Budget Speech Fiscal Year 2005/2006
(Delivering a better quality of
life for all Belizeans)
Hon. Said Musa
Prime Minister and Minister of Finance
January 14, 2005
Freedom is both the primary objective
and the principal means of development
What a people can positively
achieve is influenced by economic opportunities, political liberties,
social powers and the enabling conditions of good health, education, and
the encouragement and cultivation of initiatives.
Economic growth cannot sensibly be
treated as an end in itself. Development has to be more concerned with
enhancing the lives we lead and the freedoms we enjoy.
Amartya Sen: Development as Freedom
The proposed budget for fiscal year
2005/2006 is the result of an unprecedented process of consultation and
reflection. It is designed to reduce overall deficit, give priority to
Health, Education and Poverty Elimination, provide Ministries with
adequate operational budgets to address priorities and ensure that we
meet our debt commitments.
It is a budget that sees a free people
given the opportunity becoming more actively involved in shaping their
own destiny, breaking the cycle of persistent poverty and assuming the
benefits and responsibilities of freedom.
It is a Budget that recognizes that
development is not just about growth of the GDP, but also about
delivering a better quality of life for all Belizeans.
It is about ensuring that the policy
choices we make today are affordable and sustainable in the medium to
It is a Budget that strengthens our
economic fundamentals, putting Belizeans on a solid foundation of
And it is a Budget that advances a
modern framework of more efficient public services while maintaining an
environment conducive to private investment and jobs.
The International Economy in 2004
It is important to first understand the
international environment in which our economy must operate and by which
it is significantly affected.
Despite soaring oil prices that
depressed real incomes and raised energy costs in many countries, the
world economy expanded by an estimated 4.0% to 5.0% in 2004 with average
growth in the OECD countries estimated at around 3.6%. Consumption in
the United States was fueled by loose monetary policy and increased
spending on homeland security and defense. Japan also made a strong
comeback fueled by exports, a recovery in investment, employment and
With a couple exceptions such as the
Dominican Republic and Haiti, the Latin American countries are estimated
to have grown by an average of 4.6% as the oil producers in this region
benefited from soaring oil prices, increased demand for exports and
private financial inflows linked to strong growth in the United States,
Europe, Japan and China.
In comparison, growth in Central America
is expected to be lower at 3.2% as the rapid rise in oil prices fueled
inflation. Apart from Trinidad & Tobago, which benefited from record
high oil prices, growth in the Caribbean generally slowed, with several
countries experiencing fiscal difficulties or suffering from the adverse
impact of an intense hurricane season.
International factors which had a
significant impact on our economy in 2004 include the massive rise in
oil prices and falling commodity prices which depressed earnings from
domestic exports including: citrus, sugar, bananas and farmed shrimp.
Although domestic production was significantly higher overall, earnings
from domestic exports dipped by 0.9% to $343.7million.
OUTTURN OF BELIZEAN ECONOMY 2004/2005
Real Sector Developments
Belize 's gross domestic product [GDP]
grew by an estimated 4.7% in real terms over the first three quarters of
2004 with production of all major commodities increasing except for
molasses, marine products and sawn wood. Real GDP growth should be
between 4% and 4.5% for the entire year.
Nominal GDP is estimated at $2.247
billion in 2004.
Deliveries of sugarcane for the 2003/04
crop-year increased by 7.1% to 1.15 million long tons largely due to
favourable weather, greater efforts by farmers to maximize deliveries
and higher yields from the BSI Cane Growing project. Improvements in
operations and lower mud levels in the sugarcane contributed to an
improvement in the factory's throughput. As a result, production of
sugar rose by 11.6% to 116,515 long tons. Earnings f rom sugar exports
increased by 12.7% to $78.9 million as the higher volume of exports
outweighed lower prices in the CARICOM and US markets.
Citrus deliveries rose by 25.4% to 6.4
million boxes with orange and grapefruit deliveries growing by 22.3% and
37.2%, respectively, in the 2003/04 crop-year. The surge in yields was
attributable to good weather, increased usage of field inputs and the
implementation of a Mexican Fruit Fly control program. Citrus juice
output rose by 20.0% to 34.1 million pounds solid as production of
concentrates and not-from-concentrates (NFC) increased by 20.1% and
17.8%, respectively. Citrus juice earnings shrank by 28.5% to $39.2
million. Export volume contracted only marginally but export prices fell
sharply in response to large global harvests and high inventories. The
profit margin was further reduced as a result of increases in fuel and
By the end of October, there were 6,135
acres under banana cultivation producing 65,927 metric tons of bananas-
an increase of 5.4% over production in the comparable period of 2003.
