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R 302001Z MAR 09
FM AMEMBASSY BELMOPAN
TO SECSTATE WASHDC 1763
INFO WHA CENTRAL AMERICA COLLECTIVE
EC CARICOM COLLECTIVE

UNCLAS BELMOPAN 000123 
 
 
DEPT FOR WHA/CEN (CHRISTOPHER ASHE), EEB 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN ETRD PGOV BH
SUBJECT:  2009/2010 BUDGET FOR BELIZE INTRODUCES NEW FUEL TAX 
 
REF:  08BELMOPAN 336 
 
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Summary 
-------- 
 
¶1. On March 6, 2009, Prime Minister Dean Barrow presented his second 
budget for FY 2009/2010 to the National Assembly.  After projections 
of a budget surplus in 2008/2009, the new budget will result in a 
deficit of 1.7% for the next fiscal year.  This turnaround reflects 
an increase in the government's allocations to its infrastructure 
projects and decreased revenues from income and sales taxes.  In 
response, the GOB will introduce a fuel tax of one Belize dollar 
(USD 0.50) per U.S. gallon.  The new tax is expected to net BZD 32 
million (USD 16), and will cover 50% of the government's initial 
budget shortfall.  The remaining financing requirements will be met 
with loans and grants from foreign sources including the 
Inter-American Development Bank (IDB), Venezuela's Petrocaribe Loan 
Facility, and government of ROC/Taiwan.  The introduction of a new 
tax highlights the government's cash flow issues and raises 
expectations that the higher fuel costs will place additional upward 
pressure on prices over the next few months.  End Summary. 
 
-------------------------------------- 
The Budget - Overcoming the Challenges 
-------------------------------------- 
 
¶2.  On March 6, 2009, at a meeting of the House of Representatives, 
Prime Minister (PM) and Minister of Finance Dean Barrow introduced 
the GOB budget for FY 2009/2010.  The budget was presented under the 
theme "overcoming the challenges and pursuing the opportunities". 
In his opening remarks he gave an overview of the economic 
developments for 2008 and boasted about his government's strong 
performance, despite significant economic setbacks.  In 2008, the 
Belizean economy faced three major shocks:  financial turmoil in the 
economies of its main trade partners, a slump in the price of crude 
oil, and two major natural disasters that by themselves caused an 
estimated BZD 132 (USD 66) million in damage.  Despite this, the PM 
noted that the FY 2008/2009 budget was well-financed, with all 
initial projections indicating that there would be a surplus in the 
overall budget. 
 
¶3.  Notwithstanding the global financial slowdown and extensive 
flood damage, Barrow reported that the Belizean economy expanded, 
with the Gross Domestic Product (GDP) growth rate rising from 1.6% 
in 2007 to 3.8% in 2008, though this is expected to decline back to 
2.5% in 2009.  The petroleum, banana, and citrus sectors were the 
main economic drivers.  In the trade account, exports grew by 8.7%, 
while imports rose by 22.4%.  This has resulted in widening the 
trade deficit and tripling the current account deficit.  Outstanding 
external debt at the end of 2008 stood at USD 954.1 million, 
representing 67.7% of GDP compared to 76.7% in 2007, while gross 
international reserves were USD 77.9 million.  Total debt in 2008 
represented 76.9% of GDP compared to 89.4% in 2007. 
 
¶4.  With original projections of a budget surplus of 1.27% in FY 
2008/2009, the FY 2009/2010 budget forecasts a 1.8% reduction in 
total revenues, resulting primarily from a reduction in revenues 
from income and sales taxes, coupled with a 9.3% expansion in total 
expenditures, which includes a BZD 200 (USD 100) million economic 
stimulus package introduced earlier this year.  This change will 
push the overall balance into a deficit of 1.7% of GDP.  However, 
when we look at the primary balance, which does not take into 
account interest paid on servicing foreign debt, a surplus of 1.8% 
of GDP is still projected, though this is still a sharp contraction 
from the 4.1% primary surplus balance that existed in FY 2008/2009. 
This turnaround reflects an increase in the Government's allocations 
to its capital III projects, which consist of donor-financed capital 
expenditures. 
 
