Belize's Government Funding: Sources And Sustainability

Belize's government is financed through a combination of sources, including taxation, foreign investment, and debt restructuring. The country has a small economy, with a gross domestic product (GDP) of US $1.2 billion in 2020, and it faces challenges such as a small population, high public debt, and bureaucratic delays. The government has implemented economic measures to attract foreign investment and address fiscal pressures. Additionally, Belize's economy relies heavily on tourism, agriculture, and aquaculture, with the government providing support and incentives to these sectors. The country has also explored sustainable development initiatives and debt-for-nature swaps to improve its financial situation and protect its natural resources.

Taxation and foreign investment

Belize has the smallest economy in Central America, with a GDP of US$3.1 billion in 2023, a 4.1% increase from the previous year. The country has a stable but fragile banking system, with the Belize dollar pegged to the US dollar at a fixed exchange rate.

The Belizean government encourages foreign direct investment (FDI) to relieve fiscal pressure and stimulate economic growth. However, bureaucratic and regulatory requirements, such as the Exchange Control Act, can impede investment. Additionally, issues like crime, corruption, and excessive regulation are seen as deterrents to foreign investment.

Belize has no restrictions on foreign ownership or control of companies, but foreign investments must be registered with the Central Bank of Belize and adhere to relevant regulations. The country offers various investment incentives, including tax exemptions and preferential access to government concessions.

The Belize Trade and Investment Development Service (BELTRAIDE) is the government's investment and export promotion agency, providing support to both foreign and domestic investors. The government has also taken steps to improve the ease of doing business, such as streamlining business applications and digitalising various services.

While there are no bilateral investment or taxation treaties with the US, Belize does have agreements with other countries, including Austria, Cuba, and the UK. The country is also a member of the Caribbean Community (CARICOM) and abides by its trade policies and import tariffs.

Belize's legal system is based on English Common Law, providing a framework that generally doesn't discriminate against foreign investment. The country recognises intellectual property rights, but enforcement is lacking, and bootleg CDs/DVDs are prevalent.

Overall, Belize presents investment opportunities, particularly in sectors like tourism, agriculture, renewable energy, and financial services. However, challenges related to bureaucracy, infrastructure, and corruption need to be addressed to fully realise the country's economic potential.

Government borrowing

The COVID-19 pandemic has had a significant impact on Belize's economy, with government borrowing increasing as a result of mitigation and recovery efforts. The pandemic caused a steep fall in government revenues, leading to a "historic and dangerous" increase in the primary deficit, which reached 8.3% in 2020. The country's debt-to-GDP ratio, which was already high before the pandemic, increased further, going from 98% in 2019 to 126% by the end of 2020.

The largest portion of Belize's debt is external (67%), with the Superbond being the single largest external debt burden. In 2020, the government successfully negotiated to capitalise Superbond interest payments, adding them to the principal. However, by May 2021, the government was seeking a fourth restructuring of the Superbond, which was estimated at US $556 million (27% of overall government debt).

Belize's small, tourism-dependent economy is vulnerable to external shocks such as the pandemic, and the country's proximity to economically developed nations has made tourism the primary economic sector. The closure of borders and the international airport during the pandemic led to a sharp decline in tourism earnings, which plummeted to US $242.2 million in 2020.

In response to the economic crisis, the government launched its National Economic Recovery Strategy and various fiscal and economic stimulus packages. In April 2020, the Belize Trade and Investment Development Service (BELTRAIDE) conducted an online survey to assess the challenges faced by small and medium-sized enterprises (SMEs) due to the pandemic. Following this, the government launched the MSME Support Program (MSP) in August 2020, offering US $7 million in financial relief through small grants, loans, and wage subsidies to affected businesses.

The government's borrowing and spending have raised concerns, with Lead Opposition Senator Michael Peyrefitte stating that Belize has borrowed about US $1.7 billion in four years. In response, Minister of State in the Ministry of Finance, Chris Coye, defended the government's borrowing, citing long-term development needs in health and urban development.

Foreign aid and international cooperation

Belize's government has been described as stable and sound, despite the usual scandals that plague democratic governments. The country's small population of around 400,000 is bolstered by its currency being backed by the US dollar at a rate of $1 USD to $2 BZD.

Belize's government has been working to attract foreign investment and manufacturing enterprises by offering incentives to start-ups. The government's priorities include lowering high energy and labour costs to make the Belizean dollar go further for its citizens.

Belize has a symbiotic relationship with the tourism industry, which provides approximately 1 in 7 jobs and contributes around 22% of the nation's gross national product. The government has made commitments to sustainability and conservation, but increased tourism can also impact ecosystems. Belize is vulnerable to changing weather patterns, which can affect temperatures and natural tourist attractions.

