April 27, 2017
Thank you for inviting me to share my sense of the business climate, the macro economy, and a few of my Administration’s actions and plans for sustaining and broadening Belize’s economic expansion.
To some extent, a degree often underestimated, both government and the private sector grapple with conditions that are uncontrollable, or at least unpredictable. For example, at the start of our tenure nine years ago, the Great Recession and the unusual oil price spike that wobbled the global economy, especially small economies in the American orbit such as Belize, was surely not something we had bargained for. It was an unexpected crisis, made worse by the inability to forecast and prepare beforehand.
Thus, as a consequence both of international factors and local vagaries-such as citrus disease, European sugar quota elimination or hurricane damage - it is well said that calibrating national economic policy is a dicey, inherently fraught pursuit. And without a doubt, every constituency - private sector, labor, NGOs, Churches - at some point feels itself shortchanged, and clamors for greater attention.
This is intrinsic to a full-bodied democracy.
Also, while the business of government is not unlike your business, there is one fundamental difference: In our case all citizens, individual and corporate, are mandatory customers. Therefore governments, at least those that seek to retain legitimacy, do not have the option of discarding unprofitable clients.
Given the volatile context in which the conduct of governance and development must be pursued then, I believe our record of progress over the last nine years to be really quite remarkable. The Belizean economy, with the exception of 2016's 1.6% contraction, has grown every single year since 2008. This, notwithstanding that already cited gravest of threats to the world’s commercial and financial system which confronted us at the very start of our term. And even last year's tightening was in circumstances that saw the entire region slide by .9%. In fact, ECLAC reported that the resource rich, hitherto roaring South American economies, declined by 2.2%. Viewed in this frame Belize's average growth during my Administration’s overall tenure of 2% in real terms, puts us in the best in class category.
To elaborate, this constant growth has added $1.4b of annual economic activity since 2008, provided an estimated 18,000 jobs in the last 5 years, and expanded credit to the private sector by $280m. According to the Central Bank, a key part of this mix has been the $2.5b in gross FDI Belize has attracted between 2008 and 2016, with a 319 million inflow last year.
And for a specific and more immediately contextual statistic, in just the last several weeks this Administration, in the face of forbidding odds, leveraged a second successful renegotiation of the billion-dollar super bond. The result reduced by a quarter the net present value of this debt and averted a certain amortization wall in 2019. It also provided the platform for tailoring a national budget that stiffens the fiscal stance of the official sector and stabilizes the overall public debt, while still swelling the spending power of public servants. ALL this while avoiding the bitter and ultimately regressive recipes of the IMF.
Both S&P and Moody’s, in the aftermath of the super bond re-negotiation, upgraded Belize’s long term foreign and local currency ratings, and concluded that the risk of a credit event is now low. This is a momentous win for the business community and all Belizeans.
It is also important to point out that the 280m growth of private sector credit since 2008 which I earlier referenced is a complement to, and part and parcel of, the private sector’s buoyancy and ingenuity. Buoyancy and ingenuity all the more noteworthy given the constraining conditions of our relatively tiny, dispersed population and the considerable export barriers that remain for small economies like ours. This healthy expansion in credit is, though, only one ply in the wider narrative of a commercial banking system that under my Administration has been brought back from the brink.
The sagas of the super bond and the revelations of secret contracts in the context of the battles relating to our public utilities, are well known. But the authorities, for very obvious reasons of confidence, had refrained over the years since 2008, while the banking recovery was proceeding, from a public accounting of the legacy of mismanagement which had penalized savers and borrowers alike.
What regulators thought was $96m in bad bank loans at the start of 2008 turned out to be double that amount by 2009 and more than triple that level by 2010. This was not because business had turned sour but because the loans were shady from the start. At its peak in 2011, over $322m in non-performing loans infected the books of our banks, posing the most dangerous systemic threat ever faced by Belize’s banking community.
In the face of this the Central Bank moved. It bolstered bad loan provisions by more than 50% over the last 5 years, which allowed some $185m in non-performing loans to be written off without any evident loss of confidence.
And now I am pleased to report that as of February of this year, the system-wide non-performing loans ratio has shrunk to 2.65%. This is one of the lowest levels in the entire hemisphere, and down from a peak of 20% in February of 2011.
