Country Report Belize October 1996 Main report

Outlook for 1997-98: Domestic demand remains sluggish--

There is no sign of an upturn in the domestic economy, which is still feeling the impact of a government austerity programme aimed at curbing the fiscal deficit. The construction industry is benefiting to some extent from government schemes, including airport improvements and a new building to house the Central Bank of Belize, but manufacturing and retail commerce remain depressed and the beef industry is under serious strain owing to a fall-off in export orders. Increasing numbers of Belizean consumers have been crossing to Mexico for shopping, where devaluation has produced competitive prices. In Belize, where the currency is pegged to the US dollar, the introduction of a 15% value-added tax (VAT; not 16% as given in 3rd quarter 1996) has raised prices.

--prompting an easing in the austerity programme--

The depressed state of the economy appears to be pushing the government in the direction of more expansive policies. The governor-general's recent throne speech, in which government policy for the next twelve months was outlined, included plans for a relaxation of foreign exchange restrictions and the lifting of salary restraints for public officers. Both these measures, in conjunction with an expansion of infrastructural projects, should help to boost economic activity somewhat. The availability of additional foreign exchange (which stems from new external loan financing) will release pent-up demand for imports of basic investment goods, and will also help to abate rumours that the exchange rate has come under pressure in the wake of the Mexican devaluation, the failure of the Economic Citizenship Programme and the departure of the UK military garrison.

--which could lead to a widening of the trade deficit

Although export earnings in the first quarter were 7.8% up compared with the corresponding period of 1995, revenue for the year is unlikely to match the 1995 result. The average international sugar price is expected to fall, reducing Belizean earnings from this year's crop to about Bz$90m, compared with Bz$95m (US$47.5m) last year. Banana prices slumped, and the garment export industry is facing severe competition from Mexico. Only citrus concentrate and marine products appear likely to increase their earnings--the latter by 20%, according to government estimates.

Although imports fell in the first quarter, an expansion in economic activity would inevitably lead to an increase in imports in the rest of the year. The EIU, therefore, expects some widening of the trade deficit and the persistence of a current-account deficit.

© 1996 The Economist lntelligence Unit Ltd. All rights reserved
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