TABLE OF CONTENTS
Preface and Acknowledgements 2
1 The Role of the Central Bank 3
2 The Financial System in Belize 9
3 The Banking Sector 13
4 The Offshore Sector 15
5 Development Finance Corporation 16
6 Supervision of the Financial System 19
7 International Financial Institutions 22
8 Money Supply 27
9 Government's Budget and the Economy 30
10 Taxation 36
11 Measures of Economic Performance 40
12 Balance of Payments and Foreign Reserves 44
13 The Real Economy: A Historical Perspective 48
14 The Sugar Industry 51
15 The Banana and Citrus Industries 54
16 The Fisheries Industry 58
17 Aquaculture in Belize 61
18 The Tourism Industry 66
2 Central Bank of Belize
PREFA CE AND ACKNO WLEDGEMENTS
In 1995, the Central Bank of Belize sponsored a weekly radio
programme series entitled "Understanding Our Economy". The
programme formed part of the Bank's on-going effort to promote a
greater understanding, by the general public, of economic and
financial matters. The programme was aired on Tuesdays from
8:00-9:00 p.m. on Radio Belize Gold, during the period June-
December 1995. The topics raised in the programme formed the
basis for the information contained in this publication.
The Central Bank of Belize wishes to thank all those persons who
contributed to the success of the radio programme. The
following persons deserve a special mention: Mr. Dennis Jones for
his role as moderator, Dr. Carla Barnett, the then Deputy Governor
of the Bank, and Mrs. Yvette Alvarez, the then Senior Manager, at
the Research Department of the Bank, for being regular panelists.
Contributions by special guests on the programmes and the interest
exhibited by the public were very much appreciated. They all
helped to make the radio series a success. A word of thanks to
Ms. Carolyn Lord for transcribing and editing the audiotapes into a
working document. It was that working document that the editors,
Ms. Patricia Mendoza and Mr. Marion Palacio, updated and
formatted into this publication. A chapter on the Measures of
Economic Performance and graphics were also added by the
Comments by staff of the Central Bank on earlier drafts of the
publication were deeply appreciated. They were valuable in
improving the final product. Finally, the Bank wishes to thank the
Belize Information Service (BIS) and Messrs. Norman Smith and
Marion Palacio for providing the photographs for the publication.
Central Bank of Belize
Understanding Our Economy 3
THE ROLE OF THE CENTRAL BANK
The Central Bank of Belize was established under the Central
Bank Act of 1982. The Bank is the successor to the Monetary
Authority of Belize which had previously replaced the Board
of Commissioners of Currency in 1976. The Act defines the
objectives of the Central Bank as follows:
"Within the context of the economic policy of the Government
the Bank shall be guided in all of its actions by the objectives of
fostering monetary stability .. j as regards stability of the
exchange rate and promoting credit and exchange conditions
conducive to the growth of the economy of Belize."
It is clear from the above statement that all policies designed
and implemented by the Central Bank must be within the
framework of Government's overall economic policies. This
means that the policies pursued by the Bank will be
dependent on the type of policies pursued by the government
of the day. For instance, persistent fiscal expansion on the
part of government, while revenues are stagnant or declining,
would need to be countered by contractionary monetary
policies on the part of the Bank. On the other hand, a
persistent government budget surplus enables the Central
Bank to adopt a more relaxed monetary policy that
reduction in interest The Central Bank must ensure
rates and increased that money supply does not
liquidity in the expand too rapidly since this
banking system. would lead to increased
spending, higher inflation, a
The objectives of higher demand for foreign
the Bank are similar exchange, and a fall in foreign
to those of most reserves
4 Central Bank of Belize
central banks. A primary objective of the Bank is to promote
stability in the monetary system and in the exchange rate. The
Central Bank must ensure that money supply does not expand
too rapidly since this would lead to increased spending, higher
inflation, a higher demand for foreign exchange, and a fall in
foreign reserves. The Bank may increase or decrease
commercial bank liquidity requirements or it may influence
the interest rate to ensure that the growth in money supply
level can promote credit and exchange conditions that are
conducive to economic growth.
The functions of the Central Bank as stated in the Act are set
/ The Bank provides economic advice to Government.
/ As banker to the banking system, the Bank provides
banking services to commercial banks, Government,
and public-sector organizations.
/ The Central Bank is the legal entity that is authorized to
issue monetary notes and coins in Belize.
/ The Bank deals in foreign exchange, that is the buying
and selling of foreign currency, in its daily transactions
with local and foreign government agencies and financial
/ The Bank manages Belize's foreign reserves by
investing foreign currency in financial institutions abroad
while at the same time ensuring that there is sufficient
supply of foreign exchange locally.
/ The Bank, as fiscal agent to Government, operates a
current account for Government; makes foreign debt
Understanding Our Economy 5
service payments on behalf of Government; and issues
Government securities. The Bank may also lend funds to
Government provided that total loans do not exceed $50
million or 21"., of current revenue collected in the
previous fiscal year, whichever is the greater.
/ The Bank facilitates securities market transactions and
the sale of public shares and debentures in Government
owned companies, which become privatized.
/ In its administration of monetary policy, the Bank has
the power to control the cash and liquidity requirements
of financial institutions. This means that commercial
banks may be required to hold more or less of their assets
in liquid form depending on the level of credit that is
desirable for a given economic situation.
< As supervisor and regulator of the financial system,
the Bank monitors the activities of financial institutions,
which fall under its jurisdiction to ensure that they obey
the law and manage their affairs in ways, which do not go
against the public interest.
While the Central Bank has a large degree of autonomy, the
law is quite clear about the role of the Bank in the pursuance
of Government policy. In countries such as the United
States, Germany and New Zealand, the central banks are
referred to as 'independent'. This is because these central
banks report directly to Congress/Parliament (the legislature)
and are, therefore, deemed to be independent of the executive
arm of government.
The relationship between the Central Bank of Belize and the
Government is akin to that in the United Kingdom (UK).
The Governor of the Bank of England and the Chancellor of
6 Central Bank of Belize
the Exchequer (Minister of Finance) meet regularly to discuss
monetary policy issues, but the responsibility for
implementing decisions rests with the Governor.
In the CARICOM region, the most distinctive central bank is
the Eastern Caribbean Central Bank (ECCB). This is because
the ECCB is a multi-national central bank that serves all the
countries of the Organization of Eastern Caribbean States
(OECS). The Board of Governors of the ECCB comprises
the Finance Ministers (usually the Prime Ministers) of each of
the seven countries of the OECS.
While the general objectives of most central banks are
essentially the same as that of the Central Bank of Belize,
some central banks identify price stability as their most
important objective. This is dependent on the type of
foreign exchange regime that the country is operating under.
An interesting development of late is the consideration that a
number of countries have been giving towards the formation
of a Currency Board System. Such considerations have arisen
in those countries where excessive government borrowing
from the central bank has had a negative impact on the
economy. The effect of the currency board system would be
to limit the role of the central bank to the issue and
Central Bank Headquarters Building in Belize City (Photo by N7. Smith)
245 0,11 11]
. I 1 ,
8 Central Bank of Belize
Some Currency Notes and Coins of Belize (Photo by M. Palado)
Understanding Our Economy 9
2 redemption of currency and thereby eliminate the
possibility of lending to government.
THE FINANCIAL SYSTEM IN BELIZE
The financial system in Belize is comprised of the Central
Bank and a number of financial institutions. A financial
institution may be defined as an establishment, such as a
commercial bank, credit union, or insurance company, set up
specifically to provide society with a means to save money
and/or invest savings with the prospect of earning higher
+ Commercial Banks
Commercial banks, the largest of the financial institutions,
operate under the Banks and Financial Institutions Act
(BFIA) of 1995, which replaced the Banking Ordinance of
The major functions of commercial banks are to accept
deposits from and offer loans to their customers which
government, Apart from customer
business houses, and deposits, commercial banks
the general public, source funds from
Apart from customer shareholder capital and from
deposits, commercial their head offices or affiliates
banks source funds
from shareholder capital and from their head offices or
affiliates abroad. Besides the personal loans category, funds
are traditionally loaned primarily to the distribution,
10 Central Bank of Belize
agriculture and construction sectors. Commercial bank
operations are supervised and regulated by the Central Bank
The Bank of British Honduras was the first bank to start
operations in the country in 1904. It was acquired by the
Royal Bank of Canada in 1912. The Belize Bank Limited later
acquired the Royal Bank of Canada in 1987. Barclays Bank
PLC started its Belize operations in 1949. The Bank of Nova
Scotia and the Atlantic Bank Limited followed in 1968 and
1971, respectively. Banca Serfin, a Mexican owned bank,
operated in Belize for a short period in the early 1990's.
+ Development Finance Corporation
Another type of financial institution found in Belize is the
Development Finance Corporation (DFC). The DFC is
governed by the Development Finance Institution Act 1973,
which repealed the 1961 DFC Ordinance and the 1972
Transfer of Shares Ordinance.
