IMF

 

Transcript of IMF Press Briefing
On  Venezuela and Argentina

MR. RICE: Good morning, everyone and welcome this briefing on behalf of the International Monetary Fund. I’m Gerry Rice of the Communication Department. And, as usual this morning, this briefing will be embargoed until 10:30 a.m. That’s Washington time. Also, as usual, I’ll make a few announcements regarding schedule, travel of senior management here at The Fund, and then I’ll turn to my colleagues in the room and take some questions online as well.

So this weekend the Managing Director the IMF, Christine Lagarde, will be in Dubai to participate in the annual World Government Summit. And then on Saturday of this weekend, February the 9th, she will deliver a keynote speech at the Arab Fiscal Forum, as well as a number of bilateral meetings. And we will be able to get those remarks to you in good time.

Then the Managing Director moves on to Germany next week for the Munich Security Conference, as well as the Munich European Conference going on the same time. And there she will give the keynote speech on Thursday the 14th, and will also take part in discussions throughout the conference, including a panel and so on. That’s all going to be broadcast and live webcast, and we can give you information on that if you’d like it.

And then let me just mention our Deputy Managing Director Tao Zhang will visit the Caribbean, Dominica and Grenada in particular between February the 11th and the 15th, and Mr. Zhang will be visiting areas affected by the hurricane and looking at the progress made in the wake of that natural disaster, and meet with high-level officials and so on.

It seems very early to say this, but press registration for the Spring Meetings is open. So it’s on IMF.org. It’s on the website, and you’re welcome to register. We look forward to seeing you there. Let me take any questions. Good morning.

QUESTIONER: Morning, Gerry. On Venezuela has the IMF had any contact with the interim acting president Guaido? And, also, is the IMF designing or have any design of a program for future assistance to Venezuela in the case it’s asked for?

MR. RICE: Look, Venezuela’s much in the news. I’m wondering are there any other questions on Venezuela and I’ll take them? And, you know, if there’s any follow up I’ll take that too.

QUESTIONER: Thank you. I was curious if you could talk about what type of pools the IMF has available that it would be able to use in the case of the situation in, like, Venezuela. I mean, I understand there’s some procedural things that need to happen before any sort of program could actually begin, but I wondered if you could discuss the options that would be available in a situation like this, and maybe some information about their scale and what types of partnerships would be needed for them to happen.

MR. RICE: Okay. Good morning.

QUESTIONER: Good morning. Thank you very much. and I would like to know whether the IMF already has had talks, conversations with the Central Bank since January 23? I understand those talks stopped last year when they delivered date. Also wanted to know how many IMF member states have already recognized Guaido and whether that’s — that number is what the legal affairs office, department of the IMF needs to make a decision on whether the organization recognizes Guaido or not? Thank you.

MR. RICE: Okay. Let me take that collection of questions, and as I said, if there are follow ups we can do that too.

So maybe just stepping back a bit. Our First Deputy Managing Director David Lipton made some statements a few days ago on Venezuela where he stressed, as we have been stressing in the past the, you know, first and foremost the devastating humanitarian and economic crisis that is facing Venezuela. We see the reports of widespread food and medicine shortages, and worsening health and social conditions. Our director for the Western Hemisphere Department gave a briefing a short time ago where he also pointed to growth projected to contract further this year in 2019, bringing the cumulative decline since 2013 to over 50 percent.

There’s hyperinflation and outward migration, and we are anticipating that those will intensify in 2019 as well, unfortunately. We have not had a policy dialogue. By that I mean the annual Article IV surveillance that we conduct with virtually all of our member countries each year. We have not had that with Venezuela or with the Venezuelan authorities for quite some time. In fact, since 2004 we have not had an Article IV. We’ve not had the opportunity for that kind of policy dialogue.

So, against that bit of background, our work has been focused on following the situation as closely as we can, and again, in light of this lack of dialogue. And more recently, as we have said, our focus has been on the issue of official date provision by the authorities. We’ve talked about that here in past weeks.

So let me turn more directly to some of your questions. So regarding the issue of official government recognition our position has not changed from what we said a few weeks ago. We’re following the situation in Venezuela closely and as in all such cases the international community guides official recognition, and we will be guided by that. So that really is the first step in terms of, you know, the IMF position on Venezuela would be the establishment of the guidance on official recognize where we rely on our membership, on the international community. And before any other action could be taken by the IMF that step would need to be taken. So in terms of the sequencing that’s the way it would work. And we’re still in that process of consultation with the membership.

There was a question about — so that kind of answers the question about, you know, possible design of a program or assistance. There are, clearly, a number of tools, financial instruments, technical assistance, analysis, and so on that the IMF uses, can use with our member countries. But it would be premature to, you know, begin to talk about any specifics because again, we are following the guidance of the international community and that would need to be established.

In terms of our — so I think, you know, that also I hope answers the recognition issue.

In terms of our contacts, our contacts with the Venezuelan authorities have been on recently as I have mentioned here before, have been solely on this issue of data provision which we have talked about before. The IMF has been looking for more updated data from Venezuela over the past several years and the most recent discussions have been focused on that issue.

And in terms of our, you know, discussions with others, you know, in every country we have discussions with various stakeholders, with a broad group of stakeholders and, you know, we have tried as much as we can, given the constraints which I have just described in Venezuela. We have attempted to do that as well over the past years as part of our work to try and better understand the economic situation in the country.

But as I say this is pretty much in line with what we do across our membership. So that’s where we are on Venezuela. Are there any follow ups on that?