While banana exports rose by 7.2%,
receipts stood at $49.7 million, only a marginal increase over last year
as downward pressure on prices led to a 4.6% fall in the average price
Producers of marine products also
experienced the impact of lower prices. Export e arnings fell by 4.2% to
$98.2 million largely due to the sharp fall in the price of farmed
shrimp. While farmed shrimp exports declined only marginally, a sharp
fall in the average price per pound of farmed shrimp occurred as a
result of increased competition from Asia and South America .
The tourism industry continued on its
path of strong growth in 2004 with visits by stay-over tourists and
cruise ship visitors rising by 6.0% and 62.8%, respectively. By the end
of October, 175,035 stay-over visitors had been recorded and cruise ship
passenger arrivals totaled 569,642.
Higher international oil prices were
significant in pushing up the domestic price level. Between August 2003
and August 2004, the Consumer Price Index rose by 3.4% with
year-on-year prices increasing across all major commodity groups except
for Personal Care' . Higher acquisition costs for butane, diesel
and gasoline products caused the largest growth in prices to be recorded
in Rent, Water, Fuel and Power' at 6.2%, followed by
Transport and Communication' at 6.0%.
Monetary Sector Developments
The broad measure of money supply (M2)
rose by 13% during 2004 driven mainly by an expansion in net domestic
credit to both the private and public sectors.
While there was a small contraction in
savings deposits, demand and time deposits grew by 12% and 19%,
respectively. Increased competition among the commercial banks led to a
narrowing of the interest rate spread in the banking system to 8.7%.
Interest rates on personal and other miscellaneous loans maintained a
downward trend but rates on residential and commercial loans increased.
During 2004, net domestic credit
expanded by $176.9 million to $1,325.4 million of which $108.0 went to
the private sector. Commercial bank credit to the private sector was
largely dominated by loans for real estate, construction and the private
The net foreign assets of the banking
system registered a contraction of $20.1 million to $113.2 million at
the end of December.
In order to reduce pressure on the
foreign reserves, the Central Bank, on December 1 st , 2004 , instituted
a 1.0% increase in the cash and secondary reserve requirements of the
commercial banks. The necessary statutory instrument was also signed to
eliminate the co-mingling of offshore and domestic deposits and avoid
the artificial expansion in statutory liquidity that results from such
co-mingling. At the end of December, official international reserves
stood at $130.9 million, equivalent to 1.7 months of imports.
Balance of Payments
The trade deficit narrowed by 12.7% to
$301.8 million at the end of October, notwithstanding the contraction in
export earnings, as imports fell by an even greater amount. Tourism
earnings boosted service sector earnings by 51.9% to $167.4 million also
contributing to improvement in the current account.
During the first nine months of the
year, the current account deficit of the balance of payments contracted
by 17.4% to $195.7 million.
This deficit was financed by the $155.7
million surplus on the capital and financial accounts and the drawing
down of reserves by $46.7 million. The surplus on the financial account
amounted to $147.7 million, reflecting the positive impact of foreign
direct investment inflows which were partially offset by debt
repayments. Foreign direct investment amounted to an estimated $254.8
million in 2004.
Public Sector Finances - Review of
The budget that was brought to the house
last year anticipated strong economic growth and set out to rebalance
that growth to ensure that all would benefit from it.
The budget could not have anticipated
that oil prices would have risen to unprecedented heights with immediate
impact on the cost of both public and private sector activities.
It also could not have anticipated the
impact on the international financial markets of the oil price
increases, the continued conflict in Iraq and uncertainties associated
with the US elections. These factors, and others, led investors to shy
away from emerging markets like Belize and frustrated our initial
efforts to re-finance impending foreign debt obligations.
This refinancing was a critical
component of the fiscal and debt management effort which underpinned the
Belize is a member of the international
community of nations and a party to the various institutions that govern
the global system, including, of course, the international financial
institutions [IFI's]. The views of these institutions affect the stance
of the international financial markets to countries like Belize . The
information published by the IFI's factors into the advice that global
investment managers give to their clients. It is therefore important for
us to have good working relations with the IFI's.
We took the opportunity presented by the
Annual Meetings of the World Bank and the IMF held in October 2004 to
update the IFI's on the strategic changes the Government of Belize was
making in the management of the public finances and the public debt and
to invite them to Belize to review and comment on our strategies and to
present their own views on Belizes fiscal and debt performance.
