Belize is a tiny Central American nation with an English speaking population of 273,000 bordering the Caribbean Sea. The country is well known as a free enterprise open economy with a business friendly government. Although good things are happening in certain areas of the economy, challenges remain including structural economic deficiencies that has resulted in Belize being a net debtor nation. The country does require infrastructure upgrades particularly within its highways. The people of Belize for the most part are of mixed multiracial with Mayan & European descendents accounting for 47 percent of the population base, African at 27 percent.
Is there trouble in paradise?During 2004, a major credit rating agency downgraded Belize’s rating. It is estimated that upwards of 30 percent of the population lives below the poverty line. Below is a summary of our research findings as presented by BankINTRO.com.
POLITICS: parliamentary democracy, a major government scandal in summer 2004 resulted in several cabinet officials resigning. Prime Minister Said Musa’s administration has been accused as that of a spendthrift government racking up the national debt although spending was required in certain circumstances, particularly to address the devastation from two major hurricanes. Critics have stated however the large government spending since his arrival in office in 1998 has not been efficient. The government argues that the economy has since grown tremendously as they maintain control with next elections not scheduled until 2008. Belize obtained independence from the United Kingdom in 1981 although the UK does maintain military presence within Belize to provide for national security. The national capital is the city of Belmopan.
ECONOMY: since 1998, it has been government policy to increase GDP growth by cutting taxes with a goal of also increasing foreign direct investment. During most of the 1990’s, Belize expanded from its historical base of agricultural & forestry into tourism, offshore finance and shrimp farming. Although GDP growth has improved, Belize has serious macro-economic difficulties. The trade position is a serious concern as Belize runs large persistent deficits upwards of 50 percent of GDP which is off the map. The fiscal accounts are in persistent deficit that is directly feeding a growing domestic debt time bomb with public debt approaching 90 percent of GDP by year 2003. Major industries include: tourism, sugar cane (represents 30 percent of exports), bananas - largest employer although new tariff guidelines by the European Union may impact output, food processing, seafood - fishing/shrimp farming, rice, cocoa, textiles, minerals, citrus, clothing and financial services including offshore trust formation and asset protection trusts ‘APT’. A new threat to the economy is in the area of textiles with China killing the industry with its economies of scale and low wages. A new recent law has provided for a marine shipping registry in Belize which is experiencing tremendous growth with over 300 merchant marine ships registered. The United States is a major trading partner and accounts for 43 percent of Belizean exports as well the Americans are also a large source of investment funds to Belize. The two countries have had a historical close relationship.
Tourism
Tourism is an important industry component for Belize and is the largest foreign exchange earner similar to many other countries in the Caribbean basin. Total tourism dollar volume is measured at 18 percent of GDP - attracts the most foreign direct investment. Belize tourist attractions include the country’s great semi-tropical climate, the Mayan ruins, jungles filled with exotic wildlife sporting the development of
eco-tourism, boating, home to the world’s largest living barrier reef in the Western hemisphere. Belize should continue to emphasize its tourism industry along with its productive agricultural sector.
Hurricane Risk to Economic Performance
Belize is prone to hurricanes, this natural disaster risk is an important component of currency risk due to Belize’s small economy. Two major recent hurricanes has brought significant damage including hurricane Keith in year 2000 inflicting $280 million USD in destruction, and another hurricane in 2001 casting a $250 million USD reconstruction bill. The country has borrowed heavily to rebuild some of the infrastructure.
Economic Statistics
GDP was measured at $800 million USD (2001) with corresponding GDP/Capita at $3,000 USD range. As measured by purchasing power parity total GDP at $1.3 billion USD (2002) with GDP/Capita at $4,900 USD (2002). Real GDP growth for year 2005 is forecasted at 3.3 percent, 2006 at 4.6 percent, year 2003 came in at 5.5 percent, year 2001 GDP growth at 10.4 percent. Inflation estimates have year 2005 at 2.2 percent, 2006 at 1 percent, year 2003 came in at 2.6 percent, 2001 at 1.2 percent. From 2000-03, the fiscal account has been in serious deficit in the range of 8 percent of GDP per year. Further, the current account is also running a large shortfall each year, years 2000-03 in the 17 percent of GDP range. The trade deficit for 2003 was $292 million USD. Major trade partner is the United States.
POSITIVE: low inflation, minimal taxation. CONCERN: fiscal and current account deficit for a relatively small economy may possibly undermine the currency peg if these deficits are not corrected, energy costs - electricity is expensive, urban crime, high unemployment.
