Towards a Sustainable and Efficient State The Development ...

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Figure 1.11. Real Lending Rates in Belize’sIncome Band, 2005.1.08Figure 1.13. Real Deposit Rates in Belize’sIncome Band, 2005.15chapter 1Density.06.04.020Belize0 20 40 60Real lendingSource: Economist Intelligence Unit.Note: The real lending rate is calculated using the change inconsumer prices. The histogram shows all countries with logper capita (purchasing power parity) equal to that of Belize ±1.years, meaning there should be little exchange raterisk. The leading local bank reports that even itsbest corporate customers are charged 12 percenton loans, although inflation has not surpassed 4percent in more than a decade. Belize is clearly ahigh-cost-of-finance country.Lending rates could be high either because ofpoor financial intermediation or because of lowsavings. One way to distinguish between the twopossibilities is through interest rate spreads: poorlocal financial intermediation would manifestitself in high operating costs in banks and correspondinglyhigh spreads. If the problem is sav-Figure 1.12. Interest Rate Spreads in Belize’sIncome Band, 2005.15Density.1.050Belize-20 -10 010 20Real depositSource: Economist Intelligence Unit.Note: The real deposit rate is calculated using the change inconsumer prices. The histogram shows all countries with logGDP per capita (purchasing power parity) equal to that ofBelize ±1.ings rather than intermediation, the deposit rateshould be high and the spread low.Both spreads and deposit rates are high in Belize,as shown in Figures 1.12 and 1.13. However, onthe margin it seems that although spreads could beconsidered high but reasonable, the deposit rate isclearly very high, despite the fact that Belize has asubstantial tax on financial intermediation throughreserve requirements, which according to our estimate(see below) contributes a substantial portionto the spread. It is important to note, however, thatInternational Monetary Fund (IMF) estimatessuggest a lower contribution of reserve requirements,making poor financial intermediation moreof a worry. On balance, although financial intermediationin Belize may be a constraint on growth,the principal source of the country’s high cost offinance seems to be low savings.Diagnosing the Binding Constraints on Economic GrowthDensity1.050Belize0 10 2030 40SpreadSource: Economist Intelligence Unit.Note: The histogram shows all countries with log GDPper capita (purchasing power parity) equal to that of Belize ±1.As discussed above, aggregate national savingssuffered a significant collapse in the early 1990sand have not recovered. Private savings were themain source of that collapse, going from 15 percentof GDP in 1994 to 5 percent in 1998 and−6.5 percent in 2002 (IMF 2006). They havesince rebounded, and in 2005 reached 10 percentof GDP. Unfortunately, however, at the same timepublic savings have been wiped out by ballooningdebt service payments, keeping aggregate savingslow. Gross domestic savings in Belize (as a percentageof GDP) remain among the lowest in itsincome group (see Figure 1.14).11
chapter 1Diagnosing the Binding Constraints on Economic GrowthFigure 1.14. Gross Domestic Savings versus GDPper Capita, 2005(logs)Gross domestic savings (% of GDP), (WDI) 2007.806040200-20Belize6 7 89 10 11IngdppcSource: World Bank, World Development Indicators.Access to external finance has become a majorproblem since the accumulation of public debt inthe late 1990s. Belize had to renegotiate its debtin 2007 to avoid default. Debt sustainability analysisconducted prior to the renegotiation showedthe level to be unsustainable (IMF 2006), but therenegotiation reduced the net present value of thedebt by approximately 20 percent and changedthe time profile with a step-up interest rate. Thedebt level is now considered sustainable, as longas the country maintains a prudent fiscal stance(IDB 2007a). Not surprisingly, the government isnow virtually shut out of international financialmarkets and will be for the foreseeable future.As discussed in the growth dynamics section,Belize’s growth history has been one of Keynesiangrowth closely linked to fiscal spending andthe country’s external position. The current accountconsistently moves into deficit during periodsof accelerated growth and then recoversduring recessionary periods. The first growthacceleration from 1986 to 1993 was driven byFDI and private investment until there was aboom in public investment in the early 1990s.There was then a period of adjustment duringthe 1994–1998 recession when the publicbudget and current account returned to balance.Beginning in 1999, there was another public investmentboom, and in the context of low savingsand a lower tax take, an explosion in publicdebt. As discussed above and shown in Figure1.15, it is clear that Belize suffers from lack offiscal discipline.The country’s fiscal problems seem to be principallyon the expenditure side, though there arealso problems on the revenue side. The tax takeis currently more than 23 percent of GDP, makingBelize’s tax system one of the most effectivein Central America and the Caribbean ( Jenkinsand Kuo 2006). However, this is down from morethan 30 percent in 1990 (Central Bank of Belize2007). Tax revenues as a percentage of GDP fellsignificantly between 1990 and 1994, and theyhave remained at the same lower level ever since,exacerbating the budget deficit problem duringthe second spending boom.Figure 1.15. Growth Rate of GDP per Capita, Budget Balance, and the Current Account151050198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007-5Projection afterHurricane Dean-10Growth Rate ofGDP per capita-15Average Growth Rate-20Current AccountBalanceBudget Balance-25Sources: For 1981–2005, World Bank, World Development Indicators; for 2006, data from the government of Belize; for 2007, estimatefrom the government of Belize; and for 2007 incorporating the effects of Hurricane Dean (red), IDB (2007a).12
Page 4: Towards a Sustainableand Efficient
Page 8: AcknowledgmentsTowards a Sustainabl
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Trade Sector: Exporting for Growth4
