Belmopan, Belize 6 December 2008 (BelizeBlog.com) - The recently released October 2008 Country Report on Belize published by the Economist Intelligence Unit (EIU), based in London, UK, confirms that the Belizean economy will continue to face serious challenges, but it brought welcome news that there should be no recession in Belize, at least for the foreseeable future, even though it was clear on the point that cost of living pressures, crime, a growing import bill - which has grown by 26% to US$1 billion, and declining revenues from oil, all make for a not-so-pretty economic landscape here at home.
One of Belize's biggest problems is that it imports far more than it exports. In fact, the trade deficit - the difference between the value of what we import and what we export, rose as much as 42% for the first seven months of 2008, to US$713 million.
For one, declining oil prices have forced the Government to revise its revenue projections. The budget assumes an average oil price of US$130 per barrel for oil, but prices are now under US$50 a barrel.
Even though oil revenues boosted the country's economy in 2006 and 2007, no new production, said the EIU, is forecast in the near term, and so oil is not expected to provide much economic leverage in the months ahead as, the report says, oil exports are on a plateau.
It notes that, "Legislation for a windfall tax on oil company profits came into effect on September 1st, with a 50% tax on oil revenue when oil prices are above US$90 per barrel. The government had expected to collect Bz$16m-18m (US$8m-9m) between the commencement of the new tax and the end of the fiscal year in March 2009. However, a sharp decline in international oil prices since September has forced the government to re-examine the target. Should oil prices continue to moderate as a result of a global downturn in demand, the government is unlikely to receive any significant revenue from this source."
The report also states that government will not reach its original 2008/09 budget projection of Bz$69m in combined revenue from income tax, profit sharing, production sharing, and the government's 10% equity holding from Belize Natural Energy's oil production and exports.
Despite oil production here, Belize still depends a lot on foreign oil products to meet local needs, since the vast majority of our crude is exported.
Oil production increased by 9.6% in the first half of 2008, compared with the same period last year, and averaged 3,000 barrels/day.
"A new well, which began production in August, is expected to lift production to around 4,400 b/d in the remainder of the year.... Income from exports of crude oil, which rose by 81.2% year on year to US$102.2m, underpinned an otherwise weak earnings performance," the EIU report added.
Banana and fisheries have been doing well, but citrus and papaya have not.Citrus and shrimp could also be negatively affected by a lower demand from trading partners abroad.
"Although total exports showed relatively little change, there were strong differences between major commodities, with bananas benefiting from strong prices and high production volumes, but low citrus prices reducing earnings despite higher output volumes," says the report.
"Sugar output will fall in volume and value terms and there will be continued downward pressure on citrus and shrimp production and prices, owing to depressed export demand." Due to the shutdown of Williamson Industries, garment and textile production have also fallen sharply.
Consumer prices will continue to rise in the coming months and years, though not as much as they did in 2008 - when they reached a new record.
"We estimate annual average inflation will rise to 7.5% in 2008, up from 2.3% in 2007," the report notes, but signals that consumer price inflation would near 4.5% in 2009 and 3.5% in 2010.
"This forecast assumes that government price controls on some food items are effective in curbing price pressures; however, risks will remain on the upside,"
the report explains.
August saw a record high inflation of 9.6%, led by food and beverages prices, up by 17.9% compared with August 2007.
Even with the outcry over escalating prices, maintaining the purchasing power of consumers is vital to continued economic growth.
The report stresses that growth of the economy in the years ahead, "...will remain muted and [be] strongly dependent on rising public consumption."
Meanwhile, tourism numbers, which have showed declines in the first part of 2008, will continue to be weak, "...in view of the forecast US recession in 2009." This should be offset somewhat by "buoyant demand for informal-sector goods and services," which should keep the economy growing at an average of 2.5% of GDP for 2009 to 2010.
The report makes it clear, however, that Belize will continue to face serious economic challenges ahead, and as much as oil was touted as the industry to save Belize in these tough economic times, oil will, seemingly, not bring the prosperity long hoped for--and it will evidently yield substantially less revenues to the Government than projected in this year's national budget.
The EIU projects that government will need $60 million more to finance its budget than it had originally projected - money that the Government will have to find either through grants, loans or taxes. If it does not find the money, GOB will have to resort to spending cuts.
"Mr. Barrow's main challenge will be to fulfill the high expectations raised in the run-up to the elections, including raising living standards and reducing crime."
The EIU report notes that, "Support from the US and the UK will remain focused on combating the illegal drug trade and money-laundering, both of which are entrenched problems that will continue to underpin the spread of violent crime. In this context, recent evidence of corruption within the security, customs and other services continues to raise concern."
Deportees with criminal records returning to Belize are also a concern for local law enforcement authorities: "There is continued concern over the inflow of repatriated criminals to Belize from the US. Between October 2007 and July 2008, the US deported 129 people to Belize, of whom 64 were identified as known criminals. A series of incidents involving the use of explosive grenades has also worried authorities."
It explained that in response to these incidents, Prime Minister Dean Barrow "...has promised new anti-terrorist legislation and firearms legislation amended on September 15th to include grenades and other explosive devices."
The trafficking of pseudo-ephedrine tablets to make illegal methamphetamine was also listed as a serious challenge for the country: "There has been a marked upswing in the number and size of drug seizures over the past quarter, adding further weight to the perception that Belize is becoming a major transshipment route for drug-traffickers. Several incidents in August and September involved the shipment or theft of pseudo-ephedrine tablets, a licit pharmaceutical drug used as a raw material to make illicit variants."