QUESTIONER: Yes. But what I want conversations with new government, Guaido’s government. We are not talking about a civil society, we are talking about the new government that was confirmed, proclaimed on the 23rd of January. So has there been any conversation with widely when he was here in December or with some of their envoys here like (inaudible)? MR. RICE: You know, I’m not aware of any specific discussions with the IMF. But again, in every country we have — we try to have a dialogue with a broad array of stakeholders and, you know, we have attempted to do that in the case of Venezuela as well in as much as we were able to. And, I mean, over the past several year is what I’m talking about, you know, we try to have a dialogue with board group of stakeholders. But on you specific question, I’m not aware of the — any discussion there.

QUESTIONER: And the —

MR. RICE: Let me just take one more on — are you on Venezuela as well?

QUESTIONER: Yes.

MR. RICE: Let me take one more on Venezuela.

QUESTIONER: You said that contacts with central bank have been solely on the issue of data provision. Has that contacts have taken place after January 23?

MR. RICE: Yes, I don’t have a, you know, I don’t have a specific date on it but the — sorry. The dialogue that we have — we have been having with the Venezuelans was the Venezuelan authorities was on that issue of data.

QUESTIONER: But that was last year. There was, has there been dialogue this year at all? No contact with the Venezuelan authorities this year?

MR. RICE: I am not, I’m not aware of any contact. I’m not aware.

QUESTIONER: I know they put a board meeting.

MR. RICE: I don’t have any timeline on a board meeting, no.

QUESTIONER: Thanks.

MR. RICE: You know, on the board, just the way the IMF works, we regularly update our board and keep our board informed of relevant issues, relevant country cases, so, you know, there are briefings that take place. But I think you’re asking about a specific board date where there would be a discussion and a decision regarding official recognition. And —

QUESTIONER: Do you have a date for that?

MR. RICE: Oh, okay. Well, I’m glad we clarified that. No, I don’t have a date for that. It, you know, it relates to what I said earlier about clearly the fluidity of the situation and the issue of recognition. Until these things are clarified, it would be difficult to have a date for discussion of the data issue. So I’m glad we clarified that.

QUESTIONER: Thanks.

MR. RICE: Good morning.

QUESTIONER: Good morning. I have a question on Argentina. And, Gerry, there is an ongoing litigation here regarding the state owned oil company YPF and the attorney general for the treasury met with some IMF officials. I wanted to ask you what are the chances that the IMF supports Argentina in this litigation before the Supreme Court presented an Amicus brief.

MR. RICE: Yes, you know, I don’t have anything specific on that. You know, we meet including our legal department meets with representatives of member countries on a regular bases but I don’t have any guidance on for you on this specific issue.

QUESTIONER: Can you perhaps comment on — can you perhaps comment what are the regular conditions under which the IMF would, you know, express its opinion on litigation involving one of its member states here in the U.S.?

MR. RICE: You know, it really, it varies and very much depends on the country and the case, the circumstances. So I wouldn’t want to generalize but, you know, you’re asking about a fairly technical issue and maybe what I can do is arrange that I would have someone from the legal department maybe brief you a bit on those technicalities. But again, I would think it’s very much case by case and depending on the issue but let us try and help you afterwards. I understand it’s an important question. Good morning.

QUESTIONER: Good morning, Gerry. On Argentina too. And regarding the next mission, IMF technician Cardarelli team. I wanted to know if they’re planning on meeting with opposition leaders taking into account the concerns about the future of the program with Argentina.

MR. RICE: Yes —

QUESTIONER: After the elections I mean.

MR. RICE: So I want to confirm that yes, Roberto Cardarelli and the IMF staff team will be in Buenos Ares February, on February the 11th for the discussion of the third review of Argentina’s economic plan and the support being provided by the IMF. There will be — there will, you know, it relates a bit to what I said earlier.

You know, we try to meet with the broad range of stakeholders so I don’t, you know, I don’t know, I don’t have the specific whether there will be meeting with opposition leaders or representatives but we do try to meet with a board range of stakeholders in every country, government fiscals as well as private sector academia, civil society and, you know, sometimes the opposition as well. But I don’t have a specific meeting or representatives in mind.

I mean, what has happened since we last met here is of course that Christine Lagarde met with Minister Dujovne and with Central Bank Governor Sandleris and David Lipton also, the first deputy managing director for that matter. I think, you know, we issued a statement a couple of weeks ago on that. And then we have the mission upcoming. In her statement after her meeting with the minister and the governor, Madame Lagarde emphasized that the implementation so far of the program have served Argentina well and we think that continued implementation will enhance the economies, Argentine economies resilience to shocks and preserve a macroeconomic stability and bolster growth.

So there will be an update on that assessment after the Cardarelli mission, the Cardarelli visit to Argentina. We will communicate again in terms of an updated assessment of where we think the Argentina program stands. Good morning.

Link to the complete briefing  including video. which includes other countries, not in the region.

Belize

© 2019 International Monetary Fund WP/19/24 IMF Working Paper Western Hemisphere

Departmeimf.org/…/Reinvigorating-Growth-in-Belize-46496nt Reinvigorating Growth in Belize

Prepared by Dmitry Vasilyev1 Authorized for distribution by Uma Ramakrishna February 2019

Abstract

• In the 1990s and early 2000s, Belize grew faster than its regional peers. By the mid-2000s, however, economic growth had slowed down to the regional average.
• A vicious circle of low growth and increasing public debt has been clouding Belize’s outlook.
• This paper applies a growth diagnostic approach based on the Hausmann-Rodrik-Velasco framework to investigate the main growth constraints and opportunities for higher growth in Belize. Improvements in access to finance and in the business climate could unlock Belize’s strengths.