Belize is a member of the Commonwealth of Nations, the World Trade Organization (WTO), and the United Nations (UN). It is also a member of the Caribbean Community (CARICOM), the Association of Caribbean States (ACS), the Africa, Caribbean and Pacific (ACP) Group of States, the Organization of American States (OAS), and the Small Island Developing States (SIDS) grouping.

Belize has established diplomatic relations with several countries, including Australia, Guatemala, the Republic of Korea, and the United States. The country has also signed agreements with Israel, the European Union, and the United Arab Emirates.

The Ministry of Foreign Affairs, Foreign Trade, and Immigration in Belize is responsible for formulating, coordinating, and implementing foreign policy initiatives. The ministry aims to address national economic, social, and security issues while ensuring national sovereignty and territorial integrity.

Belize has a history of left-leaning foreign policy, allying with nations like Cuba and Venezuela and recognising states such as Palestine, Taiwan, and the Saharawi Arab Democratic Republic. The country also maintains cordial relations with the United States and other western nations, which are traditionally its most important trade partners.

Belize's economy is heavily dependent on tourism, agriculture, and aquaculture. The government has been working to attract foreign investment in these sectors, and its efforts have helped the nation survive and flourish.

Tourism and economic growth

Belize's tourism sector has experienced impressive growth in recent years, with overnight tourist arrivals registering double-digit annual growth rates since 2016. This growth has had a positive impact on various other sectors of the economy, including agriculture, commerce, finance, and construction. In 2012, Belize welcomed almost one million tourists in a calendar year for the first time in its history, with tourist arrivals totalling 917,869 and receipts amounting to over $1.3 billion. The tourism industry contributed over 18% of Belize's GDP in 2007, and provided over 25% of all jobs.

Belize's rich biodiversity, multicultural heritage, and unique location in Central America and the Caribbean Sea position it well for further development of its tourism industry. The country boasts several "unique tourism assets" recognised internationally, such as the Belize Barrier Reef Reserve System (the second-largest reef in the world), the Blue Hole Marine Reserve, the Caracol Mayan site, and the Chiquibul Caves System. These natural attractions, along with numerous rivers, jungle and wildlife reserves, and water-based activities, support thriving tourism and ecotourism industries.

To guide the development of the tourism sector from 2012 to 2030, the Belizean government endorsed a National Sustainable Tourism Master Plan (NSTMP) in 2011. This plan sets various initiatives and targets to sustain tourism growth and contribute to the country's economic well-being. The NSTMP focuses on five key areas: tourism governance, sustainability and quality assurance, infrastructures, marketing, and product development. As of 2018, 80% of the subprograms underpinning these focus areas were completed or in progress, with significant achievements in tourism marketing, governance, and product development.

Belize's tourism sector has benefited from investments by major international hotels and plans to build a multi-million-dollar cruise port off the coast of Belize City. The potential for further growth is high, as the industry is still considered "emerging" rather than "mature". The government has designated tourism as its second development priority after agriculture, and its efforts to promote tourism are expected to combat poverty throughout the country.

To sustain tourism growth and ensure its contribution to economic growth, Belize needs to address several challenges. These include infrastructure gaps, such as inadequate water and sanitation infrastructure and limited accessibility by land and air, as well as concentration risks, as tourists tend to focus on a small number of attractions. Additionally, reducing crime, mitigating the impact of natural disasters, and tackling concerns related to the "shared economy" are crucial for the country's tourism sector.

Public debt

Belize's public debt is expected to increase in the coming years. The national debt is projected to rise by 9.71% between 2024 and 2029, reaching a new peak of 2.26 billion US dollars in 2029. This increase in debt is likely due to various factors, including the impact of the COVID-19 pandemic, which caused a steep fall in government revenues and an increase in government borrowing. The country's pre-COVID estimates for debt-to-GDP were at 98% in 2019, but by the end of 2020, this had increased to 126%.

The largest portion of Belize's debt is external debt, which accounts for 67% of the total debt. The Superbond is the single largest external debt burden, and the government has had to restructure it several times.

Despite the increasing national debt, the ratio of national debt to gross domestic product (GDP) is expected to decrease between 2024 and 2029. This decrease indicates that the country's debt is becoming more manageable relative to its economic output. The ratio is estimated to reach 56.69% in 2029, which would be a new minimum.

Belize's small and tourism-dependent economy is vulnerable to external shocks, such as the global health crisis and economic downturns in its main trading partners. The country's high public debt is one of the challenges it faces in attracting foreign direct investment (FDI). However, the government is actively seeking FDI to relieve fiscal pressure and diversify its economy.

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