DFC's objective is to expand and strengthen the economy by
providing funds to promote improvement and growth in the
productive sector. To accomplish this, the DFC extends
loans primarily to farmers, students, homeowners, fishermen,
tourism operators, and manufacturers at lower interest rates
and longer terms, than those offered by the commercial
banks. To finance its lending portfolio, the DFC gets funds
through lines of credit from the Government of Belize
(GOB) and international agencies.
+ Credit Unions
Credit unions in Belize operate under the Credit Unions
Ordinance 1947 and are regulated by the Registrar of Credit
Understanding Our Economy 11
Unions. Of the 39 credit unions registered in Belize,
approximately 20 are active. The main functions of credit
unions are to promote thrift through member's shares and
savings and make loans for provident or productive purposes
including home improvement, furniture and appliances, and
For the most part, members of credit unions are drawn from
within groups with similar characteristics such as civil servants
and church members. Traditionally, credit unions raise funds
from members' shares and deposits. Financing may also be
obtained from international agencies for special purposes
such as home construction.
Credit unions invest in government securities and, like other
financial institutions, keep accounts with the commercial
banks. As determined by the law, the interest rates are 1%
per month on loans and 6% per annum on deposits while
dividends are earned on shares held by members.
+ National Development Foundation
The National Development Foundation of Belize (NDFB),
established in 1983 with the assistance of the United States
Agency for International Development (USAID), is another
financial institution found in Belize. It is a private non-profit
organization aimed at financing micro-enterprises.
Increasingly, the NDFB is being viewed as a financial
intermediary. NDFB receives its funding from local and
international grants, and it then makes loans available to very
small entrepreneurs at a 12% interest rate and a 2%
administrative charge. Many micro-businesses in Belize have
been launched through this initiative.
+ Government Savings Bank
12 Central Bank of Belize
The Government Savings Bank (GSB), established in 1939 by
the Savings Bank Ordinance, is operated by the Accountant
General's Department of the Ministry of Finance. The GSB
accepts deposits mostly from small savers. These funds are
invested in local and foreign securities which the GOB
guarantees against the Consolidated Revenue Fund. Law
determines the interest rate to depositors (now set at 6" ".
+ Building Societies
The Building Societies operating in Belize are governed by the
Building Societies Ordinance of 1912. They are similar to
credit unions and function mainly to raise funds from
subscriptions (shares) to lend to members for home building
and improvement. Building Societies are self-regulated except
that the Registrar General may appoint an examiner if deemed
necessary. Clients of building societies are potential
homeowners who borrow funds at interest rates (between
5.5% 7.0" i) determined by the society.
* Insurance Companies
Insurance Companies in Belize operate under the Insurance
Act of 1976 and are regulated by the Supervisor of Insurance
(the Ministry of Finance). These companies provide
insurance coverage to individuals and businesses in return for
a premium. It is this premium which is the major source of
funding for insurance companies.
+ Small Farmers and Business Bank
The most recent financial institution to operate in Belize is
the Small Farmers and Business Bank Limited. This bank was
capitalized by the GOB in December 1998 in order to make
credit more widely available. The mission of the bank is "to
Understanding Our Economy 13
3 provide working capital to ,... 'farmers, businesses and to assist
women and youth access much needed finances to invest in their
business ventures". Individuals may borrow between $750
and $50,000 from the Small Farmers and Business Bank Ltd.,
and the annual interest rate is 10% on the declining loan
balance. Customers of the bank are required to purchase $20
worth of ordinary shares in the institution for every $1,000
that is borrowed.
THE BANKING SECTOR
Two locally incorporated banks and branches of two
international banks conduct commercial banking in Belize.
Local banks are headquartered in Belize, owned by Belizean
and non-Belizean shareholders and are accountable to a
Board of Directors, which meets in Belize. On the other
hand, while foreign branches operate with some degree of
autonomy, their head offices, located in a foreign country,
provide substantial influence over their operations in Belize.
There is an on-going need for commercial banks to improve
services to their customers. To this end, commercial banks
operating in Belize have introduced debit and credit cards,
Automatic Teller Machine i \T\') services, and auto bank
(drive through) services. More recently, electronic banking
became available to business houses in Belize.
In addition to the point of sale benefit of debit cards, they
also provide customers with 24-hour access to cash already in
the bank. Also, the increasingly popular credit card is another
instrument which allows access to funds. It is anticipated that
telephone banking may also be introduced in Belize shortly.
Commercial banks are a major source of short/medium term
financing. To hedge against risks involved in financing
14 Central Bank of Belize
unsuccessful ventures, commercial banks assess whether a
project is viable by examining the market research, proposed
management, and surety offered by customers seeking
financing. While many persons assume that security is of
most importance, in reality, it is a secondary consideration
simply because it is too costly for banks to dispose of the
collateral. Commercial banks main concern is customers
capacity to repay. As such, they encourage investors to
undertake detailed feasibility studies and present well thought
out proposals before funding a venture. In addition, large
investors seeking funding must also present audited financial
statements to indicate how their business is operating.
Over the years, the savings trend in Belize has fluctuated,
possibly as a result of
shifts in lifestyles and To protect depositor's funds
the performance of and discourage money
the economy. Since laundering, it is a policy for
deposits by the public commercial banks to question
form a major portion the sources of large cash
of their funds, deposits and generally
mmeria b develop an awareness of the
engage in a number activities of their customers.
of efforts to
These include special incentives such as junior savers
programs, insurance along with savings, and premium interest
rates for particular types of accounts.
To protect depositors' funds and discourage money
laundering, it is a policy for commercial banks to question the
sources of large cash deposits and generally develop an
awareness of the activities of their customers. This policy is
consistent with the requirements of the Money Laundering
(Prevention) Act of 1996.
Understanding Our Economy 15
THE OFFSHORE SECTOR
Offshore business may be defined as those services provided
within a particular territory to persons or businesses primarily
residing outside of that territory which allow these entities to
operate on a tax efficient basis. Offshore business currently
operates primarily under the Offshore Banking Act (1996),
Money Laundering (Prevention) Act (1996), Registration of
Merchant Ships Act (1989), Trusts Act (1992), and the
International Business Companies Act (1990). It is expected
that some of these acts will be revised and updated shortly.
Most offshore practitioners in Belize are private sector
professionals such as accountants and lawyers. Many of these
individuals are members of the Belize Offshore Practitioners
Association (BOPA). The BOPA seeks to promote the
interest of its membership and the overall industry by
pursuing policy-related activities. It advertises in international
magazines, participates at conferences internationally, and
makes legislative proposals relating to the offshore industry to
Services currently provided by offshore practitioners in Belize
include the establishment of trusts; the registration, mortgage,
transfer and sale of ships; the formation of International
16 Central Bank of Belize
5 Business Companies (IBC); and the provision of services
such as resident agents, registered offices and share
transfers to these companies. Finally, in 1998, the first
offshore bank began operations in the Belize jurisdiction.
To further develop into a full-service jurisdiction, Belize must
continue to develop the proper institutional framework
required by the offshore industry. In addition, the industry
must equip itself with
well trained and The primary objective of the
exp erien c e d DFC is to foster economic
professionals. development through the
provision of cheaper
financing in areas which
DEVELOPMENT commercial banks may
The Development Finance Corporation (DFC) was
established in the early 1960's as a development bank owned
by the Government of Belize (GOB). The primary objective
of the DFC is to foster economic development through the
provision of cheaper financing in areas which commercial
banks may consider too risky. DFC's Board of Directors is
comprised of four representatives from the private sector and
three representatives from the public sector.
DFC differs from commercial banks in the manner in which
it raises its funds. Commercial banks raise short-term funds
from more expensive sources and tend to lend to more
traditional and profit oriented sectors. Like other
development banks, DFC can access cheaper funds which it
can lend for longer periods and at lower rates of interest.
Understanding Our Economy 17
Sources of DFC funds include, among others, the World
Bank, Caribbean Development Bank (CDB), the
Commonwealth Development Corporation, and the
European Investment Bank. These agencies place limitations
on the use of funds and do not normally allow funds
borrowed for one purpose to be used for another. DFC also
receives funds from
the Government of The regular programme
Belize (GOB) as extends loans in amounts not
equity contributions, less than $6,000 and not
and the GOB exceeding $1.5 million
underwrites DFC line depending on the project.
DFC directs 28% of its credit to agriculture, including
fisheries, sugar and citrus industries, 410 to housing for first
time home owners, 9% for student loans, and 22% to tourism
and industry, including manufacturing. DFC's crop loan
programme allows for lending small amounts of money
(between $200 $3,000) to farmers in order to get prepared
for a crop. The regular programme extends loans in amounts
not less than $6,000 and not exceeding $1.5 million depending
on the project.
In addition to providing funding, DFC also offers
consultative services such as reviewing and developing project
proposals for new businesses or improving performance of
existing ones. To accomplish this, it is sometimes necessary
to seek the assistance of international consultants. During the
implementation process, DFC also monitors the various
stages of projects and makes recommendations for
improvements where necessary.