JEL Classification Numbers: O11, O43, O54. Keywords: growth diagnostics, development policies, structural transformation. Author’s E-Mail Address: dvasilyev@imf.org

I am grateful for comments by Daniel Leigh, Bert van Selm, and participants at the macro-structural pilot brainstorming session and the IMF WHD seminar. IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

 CONTENTS

1. ABSTRACT
2. INTRODUCTION
3. . BELIZE’S GROWTH PERFORMANCE IN INTERNATIONAL PERSPECTIVE
4. DIAGNOSTIC: GROWTH CONSTRAINTS
5. GROWTH OPPORTUNITIES
6. POLICIES FOR REINVIGORATING GROWTH
7. CONCLUSION

REFERENCE “In practice, structural reform has come to represent a grab bag of policies meant to enhance productivity and improve the functioning of the supply side of the economy.” Dani Rodrik (2016).

INTRODUCTION Since attaining independence from the United Kingdom in 1981, Belize has registered strong economic and social outcomes. Per-capita income has risen and is above the median for other emerging market and developing economies (EMDE), if lower than the median for other Caribbean economies. Infant mortality is relatively low and female labor force participation is quite high. Belize’s demographic and social indicators are comparable to [Figure 2. Growth dynamics Source: World Bank, World Development Indicators ] IMF staff estimates.

Note: Caribbean tourism intensive = Antigua and Barbuda, the Bahamas, Barbados, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines. In recent years, however, Belize’s progress in converging to higher living standards slowed.

Growth since 2010 has averaged only at 2.2 percent per year. With average population growth estimated at about 2.5 percent per year, GDP per capita since 2010 has been declining.  This sluggish growth has complicated job creation, raising Belize’s wages and social conditions toward advanced economy levels, and the task of addressing economic challenges, including reducing Belize’s elevated level of government debt.

To shed light on the reasons for low growth in Belize, and on how Belize could resume its convergence toward the living standards of richer economies, this paper synthesizes insights from existing research and conducts a diagnostic of Belize’s growth constrains and opportunities.  In particular, it addresses the following questions:

1. How has growth in Belize compared with peer economies, including economies at a similar level of income?
2. The source of the population growth statistics is National Statistics Office. Latest available data are for 2014. According to anecdotal evidence, relatively high population growth reflects substantial inflows of migrants into Belize.
3. Our analysis builds upon previous growth diagnostics (Hausmann, Klinger, 2007; Martin, 2015) and on research in a recent book on the Caribbean (Alleyne et al., 2017). -2 0 2 4 6 8 1980 1985 1990 1995 2000 2005 2010 2015 Belize Caribbean tourism-intensive economies EMDEs
4. How much of the sluggish growth reflects slow accumulation of capital and labor, and weak total factor productivity growth?
5. In terms of policy-relevant factors, how does Belize compare with peer economies based on about 50 characteristics relevant for growth and prosperity? In particular, what are the main growth constraints and what are the strengths of the economy? What are the main opportunities for achieving faster growth?
6. What policies could help address growth constraints and take advantage of opportunities? II. BELIZE’S GROWTH PERFORMANCE IN INTERNATIONAL PERSPECTIVE After several decades of high growth, the convergence of the Belizean economy with advanced economies has slowed down and lately even reversed (Figure 3).

Belize has seen two growth spurts in 1986-1993 and in 1999-2002 due to tourism inflows and higher investment on the back of “citizenship-by-investment” program (1995-2002) and public expenditure.

Hausmann and Klinger (2007) noted that each of these high growth periods ended with a decline in FDI inflows, public investment acceleration and higher fiscal and current account deficits (Figure 4).

Unlike the first boom-bust cycle, the second growth spike was financed by increasing external public debt, as private savings declined. Figure 3.

Growth overview Source: World Bank, World Development Indicators; IMF staff estimates 100 200 300 400 500 600 1970 1980 1990 Belize Caribbean economies non-Caribbean small states EMDEs Asian newly industrialized countries    Figure 4.

While public investments helped stimulate total investments and growth in late 1990s-early 2000s, it resulted in higher twin deficits Source: IMF, World Economic Outlook; the authorities; IMF staff estimates.

Since then, a number of adverse external developments, persistent domestic macroeconomic imbalances, and structural impediments have depressed growth. The adverse external shocks include the erosion of preferential trade access to European markets, the decline of official development assistance, and increasingly frequent natural disasters. As a result, both fiscal and external positions deteriorated. With low FDI and financial sector weaknesses, the fiscal malaise started to undermine potential growth by crowding out private investment and requiring higher taxes.

A vicious circle between weak macroeconomic fundamentals and structural impediments have hurt growth and sustainability prospects, preventing Belize from benefiting fully from globalization and technological progress. Belize’s growth rate is now below that of other countries at a similar level of per-capita income. As Figure 6 illustrates, the experience of 179 economies since 2000 is consistent with the idea that countries at a higher income level grow more slowly.

Since the per capita income of Belize is well above that of Central American economies, standard growth theory predicts that Belize should grow more slowly. Slower growth comes from a smaller gap with advanced economies to bridge through the accumulation of capital and technological leapfrogging. However, Belize’s growth has been slower than growth in countries with similar per capita income. Such growth under-performance also characterizes a number of other Caribbean tourism-intensive economies (Figure 5).

A supply-side decomposition shows that TFP has declined in 2000-2016, as in other Caribbean economies (Figure 6). TFP measures the overall productivity of both labor and capital and reflects such elements as technology. On average, during 2000-2015, TFP growth contributed -1 percentage point to annual growth. The analysis of growth constraints in section 3 aims to shed light on the reasons behind the declining total factor productivity, as many factors studied below are linked to TFP. Figure 6.

Contributions to average GDP growth per capita, 2000-2015 (percent per year); Belize vs country groups and vs Caribbean countries Source: IMF, World Economic Outlook; IMF staff estimates There are signs of what some studies refer to as “premature deindustrialization” in Belize. Rodrik (2015) notes that many developing economies prematurely deindustrialize.