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A New Tax 
--------- 
 
¶5.  In fiscal year 2008/2009 the government introduced a petroleum 
surcharge tax (reftel) on producers, but low oil prices prevented 
the government from deriving the revenue it expected.  Now, the GOB 
plans to introduce a new tax measure in order to help compensate for 
the negative budget balance.  The new initiative will introduce a 
BZE 1.00 (USD .50) tax per gallon of fuel, and is expected to net an 
additional BZD 32.0 million (USD 16).  The revenue from this tax 
will represent 50% of the government's initial financing shortfall. 
The remaining financing requirements will be provided in the form of 
loans and grants from foreign sources, including the IDB, 
Venezuela's Petrocaribe Loan Facility, and the government of 
ROC/Taiwan. 
 
--------------------- 
The Stimulus Package 
--------------------- 
 
¶6.  The FY 2009/2010 budget includes a stimulus package that was 
introduced by the PM earlier this year.  According to the GOB, the 
package is aimed at "increasing employment, pumping money into the 
economy, and creating a rising tide designed to float all boats even 
in a time of recession." The USD 100 million package entails 
substantial government expenditures which will be financed primarily 
through concessionary loans (55%), grants (40%), and from government 
accounts.  No tax rebates or incentives were introduced within the 
stimulus package.  The package focuses on targeting priority sectors 
of the economy, including tourism, infrastructure upgrades 
especially highways and bridges, and urban renewal projects across 
the country.  The package also provides for an initial 
recapitalization of the Development Finance Corporation, with the 
objective of addressing broader socio-economic challenges by 
providing affordable loans to the agriculture sector and students. 
 
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Comment 
------- 
 
¶7.  Except for the oil sector, the Belize economy remains stagnant. 
However, revenue growth even this sector is now being threatened by 
low international prices.  The cost of living and the unemployment 
rate remain high while tourism and investment inflows continue to be 
affected by the global economic downturn and consequently squeeze 
consumers' pocketbooks.  The introduction of a new tax highlights 
the government's cash flow issues and raises expectations that the 
higher fuel costs will place additional upward pressure on prices 
over the next few months.  Prior to the general election in February 
2008, it was difficult for the previous government to borrow from 
foreign sources.  It is still difficult for the new government to 
borrow externally but the confidence of the international 
lender/donor community seems to be on the rise.  The GOB has 
benefited from the generosity of the government of ROC/Taiwan in the 
past and continues to negotiate with the Taiwan for additional 
support, although with lower expectations this year. 
 
¶8.  The next election is scheduled for three long years from now and 
therefore the UDP government may not be overly concerned about the 
public's growing frustration over the economy.  The UDP is also 
fortunate that the opposition party is troubled by continuing weak 
leadership, in particular during the budget process.  Reports 
indicate that key representatives in the People's United Party (PUP) 
chose not to participate in the GOB's pre-budget consultations, 
while other members were not invited.  At least two PUP members did 
not participate in the National Assembly budget debate proceedings, 
prompting the Prime Minister to end the debate one day early.  The 
PUP's failure to use this forum to express party priorities is 
viewed by many as a lost opportunity and a manifestation of a very 
"un-United" People's Party.  End Comment. 
 
¶9.  Table I.  The following table summarizes government's FY 
2009/2010 budget (all figures are BZD millions) (BZD 2 = USD 1): 
 
-                           Budget     Revised Est. 
-                           FY 09/10     FY 08/09 
-                          --------     --------- 
Recurrent Revenue: 
-  tax revenue               670.10       629.50 
-  non-tax revenue            81.20        80.51 
Capital Revenue:               5.60         7.12 
Grants:                       50.50       105.10 
- Total                      807.40       822.20 
 
Recurrent Expenditures: 
-  salaries, etc.            276.60       260.00 
-  debt services             106.57       103.98 
-  pensions                   43.91        46.00 
-  goods/services            262.70       236.73 
Capital Expenditure:         169.90       139.30 
-Total                       859.68       786.00 
 
Overall surplus/(deficit):    -1.72%       1.27% 
Primary surplus/(deficit):     1.79%       4.90% 
 
 
DIFFILY