There is on-going need for DFC to engage in public
education campaigns. Members of the public are often
dissatisfied with the time it takes to process loans. Some
18 Central Bank of Belize
persons have taken the view that funds borrowed from DFC
do not have to be repaid since government, as guarantor,
would eventually repay it. This attitude results in erosion of
equity since such losses are written off against capital. In this
regard, special focus has been placed on the collection of
receivables and where required, measures taken to redeem
collateral. This has resulted in a decrease in the
contamination rate (loan balance due as a result of arrears
accumulating for more than six months) from 27% to 16% in
With funding increasingly difficult to access, DFC explored
non-traditional sources and has established a separate
investment company (DFC Investment Company) funded
through share capital to offer venture capital to customers. In
order for such investments to be successful, however,
businesses need to shift their mode of operations from sole
proprietorship and family businesses to public companies and
take the opportunity to share risks through joint ventures.
Understanding Our Economy 19
SUPERVISION OF THE FINANCIAL SYSTEM
In 1994, the Banking Supervision Department of the Central
Bank was re-organized and re-named the Financial Sector
Supervision Department (FSSD). This was in keeping with
the revamping of the law to cover other types of financial
institutions in addition to the commercial banks.
The revised Banks and Financial Institutions Act (BFIA) of
1995 provides a broader scope for governing the operations
of financial institutions in Belize. With the enactment of the
new law, it is envisaged that other types of financial
institutions such as investment banks, mortgage lending
institutions and merchant banks will be introduced into
Belize. These types of financial institutions differ from
commercial banks in that they are funded primarily by
investors and most often are prohibited from accepting
deposits. The BFIA, however, still does not cover all
financial institutions operating in Belize. Insurance
companies, credit unions, and building societies continue to
operate under their own separate legislation.
FSSD is charged with the overall supervision of the financial
20 Central Bank of Belize
system. The basic objective is to protect depositors' funds
through regular on-site examination and/or off-site
surveillance of banks and financial institutions.
When an on-site examination is conducted, examiners from
the Bank visit a designated institution to analyze:
/ adequacy of capital,
/ earnings or profitability,
/ quality of assets the amount of risk the particular
institution takes with customers' funds (the amount of
loans and the risks involved with those loans), and
/ the ability of an institution's management to maintain
internal controls and ensure compliance with prescribed
Through off-site surveillance, the Central Bank is also able to
monitor operations and confirm that legal requirements are
met. Information required for this purpose is provided to the
Central Bank by the commercial banks. Data submitted to
the Bank are combined with other data and published in
._.._.,.i. f,._.1 form by the Research Department of the Central
Another main function
of the FSSD is to Money laundering is a
process applications for process in which money
banking licenses. FSSD derived from illegal
provides information activities is filtered through
relating to capital and the financial system.
Understanding Our Economy 21
requirements to prospective investors wishing to set up a
bank in Belize. This department carries out extensive
background checks on prospective investors, assesses the
information it receives on the application, then makes
recommendations for or against granting a license.
Recently, there have been concerns raised in the region about
the possible impact of money laundering and financial scams
on small states. Money laundering is a process in which
money derived from illegal activities is filtered through the
financial system. It would be discerable by a rapid rise in
cash deposit levels of commercial banks without reasonable
explanation for the source of the funds. In many countries,
including Belize, money laundering is an illegal activity. To
this end, commercial banks must have in place a policy to
inquire into the sources of large deposits and may decline
such deposits in the absence of adequate explanations.
Financial scams are becoming increasingly common place
even in Belize. Regular inquiries have been made into what
have now been identified as the "Nigerian Scam", the
"Commodity Scam", and the "Pyramid Scheme", each of
which promised large and quick returns with very little risk.
The public is advised to be extremely cautious in replying to
letters inviting an investment in any scheme that would result
in high returns with little or no risk. Offers may sometimes
appear genuine and may even indicate the support of
distinguished institutions (such as central banks) and high
ranking government officials. Often, after communication is
established with the operators of a scheme, personal
information such as a bank account number and a deposit of
money is sought. Such deposits are lost in many instances.
22 Central Bank of Belize
International Financial Institutions (IFI's) are a major source
of official capital flows for the financing of social and physical
infrastructure. An IFI is an agency that marshals funds from
one country or group of countries and lends/grants these
funds to governments/agencies in other countries.
Loans from IFI's are repayable on relatively concessional
terms as compared with commercial loans or suppliers credit.
Grant funding does not have to be repaid. Governments are
usually required to provide counter-part financing to receive
loans and grants. The counter-part financing refers to the
funds that the Government has to provide as its local
contribution to the overall cost of the project that an IFI has
agreed to finance.
Apart from funding public sector investment programs, IFI's
also provide technical assistance in policy formulation to
developing countries. Funds from IFI's may be transmitted
Understanding Our Economy 23
to government, the private sector, and private voluntary or
+ Multilateral Institutions
Multilateral institutions are owned by those who subscribe to
membership or purchase shares in such institutions.
Multilateral institutions with which Belize is affiliated are:
/ Caribbean Development Bank (CDB): This is the
largest multilateral lender to Belize. The CDB was
established to promote growth, development and
integration of Caribbean countries with special regard for
less developed countries of the region. Originally, there
were sixteen member countries from the English-speaking
Caribbean and two non-regional members. Membership
has subsequently increased to twenty-six countries, and
the original sixteen regional members were later joined by
Anguilla as borrowing members.
The CDB is involved in project work, economic analysis
and technical assistance. In Belize, the CDB has funded
the San Pedro Water and Sewerage Project, the Belize
Electricity Limited 4th Power Project, the Phillip S. W.
Goldson International Airport Terminal Building, the
Deepwater Port in Belize City, Lines of Credit to the DFC
and the Basic Needs Trust Fund.
/ International Monetary Fund (IMF): The IMF, along
with the World Bank, was established at the end of World
War II and has a total of 70 member countries. The
purpose of the IMF is to (a) promote international
monetary cooperation, international trade, and exchange
stability; (b) establish multilateral payments system; and (c)
provide Balance of Payments (BOP) support.
24 Central Bank of Belize
< Belize became a member of the IMF after Independence
in 1981. The IMF's involvement in Belize includes
regular consultations to assess economic performance,
funding of technical assistance, and extension of short to
medium term loans. To date, Belize has accessed two
IMF facilities, a Compensatory Financing Facility in 1983
to offset the effect of a drop in sugar earnings on Belize's
BOP and a Standby Arrangement in 1984 to provide BOP
/ World Bank Group: The World Bank's objective is the
economic and social development of its member states.
The World Bank Group includes agencies such as
International Bank for Reconstruction and Development
(IBRD), International Development Agency (IDA), the
International Finance Corporation (IFC), and the
Multilateral Investment Guarantee Agency (MIGA). The
World Bank's membership is the same as the IMF.
Some of the activities that the World Bank has been
associated with in Belize are regular consultations to
assess economic performance, project work, technical
assistance, structural adjustment, and sector loans.
Projects financed include Agricultural Credit, Primary
Education Development, Road Works, Power
Generation, and the Belize City Infrastructure Project.
/ Inter-American Development Bank (IDB): The IDB
was established in 1959 as a regional multilateral financial
institution. Membership includes forty-six nations from
the Western Hemisphere as well as some countries of
Europe and Asia. Belize is the most recent regional
member. The purpose of the IDB is to help accelerate
economic and social development in Latin America and
the Caribbean. Its work in Belize includes consultation,
Understanding Our Economy 25
technical assistance, project funding, and training.
< European Investment Bank/European Economic
Community (EIB/EEC): The EIB arose from the
establishment of the EEC and has extended loans to the
DFC for capital support and on-lending to the
manufacturing sector. The EEC has also provided
funding for the Belize City Hospital Project. The EEC
was expanded and renamed as the European Union (EU)
* Bilateral Institutions
Bilateral institutions channel funds from one country to an
individual country or group of countries. These institutions
are agencies of a foreign government and are a vehicle
through which foreign aid programmes are implemented.
Belize receives bilateral financing through:
< United States Agency for International Development
(USAID): USAID is an agency of the Government of
the United States of America. USAID has financed
projects including the Economic Stabilization Fund (ESF)
which accompanied the IMF Stand-by Arrangement in
1984; rural access roads and bridges; the Natural Resource
Management and Planning Project (NARMAP) which is
involved in agriculture, natural resource and tourism
activities; a Tourism Management Project; and PRIDE
SOverseas Development Administration (ODA): At the
end of 1994, the second largest portion of bilateral debt
was from the ODA of the United Kingdom (UK)
Government. Projects funded by the UK included the
Tropical Forestry Action Plan, Stann Creek Valley Road,
Western Highway Resealing, and the Phillip S. W.
26 Central Bank of Belize
Goldson International Airport Runway. Over the years,
Belize has benefited and continues to benefit from a
number of technical assistance programmes funded by the
/ Canadian International Development Agency
(CIDA): CIDA is an arm of the Government of Canada.
In 1991, Canada cancelled Belize's debt with CIDA.