Diversification of goods production, as shown in export diversification index (Figure 9) and export tree maps for 2016 and 1995 (Figure 10). Figure 9. Diversification indicators (higher values for the all three indices indicate lower diversification.) Source: The Diversification Toolkit: Export Diversification and Quality Databases (Spring 2014). Note: the overall, intensive (within), and extensive (between) Theil indices are calculated following the definitions and methods used in Cadot et al. (2011). Details: 

Indicators of diversification Export Diversification Index Extensive Margin (RHS) Intensive Margin 10 Figure 10. Product tree maps: 1995–2016. 1995 2016 Source: Atlas of Economic Complexity.

DIAGNOSTIC: GROWTH CONSTRAINTS To identify what is holding up economic activity, this paper conducts a growth diagnostic based on the Hausmann-Rodrik-Velasco (HRV) framework. This approach provides a decision tree for identifying major constraints, as illustrated in Figure 11.

The heatmap uses 2017 data or the latest available and compares Belize with: Caribbean countries; economies with similar income group (+/- 20 percent of GDP per capita in international dollars in 2016), economies of Central America, Dominican Republic and Panama; non-Caribbean small states.

High cost of finance Belize scores relatively poorly on financial indicators demonstrating that high cost of finance is an important growth constraint. Almost 70 percent of firms identified access to finance as a major constraint, according to the 2010 World Bank Enterprise Survey.

The Doing business indicator “getting credit” also points to constrained access to funding in Belize. The bank spread (difference between loan and deposit rates) seems comparable to other counties, however, spread at 7-8 percentage points is substantial.

At 12 percent, gross (total) saving is on a low side comparing to peer countries. There could be two explanations of high costs of finance: low saving and/or poor financial intermediation. Although at 12 percent gross (total) saving is on a low side, low deposit rates and excess liquidity in the banking sector indicates that low saving is not the main reason of 12 high cost of finance.

Weighted average deposit rates have been below 1.3 percent in 2017 – first half of 2018, while weighted average lending rate have been above 9 percent. Poor intermediation is the main driver of high cost of finance. Keeping lending rate relatively high, banks hold large amount of excess liquidity. At the same time, high spreads drive lending rates high. There are four reasons that can explain high spreads:

1. implicit taxes,
2. low competition and high profits,
3. banks operational costs,
4. risk premium.

Implicit taxes are high but they unlikely play a key role in widening interest spread. Reserve requirement stands at 8.5 percent and liquidity statutory requirement is 23 percent of total assets. Rather high liquidity and reserve requirements are mopping up excess liquidity created by the central bank when it finances fiscal deficits.

These requirements create additional costs for banks. Thereby, fiscal deficits increase the cost of finance for the private sector. This conclusion from Hausmann and Klinger (2007) is still valid. However, liquid assets exceeded this requirement by 44.9 percent at end-2017 meaning that statutory requirements are not binding on average. Banks’ operational costs and the lack of competition also do not appear to be main reasons for high interest rate spreads.

Although operational costs may be on high side, non-interest rate expense to total income at 56.7 percent in 2016 does not seem particularly high. Return on assets at 0.63 percent also does not flag the lack of competition and high monopoly power of the banks.

After the elimination of other factors, risk premium appears to be the main factor explaining high interest rate spread in the banking sector of Belize. Establishing Credit Bureau and collateral registry will be instrumental in reducing the interest rate spreads and costs of finance.

High cost of finance was identified as a major constraint in Hausmann and Klinger (2007) and one of major constraints in the World Bank diagnostic (2016) and this conclusion still holds. High public debt is crowding out financial resources for private investments.

In addition, in the 2000s, a weakened fiscal position resulted into serial debt restructurings (2006-2007, 2012-2013, and 2016-2017) that undermined the government’s credibility and complicated the access to international capital markets (Asonuma et al., 2018). In 2015, the loss of CBRs has increased the cost of finance even further.

Overall, financial constraints are tight in Belize. Government failures High public debt and fiscal sustainability risks create an apparent constraint for sustainable development over the medium term. If fiscal risks realize they can result into procyclical adjustment that may significantly affect growth. Uncertain outlook limits private investment, as returns are unclear. At the same time, high public debt and the need to improve a fiscal balance constrain fiscal space for public investment. With debt above 90 percent of GDP, Belize’s position is weaker than in a number of other emerging market economies.

To reduce  debt burden, Belize has to maintain high tax rates and tariffs. Higher taxes and tariffs inevitably have adverse effects on business environment. The business climate indicators paint a mixed picture. Overall, Belize has higher Doing business rating than many of its peers. However, such Doing business rating pillars as starting a business, registering property, protecting minority investors, enforcing contracts point to the areas where streamlining bureaucratic processes could bring positive results.

World Governance Indicators of institutions, regulations, and bureaucracy support this conclusion. Social returns This group of indicators also give a mixed picture. On the one hand, human capital indicators are relatively high and brain drain is not substantial, at least, comparing with Caribbean countries. On the other hand, homicide rate is high and climate change is becoming a worrying factor. Human capital. Quantitative indicators give a mixed picture. On the one hand, school attainment is rather low in Belize. On the other hand, the heatmap shows that the emigration, including skilled one, is relatively low compared to other Caribbean economies. The analysis of returns on education also does not provide a clear picture.

The indicator “education” measures years of schooling scaled by assumed rate of return to education based on Mincer equation estimates (Psacharopoulos 1994). Belize scores very well on this indicator. However, Naslund-Hadley et al. (2013) found that returns are higher for higher education in Belize. Supporting this result, the Global Competitiveness Indexes shows gaps in the higher education and training areas in Belize, although education outcomes in primary education compare favorably with peers. A deficit of employees with higher education is broadly consistent with the anecdotal evidence that the lack of educated labor force constrained foreign investments.

Crime. With homicide rate at 34.4 per 100,000 population (as of 2015), social costs are significant. Violent crime discourages tourism and investments and reduce fiscal space by increasing security spending (Jaitman, 2017). At the same time, on some crime-related indicators Belize scores relatively well. In Belize, 8 percent of firms have experienced losses 14 that Belize’s income will rise by significantly less over coming years than it would without climate change.

