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imfIMF recommends tax increase, wage freeze & employment cap

Belize City, January 20th, 2011

In 2010, the Barrow Administration hiked General Sales Tax by 25%.  That measure, which is still causing greater hardships for middle and low-income earners and slower business, was a direct recommendation from the International Monetary Fund in 2009.

Today, the Prime Minister is reviewing a set of new recommendations from the IMF, which call for even higher taxes, among other austerity measures to curtail GOB spending and increase revenue.

In its 59-page 2010 Article IV Consultation, the IMF issues a number of red flags to the Barrow Administration, warning that if specific responsible fiscal management steps and key policy decisions are not taken, things could spiral out of control for the country.

The IMF warns that under the present policies of the Barrow Administration, GDP growth would be restrained “below historical trends” which could also “lead to high external financing needs” at about 8.5% to 10%of GDP.  Furthermore, the Washington-based group said foreign reserves would decline gradually to under two months of imports by 2020.

To avoid those complications, the IMF has recommended measures that will be painful to Belizeans, but which, as we have seen before, the Prime Minister won’t have a hard time in accepting.

Those measures include increasing GST to 15% (currently at 12.5), reducing Government’s wage bill, limiting growth in non-priority areas, capping Government employment to where it stood in 2009, and possibly even reintroducing the full fuel excise tax, which the Barrow Administration claimed it removed.

While the nation’s finances need improved management, the IMF also noted that the banking system, which is supervised and regulated by the Central Bank, has become unstable.  “…the overall health of the banking system has deteriorated, with three banks facing financial weakness… The authorities recognized that the situation of the three banks, if not addressed, could threaten the stability of the banking system.”

The banks’ instability is as a result of a high number of non-paid loans (NPL).  One of the banks, noted the IMF’s report, doubled in NPLs to 34 percent of total loans from January to June of 2009.  The high volume of non-paid loans is indicative of the hard times Belizeans are living in.

Those hard times were discussed by the IMF Report which noted the increase in poverty, the highest it’s ever been at 40% of the population.

The IMF Report also made special mention of two legislative steps taken by the barrow Administration which could adversely affect the economy.  One of them is the expropriation of Belize Telemedia Limited.  The IMF said it is necessary for an “early resolution” in the matter of negotiations between Government and the previous owners, to avoid affecting the investment climate, or pressure on public debt.

The IMF report was even more suspicious about the Government’s legislation on contempt of court, which was introduced in March 2010.  The document says while Government imposes increased penalties or imprisonment for contempt of court, the amendment could be viewed by investors as limiting the scope for arbitration in commercial disputes, with the unintended result of deterring private investment.

Prime Minister Dean Barrow is yet to discuss the IMF Report publicly.

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