In its regional outlook, the EIU says that, "Throughout the region, the illegal drug trade will continue to represent a threat to security and stability. High public debt levels will keep many governments under pressure. The pace of regional growth will slow, mainly reflecting decelerating global growth and its impact on tourism, declining commodity prices and falling foreign direct investment." - Reporting by Adele Ramos.
For one, declining oil prices have forced the Government to revise its revenue projections. The budget assumes an average oil price of US$130 per barrel for oil, but prices are now under US$50 a barrel.
Even though oil revenues boosted the country's economy in 2006 and 2007, no new production, said the EIU, is forecast in the near term, and so oil is not expected to provide much economic leverage in the months ahead as, the report says, oil exports are on a plateau.
It notes that, "Legislation for a windfall tax on oil company profits came into effect on September 1st, with a 50% tax on oil revenue when oil prices are above US$90 per barrel. The government had expected to collect Bz$16m-18m (US$8m-9m) between the commencement of the new tax and the end of the fiscal year in March 2009. However, a sharp decline in international oil prices since September has forced the government to re-examine the target. Should oil prices continue to moderate as a result of a global downturn in demand, the government is unlikely to receive any significant revenue from this source."
The report also states that government will not reach its original 2008/09 budget projection of Bz$69m in combined revenue from income tax, profit sharing, production sharing, and the government's 10% equity holding from Belize Natural Energy's oil production and exports.
Despite oil production here, Belize still depends a lot on foreign oil products to meet local needs, since the vast majority of our crude is exported.
Oil production increased by 9.6% in the first half of 2008, compared with the same period last year, and averaged 3,000 barrels/day.
"A new well, which began production in August, is expected to lift production to around 4,400 b/d in the remainder of the year.... Income from exports of crude oil, which rose by 81.2% year on year to US$102.2m, underpinned an otherwise weak earnings performance," the EIU report added.
Banana and fisheries have been doing well, but citrus and papaya have not.Citrus and shrimp could also be negatively affected by a lower demand from trading partners abroad.
"Although total exports showed relatively little change, there were strong differences between major commodities, with bananas benefiting from strong prices and high production volumes, but low citrus prices reducing earnings despite higher output volumes," says the report.
"Sugar output will fall in volume and value terms and there will be continued downward pressure on citrus and shrimp production and prices, owing to depressed export demand." Due to the shutdown of Williamson Industries, garment and textile production have also fallen sharply.
Consumer prices will continue to rise in the coming months and years, though not as much as they did in 2008 - when they reached a new record.
"We estimate annual average inflation will rise to 7.5% in 2008, up from 2.3% in 2007," the report notes, but signals that consumer price inflation would near 4.5% in 2009 and 3.5% in 2010.
"This forecast assumes that government price controls on some food items are effective in curbing price pressures; however, risks will remain on the upside,"
the report explains.
August saw a record high inflation of 9.6%, led by food and beverages prices, up by 17.9% compared with August 2007.
Even with the outcry over escalating prices, maintaining the purchasing power of consumers is vital to continued economic growth.
The report stresses that growth of the economy in the years ahead, "...will remain muted and [be] strongly dependent on rising public consumption."
Meanwhile, tourism numbers, which have showed declines in the first part of 2008, will continue to be weak, "...in view of the forecast US recession in 2009." This should be offset somewhat by "buoyant demand for informal-sector goods and services," which should keep the economy growing at an average of 2.5% of GDP for 2009 to 2010.
The report makes it clear, however, that Belize will continue to face serious economic challenges ahead, and as much as oil was touted as the industry to save Belize in these tough economic times, oil will, seemingly, not bring the prosperity long hoped for--and it will evidently yield substantially less revenues to the Government than projected in this year's national budget.
The EIU projects that government will need $60 million more to finance its budget than it had originally projected - money that the Government will have to find either through grants, loans or taxes. If it does not find the money, GOB will have to resort to spending cuts.
"Mr. Barrow's main challenge will be to fulfill the high expectations raised in the run-up to the elections, including raising living standards and reducing crime."
The EIU report notes that, "Support from the US and the UK will remain focused on combating the illegal drug trade and money-laundering, both of which are entrenched problems that will continue to underpin the spread of violent crime. In this context, recent evidence of corruption within the security, customs and other services continues to raise concern."
Deportees with criminal records returning to Belize are also a concern for local law enforcement authorities: "There is continued concern over the inflow of repatriated criminals to Belize from the US. Between October 2007 and July 2008, the US deported 129 people to Belize, of whom 64 were identified as known criminals. A series of incidents involving the use of explosive grenades has also worried authorities."
It explained that in response to these incidents, Prime Minister Dean Barrow "...has promised new anti-terrorist legislation and firearms legislation amended on September 15th to include grenades and other explosive devices."
The trafficking of pseudo-ephedrine tablets to make illegal methamphetamine was also listed as a serious challenge for the country: "There has been a marked upswing in the number and size of drug seizures over the past quarter, adding further weight to the perception that Belize is becoming a major transshipment route for drug-traffickers. Several incidents in August and September involved the shipment or theft of pseudo-ephedrine tablets, a licit pharmaceutical drug used as a raw material to make illicit variants."
In its regional outlook, the EIU says that, "Throughout the region, the illegal drug trade will continue to represent a threat to security and stability. High public debt levels will keep many governments under pressure. The pace of regional growth will slow, mainly reflecting decelerating global growth and its impact on tourism, declining commodity prices and falling foreign direct investment." - Reporting by Adele Ramos.
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