Since then Belize has not borrowed from this agency. A
major project funded by CIDA during the 1970's was the
Belize City Water and Sewerage Project. Financial flows
from the Canadian Government now come from the
Canada Fund and are largely channeled to small projects
undertaken by Non-Governmental Organizations
< Government of the Republic of China, Taiwan
(ROC): At the end of 1995, there was $15.7 million in
official debt outstanding to the Government of the
Republic of China, Taiwan (ROC). These loans were
used largely for housing projects. In 1996, the
Government of Belize borrowed an additional $26.1
million from the Government of the ROC to use for
capital projects and the retiring of higher cost debt. In
1997 a loan of $10.0 million was approved by the ROC
for the Southern Highway project, and in 1998, approval
was given for a $100.0 million and $10.0 million to fund
housing projects and micro business enterprises,
Understanding Our Economy 27
The term "money supply" refers to the total amount of funds
available in the economy to purchase goods and services. The
Central Bank of Belize utilizes two measures of money
supply, Ml and M2.
The first measure, Ml, is money in its most liquid form as it
can be spent readily. It includes notes and coins in the hands
of the public and demand deposits or checking accounts
placed in commercial banks.
The second and broader measure of money supply, M2,
includes funds that are somewhat less liquid and therefore not
immediately accessible for spending. These funds, known as
quasi-money, include the savings and time deposits or
28 Central Bank of Belize
certificate of deposits that are in the banking system. M2 is
the sum of quasi-money and Ml, and it is a broader
representation of funds available in the economy.
The money supply
may be increased by: Since the Belize economy is
Earning foreign open ..... an increase in
v Earning foreign i i
money supply results in
e x ch e increased spending and
through the .
e rtarouh o consequently to a higher
exportaon of demand for foreign exchange.
services (such as marine products, sugar, citrus, and
banana), the sale of locally produced goods and services
(such as tourism) to non-residents, and the inward flows
of foreign investment and external borrowing; and/or
/ Increasing domestic credit (borrowing by the private and
public sectors, non-financial institutions, and individuals
from financial institutions).
Of these two, the more sustainable means of expanding
money supply is through export earnings. Since the Belize
economy is small and open (most of what is consumed is
imported from abroad and what is produced has a large
import content) an increase in money supply results in
increased spending and consequently to a higher demand for
foreign exchange. In such situations, if foreign currency is
being earned through export sales, foreign exchange will be
available to meet the demand of the public.
On the other hand, if money supply were increased through
local borrowing, the resulting rise in demand for foreign
exchange would not necessarily be accompanied by an
increased supply of foreign exchange. This is to say that as
Understanding Our Economy 29
export earnings increase, there is an increase in foreign
reserves and money supply. As domestic credit increases,
however, money supply increases but foreign reserves decline.
Creating money is not the same as printing money. While
creating money is linked directly to foreign exchange earned
and credit extended by the banking system, printing money
(or deficit financing) refers to the financing of Central
Government's deficit by borrowings from the Central Bank.
Under such a scenario, a government would be contributing
to the demand for foreign exchange without contributing to
the supply of foreign exchange. This is particularly so when
government borrows from the Central Bank to finance
recurrent expenditure such as wages/salaries or goods and
When government has revenue in excess of expenditure
(surplus) and places these funds at the Central Bank, there is
little effect on the monetary system since the funds would not
be available to the public to purchase goods and services. On
the other hand, when surplus funds are placed in the banking
system, they would be used to extend loans to the public
thereby increasing the money supply and consequently the
demand for foreign exchange. The effect of this would be a
fall in foreign reserves.
To ensure that the growth of the money supply is relatively
stable and does not result in excess demand for foreign
exchange, the Central Bank implements monetary policy
instruments to protect against rapid expansion or contraction.
This is primarily accomplished through liquidity management.
As specified in the Central Bank Act, commercial banks are
required to hold a certain portion of their assets in liquid form
(varied between 20"', to 35" ...
An increase in the liquidity requirement means that
30 Central Bank of Belize
9 commercial banks must hold more funds in liquid form
and thereby making less available to lend to the public.
On the other hand, a reduction in the liquidity
requirement allows commercial banks to hold less funds in
liquid form, making more funds available for lending to the
public. In November 1998, the liquid asset requirement of
the commercial banks was reduced from 26% to 24%.
GOVERNMENT'S BUDGET AND THE
The Government's budget is its statement of expected
revenue and expenditure for the fiscal year, which begins
April 1 of one year and ends on March 31 of the following
year. It is the Government's primary instrument of fiscal
policy, that is, it is the main tool for effecting changes in the
pattern of expenditure and investment throughout the
economy. The government's budget, therefore, should be
prepared within the context of its objectives for growth and
Steps taken in preparing the budget are:
/ The Ministry of Finance issues a Budget Call to all
Understanding Our Economy 31
government ministries and departments. This invites the
ministries and departments to submit their proposed
budgets to the Ministry of Finance.
/ The proposed budget of each ministry/department is
submitted by a predetermined date.
/ Internally, the Ministry of Finance determines the overall
composition of the budget the expected revenue for the
next fiscal year and t
Officials of the
Ministry of Finance
areas of the
with each ministry/
establish priorities and
he estimated expenditure that is
The Appropriation Act
gives Government the
authority to collect
revenue and incur
expenditure within the
framework of the approved
determine where changes can be
v Final estimates are prepared at the Ministry of Finance
and presented to Cabinet for discussion, modification,
and approval for submission to the House of
/ The estimates tabled in the House of Representatives for
debate are passed into law as the Appropriation Act.
/ The Appropriation Act gives the Government the
authority to collect revenue and incur expenditure within
the framework of the approved budget.
+ Recurrent and Capital Budget
32 Central Bank of Belize
* There are two major components of the budget: the
Recurrent Budget and the Capital Budget. The Capital
Expenditure Budget is further divided into Capital II
(locally funded) Expenditure and Capital III (externally
* The Recurrent Budget
The Recurrent Budget is composed of revenue and
expenditure that occur annually and are fundamental in the
daily operation of the Government. Recurrent revenues are
of two types, Tax and Non-Tax.
< Tax Revenues: The major categories of tax revenue are
income taxes including company taxes; taxes on goods
and services including sales tax; excise duties; and taxes on
international trade and transactions known as customs
< Non-Tax Revenues: These revenues make up a smaller
proportion (about 11'..) of recurrent revenue. They are
drawn from a few sources such as licenses; rents and
royalties; contribution to pension funds; and transfers
from the Central Bank and non-financial public
enterprises such as the Port Authority and the Belize
Recurrent expenditure are those which arise from the daily
activities of the Government and can be classified as either
Functional or Economic in nature.
The Functional Classification reflects services provided and
functions performed by the Government in spending public
funds. These include defense, health, housing, transport and
Understanding Our Economy 33
communication, social security, agriculture and fishing,
education, and general public service.
The Economic Classification relates to the broad categories
of expenditure across all the functions. It refers to wages and
salaries, pension, goods and services, interest payments,
subsidies and transfers. The economic classification shows
not what the Government spends money for but what it
spends money on.
The Current Balance is the difference between recurrent
revenue and recurrent expenditure. When recurrent revenue
exceeds recurrent expenditure, there is a surplus on the
current account. On the other hand, when recurrent
expenditure exceeds recurrent revenue, there is a deficit on
the current account.
+ The Capital Budget
The Capital Budget reflects the Government's revenue and
expenditure that are tied to investments in costly, durable
goods, which last for more than one year. Such investments
include buildings, roads, bridges, schools, and equipment.
The revenue earned by the Government on the sale of assets
is called Capital Revenue. It includes income from the sale of
shares in public organizations and economic citizenship.
Activity in the capital budget either creates or disposes of an
asset. There are two categories of capital expenditure.
/ Capital II Expenditure is locally funded and includes
counter-part funding for projects financed by foreign
institutions. The Government utilizes any surplus on the
current account for Capital II projects. Deficits are
financed through borrowings from the domestic financial
34 Central Bank of Belize
< Capital III Expenditure is financed by international
organizations under loan or grant agreements between the
Government and international institutions.
* Operating Balance
The Operating Balance is the balance on all of the
Government's locally funded operations in any one fiscal year.
It includes the Current Balance plus Capital Revenue less
Capital II Expenditure.
+ Overall Balance
The Overall Balance is the operating balance plus Capital III
Expenditure. When all expenditure is taken into account, the
overall balance indicates the extent to which the
Government's total expenditure exceeds total revenue and
grants (an overall deficit) and vice-versa (an overall surplus).
+ Financing A Deficit
When overall expenditure exceeds overall revenue and grants,
the Government typically finances such a deficit by borrowing
from the domestic system and/or by borrowing abroad. Of
late, however, initiatives have been made to source financing
externally through the issue of bonds.
Borrowing from the domestic system may be effected
through a number of mechanisms:
< Treasury Bills are short-term securities which means that
they mature in 90 days. Under the law, the maximum that
the Government can presently issue is $70.0 million.
Treasury Bills are held by institutions such as the Central
Bank, commercial banks, the Social Security Board as well
Understanding Our Economy 35
as members of the public.
/ Treasury Notes are medium term securities, which
means that they have a maturity period greater than 3
months but not more than 24 months. Presently, the
Government can issue Treasury Notes to the tune of
$25.0 million. The Notes were first introduced by the
Government in 1993.
