Business

Compensation to Ashcroft companies drove down foreign reserves and bank liquidity

Belize’s foreign reserve level is forecast to fall below US$300 million this year and remain below that level at least through to 2021 — less than 3 months of import cover.

By Adele Ramos
Freelance Reporter

British billionaire Michael Ashcroft has come out on the winning end in much of his litigation against the Government of Belize, especially as they relate to the nationalization of Belize Telemedia Limited (BTL), for which he has been paid record compensation of any litigant to have ever pursued the Government of Belize.

The Barrow administration has unsuccessfully fought off a push by Ashcroft’s companies to have virtually all the monies paid in US dollars, and the end result is that Belize’s foreign reserves have taken a hit.

Former Central Bank Governor Glenford Ysaguirre had warned back in July 2016, when litigation was launched for the payment of compensation strictly in US dollars, that the drain on Belize’s foreign exchange – to pay what was estimated at over half a billion dollars in the form of US currency – would have been “catastrophic” for Belize’s economy. There would also be a risk of jeopardizing the exchange rate peg, in effect for over four decades, since 1976.

“Without domestic adjustments and increased inflows, it is going to be difficult, if not impossible, for the Bank to protect its exchange rate peg of BZ$2 to US$1,” Ysaguierre had warned.

He noted that foreign reserve levels had fallen from their peak of US$534.7 million in 2015 to US$422 million a year later, and on the then trajectory – with the national debt repayment being excessively high – Belize would hardly be able to cover two months of imports.

It is advisable that the country retains enough foreign reserves to cover at least three months of imports of goods and services. So where is Belize today? Latest information released by the Central Bank of Belize indicates that foreign assets are at roughly US$315 million, with the Government’s portion included.

We note that since July 2015, the foreign reserve level has fallen a whopping 40%. What is even more concerning are projections published by the International Monetary Fund (IMF), which indicate that Belize’s reserves will fall below the expected 3 months of import cover this year, and remain unacceptably low for years to come. The 2021 projection estimates that we will have 2.7 months of import cover then.

Belize’s foreign reserve level is forecast to fall below US$300 million this year and remain below that level at least through to 2021.

Meanwhile, the issuance of hundreds of millions of dollars in treasury notes and bills to finance the payment of compensation to the former owners of Belize Telemedia Limited has meant that the commercial banks have used some of their excess cash assets to buy up government paper – offered at attractive rates.

The level of excess cash in the system had been high since demand for credit or loans had fallen years ago and remained low. However, Ysaguirre had cautioned that an uptick in consumer demand for loans could also increase pressure on Belize’s foreign reserves, since there would be an increase in US dollar transactions.

It must be noted that low foreign assets suppress economic growth and could exacerbate Belize’s already high rate of poverty.

It is an especially inopportune time for this downturn to occur, since sugar exports to the EU market are now facing rising challenges due to the elimination of local production quota that would drive down the demand for imports from places such as Belize. Sugar has been one of Belize’s strongest foreign exchange earners – the best among exports for 2017 – and industry leaders have been working to secure new markets in the region and beyond for Belize’s sugar output. Latest information released today by the Statistical Institute of Belize indicates that sugar accounted for a third of Belize’s export earnings last year, rising by 46% over the previous year.

Another strong foreign exchange earner for Belize is tourism, which has reported positive growth for 2017.

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