The IMF October 2017 World Economic Outlook indicates that Belize is among the countries most negatively affected by global climate change. Figure 12. Belize’s vulnerabilities to climate change

 The quality of infrastructure in Belize has been weaker in Belize than in its peer countries, as shown by the infrastructure indicator of the 2012 Global Competitiveness Index. But expanding airlift and initiated construction of the sea port are set to ease some important infrastructure bottlenecks. The quality of infrastructure in Belize is also related to vulnerability to climate change. Investments in resilient infrastructure is necessary to reduce such vulnerabilities. Strengthening the resilience of infrastructure connectivity—roads and bridges—was flagged as the most urgent priority and has been prominent in recent budgets. An estimated one-third of budget investment already goes to resilience-building projects. IMF (2018) proposes relevant recommendations.

Market failures Bearing in mind that these indicators tend to be low in all Belize’s peer economies, Belize performs relatively favorably in terms of exports diversity, complexity, and functioning of markets. The goods market indicator of the 2012 Global Competitiveness Index strengthens the conclusion that business climate regulatory reforms should be stimulating for growth.   Labor market indicators look relatively well. With labor market participation above the peer economies, the informal sector seems to be smaller than in peers.

IV. GROWTH OPPORTUNITIES Section III examined Belize’s growth fundamental growth constraints. This section seeks to identify opportunities for productive sectors to expand. Diversification toward more complex products. Belize needs to diversify its exports. Although the shares of sectors such as machinery and chemicals have slightly increased, Belize’s goods exports continue to be dominated by vegetables, foodstuffs and wood. Diversification indexes do not show any change (Figure 9). The feasibility chart (Figure 13 A and B) indicates that opportunities for diversification toward more complex products are within reach. For example, Belize can increase its export complexity by producing furniture, chemicals and plastics.   These goods are in the north-west quadrant of Figure 13 A, meaning that they have higher than current average complexity and are not far from the core of a current product space.

Specific reforms would need to address issues that constraint the production of these goods.   Other products include: (1) chemicals and plastics: other plastic plates, sheets, etc.; paints and varnishes, aqueous; paints and varnishes, non-aqueous; other plates of plastics, noncellular and not reinforced; toiletries; plastic builders’ ware;Source: the Atlas of Economic Complexity. http://atlas.cid.harvard.edu/explore/feasibility/?country=29&partner=undefined&product=undefined &productClass=HS&startYear=undefined&target=Product&year=2016

Opportunity Gain. Measures how much a location could benefit in opening future diversification opportunities by developing a particular product. Opportunity gain quantifies how a new product can open up links to more, and more complex, products. Distance. A measure of a location’s ability to enter a specific product. A product’s distance (from 0 to 1) looks to capture the extent of a location’s existing capabilities to make the product as measured by how closely related a product is to its current exports. Economic Complexity. A measure of the knowledge in a society as expressed in the products it makes. The economic complexity of a country is calculated based on the diversity of exports a country produces and their ubiquity, or the number of the countries able to produce them (and those countries’ complexity). An expanding tourism sector.

Tourism has been a strong source of growth for Belize. The increase in the share of tourism in services exports is a positive sign (Figure 14). Belize’s tourism industry is set to benefit from FDI by major international hotels, as they are announcing their expansion plans in the country. 18 Figure 14. Composition of export basket: 2000–2014 2000 2014 Source: IMF, International Trade in Services Database.

V. POLICIES FOR REINVIGORATING GROWTH Belize’s Growth and Sustainable Development Strategy (GSDS) provides detailed guidance on priorities and specific actions to be taken to raise growth and productivity. The GSDS does not quantify the growth impact of the structural reforms it envisages, but seeks to achieve growth of 5 percent annually over the medium term.

Belize has seen such rates of growth in previous decades, as already mentioned. Efficient implementation of the Growth and Sustainable Development Strategy (GSDS), which the government endorsed in April 2016, could harness this potential, raising productivity and long-term growth. Given the limited fiscal space, GSDS projects should be carefully prioritized and financed in close collaboration with development partners. Improving the business climate remains a central priority. Belize’s outlook of rising growth, especially in the tourism, call-center, and agriculture sectors, provides an opportunity to make progress on policies that will strengthen the recovery in the short term and raise longterm growth.

Efforts to implement such policies are underway, based on the 2016–19 Growth 19 and Sustainable Development Strategy (GSDS) in collaboration with Belize’s development partners. Legislative improvements in these areas could be implemented without significant fiscal costs or negative effects on near-term growth. Specific steps, whose effects on growth would be self-reinforcing, include:

•  Facilitating access to credit. Establishing a Credit Bureau and a credit collateral registry and broadening the types of eligible collateral––the authorities have already made progress in drafting the relevant legislation––would support access to credit to farmers and small and medium enterprises (SMEs) for financing investment. Over the medium term, developing financing instruments such micro-financing and financial literacy programs would further promote financial inclusion.
• Streamlining regulations. Accelerating and modernizing procedures for starting a business would support investment, especially by SMEs.
• Addressing skill gaps. Over the medium term, reforms to further improve education include ensuring primary and secondary education access for all children, and expanding technical training.
• Reducing crime. Recent analysis of crime and violence in Belize by the InterAmerican Development Bank (IDB) emphasizes the need to strengthen prevention and juvenile rehabilitation initiatives, such as Belize’s Community Action for Public Safety Program (CAPS). Amplifying support for such multi-faceted interventions, which also target “at-risk” youth, would strengthen safety and promote participation in the formal economy at a manageable fiscal cost5 .
• Diversifying exports. The analysis in Section IV provides areas for diversification, based on feasibly and complexity of potential export products. Specific industrial policies, consistent with the authorities ongoing implementation of their development strategy (GSDS), could complement macro policies in supporting diversification towards these new products.