/ Defence Bonds are longer-term securities that were
issued to finance the expenses of the Belize Defence
Force after the departure of the British Forces. The
maximum issue is $25.0 million of which $15.0 million has
been issued to date.
/ Debentures are long term instruments dating back to the
colonial era. They are tied to specific projects. Currently,
the value of debentures in the system stands at about $6.2
/ The overdraft facility at the Central Bank provides for
advances to be extended to the Government. The
advances may amount to $50.0 million or to a maximum
of 20% of the Bank's gross revenue during the previous
financial year, whichever is greater. At the end of the
year, advances by the Central Bank to the Government
stood at $49.7 million and $45.1 million in 1997 and 1998
External debt finances are used to fund Capital III
Expenditure and for deficit financing. Foreign debt is
incurred from five major sources:
(1) Multilateral (international organizations and agencies that
cross national barriers such as the World Bank, CDB, and the
36 Central Bank of Belize
10 (2) Bilateral (agencies of foreign governments, such as
USAID and CIDA, and foreign governments such as
that of the ROC),
(3) Commercial loans,
(4) Supplier's Credit (raw materials and equipment provided
on account and are paid for at a later date), and
(5) International securities markets (bond issue).
Understanding Our Economy 37
For any given year, at least 85% of Central Government's
current revenue is due to tax revenue collections from three
main sources, namely, (1) income and profits through the
Income and Business Tax, (2) goods and services, based
primarily on the Sales Tax, and (3) international trade and
transactions, mainly from Import and Revenue Replacement
Duties. The tax regimes relating to these revenue sources are
discussed in this chapter.
+ Income and Business Taxes
Income and Business
Taxes in Belize are The sales tax rate is 12% on
governed by the alcohol, tobacco, and fuel
Income Tax Act, and 8% on all other goods
Chapter 46 of the Laws and services that are not
of Belize, Revised
of B R d exempted under the tax
Edition 1980-90 as
amended by the sys
(Amendment) Act, 1998 and the Income and Business Tax
(Amendment) Act, 1999.
One of the main provisions of the 1998 amendment is the
exemption of all persons earning less than $20,000 per annum
from the payment of income tax as the basic allowance for all
employed persons was increased to $19,600. With the
introduction of the 1999 amendment, the tax rate on the
chargeable income of employed persons was set at 25%.
The tax regime also provides for the imposition of a business
tax ranging from 0.75% to 4.0% on the gross receipts of
38 Central Bank of Belize
companies and self-employed persons and 19% on the
providers of telecommunication services. The 4% rate applies
to professionals who are engaged in an occupation or
vocation in Belize.
Business tax payments made by a business establishment,
during the course of a basis year, shall count as a credit
towards the income tax payable on the chargeable income of
the establishment for that year.
Persons objecting to assessments made by officials of the
Income Tax Department may appeal to a three-member
Appeal Board. The Income Tax Commissioner or persons
dissatisfied with the decision of the Appeal Board can make
an appeal, relating to a point of law, to a Court.
+ Sales Tax
The Sales Tax Act was introduced in April 1999 as the
primary means of collecting a broad-based tax on goods and
services. The sales tax rate is 12% on alcohol, tobacco, and
fuel and 8% on all other goods and services that are not
exempted under the tax system. The Sales Tax system
replaced the Value Added Tax (VAT) regime that was
introduced in April 1996. The VAT had a rate of 15%.
Except for persons providing exempt goods and services,
every producer of goods or provider of services is required to
register as a Sales Tax Agent so long as the total taxable
proceeds of such a person exceeds $4,500 in any one month
or 4,000 in any one year. A registered agent is issued a
registration certificate that must be displayed in public view at
the locations) where that agent conducts business.
In order to prevent cascading (the payment of taxes on taxes),
Understanding Our Economy 39
producers of goods and services are required to provide the
Sales Tax Department with a list of the essential inputs
necessary for the preparation and provision of a product. By
so doing, the producers may become eligible for a tax
exemption certificate, approved by the Commissioner of Sales
Tax, permitting exemption from the payment of the sales tax
on certain inputs.
Besides the above exemption for inputs into the production
process, there are fifteen categories of goods and services that
are exempted from the application of the sales tax, and these
1) the supply of electricity, water and sewerage services;
2) basic food items such as flour, rice, beans, corn, and
3) certain medicines, books, and financial services; and
4) goods exported or intransit to an Export Processing
Zone / Commercial Free Zone.
Importers who are not registered Sales Tax Agents will have
the sales tax levied on their imports by the Customs
The Sales Tax Act provides for a three-member Appeal Board
to hear the appeals of persons who wish to challenge
assessments made by officials of the Department of Sales
Tax. The Commissioner of Sales Tax or persons dissatisfied
with the decision of the Appeal Board, relating to a point of
law, may appeal to the Supreme Court.
+ Import and Revenue Replacement Duties
The Customs and Excise Act, Chapter 38 of the Laws of
Belize, Revised Edition 1980-90, empowers the Department
of Customs and Excise to levy and collect customs duties on
goods imported into the territory or goods taken out of bond
40 Central Bank of Belize
I I and destined for consumption in the territory.
The tariff and trade classification system in Belize is
based on the Common External Tariff (CET) established
under the auspices of CARICOM. A phased reduction in
import duty rates between 1996 and 1998 resulted in duties
falling to an average of 25% in April 1998.
The legislation allows for the imposition of a Revenue
Replacement Duty (RRD) on certain categories of goods to
compensate for the revenue loss associated with the removal
or reduction of import duties that were effected by the
implementation of the treaty establishing CARICOM and the
Common Market. Most of the revenues collected by way of
the RRD are the result of the RRD being applied to imports
of petroleum products.
GDP refers to the total value
of all goods and services
that are produced within the
national territory of a country
during a specific period.
Understanding Our Economy 41
MEASURES OF ECONOMIC PERFORMANCE
There are four main measures that are used to monitor
macroeconomic performance, and these are the Gross
Domestic Product (GDP), the inflation rate, the rate of
employment/unemployment and the Balance of Payments
(BOP). In Belize, the first three measures are compiled by the
Central Statistical Office (CSO) of the Ministry of Finance
and will be discussed in this chapter. The BOP statistics are
compiled by the Central Bank of Belize, and a separate
chapter is devoted to its discussion.
+ Gross Domestic Product (GDP)
The GDP is a measure of economic activity. GDP refers to
the total value of all goods and services that are produced
within the national territory of a country during a specific
period. The GDP is a subject matter of National Accounts,
and the United Nations provides a comprehensive set of
guidelines, 1993 System of National Accounts (SNA),
governing the conceptual and measurement issues relating to
the GDP and other national accounts ..-r..:... This
facilitates comparisons between countries.
Besides the GDP, the SNA features a number of other
national accounts aggregates such as the Gross National
Product (GNP). The GNP is obtained by the adding of 'net
factor income from abroad' to the GDP. There are three
methodologies that can be used to compile the GDP or GNP,
and these are (1) the output approach, (2) the expenditure
approach, and (3) the income approach.
42 Central Bank of Belize
The output method sums up the value added generated by
each of the industrial sectors of the economy. In Belize, the
two largest sectors are the trade, hotels and restaurants sector
and the agriculture sector, and the two smallest sectors are the
forestry and logging sector and the mining and quarrying
sector. The expenditure method is focused on adding up the
final purchases made with respect to private and government
consumption, investment and the value of net exports. The
income approach sums up the incomes that accrue to the
factors of production for the production of goods and
In Belize, the GDP is compiled on an annual basis while in
more developed countries output figures are available
quarterly and annually. Two approaches, the value added and
the expenditure, are used by the CSO to compile GDP
estimates. In order to compile these annual estimates, an
annual survey of establishments is necessary so as to collect
the data required for the estimation process. A move towards
the production of quarterly GDP estimates will require
quarterly data collection.
The GDP may be
expressed either in The method most popularly
expressed either in .
n nal' or used to measure inflation is
nominal or real.
terms. GDP in the percentage change in the
nominal terms is the Consumer Price Index (CPI).
nominal terms is the
GDP in current prices.
GDP in real terms indicates that the GDP is valued in
constant prices and has a reference to prices in a given base
year. The growth rate of the economy refers to the
percentage change in the Real GDP.
The GDP has a number of limitations. Firstly, the GDP is an
inadequate measure of welfare since the per capital GDP
refers only to income per head but not to how that income is
Understanding Our Economy 43
distributed. Secondly, the value of some output, such as that
stemming from own-account work, has to be imputed for
GDP purposes, and this gives rise to a number of
imputations. Thirdly, other non-market activities, such as that
of housewives in their own homes, does not enter into GDP
There is increasing concern that the production process must
be environmentally sustainable. Some institutions are now
advocating the use of National Resource Accounting (NRA)
which would allow for adjustments to be made to
conventional GDP estimation in order to take account of
Inflation refers to the change in the level of prices. The
method most popularly used to measure inflation is the
percentage change in the Consumer Price Index (CPI). The
CPI relies on the periodic collection of consumer prices for a
'basket' of goods and services at designated outlets. A
Household Expenditure Survey (HES), which has to be
conducted periodically, provides the information necessary to
determine the number and weight of items in the basket.