The IMF, World Bank, CDB and IDB came to
Belize on a joint mission at the beginning of November 2004 and engaged
in broad consultation with government officials and other stakeholders.
At the end of their mission, the IMF took the lead in presenting to the
Government what they felt was a necessary set of policy actions to
strengthen Belize's fiscal and external debt situation in the shortest
The IMF way would have had the
Government of Belize imposing retrenchment, wage freeze and large
increases in sales, business and excise taxes. The IMF way would have
significantly lowered the income tax threshold to include many persons
now currently exempted from income taxes.
The Government of Belize, however,
decided to stick to its own program to improve collections of existing
taxes and constrain expenditure growth before contemplating new revenue
We set our fiscal consolidation and debt
stabilization targets for the present fiscal year at: an overall fiscal
deficit not greater than $98.6 million or 4.7% of GDP and net
international reserves of not less than $184.6 million at the end of
The results are before you today. We are
doing well against our targets and expect that by the end of the fiscal
year, we will have achieved them all.
FISCAL PERFORMANCE 2004/2005
Government operations are expected to
result in an overall deficit of $94.3 million with total revenue and
grants of $477 million and total expenditure of $571.3 million. The
projected overall deficit, at 4.2% of GDP is a strong improvement from
an overall deficit of 8% of GDP in fiscal year 2003/04. This improvement
is explained by a 7% reduction in expenditure and a 5% growth in revenue
Measured against our target, therefore,
the performance is more than commendable. At 4.2% of GDP, our projected
overall deficit is well within the target of 4.7%.
How are we achieving this?
On the revenue side, performance for the
full fiscal year 2004/05 will be boosted by the improvements in revenue
collections beginning in November and the early impact of the revenue
measures which will be set out below.
Recurrent revenue is expected to reach
$450 million by the end of the fiscal year.
Of this, $410 million is tax revenue.
Non-tax revenue is expected to amount to $34 million. Capital revenue is
expected to total 21.3 million and grants $4.9 million. This is a
decline from capital revenue and grants in fiscal year 2003/2004
reflecting the reduction in the sale of government equity/property and
the completion of significant grant-funded Capital III projects.
Total expenditure for FY 2004/05 is
projected to amount to $571.3 million of which 78% is recurrent
expenditure and 22% is capital expenditure.
Total recurrent expenditure is expected
to reach $447.8 million by the end of the fiscal year representing a 6%
increase over the approved budget. This increase is due largely to
increased allocations for debt servicing and pensions and increased fuel
Over the course of the fiscal year,
efforts aimed at containing staff costs and rationalizing goods and
Consequently, the actual expenditure on
staffing is expected to be 0.6% lower than the approved budget and the
expenditure on goods and services is expected to be 1.3% above the
Capital II and Capital III expenditure
is expected to amount to $49.0 million and $74.5 million, respectively.
Capital II expenditure fell some $3.3 million below the approved budget
as some projects were cancelled or reprogrammed for completion in the
next fiscal year as Government sought to contain the fiscal deficit this
The bulk of Capital III (foreign
-funded) expenditure was targeted to education, health, poverty
alleviation and infrastructural development.
The projected total expenditure on
Capital II and Capital III projects of $123.5 million represents a
decline of $31.6 million from total Capital expenditure of $155.1
million in fiscal year 2003/2004.
Again, this reflects the implementation
of Government's policy on expenditure control and improved financial
Public Sector Debt
The public sector's total disbursed
outstanding external debt as of November 31, 2004 stood at US$ 968.8
Million [ 81 % of GDP]. This includes:
the direct liabilities of the
Government of Belize [US$755.9 million]
liabilities of the Financial Public
Sector [US$32.8 million]
Government guarantees to privatized
entities [US$50.7 million]
Government's contingent liabilities
to the Financial Public Sector [US[$31.2 million], and
Government contingent liabilities to
the private sector [98.3 million].
In this fiscal year we have taken a
two-pronged approach to stabilizing Belize 's public debt.
First, in the short term we have
successfully re-financed those debts which required immediate heavy
allocations for debt service and amortization payments in this fiscal
year. While we were not successful in floating the US$225 million dollar
bond which we brought to the House at the start of the fiscal year, we
have been able to successfully refinance facilities which were held with
the Royal Bank of Trinidad and Tobago and with the International Bank of
This refinancing is the immediate aspect
of our debt management strategy designed to stabilize the debt position
and to place it in a longer term overall economic policy framework.