BANKING SYSTEM: the Central Bank of Belize was established in 1976 which manages the nation’s foreign exchange reserves which stood at $112 million USD for 2001 but since slipped by 30 percent alone in 2003 to $85 million USD including gold holdings. The banking system is progressive which offers foreign currency bank accounts. Currencies in use within the Belize banking system include the Belizean dollar, the US-dollar (USD), pound sterling and Mexican peso which are quite common. Within Belize’s offshore banking sector, there are five commercial banks including FirstCaribbean and Scotiabank of whom both specialize in offshore finance with branches throughout the Caribbean. Offshore banking services in Belize were launched in 1995 targeting foreigners and non-residents. Belize now offers a vast array of financial products and services including Trust formation. In fact, Belize is now one of the largest offshore domiciles in the Caribbean-Central American basin along with the Bahamas, the Cayman Islands and the British Virgin Islands for establishing an International Business Corporation (IBC). The main centre for offshore finance for Belize takes place in Belize City.
REGIONAL ANALYSIS: Central America, Guatemala, United States
Economic instability in the immediate region of Honduras, Nicaragua and Guatemala as the drug trade and youth gangs are a growing concern. Next door in Guatemala has had a long and tenuous friendship with Belize. Historically, there has been a border dispute between the two countries over Belize’s southern half of the country. Prior to 1999, Guatemala has argued that all of Belize belongs to them but have since backed off this debate. In relative nearby economic superpower of the United States, fortunately, Belize has a strong relationship with America. It is estimated that upwards of 70,000 Belizeans living abroad in America send remittances back to Belize worth an estimated $50 million USD per year. The U.S. military over the years has also been a strong contributor in financial assistance to Belize with its military presence in the region, particularly with the involvement of the U.S. Peace Corps.
KNOWLEDGE: The Retirement Industry
A new important and growing industry for Belize is accepting retirees from around the globe. Many of these foreigners have money and are seeking a peaceful cost effective retirement within a pleasant setting free of congestion and pollution. Belize has taken notice and has accordingly implemented policies to attract and keep these retirees. This forward thinking vision of Belize by treating these potential clients like customers is paying off with its very attractive retiree legislation. Belize is providing for the potential for tax exempt status for income earned abroad. Retirees are also taking advantage with the potential ability for qualifying for new tax savings depending upon their own situation. Belize may now allow for you to bring your personal belongings into the country tax duty free. Once a new customer retiree arrives, they now have the ability to enjoy the fabulous weather and live quite cheaply by international standards particularly if one is from a first world country when considering the currency exchange differential. Much of rural Belize is safe, one can live along the ocean with a beautiful beachfront property. Belize may also provide for specific free-trade zones and tax holidays for certain businesses. Belize today is garnering a reputation as a stable offshore tax haven with secure privacy.
CURRENCY:ISO Symbol ‘BZD’, Belizean dollar. At the time of review on April 11, 2005, the Belize was pegged at 1.98 BZD to the US-dollar (USD). The peg to the USD has helped to keep inflation low. As well, the currency exchange peg has provided a stable environment to further attract foreign investment and retain investor confidence. The government is committed to maintaining the exchange peg at current levels. No foreign exchange controls.
CURRENCY HISTORY: the official exchange peg to the USD at 2.0 BZD has been in place since 1976. Previously, the Belizean dollar tied to the British pound sterling, the Belizean dollar was devalued in 1949. At times, there has been divergence to the official rate with a black market exchange rate.
CURRENCY FORECAST:devaluation ahead quite possible. The peg maybe re-valued particularly with increasing odds now for a sharper economic contraction sooner rather than later for the Untied States and global economy. As a small economy, Belize is vulnerable to swings in capital flows from temporary drop in tourism such as the case following September 11, 2001 terror attacks. Other risks include hurricanes which can be devastating along with any potential trade challenges in tariffs as is the case for sugar and bananas. At times of crisis, the Central Bank of Belize has had a policy of rationing foreign exchange. The exchange peg at time of review is vulnerable taking into account Belize’s modest foreign exchange reserve position, possible inflation risk and macro-economic imbalances. Another caveat is the US-dollar which itself is a currency that is in trouble. The USD crash over the last three years to the Euroland euro and to many of the world’s currencies has insulated Belize’s currency devaluation to some degree with an indirect devaluation already occurring for the BZD due to its USD peg link.
Devaluation risks are prevalent as has been the case in the Central and Latin American region. More recently over the last few years, Ecuador, El Salvador and Guatemala have all implemented some form of USD-dollarization.BankINTRO.com believes that the Central Bank of Belize will want to maintain monetary sovereignty and will disregard some form of dollarization (USD, EUR, etc.) unless the Belizean economy experiences complete economic disarray. The underpinning risk remains the country’s huge economic imbalances with its trade and fiscal accounts resulting in an increasing foreign debt load. The Belizean dollar warrants a higher risk ranking category (lower score) taking into effect its higher currency risk for devaluation. Long term, there has been discussions amongst the Caribbean community for a single currency, perhaps an expansion of the successful East Caribbean dollar (XCD) that is in circulation for eight tiny small Caribbean countries.
UPDATED:April 11, 2005