VI. CONCLUSION The HRV framework has helped identify several growth constraints: cost of finance, public debt/high taxes, crime, skill gaps, distortionary regulation. These constraints shed light on the puzzle of negative total factor productivity growth after 2000. Our analysis also showed that among the identified constraints crime and education are not the most binding for growth. IMF (2017) estimated impact from the reforms in the area of cost of finance, crime, public debt, and the business climate.

Addressing these structural bottlenecks in Belize and  The direct cost of the authorities’ first CAPS program (2012-15) was US$5 million (IDB, 2017) and the authorities estimate that it significantly reduced youth crime and recidivism rates. 20 improving these indicators toward the level of best-performing small states could increase per-capita growth by 1-2 percentage points (to about 3-4 percent) over the medium term (Figure 15). The illustrative growth gain should not be interpreted as an overnight outcome because it could take years or decades to achieve.  Figure 15.

Reinvigorating Growth: Illustrative MediumTerm Growth Gains (Percentage points per year; deviation from baseline) Source: IMF staff estimates. Note: Simulated increase in medium-term growth associated with improvement in structural factors to best decile of small states. Estimates based on coefficients in IMF (2017; Table 2.3 column 4). For crime and disaster damage limitation, the simulations assume a reduction by one-half from the current level, and for trade integration, they assume an increase to the top quartile of small states.

For government debt, a reduction to 60 percent of GDP is assumed. Estimates based on coefficient estimates in column 4 of table. NPLs = nonperforming loans. Data labels in figure use International Organization for Standardization (ISO) country codes. Among economic sectors, tourism is expanding especially rapidly. At the same time, the feasibility charts discussed in Section IV identified some opportunities in manufacturing that can increase diversification of the Belizean economy and its long-term growth. 6 Costa Rica provides an example of significant gains in medium-term growth following reforms. The shift to faster growth in the 1990s was largely driven by Intel Corporation’s decision to place its manufacturing plant in the country, which, in turn, was motivated by Costa Rica’s high levels of educational attainment; economic openness; stable political, social, and macroeconomic environment; and strong doing business climate, reflecting decades of reforms, including investment in education. 0 1 2 3 Other Caribbean Belize Ilustrative Growth Gain (percent per year) less debt stronger financial system less disaster damage less crime better business climate greater human capital deeper trade integration.

© 2019 International Monetary Fund WP/19/24 IMF Working Paper Western Hemisphere Departme Reinvigorating Growth in Belize

For Figures and Tables referred to in this extract, follow this Link.

St. Vincent and the Grenadines : 2018 Article IV Consultation-Press Release

Staff Report and Statement by the Executive Director for St. Vincent and the Grenadines
Author/Editor:International Monetary Fund. Western Hemisphere Dept.Publication Date:February 25, 2019           Electronic Access:Free Full Text.

Summary:    Following the opening of a modern international airport, signs of an economic recovery have emerged, with increased direct flights from major cities in the U.S. and Canada and renewed interests from foreign investors in tourism projects. The overall fiscal balance has improved over the past few years, and the debt to GDP ratio fell in 2017 for the first time since 2007. Despite these positive developments, St. Vincent and the Grenadines faces challenges in sustaining the growth momentum over the longer-term. Like other Caribbean economies, its high exposure to natural disasters, limited land, narrow production and exports base, weak business competitiveness, and limited physical and human capital constrain potential growth. The financial system remains broadly stable but has vulnerable spots in the non-bank financial sector.

On February 15, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with St. Vincent and the Grenadines. The 2018 Article IV consultation focused on policies to achieve stronger and sustainable growth, build fiscal buffers, bolster resilience to natural disasters, and ensure financial stability

The economy of St. Vincent and the Grenadines has been recovering. The closure of Buccament Bay Resort (the largest hotel on the main island) and heavy rains with flooding and landslides slowed down growth in the second half of 2016 and early 2017. Following the opening of the new airport, however, tourist arrivals have recovered, boosting tourism-related services (such as hotels, restaurants, and retail). Increased demand for reconstruction materials from Dominica (struck by Hurricane Maria in September 2017) also helped the recovery. As a result, quarterly data show that output growth (year-on-year) has turned positive since the third quarter of 2017. Over the past year, inflation has remained around 2-3 percent.

The growth outlook is positive. Staff expects real GDP growth to rebound from 0.7 percent in 2017 to 2 percent in 2018, and further to 2.3 percent in 2019, driven by increases in tourist arrivals, tourism-related activities (including investment in hotels and resorts), and related local production. Beyond 2020, growth would be sustained at around 2.3 percent, assuming steady tourism and investment growth.

This outlook is subject to both external and domestic risks. External risks include weaker-than-expected global growth, tighter global financial conditions, and higher oil prices. Domestic risks include more severe and frequent natural disasters, the loss of correspondent banking relationships, and materialization of financial sector risks. There is also upside potential stemming from stronger-than-expected tourist arrivals, investor interest, concessional financing for capital projects, and the successful completion of the geothermal power plant.

Executive Board Assessment

Executive Directors commended the authorities for successfully reinvigorating the St. Vincent and the Grenadines’ economy. Nonetheless, they noted the continuing challenges in terms of making economic growth more sustainable, reducing public debt, and increasing resilience to natural disasters.

Directors stressed the importance of advancing structural reforms to raise longer‑term growth. They urged the authorities to capitalize on the growth opportunities created by the new airport. They recommended vigorously implementing policies to foster private sector activity, by improving the investment climate and strengthening human and physical capital, including investing in climate‑resilient infrastructure.