In the medium to long term, the
Government of Belize has decided to limit further undertakings of
commercial debt. Whereas in the past we have undertaken commercial
borrowings to fund capital projects, any new commercial credit will be
limited to refinancing existing commercial credit and boosting
We are currently analyzing the
possibility of a new US$125 million facility that would allow the
refinancing of a portion of Belize 's foreign commercial debt and boost
our international reserve position. We will in due course, once initial
discussions with the financial advisers are completed, bring this
facility to the National Assembly for consideration.
The ultimate aim of our debt management
strategy is to make debt service manageable in terms of its call on both
government revenue and foreign exchange reserves both of which are
required to meet debt service and amortization obligations.
Development Finance Corporation
The Development Finance Corporation has
been a central mechanism through which Government fueled post-hurricane
reconstruction and economic growth during the past 6 years. During this
period, the assets of the DFC expanded sharply as significant private
sector investments were financed in the housing, tourism, agriculture,
and services sectors. These investments were a major factor in the
strong GDP growth experienced under this PUP administration.
As a consequence of the rapid expansion
of the asset base of the institution, however, the quality of the assets
has deteriorated, the loan recovery rate has declined and the number and
value of loans in arrears has grown. In addition, the full cost of
financing mobilized through asset securitization was not passed on to
the borrowers. These factors have combined to place the DFC in the
position of being unable to meet all of its current financing needs and
having to call on Government for financial support.
The DFC, with the support of Government,
is seeking to take corrective action. Late last year, Cabinet approved
the liquidation of the assets of the DFC and work is underway to ensure
an orderly liquidation in order to maximize income, while ensuring that
the DFC can effectively pursue the asset liquidation process and the
ongoing loan management processes related to the asset securitization
We expect, over the next several months,
to receive technical assistance in this process from the IDB. It makes
sense to keep the IFI's informed and involved for the simple reason that
these are the institutions that have access to low-cost long-term
development financing that Belize will need to access in the future.
MUCH HAS BEEN ACHIEVED
We all know the constraints we have
faced during this fiscal year. But even in the face of these
difficulties, much has been done to improve the lot of the Belizean
people. A tremendous amount of life-enhancing work for the people
throughout Belize has been accomplished despite the financial
This fiscal year, a substantial number
of public sector projects have generated employment, furthered our
national development goals and assisted in our poverty reduction efforts
In the area of education, a new building
was constructed for the Corozal Junior College , and another for the
Agricultural and Natural Resources Institute in the Stann Creek
District. Wesley College Sixth Form was constructed in Belize City and
14 new community pre-schools were built in rural communities across the
country. The construction /rehabilitation of Centres for Employment
training has commenced in Corozal Town , San Ignacio/Santa Elena and
More that 100 new classrooms were
constructed countrywide, which significantly increased access at both
primary and secondary levels. Government assumed payment of salaries for
an additional 33% of pre-school teachers to support the expansion of
early childhood education. An additional 100 full tuition scholarships
to the University of Belize were granted, and increased grant assistance
was provided to students for higher education in Belize and abroad.
In the area of culture, we inaugurated
the Bliss Centre for the Performing Arts in Belize City and the Garifuna
Museum in Dangriga. The infrastructure at our major cultural heritage
sites were improved, including Caracol, Lamanai, Xunantunich, Altun Ha,
Cerros and Cahal Pech.
In terms of infrastructure, the new
Marine Parade Boulevard significantly eases the flow of cruise
tourism-related traffic while modernizing the coastline of Belize City .
The single lane Sibun River Bridge was replaced by a new double lane
bridge. Eight miles of all-weather road were completed to connect
Dolores in the Toledo District to the rest of Belize . Municipal
drainage projects and upgrading of streets were carried out in Dangriga
and Punta Gorda.
The Caye Caulker airstrip is being
reconstructed. The San Pedro Town Commercial Marina , designed to
withstand hurricanes, was inaugurated. The Jordan bridge which spans the
Moho River in the Toledo District was constructed and now allows the
villages of Santa Teresa, Dolores, Mabilha, San Lucas, Corazon, Otoxha
and Hicatee in the Toledo District all-weather access even at the height
of the rainy season.
The road from Burrell Boom to Willows
Bank was upgraded. Next week Thursday the Orange Walk Bypass will be
inaugurated, a major development that will have a significant impact on
traffic flows in Orange Walk Town .