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European Union consist mainly of ba
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Figure 4.4. Cumulative Cost Curve o
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Because Belize has a very small per
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4.3 Trade Policy Framework4.3.1 Bel
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Many of Belize’s top product expo
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Physical infrastructure limitations
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market diversification, particularl
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ReferencesBarrow and Williams, Atto
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Infrastructure: Current Situationan
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Already inconsistent and variable,
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5.2.2 Water and SanitationBelize ha
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Box 5.1 The Public Utilities Commis
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Central American Electrical Integra
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5.3 Policy OptionsThe linkages betw
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Figure 5.5. Public Investment and F
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ment Department could contract smal
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Tourism: Achieving Balancefor Susta
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624,000 in 2007, or approximately 7
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sociation, Belize National Tour Ope
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Belize’s diverse cultural experie
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egulatory framework in which the
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ReferencesBelize Tourism Board. 200
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chapter 7Agricultural Sector: Asses
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The Challenges of Managingthe Oil S
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Figure 8.2. Oil production (Continu
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Oil production depends on other fac
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of the oil tax regime. As this chap
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acked up by empirical evidence (see
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8.4 Local Impacts of Oil Activity8.
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●●●●A consequence of such l
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ReferencesArbelaez, M. A. 2008. “
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Part IIIEnvironmentalSustainability
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Figure 9.2. Wind Hazard MapFigure 9
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Table 9.1. Natural Disasters, 1931-
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chapter 9Integrated Disaster Risk M
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chapter 9and resource monitoring; L
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Towards EnvironmentallySustainable
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and currently, the gross value adde
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Figure 10.3. Renewable Internal Fre
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For reasons that are unclear, the c
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to a more normal level since 2006.
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Table 10.2. Recent Developments in
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Figure 10.6. Protected Areas, 2006(
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tection, up to 90 percent of the fo
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offering incentives for developing
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vironmental impact in the country.
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Part IVSocialDevelopment189
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chapter 11Protecting the Poor and V
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A Health Sector in Transition1212.1
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Stann Creek, and Toledo Districts,
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With a ratio of 1.2 hospital beds p
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veillance, monitoring, and control
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Table 12.6. Distribution of Health
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of those in the highest consumption
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eceiving the best care possible to
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12.5.4 Strengthen Education andPrev
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Appendix. (continued)Budget categor
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ReferencesArcia, G. 2009. “Belize
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chapter 13Education Sector: Analysi
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Indigenous Peoples: Cross-CuttingCo
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Table 14.1. Garifuna and Maya Popul
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the PAR does include some data disa
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Statistics provided in the agenda o
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Secondary EducationAs illustrated i
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In his decision, Chief Justice Abdu
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Box 14.1 Key Indigenous Organizatio
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It is important to note that the Ch
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of disaggregated data makes it diff
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Palacio, J. O. 2001. “Coastal Tra
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chapter 15The Growing Threat to Cit
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