I have spent some time on this since credit and capital intermediation, private sector sages often remind us, is the lifeblood of the commercial economy. Thus, this astonishing and previously unheralded banking revival is one that should make us all proud.
Also, I prompt you to take into account that our economic expansion and banking recovery have been achieved without putting a hurt on either the value of the Belize dollar (inflation has been at unprecedented lows, averaging less than 1% during the last 7 years) or the cost of money. In fact, the weighted average borrowing rate has fallen by a third to 9.6% in January of this year, down from over 14% at the start of 2008.
And even after the SSB's recent purchase of utility shares, excess liquidity in the commercial banking system, available for every manner of commercial financing, is still an approximate $400m.
The Central Bank, having recently launched the new Automated Payment and Securities Settlement System, is now amplifying this forward momentum by engaging with the Bankers' Association to safeguard the recovery of the critical correspondent banking relationships; by consulting broadly on the issuance of innovative domestic securities; by implementing a modern Credit Reporting System; by activating the new money lenders regulations; and by constructing the first planks of a domestic capital markets platform. This last will radically reshape the efficiency with which domestic capital streams from savers and depositors to entrepreneurs and developers.
Also, our confidence that the economy would bounce back in 2017, trumpeted during the recent Budget Presentation, is already being vindicated by early signals of expansion. For example, first quarter estimates show that sugar production rose by 27% (from 59k to 75k long tons), banana production surged by 52% (from 850k to 1.3m boxes), shrimp increased by 57% (from 241k to 380k pounds) and tourism continues its spectacular, multi-year growth with overnight and cruise arrivals increasing by 2.5% and 8.7% respectively.
Neither these signs of a robust rebound in 2017 nor any of the achievements since 2008 that I have mentioned should, however, give you any impression that I am satisfied with the current speed of doing business; or that I am unconcerned about further tax reforms or achieving greater efficiencies in the public sector; or that there is any slackening of resolve to slay the hydra-headed monster of corruption.
In all these regards, I know we can do better.
And the determination to do better is why we will next month be moving legislation in the National Assembly to enshrine the Economic Development Council (EDC). This will make permanent the paradigm of the private sector as an equal consort with Government in the advancement of commerce and industry.
To do better is also why Government will, again in May, begin the process of relieving the productive sector of as much as $6.3m in import duties on packaging and labelling materials. Because we need to get CARICOM waivers for some of these reductions, we will start only with the items that do not require those exemptions. But in the end manufacturers and producers of natural juices, various beverages, honey, edible oils, pepper, jam, sauces, wines, condiments, crafts, milk products will all benefit handsomely from what is in effect a targeted tax cut. Indeed, a recent survey showing that this key input is 27% of total product cost underlines the magnitude of the step we are taking.
To do better, Cabinet has as well endorsed a legislative redesign of both the Trade License System and the Building Act. The former, a consequence of extensive EDC collaboration, will bring greater transparency, predictability and proficiency to the trade licensing process. And the latter should further stimulate the construction sector, a flourishing segment of the economy constituting over 4% of annual output, which 4% is a proportion up by 60% since 2010.
To do better is likewise why the EDC will shortly receive and review a conclusive analysis of all taxes and fees in effect across the economy, with the goal of recommending growth-stimulating adjustments to current levies and rates.
To do better is similarly the reason for the Ministry of Investment's re-purposing strategy for Commercial Free Zones and collaboration with the business sector on a Trade Policy Framework already approved by Cabinet.
But perhaps the most ambitious initiative underway, which will give force to the ingredients both of speed and honesty necessary for the proper conduct of public business, is our Digital e-Government Crusade. Unlike previous attempts to apply ICT technology and systems to the processes of governance, the program underway, spearheaded from the OPM and led by a manager with CEO rank, will retain proven, world-class specialists to revamp everything from the manner in which taxes are assessed and paid, to the compilation and filing of land folio accounts, to the issuance of permits and licenses.
Augmenting the Taiwanese-funded advances achieved at the Central Information Technology Office (CITO), Government is engaging of Microsoft to guide the all-out conversion to digital government.