Directors emphasized the importance of bolstering fiscal buffers. They welcomed the authorities’ commitment to meeting the 60 percent of GDP debt target by 2030 and underscored the need for fiscal consolidation that does not jeopardize economic growth. They recommended prioritizing capital projects taking into account capacity and budget constraints and seeking concessional financing. Directors also encouraged taking additional fiscal measures, including broadening the tax base and reforming the pension system.

Directors welcomed the establishment of the Contingency Fund as an important instrument to protect public finances from the impact of natural disasters and climate change. They underscored the need to legislate the Contingency Fund’s governance and operational framework to ensure its effectiveness and transparency. Directors also suggested expanding the coverage of disaster insurance, especially against floods. More generally, they recommended continuing to strengthen disaster preparedness, including reviewing the National Emergency and Disaster Act, updating river basin flood risk maps, and enhancing public education and awareness.

Directors encouraged the authorities to strengthen the institutional fiscal framework. Priorities include adopting a medium‑term fiscal framework, strengthening revenue administration by moving toward a risk‑based approach and completing the various reform initiatives, issuing regulations to strengthen the oversight of state‑owned enterprises, and establishing a legal and institutional framework to assess potential risks from public‑private partnerships.

Directors highlighted the need to further strengthen financial sector oversight. They urged the authorities to enact pending legislation to strengthen the Financial Services Authority’s enforcement power. Directors urged the authorities to move ahead with preparing a crisis management plan for the non‑bank financial sector and setting up a Financial Crisis Management Committee, building on earlier technical assistance provided by CARTAC.

Directors commended progress in addressing remaining legal deficiencies in the AML/CFT framework. Going forward, they recommended focusing on ensuring the effectiveness of AML/CFT preventative measures and completing the National Risk Assessment.  Use the link below for statistics (opens as a new tab).

St Vincent & Grenadines IMF Statistics

Note: 2/From 2016, reflects additional debt contracted with PetroCaribe but not previously recorded (EC$ 112 million or 5.4 percent of GDP in 2016). It includes debt of central government and state-owned enterprises.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:.

IMF Communications Department  MEDIA RELATIONS
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Costa Rica

Staff Concluding Statement of the 2019 Article IV Mission
February 25, 2019

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

Passage of the fiscal reform bill was a critical step to restoring fiscal sustainability. Given the difficult external environment and high near-term fiscal financing needs,full and timely implementation of the fiscal reform should be a central part of the policy mix. To reduce near-term financing needs and help debt fall faster, further front-loaded fiscal consolidation is recommended, accompanied by measures to protect the poor. Other elements of the policy mix include: keeping monetary policy data dependent while further increasing its transparency and maintaining exchange rate flexibility; enhancing financial resilience; and leveraging the OECD accession process to boost competitiveness and inclusive growth through structural reforms.

Context

1. Costa Rica was buffeted by multiple shocks in 2018, which led to a moderation of growth and an increase in unemployment. Growth is estimated to have slowed to 2.7 percent in 2018, reflecting the impact of the public-sector strike, developments in Nicaragua, rising global interest rates and tighter domestic financial conditions, and the uncertainty surrounding the fiscal reform. In part because of this, but also due to a sharp rise in the participation rate, the unemployment rate increased to 12 percent in 2018Q4, with the rate for youths crossing 30 percent.

2. Passage of the fiscal reform bill was a critical step, but market reaction has been cautious and financing costs remain high. A fiscal reform had been in the works for nearly two decades, and passage of the bill in December 2018 involved seeing off a three-month public sector strike. Shortly following passage, however, three rating agencies downgraded Costa Rica’s sovereign credit rating and placed the country on a negative outlook, citing continued worsening of debt dynamics and significant short-term funding challenges. Local markets have started to normalize, allowing the government to secure financing at longer maturities and swap some short-term debt for longer maturity paper, though at interest rates above 9 percent in U.S. dollars. The EMBI spread also remains above 450 bps.

3. The government recognizes the challenges and is planning a broad array of reforms to complement the fiscal package and stimulate growth. The authorities are requesting legislative authorization to issue “eurobonds” and are also seeking financing from multilateral sources. Access to external financing would help ease pressure on local debt markets, reduce financing costs and lengthen debt maturities. Moreover, reforms regarding public employment, tax exemptions, and public administration are being planned. To boost competitiveness and employment, the government is working in a series of reforms, some of which come under the OECD accession process. In this context, the establishment of a special committee in Congress solely for legislation related to OECD accession is a welcome sign of political consensus regarding the importance of the process.

Outlook and Risks

4. Growth is expected to remain subdued in the near-term and gradually rise toward potential in the medium term. Fiscal consolidation and tight financial conditions are expected to keep growth moderate in 2019-20 (around 2¾-3 percent), notwithstanding a pickup in public investment, base effects associated with the 2018 public-sector strike, and improving terms of trade. In the medium term, positive confidence effects and progress with structural reforms, including those related to OECD accession, should lower risk premia and boost investment, pushing growth up towards 3½ percent. Inflation is expected to remain within the target range.

5. Growth risks are tilted to the downside. Key downside risks include partial implementation of the fiscal reform, an escalation of global trade tensions, and a sharp tightening of global financing conditions. Any of these, if materialized, could adversely affect Costa Rica via an abrupt deterioration in investor sentiment, resulting in capital outflows, pressure on the currency, a sharp rise in interest rates, and financing strains.

Restoring Fiscal Sustainability

6. The fiscal reform constitutes a critical step towards restoring fiscal sustainability, although full and timely implementation is key. The reform—which includes the conversion of the sales tax into a value added tax (VAT), higher income taxes, wage restraint, and a fiscal rule that ties down the growth of spending—is expected to yield savings of about 4 percent of GDP over 2018-23. It should also improve the progressivity of the tax system and likely reduce inequality.