The last HES in Belize was in 1990, and this is also the reason
for 1990 being the current base year for the CPI. In Belize,
there are 277 items contained in the basket of goods and
services, including items of food, clothing, rent, medical care,
transportation, and personal care. The CSO collects prices
for the goods and services in the basket every quarter. The
prices for each quarter are used to compile a quarterly index.
An annual index is then obtained by computing the average of
the four indices of a given year. The annual inflation rate, in
Belize, is measured by the percentage change in the annual
44 Central Bank of Belize
1 2 Employment and Unemployment
The process of producing the goods and services
contained in the GDP requires a labour input. The level of
economic activity and the nature of the production processes
determine the level of the labour input and consequently the
level of employment that is required by the economy. Clearly,
not all members of the labour force can be employed at any
given time so that
some proportion of
the labour force will The Balance of Payments
be unemployed. The (BOP) is a measure of the
unemployment rate value of the transactions
refers to the number between the residents of a
of unemployed country and the residents of
persons as a foreign countries.
percentage of the
In Belize, information on the labour force is gathered annually
by a household survey conducted by the CSO. The survey,
known as the Labour Force Survey (LFS), has been in
existence since 1993. Only persons who are at least 14 years
old, at the time of the survey, are included in the working age
population. This working age population is subdivided into
the employed, the unemployed and the not economically
active. The latter category comprises students and the retired.
The International Labour Organization (ILO) of the United
Nations provides guidelines for the measurement of
employment and unemployment. In developed economies,
the category of unemployed persons refers to the segment of
the labour force that actively sought employment during a
particular reference period. In Belize, as in most other
countries of the region, the category of unemployed persons
Understanding Our Economy 45
includes members of the labour force who sought
employment as well as those who indicated a willingness to
take up a job if one was offered.
46 Central Bank of Belize
BALANCE OF PAYMENTS AND FOREIGN
The Balance of Payments (BOP) is a measure of the value of
the transactions between the residents of a country and the
residents of foreign countries. The BOP provides a picture of
the goods, services and financial flows into and out of the
country in any given period. Currently, BOP estimates are
compiled annually by the Central Bank, and an annual survey
of establishments is conducted to collect data that can assist
with the compilation process.
The "residents" of a country include the government,
individuals, businesses, and non-profit organizations located
in the country. Also included as residents are the individuals
who have resided within the country for at least one year.
Employees of foreign governments and international
agencies, tourists and ship crewmembers are defined as non-
The BOP statement has three parts, the current account,
capital account and the overall balance.
+ Current Account
The current account includes transactions arising from trade
in goods and services between residents and non-residents of
a country during a period (month, quarter or year).
Understanding Our Economy 47
Trade in goods refers to the export and import of
merchandise (visible trade) and the difference between the
two categories is called the balance of visible trade. A trade
surplus exists when export payments exceed import
payments, and a trade deficit exists when import payments
exceed export payments. Between 1986 and 1998, Belize's
trade deficit increased from $58.7 million to $209.6 million.
Trade in services (invisible trade) refers to transactions arising
from such services as transportation and tourism as well as
payments on factor income and of current transfers.
Tourism is one of the largest components in the current
account, and this reflects foreign exchange receipts from the
sale of services to tourists and the use of foreign exchange by
Belizean residents for travel abroad.
Factor income is the returns to production inputs, and it
includes wages, interest payments, dividends and profits.
Unrequited transfers (current transfers) refers to the receipt
of a benefit for which no corresponding payment is made.
This includes gifts, in money and kind, from Belizeans living
abroad to relatives at home, as well as grants, in money and
kind, to the government. The latter is inclusive of technical
assistance, grants, and physical assets with a short expected
The current balance is the difference between outflows and
inflows on the current account during a specified period. The
current account is in surplus when inflows are greater than
outflows, and it is in deficit when outflows exceed inflows.
48 Central Bank of Belize
1 3 Capital Account
The capital account includes financial flows arising
from direct investment, repatriation of profits, and borrowing
by government and the private sector. Like the current
account, this account can be in deficit or surplus.
Long term and short term flows relates to public and private
sector borrowing and gifts of physical assets with a long
expected life. In Belize, inward investment flows have gone
to the traditional sectors ( such as sugar, citrus and bananas)
as well as to the non-traditional sectors ( such as mariculture
+ Overall Balance
The overall balance of payments refers to the difference
between inflows and outflows for a specified period. An
overall surplus indicates that inflows on both current and
capital accounts were greater than outflows.
Theoretically, under a fixed exchange rate regime, such as that
of Belize, the result of such a surplus is an increase in the
official international reserves of the country equivalent to the
size of the surplus. The opposite situation occurs when the
overall balance is in deficit. Under this scenario, the outflows
on both the current and capital accounts exceed inflows, and
the result is a decline in official international reserves
equivalent to the size of the deficit.
The foreign position of the country may be defined in several
ways as follows:
/ Net Foreign Assets of the Central Bank is the
difference between the Central Bank's foreign assets and
its foreign liabilities.
Understanding Our Economy 49
SGross Official International Reserves is the total
amount of foreign assets held by the Central Bank and
Central Government. These foreign assets are placed
with financial institutions abroad and are used to service
public debt and to meet the public's demand for foreign
< Net Official International Reserves is the difference
between Gross International Reserves and the Foreign
Liabilities of the Central Bank.
/ Net Foreign Assets of the Commercial Banks is the
difference between commercial banks' holdings of foreign
balances abroad and their foreign liabilities.
< Net Foreign Assets of the Banking System is the sum
of the Net Foreign Assets of the Central Bank and the
Net Foreign Assets of the commercial banks.
50 Central Bank of Belize
THE REAL ECONOMY A HISTORICAL
The "real economy" refers to the goods and services that are
produced for sale at home or abroad. Beginning with the
arrival of the British and continuing until the mid-20th
century, the economy of Belize was dominated by forestry
production. Logwood for the processing of dyes was the first
forestry product that was marketed on a large scale. This was
a very profitable industry until the 18th century when
logwood-based dyes were replaced by synthetic dyes.
Mahogany, for the furniture and ship-building industries of
Europe, then ruled the forests of Belize from the mid-18th
century to the 20th century.
In contrast to the rest of the Caribbean, where there was
significant plantation agriculture, production in colonial Belize
was extractive in nature. Whereas in the Caribbean there was
the growing of sugarcane for the production of sugar, in
Belize, it was the extraction of logwood, mahogany and chicle
with little thought of re-forestation and agriculture. As a
result, the import/export business became profitable and was
essential to the colony.
In the mid-20th century, Belize's economic base shifted from
forestry to agriculture. This shift, however, was not towards
food production but to large-scale plantation-type agriculture
with citrus and banana cultivation in the south and sugarcane
in the north. The Government supported these
developments by providing railways and roads and negotiating
access to guaranteed markets. Over time, small-scale
producers entered into the production of the export crops.
Currently, sugar, citrus and banana account for at least 60%0
of the earnings accruing from merchandise exports.
Understanding Our Economy 51
14 Significant proportions of these products are sold
under preferential arrangements that ensure that the
price received is significantly higher than world
market prices. The preferential arrangements are at odds with
the move toward free trade at the turn of the century, and it is
envisaged that such arrangements will gradually be phased out
starting in the near future.
+ Sugar Industry
Although sugarcane cultivation has been present in Belize
since the 1850's, the modem sugar industry can be dated by
the assignment of a sugar quota, under the Commonwealth
Sugar Agreement, in 1959. Shortly thereafter, Tate and Lyle
purchased the then Corozal Sugar Factory Limited and started
planting sugarcane and producing sugar. Sugar is presently
Belize's most important export commodity.
+ Banana Industry
With the entry of the United Fruit Company in the early 20th
century, the banana industry started out as the first large-scale
agricultural industry in Belize. The Government encouraged
the company by the sale of vast tracks of crown land at very
low prices and by building railways. The effort, however, was
undermined by the Panama disease, which wiped out banana
production in a few years. The United Fruit Company
eventually pulled out of Belize. It was not until the 1980's
that the banana industry revived, with Belize once again
producing large quantities.
+ Citrus Industry
The beginnings of the citrus industry can be traced to the
collapse of the banana industry in 1910 but sustained
52 Central Bank of Belize
development dates back to the 1940's. The Industry was
boosted by the entry of Colonial Development Corporation.
As with the United Fruit Company some decades earlier, the
Corporation purchased crown land at relatively cheap prices.
The Government further supported the industry by replacing
railways with a motorable road to allow easier access to the
dock for shipment. There are two citrus processing factories
operating in the Stann Creek District. The Citrus Company
of Belize evolved from a company originally set up by British
interests, and the Belize Food Products Limited evolved from
a company that was set up by American interests.
A major development in 1998 was the injection of new
investment into the citrus industry as the Commonwealth
Development Corporation (CDC) acquired the Citrus
Company of Belize as well as other citrus interests in the
+ Tourism Industry
During the 1980's there was a resurgence of tourism,
particularly eco-tourism. The important difference between
traditional "sea and sand" and eco-tourism is that the latter
emphasises a pristine environment that maintains the
ecological balance and conserves the environment.
