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PRIMARY SURPLUS

PRIMARY SURPLUS
October 14
14:48 2018
REPORTER: News Staff, -

In the soup of economic statistical variables that often find themselves in the public discourses regarding the health of the Belizean economy, of late one that has been worthy of even more attention is Belize’s primary surplus. Defined as the difference between the country’s current revenues and non-interest expenses, it is understandable why it is also viewed as what is left to “service debt after the government” had considered the income and expenditure necessary for running the country.

Looked at from the standpoint of what is left to service the country’s debts, it then becomes conspicuous as to why it was such an important component in the last Superbond restructuring negotiations with the bondholders, who had called for Belize to target a 2 percent primary surplus up to Fiscal Year 2020/21.

To achieve this goal, the government has implemented several revenue measures via amendments to the rates of certain taxes and has cut public investment. As of June 2018, the Central Bank of Belize (CBB) reported:

“For the first quarter (April to June) of the 2018/2019 fiscal year (FY), Central Government’s fiscal adjustments yielded a primary surplus of 1.8% of GDP, up from 0.9% of GDP in the same period of the 2017/2018 FY and an overall surplus of 1.3% of GDP, up from 0.6% of GDP in the comparable period of the 2017/2018 FY. The improved fiscal outturn reflected a 6.5% increase in Central Government’s revenue and grants, stemming from the new tax measures implemented in April, and a 3.3% reduction in total expenditure, as the cutback in capital spending exceeded the increase in current outlays.”

Within that same context, it is of note that the CBB also reported: “Over the first six months of 2018, Central Government’s domestic debt fell by 1.3% to $1,013.2mn (26.4% of GDP), while the public sector’s external debt rose by 0.5% to $2,523.6mn (65.6% of GDP). Consequently, the total public sector debt-to-GDP ratio narrowed from 95.0% of GDP at December 2017 to 92.0% of GDP at the end of June.”

Now that was for the first half of the year. It, however, is important to see whether or not the primary balance remains in surplus and whether debt levels continue to decline, even if incrementally. Nevertheless, to confirm the former or the latter, we will simply have to await the updated reports regarding Belize’s fiscal accounts.

Now while there have been disagreements between the private sector and the government over how best to achieve this sort of debt reduction, the common goal for all parties, including the general public, is to ensure that Belize’s public debt is, indeed, decreasing, and so at a reasonably rapid pace. Frankly, the school is out on why debt reduction is so pivotal. As has been discussed in this column before, empirical works by CBB’s economists have already shown that Belize’s growth rate is at least 2 to 3 percentage points higher on average when debt is closer to 60% of GDP. Therefore, debt reduction is a welcome development.

The issue, however, that is often raised by the private sector and in this column is the fact that no government can expect that they will be able to sustain a primary budget surplus and the associated debt reduction by tax measures alone. There is need to improve the business environment to ensure that business growth and private-sector investment are accelerated, because these would help to make economic growth more sustainable.

The logic is fairly straightforward: if the economy is growing at a much faster rate than the debt levels, this implies that even at the current tax rates there will be more tax revenues being collected. However, this hinges on the fact that, at the same time, the government is exercising fiscal discipline.

In short, this is an issue that all members of the Belizean society should be keeping a close eye on, because large debt overhangs also have a way of eating into spending on other essential things, including needed social programs or public infrastructure.

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