System-wide digitization, we are convinced, once implemented to a break-out point, can effectively reverse the concerning levels of dishonesty afflicting not just the public services but the wider society. Technology offers core advantages such as automation, human-free processes, visibility and access to information, and traceable enforcement. India, the world's second most populous democracy and a vast nation whose governance traditions we share, is but one current and glimmering exemplar of how digitization is enhancing mass-scale service delivery, while rooting out dishonesty. With astonishing results, that country is in the final year of a US$150b campaign to combat corruption with e-government and digitization tools.
The start we have already made here at home has seen the completion of arrangements for the relocation of the ASYCUDA servers from Customs to CITO's hosting facility in Belmopan. The Ministry of Natural Resources ICT system, and responsibility for its administration, will also be transferred to CITO. We as well wish to bring Immigration on to CITO's network, but this must await finalization of new premises for the Department.
Going back to Lands, I need to mention here that terms are being concluded for the appointment of a Commissioner of Stamps. The remit of that office will be to determine the all-important but currently bottleneck issue of the proper stamp duty valuation for land transfers, and to recommend a completely new land tax regime.
One other notable, near term EDC priority is worthy of mention: the National Transportation Master Plan, to be completed this August. Since 2008, an estimated $650m has been invested by this Administration in infrastructure improvements. These include the rehabilitation of almost 200 miles of major highways and rural roads; 21 new bridges and 40 upgraded bridges; 350 major culverts repaired or replaced; and hundreds of streets resurfaced, uplifting every municipality. Add to this the almost $500m that the three major utility companies will spend on capital projects in the 6-year period from 2016 to 2021; and the major IFI-funded projects such as the Link Road, the Caracol Road, the upgrade to the road and the new bridge between Belize City and the PGIA, the improvements to the Hummingbird and George Price Highways; and the multiple BIL-led construction of community and sporting facilities. When it is all totaled even the most cynical observer must yield to the immensity and impact of our infrastructure drive.
How will these policies and investments further touch and change your business?
Well, among the many features that should nourish optimism I will focus on just two. First, our economy remains uniquely diversified, with no less than nine subsectors supplementing the major well known sectors. It is a dynamic medley that allows Belize to withstand the unavoidable down-cycles of business and commerce. And second, public sector expenditure and investments have been on an exceptionally resilient trajectory averaging annually 26% of national output over the last eight years. Thus, even during the recent mild downturn, recurrent revenues edged upwards by 6%, year on year. This notwithstanding that direct taxes on profits have fallen as a percentage of overall tax collection, that dividend taxes remain unchanged, and that there continues to be no tax whatever on capital gains or interest income.
It is true that our overall tax take is a shade higher than in some other regional countries, and the private sector can perhaps point to that with some apprehension.
On the other hand, we can also ask why it is that under 5000 companies are on the tax rolls.
Also, less than 1 in 5 citizens actually pay income taxes, and safety net spending on education, health and security eats up 48 cents of every recurrent revenue dollar. These too are factors that no doubt provoke the private sector. But I am persuaded that ultimately efforts at middle class tax containment and investment in social programs which empower especially the less well off, are what help to distinguish us from more volatile and oligarchical states.
In any case, for the remainder of this, my final term, we shall remain relentless in the pursuit of commercial and industrial expansion and an increase in overall output. In so doing we will carefully balance the interests of prospective investors with those of you who are already invested. And If just a slice of the greater than $1.5b in the more than 25 pipeline projects announced by the Ministry of Investment during last month’s Budget debate materializes, Belize can certainly expect higher than average growth over the next 24 months.
Since this will be my last opportunity to address your annual gathering, I close by saying how thankful I am for what has in the main been a constructive relationship with the Chamber. Also, on an individual level many of you have offered me personal support over these years. Naturally, I am particularly grateful for that. And when the chroniclers look back at the post-2008 economic period, my hope for the narrative is simple: that it will show that a stable business environment prevailed, largely free of rampant cronyism and secret contracts; that my Administration was bold without gambling on the public purse; and that we struck a reasonable balance between rewarding entrepreneurship on the one hand, and protecting society’s disadvantaged on the other.
This is the construct we continue to pursue, reserving stakes for the moneyed as well as the marginalized, for the producer as well as the patron, and for the public as well as the private branches of the economy.