Understanding Our Economy 53
THE SUGAR INDUSTRY
The Sugar Industry, as one of the most important industries
in Belize, has been instrumental in advancing Belize's level of
In the 1850's, refugees fleeing the Caste War in Yucatan
introduced the cultivation of sugarcane into northern Belize.
At about the same time, some United States immigrants were
undertaking a similar but less successful venture in the Toledo
District. Belize first exported sugar to England in 1857. In
1880, sugar production stood at 2,800 tons, later declining as
a result of the negative effects of a United Kingdom policy
that encouraged the dumping of subsidized sugar from
By 1920, there were between 30 to 50 small sugar mills
operating in Belize, and this gave rise to the need for a
centrally located processing facility. In 1935, a second-hand
mill was purchased from Cuba. The plant was set up as the
Corozal Sugar Factory Limited, and it produced
approximately 2,000 to 2,500 tons of sugar from some 2,000
acres of sugarcane.
In 1955, the entire sugar industry had to be rebuilt following
its devastation by Hurricane Janet. On this new footing,
sugar production increased from 4,500 tons in 1952 to nearly
28,000 tons in 1963. During the same period, Belize was
assigned a sugar quota under the Commonwealth Sugar
54 Central Bank of Belize
1 5 Agreement in 1959, and the Tate and Lyle Company
was invited to take a lead role in the sugar industry of
Belize. The company purchased the sugar factory in
Corozal and renamed it Belize Sugar Industries Limited (BSI).
Over time, BSI increased the annual production capacity to
about 45,000 tons. In 1967, a second sugar factory, the
Tower Hill Factory, was constructed in the Orange Walk
District. This new factory was designed to process over
100,000 tons of sugar, but initially, only 25,000 tons of sugar
In 1972, BSI sold its sugarcane interests allowing Belizean
cane farmers to assume full responsibility for sugarcane
production. By 1980, the annual sugar production at the
Tower Hill Factory stood at 75,000 tons.
Between the period 1982-1985, the sugar industry faced
extremely unfavourable conditions as a result of low sugar
prices on the world market, a decline in the United States
sugar quota, and, to a lesser extent, the existence of smut
disease. To improve its profitability, BSI undertook some
restructuring which resulted in the closing of its sugar factory
in Libertad, Corozal District, after harvesting the 1985
Changes again took place in the industry when a Jamaican-
owned company, PETROJAM Belize Limited, purchased and
re-opened the Libertad (Corozal) factory. The company
produced high-test molasses at this facility between 1989 and
1997 when it closed its operations. Plans to re-open the
factory, with the assistance of the ROC, are now underway.
Today, the sugar industry accounts for some 31i0 of the total
foreign receipts from commodity exports, and it provides
Understanding Our Economy 55
employment for some 6,300 cane farmers, and 525 processing
plant workers. Employment is also provided in the auxiliary
services that support the industry.
Of the sugar produced, about 50% is exported to the
European market at preferential prices, 13% is exported to
the United States at preferential prices under a quota
arrangement of 11,300 tons, about 25% to the world market
at world prices, and the remaining 12% is consumed locally.
The impact of the North American Free Trade Agreement
(NAFTA) on the Belizean sugar industry is mixed. The
industry needs to become more competitive, which can be
achieved by increasing efficiency through the reduction of
processing costs and the increase in productivity. In the
medium term, NAFTA is not expected to have a significant
negative effect on the present agreement that specifies an
annual export quota of
11,300 tons to the USA During the citrus season,
market during the citrus fruits are delivered to
1998/99 crop year. the processing facilities ,
and the primary product of
In assessing the future factories is itrus
the factories is citrus
of the sugar industry as cocet
it relates to the various conce
trade blocs, it should be
noted that while BSI has preferential access to its major
markets, it also exports the remainder of its produce at rather
volatile prices on the world market. To combat the negative
effects of overproduction on the world market, it may be in
the best interest of countries like Belize to further diversify
their system of farming yet maintaining sugarcane at the core.
Should the market become saturated and result in reduced
sugar prices worldwide, timely diversification will provide a
cushion for the economy.
56 Central Bank of Belize
THE BANANA AND CITRUS INDUSTRIES
The Banana and Citrus Industries are two of Belize's major
foreign exchange earners. In 1993, 1994 and 1997, the
banana industry was the second largest foreign exchange
earner among commodity exports, surpassing the citrus
industry. This shift in export earnings may be attributed to
the privatization and expansion of the banana industry and
the development of port facilities at Big Creek in the Stann
Under the management of the Banana Control Board during
the 1980's, the banana industry faced a heavy debt that could
not be serviced by the level of production. This prompted
the Government to restructure and privatize the industry. As
part of this restructuring and privatization, the banana
growers acquired the existing equity, and the Banana Growers
Association was encouraged to engage in the self-regulation
Understanding Our Economy 57
of the industry. Also, the Government acquired the liability
for the outstanding debt. Most of the banana plantations are
located in the southern part of the Stann Creek District.
Following privatization, banana production increased steadily
until it peaked in 1989. In 1990 and 1991, banana output
declined, and the industry faced severe losses. During this
period, the banana industry was affected by two problems,
and these were poor weather conditions and an outbreak of
the Black Sigatoka disease (causing fruits to ripe prematurely).
A UK company, Fyffes Limited, provided the financing and
the technical assistance necessary for the rebuilding of the
Another explanation for the increased impact of banana as
compared to citrus lies in the fact that while citrus requires a
five to eight year period for maximum production to be
realized, bananas require only one year. Although significant
investments were made in both citrus and banana cultivation,
the resulting increase in citrus production would occur much
later than the increase in banana production.
There are two citrus factories in Belize, and both are located
in the Stann Creek District. Unlike the sugar industry, the
citrus processing companies own the majority of citrus
plantations while a number of individual growers, with
membership in the Citrus Growers Association, own a smaller
proportion of plantations.
During the citrus season, citrus fruits are delivered to the
processing facilities, and the primary product of the factories
is citrus concentrate. In order to remain competitive, the
citrus factories engage in on-going efforts to improve
processing facilities and continuously explore new markets for
58 Central Bank of Belize
1 6 Perferential Markets
Preferential arrangements govern the exports of Belizean
citrus and banana. At this time, neither of the two industries
would be competitive if the preferential markets were
The North American Free Trade Agreement (NAFTA) is of
grave concern to the citrus industry. NAFTA gives Mexico
the opportunity to export substantial quantities of citrus to
the United States of America (USA) at half the cost paid
previously. This has resulted in a 70 increase in the exports
of citrus from Mexico to the USA, thereby displacing some
Belizean citrus on that market.
Although Belize does not export banana to the USA, one
major concern of the banana industry is the USA's trade
sanctions against the European Union (EU). This is due to
the preferential market access given to banana imported into
the EU from the countries of the African Caribbean and
Pacific (ACP). The EU banana regime is not in comformity
with the principles of the World Trade Organization (WTO).
The EU has committed itself to modifying its banana regime
to conform to WTO standards. The future of Belize's banana
industry depends on maintaining favourable market access to
the EU. The characteristics of a revised regime will,
therefore, determine the viability of Belize's banana industry.
Also of concern to the banana industry of Belize is the fact
that the present annual export quota of 55,000 tonnes of
banana to the EU is well below the 85,000 tonnes required to
achieve economies of scale in shipping. The original quota
was set at 40,000 tonnes, and an additional amount of 15,000
tonnes was extended to Belize with effect from July 1994.
Understanding Our Economy 59
Banana from Belizean producers is shipped along with crops
from other neighboring countries that together constitute a
full cargo. To contract the services of a regular ship to export
produce from the Belize market alone, the volume of
shipment would need to increase substantially. Having a
dedicated ship to
service only the Belize The closed season is
market would go a long February 14 June 15 and
way in reducing the June 30 September 30 for
cost of production. lobster and conch,
However, such a move respectively.
would have to be
further development of the southern port to facilitate larger
Improved roads, including feeder roads, would have a positive
impact on both industries. With the improvement of the
main highways, the citrus industry now enjoys reduced
transportation costs. On the other hand, if the banana
industry had access to paved roads, it is likely that the grade
of the produce would be even better than the 85% quality
points that is presently being achieved.
60 Central Bank of Belize
THE FISHERIES INDUSTRY
The Fisheries Department is the agency responsible for
administering fisheries laws and the management of the
aquatic environment of Belize, both inland and within the
territorial sea. The Department charts the development path
to be undertaken by the aquaculture and capture fishery
industries by elaborating plans, projects and strategies that are
consistent with the growth of the sector. The Department
also undertakes licensing, generates fishery statistics, and
conducts benchmark surveys. Since more than 810i' of
fishery products are exported, quality control is emphasized to
ensure that products meet with international standards.
Although the industry generally exports 500,000 600,000
pounds of lobster tails annually, it is noted that these
resources are finite and can be over-harvested. While
information at the Fisheries Department is not totally
conclusive, it is indicative that the fishery is heavily stressed.
