WASHINGTON, Feb 5, CMC – Belize’s growth rate is now below that of other countries at a similar level of per-capita income with the country recording economic growth of 2.2 per cent since 2010, according to a Working Paper released by the International Monetary Fund (IMF).
In the paper titled “Reinvigorating Growth in Belize” economist Dmitry Vasilyev noted that in the 1990s and early 2000s, Belize grew faster than its regional peers.
However by the mid-2000s, economic growth had slowed down to the regional average and the Caribbean Community (CARICOM) country has been in a “vicious circle of low growth and increasing public debt” that has been clouding its outlook.
In the paper which examines the main growth constraints and opportunities for higher growth in Belize, Vasilyev argues that improvements in access to finance and in the business climate could unlock Belize’s strengths.
“In recent years, however, Belize’s progress in converging to higher living standards slowed. Growth since 2010 has averaged only at 2.2 per cent per year. With average population growth estimated at about 2.5 per cent per year, GDP (gross domestic product) 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.”
The economist said that Belize’s growth rate is now below that of other countries at a similar level of per-capita income and that 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,” he said.
The IMF Working Paper notes that 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” programme (1995-2002) and public expenditure.
But it said 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.
The Working Paper notes that with low foreign direct investment (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.”
In examining areas for growth, Vasilyev said that Belize needs to diversify its exports, noting that 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.
The Working Paper states that opportunities for diversification toward more complex products are within reach and Belize, for example, can increase its export complexity by producing furniture, chemicals and plastics.
“These goods … 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.”
Vasilyev also notes that tourism has been a strong source of growth for Belize.
“Belize’s tourism industry is set to benefit from FDI by major international hotels, as they are announcing their expansion plans in the country,” he wrote.