Okay, so there is certainly a lot going on in the Belizean political scene of late. Everything from the Audit Report to the Section 53 ruling to the Mason saga have been dominating the news cycle and public discourse for the last few weeks. However, one line of conversation has quietly slipped into the background: the Belizean economy.
Earlier this year the International Monetary Fund (IMF) had indicated that 2016 would have seen subdued GDP (Gross Domestic Product) growth at about 0.5%; however, it’s likely that even their estimate could prove to be a bit more on the optimistic side of things.
IF Belize’s growth path had continued as they had been prior to 2013, the country could have been looking forward to a growth rate above 2% for this year, but the difficulties in the productive sector have resulted in steady declines since 2013.
On this point, it’s prudent to underscore the fact that so far, for 2016, GDP has shown a 2 and 1.6 percent contraction for the First and Second Quarters, respectively. The back-to-back negative growth fits the conventional definition of a recession, although I would hesitate to make any such declarations.
While we do not yet know what the Third Quarter for this year will be, what can be observed is the fact that, on average over the last seven years especially, the figure for Q3 tends to be about 9 percent less than Q2’s figures within a given year. Consequently, if Q2 recorded $713 million, it’s quite likely that Q3 would be somewhere near $650 million.
This would suggest a Q3 figure closer to 0.09% increase, when compared to that same period in 2015. Of course, there’s a less optimistic estimate that places this figure at a contraction of 0.06%. If we settle on a type of midpoint, we could say that Q3 could average about 0.01%.
Even with the optimistic view in tow, it would be irresponsible to not point out the fact that Hurricane Earl occurred at the start of the Third Quarter for this year, and is likely to have placed added strain on the economy. Said differently, if even half of the reported losses are taken into account, this could result in an overall contraction.
The whole of 2016?
Hurricane Earl notwithstanding and using a similar approach, one could say that if the economy manages to pull off a herculean effort in the last quarter to achieve Q4 growth of about 1.7%, it is possible to for the Belizean economy to see some type of positive growth, albeit most likely below 1% and somewhere between 0.2% and 0.8%, which obviously includes the IMF’s 0.5%.
Historically speaking, the last quarter generally does better than the Third in a given year in terms of absolute dollar figures; therefore, it’s not too far-fetched and unrealistic to hope for some positive growth in Q4, as this is when the tourism season, in particular, starts to pick up. One can only hope that the Zika factor does not serve to discourage travel this tourism season. Additionally, there are also the reports that shrimp production is likely to pick up in the last two quarters of 2016. Consequently, all is not lost.
The Way Forward
Now, it must be noted that there is still the possibility for an overall contraction (possibly by an approximate 0.4%), but the goal is to ensure that we avoid any such scenario.
Fundamentally, even if the country achieves any positive growth–regardless of the size–it is still troubling when we recall that the goal is to increase the country’s growth average to 5% as opposed to the 2007 to 2014 average of 2.5%.
These issues suggest that the economy needs to put its energy into improving productivity and efficiency, especially on the supply side, so as to assist the requisite boost in output.Naturally, many supply-side factors are amendable in the medium- to long term; however, work towards such goals should commence immediately, if they haven’t already begun.
Political Instability and Efficiency
And this takes me back to the issues alluded to at the beginning of this article. Among these issues, we’ve seen a spike in the political rhetoric even to the degree of The Opposition’s call for another general election to be held only months after the November 2015 vote. Political instability or the apparent lack of political stability is usually not a good signal to neither domestic nor foreign investors.
Recent studies, including a 2011 working paper by the IMF, have shown that there is a negative correlation between political instability and economic growth. In the IMF study, data for 169 countries for the years 1960 to 2004 were analysed and the researchers reported the following:
“Our results are strikingly conclusive: in line with results previously documented, political instability reduces GDP growth rates significantly. An additional cabinet change (a new premier is named and/or 50 percent of cabinet posts are occupied by new ministers) reduces the annual real GDP per capita growth rate by 2.39 percentage points. This reduction is mainly due to the negative effects of political instability on total factor productivity growth, which account for more than half of the effects on GDP growth. Political instability also affects growth through physical and human capital accumulation, with the former having a slightly larger effect than the latter. ” (Emphasis Mine) (IMF 2011, p.4).
As can be gleaned from the above quote, political instability is measured by the frequency of Cabinet Changes, that is, “the number of times in a year in which a new premier is named and/or 50 percent or more of the cabinet posts are occupied by new ministers”. This type of empirical data would lead one to strongly advise against any unnecessary change in the executive at this stage in this country’s growth path, as such instability eats away at the very thing the country needs in order to boost economic growth: productivity, as measured by “total factor productivity”.
In The End
The point here is not to attempt to dissuade or trivialise any person’s or persons’ political positions; Belize remains a functioning democracy. Instead, it is to simply state the economic facts at a time when the country is being faced with strained growth.
At this time, it is preferred that we look for bipartisan ways to augment the productivity and efficiency of our economic operations, and, at the very least, stabilise growth at the more optimistic levels for the last two quarters for 2016. Within the short-term there is a limit on what can be done structurally to strengthen growth. Consequently, the more realistic suggestion would be for us to not make worse an already discouraging economic outlook.