaviour.


ANNEX

2009 2010 2011 2012R

2013P

POPULATION AND EMPLOYMENT

Population (Thousands) 333.2 323.4 332.7 339.9 352.0

Employed Labour Force (Thousands) 120.5 100.7 n.a. 126.6 129.9

Unemployment Rate at April (%) 13.1 23.3 n.a. 14.4 13.1

INCOME

GDP at Current Market Prices ($mn) 2,698.0 2,797.0 2,895.0 3,145.2 3,184.6

Per Capita GDP ($, Current Mkt. Prices) 8,097.2 8,649.8 8,701.5 9,252.3 9,047.2

Real GDP Growth (%) - 2.7 2.0 4.0 0.7

Sectoral Distribution of Constant 2000 GDP (%)

Primary Activities 11.7 11.4 10.6 13.8 13.4

Secondary Activities 21.4 20.8 20.7 17.0 15.1

Services 53.7 54.1 54.9 60.1 61.5

TOURISM

Stay Over Arrivals (Thousands) 221.7 224.7 233.2 257.3 272.3

Cruise Ship Passsenger Arrivals (Thousands) 634.7 688.2 654.8 576.7 609.6

MONEY AND PRICES ($mn)

Inflation (Annual average percentage change) (1.1) 0.9 1.7 1.3 0.5

Currency and Demand deposits (M1) 713.3 707.9 839.4 1,102.9 1,121.9

Quasi-Money (Savings and Time deposits) 1,379.9 1,377.1 1,361.9 1,340.7 1,354.7

Money Supply (M2) 2,093.2 2,085.0 2,201.3 2,443.6 2,476.6

Excess statutory liquidity 105.0 160.1 221.1 310.1 293.5

Excess cash liquidity 40.0 60.5 95.7 152.6 198.3

Excess securities 24.7 151.5 173.9 166.0

CREDIT ($mn)

Commercial Bank Loans and Advances 1,805.4 1,762.0 1,756.5 1,802.6 1,854.3

Public Sector 7.1 8.9 9.1 16.6 23.8

Private Sector 1,798.3 1,753.1 1,747.4 1,786.0 1,830.5

INTEREST RATE (%)

Weighted Average Lending Rate 13.98 13.78 13.00 11.99 11.12

Weighted Average Deposit Rate 6.12 5.61 3.70 2.55 2.17

Weighted Average Interest Rate Spread 7.86 8.17 9.40 9.44 8.95

BALANCE OF PAYMENTS (US $mn)

Merchandise Exports (f.o.b.)(1)

382.1 475.7 603.6 621.7 607.1

Merchandise Imports (f.o.b.) 620.5 649.8 778.2 837.0 875.5

Trade Balance (238.4) (174.0) (174.6) (215.2) (268.7)

Remittances (Inflows) 76.2 75.8 73.0 73.6 72.2

Tourism (inflows) 256.2 264.4 247.6 297.7 331.7

Services (Net) 182.6 200.1 169.1 218.1 223.3

Current Account Balance (84.6) (40.6) (19.9) (39.6) (80.1)

Capital and Financial Flows 135.5 33.0 44.7 89.8 177.9

Gross Change in Official International Reserves 47.3 4.3 18.1 52.7 113.9

Gross Official International Reserves(2) 213.7 218.0 236.1 288.9 402.7

Import Cover of Reserves (in months) 4.2 4.5 4.3 4.6 5.0 Sources: Ministry of Finance, Statistical Institute of Belize and the Central Bank of Belize

(1) Includes CFZ gross sales

(2) Starting in 2005 these numbers have been revised to reflect only usuable reserves as defined by BPM5.

P: Preliminary R: Revised

n.a. Not available

ANNEX 1: Select Indicators

Belize Budget Speech 2014: Economic Performance Review

Economy & Finance

Transcript of Belize Budget Speech 2014: Economic Performance Review