In his address the Prime Minister discussed the pending IMF Report, noting that the Executive Board of the IMF reviewed it today. Well so did we. 7NEWS has obtained a copy of the draft report which was considered today, and as the Prime Minister says, it finds the Fund Encouraging government in its fiscal tightening, but also dealing very candidly with past fiscal mismanagement. For the first time ever, the report says that, "fiscal deficits averaged about 9% of GDP during 1999 to 2004." It's a stunning disclosure, because through all those years, government maintained and pronounced locally and internationally, with a perfectly straight face, that the overall deficit was always under 3% of GDP.
The report also points to the high cost of refinancing arrangements with RBTT, Capital Markets, and Bears and Stearn that government has undertaken in the last year, noting that these cost government US$28 million - 2.4% of GDP in just fees and charges, that does not include the actual cost of the money. And while those are alarming perhaps the most dramatic revelation comes on page 7 of the 40 page report where the IMF confirms that 47% almost half of DFC's portfolio is in default.
More than that, because of these defaults, government has had to assume US$210 million in DFC financing since 2002. Later on in the report, it discloses that the shortfall in DFC debt servicing will cost government close to 2% of GDP, which is $50 million, when only $19 million was budgeted.
On retrenchment, the IMF confirms that since April, government has reduced staff by 1.5%, which is 175 people, and a footnote adds that, "additional cuts are expected." And from that cryptic note to another, which makes a projection for when all this belt tightening will pay off. Well, according to the IMF, Belize will not be able to bring her debt to GDP ratio down until 2010, which tells us that there are many months of austerity still ahead. The IMF also predicts that Belize won't see a financing gap until 2006, when it projects, money will cost this country at least 17%.
And of course, it wouldn't be the IMF if there wasn't some grim foreboding on the currency peg. This time, the report says, "a strong, frontloaded and sustained adjustment effort is...needed to avoid the risk of a disorderly exit form the peg." On a modest upside the report does concede strong, sustained and seems grateful that, "the authorities have become receptive to the fund's advice." As you saw earlier that advice includes, "the introduction of a value added type consumption tax..." Again, this is the draft that was reviewed at the meeting of the executive board today. The full formal and final edition should be issued next Monday.
