BELIZE RIGHT CHOICES BRIGHT FUTURE Systematic Country Diagnostic
by Francisco Carneiro
Belize has a rich history that dates back thousands of years. The country was first inhabited by the Mayans with records of their presence dating from 1500 BC. The first recorded European settlement was established circa 1638 by the British who called the country the Colony of British Honduras. The official name of the territory was changed from British Honduras to Belize in June 1973, and full independence was granted on September 21, 1981. There were several obstacles in the path toward independence, as illustrated by Guatemala’s long-standing claim to the entire territory. It was only in November 1980, after several frustrated negotiations with Guatemala that Belizean diplomacy managed to obtain international support that led to the United Nations passing of a resolution that demanded the independence of Belize, but it was only in 1992 that Guatemala formally recognized Belize’s independence.
After independence, Belize successfully implemented a development strategy which emphasized economic diversification and private sector development at a time where the terms of trade were favorable to the country. In the mid-1980s, Belize experienced rapid economic growth in response to good economic management and a favorable external environment. During 1986-90, real GDP growth exceeded 10% per annum on average, with strong contribution from all sectors of the economy. Sugar export receipts grew by 80%, production and exports of citrus nearly doubled and that of bananas tripled. Tourism arrivals more than doubled and receipts tripled. Led by public infrastructure investment and tourism-related construction, construction boomed and boosted trade and transport related activities (see World Bank (1992)).
In the early 1990s, the economy started to slowdown as it suffered from the effects of a recession in the US economy. Agriculture and tourism were hit hard and the current account of the balance of payments recorded a deficit estimated at 15% of GDP in 1991, up from 5% of GDP in 1990 (World Bank (1992)). A marked feature of the growth performance of Belize since the 1990s has been its high volatility. The small size of the country, its high dependence on exports and imports, and its exposure to natural disasters have contributed in different degrees to this volatility. Between 1994 and 2013, for example, losses from hydro-meteorological disasters were estimated at US$71 million, with an annual average loss of approximately 4% of GDP. It is estimated that if current climatic trends continue, extreme events will become more frequent resulting in greater fiscal impacts. Disasters could have a direct and large impact on economic conditions through reduced productivity, unsustainable budgetary deficits, and increased national debt due to reconstruction costs. Furthermore, resources appropriated to respond to natural disasters reduce the funding available for other development projects. In addition, underdeveloped and dilapidated infrastructure, particularly in the transport sector, directly contributes to Belize’s vulnerability to disasters and by extension the country’s economic growth.
The limited data available suggests that poverty levels in Belize are high and substantively above the average for Latin America and the Caribbean. Since the early 2000s, GDP growth has been very close to the rate of growth of the population (estimated at 2.5%) which has led to the almost stagnation of GDP per capita for the last 12 years or so. Poverty data, which is available only for the years of 2002 and 2009 for the most recent period, show an increase in the share of the population below the poverty line from 34% to 42% between these two data points. Poverty is a rural phenomenon in Belize as rural poverty rates reached 55% in 2009 as compared to 28% in urban areas. This performance is in stark contrast with that of the LAC region as a whole where poverty has declined from 42% in 2002 to 30% in 2009 lifting more than 80 million from poverty. Based on the data available, the incidence of poverty shows large spatial differences. The bottom 40 of the population is mostly situated in rural areas with the highest rates of extreme poverty found in the districts of Corozal and Toledo. Poverty seems to be higher in these areas because they tend to concentrate households headed by individuals with low levels of schooling, exhibiting lower female participation in the labor market and belonging to ethnic minorities. Income inequality is also moderately high with a Gini coefficient of 0.42 in 2009, but this is based on an old survey and the recent stagnation of real per capita in the country suggest that this might have increased in more recent years.
As a small, open economy, that is also extremely vulnerable to climate change and natural disasters, Belize’s ability to promote faster poverty reduction and greater shared prosperity will depend on how well the country deals with its main sources of vulnerability. Our findings show that these vulnerabilities have exogenous and endogenous reasons. Exogenous factors can be a blessing and sometimes a curse. The recent debate on the country’s potential to start exploration of offshore oil is a classic example given that Belize is also the house of the largest live coral barrier reef in the world. As tourism and agriculture are the country’s major sources of income and employment, the dangers associated with offshore oil exploration pose serious risks to Belize’s varied ecosystems and to the livelihoods of a significant share of the population.
Belize’s small size is an important exogenous factor that makes the country vulnerable to terms of trade shocks and creates output volatility which can affect long-term growth negatively. As the country needs to import most of what it consumes and relies on a few sources of foreign exchange, it remains pretty much vulnerable to the fluctuations of commodity prices and the performance of its few trade partners. The recessions faced by the US in the early 1990s and recently during the global financial crisis and how hard Belize’s economy hurt in the aftermath of these events illustrate this vulnerability well. The small size also means that the country has few opportunities to grow (the availability of arable land in Belize at 700 Km2 in 2009 is extremely low) as it faces a situation of lack of economies of scale. Economic size is also an important predictor for low savings, and the situation in Belize confirms this stylized fact. Gross domestic savings have averaged about 10% of GDP in the recent past which is at least 50% lower than the LAC average of 15%. With limited savings, investments remain low as well, and growth prospects conditioned on the ability to innovate, increase productivity, and diversify products and partners. Another important exogenous factor that can impact the country’s ability to grow, contribute to increase its debt levels, and impact savings is its high degree of exposure to natural hazards.
Two important endogenous factors that can affect long-term growth in Belize are associated with the quality of its capital and labor. This SCD has shown that weaknesses in infrastructure can exacerbate the impacts of natural disasters on the economy. In addition, the poor quality of education has a direct impact of the quality of the labor force. The lack of secondary road networks and the vulnerability of the whole energy sector to strong winds mean that a single storm can leave the country paralyzed and in the dark for long periods of time, impeding the movement of cargo and people thus hurting growth and affecting negatively the livelihoods of Belizean citizens.
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How to Cite:
Carneiro, F. (2016). Belize, Right Choices Bright Future. from http://documents.worldbank.org/curated/en/870551467995073017/pdf/103941-WP-P152070-PUBLIC-None-Board-version-WB-Belize-CRA-noreport.pdf