7. An additional front-loaded adjustment of around ¾ percent of GDP is recommended to further reduce debt and near-term financing pressures. The fiscal reform should allow central government debt to peak at 61½ percent of GDP in 2023, and gradually decline thereafter. However, the government faces sizable financing needs in the near term. This, combined with the need to rebuild fiscal space to manage potential shocks and major contingent liabilities (e.g. pensions), presages the need for further front-loaded fiscal measures to improve market confidence and reduce financing needs. IMF staff estimate that an additional adjustment of ¾ percent of GDP over 2019-20 would help debt decline faster and reach 50 percent of GDP by 2030, consistent with studies on sustainable levels of debt in emerging markets.

8. Given the fiscal reform is largely spending based and Costa Rica’s tax-to-GDP ratio is relatively low, further adjustment should be underpinned by well-designed revenue measures while protecting the poor. Potential measures include:

Increasing the VAT rate from 13 to 15 percent, closer to regional standards and the OECD average of 19 percent.
Increasing property taxes given associated revenues are around half the Latin American average, as long as they can be allocated to the central government.

Lowering the tax-free threshold of personal income tax (PIT), which is currently about twice the average wage, reducing tax progressivity.

Increasing excise taxes on selected goods and services.

Taxing the profits of the cooperatives.
9. The authorities should build on recent measures to further improve public spending efficiency, debt management, and the institutional framework , which would allow fiscal policy to better contribute to growth and equity:

Improving the efficiency and quality of public spending. The fiscal reform eliminated significant revenue earmarking, thereby improving government control of the budget. The low efficiency of public spending in certain areas (e.g. education and social protection), however, suggests the need for performance-based reforms. IMF staff welcome the planned rolling out of debit cards as a vehicle to channel cash transfers to low-income households. The mission recommends more effective targeting and coordination of social assistance programs to better protect the poor, especially in the context of ongoing tax reforms.
Streamlining public debt management. The authorities have created an interinstitutional team to improve the coordination and the division of responsibility between different agents involved in debt management. IMF staff advise using only market-based mechanisms as financing conditions improve, strengthening price discovery, and improving communication with markets.
Introducing a multi-year expenditure framework (MTEF) and a fiscal council . Congress is in the process of passing a constitutional reform for an MTEF, and the authorities are taking steps to create a fiscal council. An independent fiscal council could prevent possible conflicts between the Ministry of Finance and the Comptroller General of the Republic—who have shared responsibility for the implementation of the fiscal rule—and act as a watchdog. In addition, IMF staff encourage the implementation of an MTEF consistent with international best practice, something which has proven to be an effective tool in OECD countries to control public expenditure over the medium term.

Keeping Monetary Policy Data Dependent and Enhancing Transparency

10. The current monetary stance is appropriate and should remain data dependent. The slightly accommodative stance is appropriate given the projected negative output gap and inflation persistently at the floor of the target range. Going forward, monetary policy will need to remain data dependent and balance downside risks to inflation stemming from slower activity and upside risks to inflation arising from a sharp tightening of global financial conditions.

If growth disappoints, space remains for increased monetary stimulus, but room would be limited if this coincides with fiscal or financing concerns leading to a deterioration in investor sentiment, capital outflows, and pressure on the currency.

11. Significant progress has been made to enhance the inflation targeting framework. IMF staff welcome: (i) the passage of the bill on delinking the designation of the President of the central bank from the political cycle and improving the clarity of dismissal rules; and (ii) the increase in FX flexibility since September 2018 and limited use of FX intervention to addressing episodes of large exchange rate volatility. Transparency could be further improved by publishing the calendar of monetary policy meetings and their corresponding meeting minutes.

Enhancing Financial Sector Resilience

12. Stress tests suggest the banking system is sufficiently well-capitalized to absorb sizable shocks, but it remains important to monitor and tackle financial vulnerabilities. The latter are related to sizable FX lending to unhedged borrowers; significant net foreign liabilities of banks; sharply growing household borrowing; and high sovereign exposure. To further incentivize de-dollarization, staff recommend:

• • (i) reversing all the June 2018 measures that relaxed FX lending requirements;
  • (ii) introducing different reserve requirements in domestic and foreign currency;
  • (iii) imposing additional capital requirements contingent on the expansion of credit to unhedged borrowers; and
  • (iv) allowing private banks more competitive access to the domestic-currency deposit market.

13. IMF staff welcome the government’s planned push for financial sector reforms, which are broadly in line with the 2018 FSSR recommendations. The planned reform on consolidated supervision provides SUGEF and CONASSIF with essential supervisory tools, strengthens fit-and-proper rules, and includes legal protection for supervisors to carry out their duties.

Staff encourage its rapid approval. Staff welcome the BCCR´s implementation of an emergency liquidity support mechanism and encourage further progress in establishing crisis management protocols. Rapid approval of the planned law establishing a deposit guarantee fund is important. In addition, staff recommend rolling back the blanket guarantee for deposits in state-owned banks should be considered to promote a more level-playing field for all banks.

Boosting Competitiveness and Inclusiveness Through Structural Reforms

14. Structural reforms are still needed to boost competitiveness and inclusiveness, and the authorities are developing an agenda in this regard. Costa Rica ranks favorably in many business indicators and remains a regional leader in attracting FDI. Additional steps are still needed to improve competitiveness and reduce inequality.

IMF staff welcome the government’s plans to boost potential growth and the political consensus regarding the OECD accession process, and underscore the importance of leveraging the latter to implement impactful structural reforms. Many of the plans still need to be turned into concrete policies, and an assessment of their fiscal impact is still pending. Staff view promoting female labor force participation and addressing weaknesses in transport infrastructure as key priorities. Similarly, staff support the OECD’s recommendation to undertake an in-depth review of key sectors (e.g. electricity) exempted from the competition law, and measures to increase banking sector competition.

IMF Communications Department  MEDIA RELATIONS
PRESS OFFICER: MARIA CANDIA ROMANO

PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG