The superbond’s direct effect on the Budget and concerns to consider

By Alexis Milan

The government’s budget presentation last week, “Maintaining Steadiness; Consolidating Stability; Advancing Growth”, put an emphasis on curbing public spending and maximizing revenue collecting measures. And while the debate on the budget isn’t scheduled until next week in Parliament, some have already taken the time to scrutinize the Prime Minister’s presentation citing specific measures and decisions as potential hurdles that could negatively impact many Belizeans.

The budget and its accompanying measures, however, are closely tied to the terms of the Superbond, which the government renegotiated in March 2017. In those renegotiated terms, GOB had agreed to a fiscal consolidation equal to 3 percent of GDP for fiscal year 2017/2018. Belize, however, failed to meet that target instead posting a fiscal consolidation of 1.8 percent. Belize failed to meet the target even after introducing several austerity measures during the previous fiscal year which saw prices and taxes raised in several categories.

Under the renegotiated terms, GOB also committed to reaching a Primary Surplus of 2 percent GDP in each of the next three fiscal years. The Reporter, in an article published last year titled ‘Superbond 3.0 is unsustainable, experts say’, shared opinions from three experts in the financial sector who each agreed that the targets GOB agreed to were unrealistic and unsustainable. Failing to meet or maintain the 2 percent Primary Surplus would result in Belize seeking technical assistance from the International Monetary Fund (IMF), which has long advised Belize to implement more stringent austerity measures.

GOB, in its Fiscal Strategy Statement released along with Barrow’s budget presentation, said: “The Government is fully aware that the current debt level is unsustainable despite the recent restructuring in March 2017, and that prudent fiscal policy is critical to placing public debt on a downward trajectory.” GOB also described the current fiscal situation as “fragile” and “fraught with risks”. Referring to the target of 2 percent GDP growth each of the next three years, GOB said: “This will be a challenge, as primary surpluses have been under 2 percent since 2012”.

To help meet these targets, in the latest budget presentation, GOB has proposed applying General Sales Tax (GST) on the cost of Internet data services, government contracts, imports and purchases as well as ‘harmonizing’ GST on BPO companies; ceasing tax exemptions on categories for land clearing, crop dusting and harvesting; applying excise tax on oil-based lubricants and a social fee on duty free merchandise imported through the Philip Goldson International Airport (PGIA).

The specific details on how these new measures will be applied have not yet been revealed, however, some have already called out the government for some of the proposals. People’s United Party (PUP) leader, John Briceno called the budget “lifeless”. Business Senator Mark Lizarraga suggested this week that GOB should still practice better financial discipline and pointed to the $130 million the government intends to borrow to balance the budget. Lizarraga urged GOB to borrow less and instead focus on providing greater transparency and accountability of public funds.

There are also concerns that broadening the tax base in some instances may be a detriment to businesses in Belize, such as BPOs for instance, whose clients outsource work to Belize due to normally cheaper operational costs. With GST being applied to the BPO sector, there is concern that clients who employ thousands of Belizeans may seek cheaper alternatives elsewhere if operational costs jump too high because of the new policies. It is also not clear how the social fee will be applied to duty free merchandise at the PGIA. In the agricultural sector, there is concern over the ending of exemptions on the categories listed in the budget. Some fear that this could make things even more difficult for farmers faced with an agricultural sector that has experienced numerous difficulties in recent years. Still, GOB remains confident that the measures it has proposed will be efficient and help Belize meet its targets over the next few years.

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