Indicators of stress include:
v Decrease in catch per unit over time: this stems from
the increased competition between fishermen for a scarce
resource. The catch per unit decreases since fishermen,
utilizing the same fishable grounds, would need to expend
more resources to capture the same level or less produce.
SChange in size classes available information indicates
that with continued exploitation, threat is manifested by
smaller sizes of produce or extinction of particular species
as experienced by Jamaica and The Bahamas.
To a large extent, high value resources like lobster, conch, and
capture shrimp have reached their ceiling of production,
leaving very little scope for increased production. As a result,
any additional improvements would have to take the form of
Understanding Our Economy 61
1 7 further processing and product development.
An important factor that may add to the depletion of
resources is the harvesting of undersized lobster and conch
during the closed seasons. The closed season is February 14 -
June 15 and June 30 September 30 for lobster and conch,
respectively. In order to protect the industry, it is important
for consumers to understand the necessity for having a closed
season and the implications of disregarding such regulations.
Diversification is an important aspect of conserving the
resources of the country. In addition to whole-cooked
lobster, products with great potential include (1) farmed
shrimp, an exotic species with parent stock from the Pacific
accounts for 90% of investments in aquaculture and (2)
ornamental fish farming which accounts for some 10% of
investments. Other species that could be successfully farmed
in Belize include the red snapper, nassau grouper, crana, bass
snook, and tubba. While the fresh fish market would require
special logistical arrangements and flexibility with respect to
regulatory agencies such as the Customs and Fisheries
Departments and the Bureau of Standards, this commodity
would attract more revenue on a per pound basis.
Since the declaration of additional territorial sea and exclusive
economic zone, the potential for deep-sea fishing has
increased tremendously. Likewise, non-traditional species
such as blue crabs, scallops, skates and finfish have excellent
potential. However, due to the exploitation of the latter,
some species like the snapper and nassau grouper would
require careful management.
At present there is a general shift towards health foods, and it
is anticipated that seafoods will become increasingly
important in the twenty-first century. Although ventures in
new products have been encouraged, fishermen are generally
62 Central Bank of Belize
hesitant to explore non-traditional methods of fishing. While
the harvesting of fresh fish would be more profitable, a major
deterrent is the lack of adequate finance. Given the
opportunities for diversification, shrimp farming, aquaculture,
and overall product development, the outlook for the industry
is quite promising.
Understanding Our Economy 63
Trucks Deliverying Sugarcane in the Orange Walk District (Photo by BIS)
Reaping citrus fruits in the Stann Creek District (Photo by BIS)
64 Central Bank of Belize
A Sandy Beach in the Stann Creek District (Photo by M. Palado)
Banana for export in the Stann Creek District (Photo by M. Palacio)
Understanding Our Economy 65
AQUACULTURE IN BELIZE
Aquaculture is the husbandry of aquatic plants and animals at
densities generally greater than that occurring in nature. It
involves some control of the biological life cycle of the animal
under culture as well as some control over the environment in
which the plant or animal is being cultured. Aquaculture may
be categorized as either mariculture, the farming of marine
species, or freshwater culture.
Aquaculture, considered as the industry with the largest
growth in Belize, has been developed for a variety of purposes
including food, pharmaceuticals, hobby, and bioengineering.
While there is a wide range of species being cultured, over
90% of the investments have been made in shrimp
mariculture. A variety of finfishes and invertebrates are also
cultured. The most popular plant cultured is the seaweed.
The operation of an aquaculture system depends on a clean,
pollution-free environment to sustain its ecological viability.
If practiced properly, shrimp farming is considered friendly to
the environment since the water removed from the sea is put
back into the sea and the land used would probably not have
any alternative use since the soil must be neutral or slightly
alkaline. Although an acid soil can be used for farming, it is a
disadvantage as ponds must be built on land with clay so that
water may be retained. Also, certain elevations are necessary
for drainage purposes during harvesting.
Shrimp farming, a capital-intensive venture, involves two
essential elements seed production (hatchery aspect) and
pond production. The three basic technologies which may be
utilized in shrimp farming are the extensive, semi-intensive
66 Central Bank of Belize
1 8 (the harvesting of 1,000- 2,000 pounds per acre), and
intensive (the harvesting of 6,000 8,000 pounds per
acre) method of farming. The semi-intensive is the method
that is most practiced globally, and it is the method that has
been adopted in Belize.
If a farm is set up in isolation, construction costs will be
extremely high. However, if a pond is set up adjacent to one
with existing infrastructure, costs may be considerably less,
approximating $8,000 per acre. For the most part, ponds are
located along the coastline so as to access salt water with the
The guiding principle behind shrimp farming in Belize is the
need to be competitive, particularly on a regional basis, since
it is mainly an export oriented industry. Belize's geographic
location is a benefit as it offers easier access to world markets.
Infrastructure costs and the cost of inputs in general,
however, need to be on a level where shrimps can be
competitive. Major infrastructure costs include energy and
access roads. In order for Belize to remain competitive in the
regional market, it must maintain a high level of productivity
There are three major concerns in terms of environmental
impact of this type of farming, and the first of these is the
impact on human health. Consumption of contaminated or
spoilt seafood products generally causes ill health in humans.
In this regard, the Fisheries Department maintains fairly
stringent quality control measures, undertaking checks on a
per shipment basis. Ideally, samples are taken and tested by
the Quality Control Unit of the Fisheries Department before
the product is exported from Belize.
Secondly, and of similar importance is the ecological impact.
Fortunately, as a result of physiographic conditions,
Understanding Our Economy 67
particularly tidal variation, the mangrove fringe in Belize is
fairly limited. Also, the technology utilized in farming does
not require the cutting of mangroves that function as a
sediment trap and absorbent for nutrients that would impact
the reef systems.
The third concern is the socio-economic impact. In Taiwan,
for example, the height of the water table was such that there
were periods when there was a back-flow of ground water
from shrimp farms,
resulting in the flooding In keeping with worldwide
of neighboring lands trends, the 1980's marked a
and rice fields. This change towards the
affected the livelihood marketing of Belize as a
of those farmers who
of those farmers who vibrant and unique eco-
were not in shrimp tourism destination.
Clearly there will be an
on-going need for the development and maintenance of
standards and for the monitoring of performance in the
aquaculture industry. To this end, there will be a continued
need to strengthen the resources and the capacity of the
Fisheries Department if it is to be the lead agency responsible
for such functions.
68 Central Bank of Belize
THE TOURISM INDUSTRY
The Belize Tourism Industry Association (BTIA) is one of
the major organizations associated with the local tourism
industry. This organization, made up of hotels, airlines, travel
agents, tour operators, restaurants, and gift shops, provides
support for its members by lobbying on matters that affect
the industry. In association with the Belize Tourist Board
(BTB) and the Caribbean Tourism Organization, the BTIA
also contributes to personnel training in customer relations
and renders marketing services to its members.
BTIA aims to inform of changes in the industry, whether
locally, regionally or globally. It provides linkages and a
forum for discussion among industry personnel and considers
government and public relations key factors in its operations.
BTIA's lobbying efforts for the industry have resulted in the
withdrawal of a proposed 5% tax to be levied on tour guides,
placing limits on the amount of passengers permitted to visit
via cruise ships, and implementing a specialized Tourism
The BTB, as a quasi-government body, has the responsibility
of implementing policies set by the Government. Its major
responsibilities include the monitoring of hotel activities to
ensure that operations are within prescribed guidelines, the
collection of the hotel tax paid by tourists to the hotels, and
the monitoring of the tour guiding industry.
BTIA and BTB work together to improve standards in the
tourism industry. Both organizations were involved in the
Understanding Our Economy 69
70 Central Bank of Belize
drafting of necessary
legislation with respect to (a)
Tour Operators and (b)
Recreational Vessels. It is to
be noted that, while
responsibility for the
formulation of any particular
policy lies with the
Government, for the most
part, such decisions are made
after consultation with the
private sector. Thus, the
private sector plays an
important role in the
establishment of industry
In keeping with worldwide
trends, the 1980's marked a
change towards the
marketing of Belize as a
vibrant and unique eco-
Whereas previously the effort
was geared mostly toward
highlighting the splendor of
the cayes and off-shore sites,
recent focus has expanded to
mainland destinations and
emphasizing the untainted
rain forest, fauna,
archaeological sites, ethnicity
and cultural bio-diversity.
The two neighboring
countries, Mexico and
Guatemala, are considered as
Belize's greatest competitors.
Packages offered by these
countries, although similar to
those marketed by Belize,
appear attractive to tourists
because of their lower prices.
The Belize tourist industry has
a lot to offer, and a conscious
effort must be made to keep
industry costs competitive.
Presently, 60% of tourists
visiting Belize are nationals of
the USA, 16% are from
Canada, and some 8% are
from Europe. Efforts are
being made to expand on the
European market because
Europeans tend to stay longer
and generally visit during the
'slow season'. A major hurdle
facing the European market is
the lack of direct air links
between Belize and Europe.
Most tourists are hesitant to
lose vacation time because of
having to overnight before
being able to take a connecting
flight to their final destination.