In the rural communities, over 250 wells
were drilled, hand pumps installed and another 250 wells disinfected.
Under our low-income housing program,
construction has begun on over 200 houses and a special program
commenced to provide houses at Mahogany Heights at repayments not
exceeding $200 per month, primarily for public officers.
The Ministry of Human Development
initiated the implementation of the National Plan of Action for Children
in the areas of health, education, HIV/AIDS, child protection and the
In the area of health, under the health
sector reform project, major renovations were carried out on the Matron
Roberts Health Center , the Cleopatra White Health Center and a second
San Pedro Polyclinic, and a program of sustained maintenance of
community health outposts countrywide was carried out.
Under the Social Investment Fund, over
$6.3 million was spent on ongoing important community projects that have
a direct impact on the lives of poor people.
Some examples include:
the Rudimentary Water System Projects
in Monkey River , Cristo Rey, Yo Chen, Trinidad and the Rootsville Area
of Lake Independence that brought potable water to over 500 households,
the electrification of areas in the
Red Bank, Steadfast, Maya Center and Hummingbird communities,
a number of extensions to schools and
day care centers in Belize City , Burrel Boom and Patchakan, and
other projects related to skills
training, starter homes and support for abused children.
Yes, Madame Speaker, much has been done
for the people of Belize by this PUP government despite all adversities,
and much more will be done with the support of the people in the coming
Public Finance Reform
This year's budget cannot be divorced
from the public debate on public finance reform. The case for it is
compelling. I say so because since we are calling upon Belizeans to make
sacrifices this year, then it is only right that the government
demonstrates that it is administering public finances in a transparent
and accountable manner and in the national interest.
On Wednesday, I unveiled an official
government working paper on public finance reform. The paper outlines
substantial reforms that are already underway as well as a number of
reforms that the government will be embarking upon to enhance
transparency and accountability in the administration of public
finances. The paper has been widely disseminated and at the end of the
public consultation process, the various reforms will be fully
One of the major pillars of this reform
is the Finance and Audit [Reform] Bill which has already been introduced
in this Honourable House. In deference to many requests from our social
partners, we await their further suggestions to improve this Bill before
attempting to take it through its remaining stages, and we ask them to
move expeditiously on this matter so as not to unduly delay the passing
of this important piece of legislation which will significantly improve
governance of the people's resources.
New approach to public finance and debt
To meet the challenges that face us, we
in Cabinet have taken a new, focused and more consultative approach to
fiscal and debt management. Cabinet established the Public Finance
Committee, chaired by the Prime Minister and comprising several
Ministers, which now has oversight of all matters in relation to public
finances and public enterprises.
This committee has been meeting weekly
to consider and formulate strategies to keep Belize 's public finances
and public debt on track. The Committee meets regularly with our social
partners, reports back to Cabinet on its findings and presents
recommendations for consideration and decision by the full Cabinet.
The Public Finance Committee is
supported and advised by a team of senior technicians from the Ministry
of Finance and the Central Bank.
The work of this technical team has been
instrumental to the deliberations of the Public Finance Committee and
underpins the draft budget before you today.
Making consultation an integral part of
the budget process
In this process, we felt that it was
important to re-invigorate consultations at two critical levels:
nationally with our social partners and internationally with the
international financial institutions.
We have held several meetings of the
National Economic Council [NEC] and held other informal consultations
with social partner organizations.
In this process of consultation,
Government has provided an unprecedented amount of information to enable
fruitful discussions. For the first time in the history of Belize , we
shared with the social partners summary details of the Draft Estimates
of Revenue and Expenditure even before laying these estimates before the
National Assembly. We have taken into account, as much as possible, the
proposals of the social partners in the proposed budget.
We have begun a consultative process
that can grow and mature into one which forges consensus in the national
interest. We are committed to continuing and strengthening this
consultative process as we move ahead to implement our budget for fiscal
year 2005-2006 and beyond.
We are guided by the fact that the
budget process involves preparation, approval, execution and oversight.
Consultations will continue, therefore, long after the debates are over
and the budget is passed.
We will continue consultations within
the National Economic Council to monitor the implementation of the
budget and to evaluate our performance with a view to improving it. In
this regard, we will conduct a mid-year review of budget implementation
and share the results with the NEC and the public.
We have started a revolution -- the UDP
administration never thought of it, or never dared implement it and we
will see it through, so that in preparation for next year's budget we
will broaden consultations to include communities throughout Belize, so
that it will become truly a People's Budget, not only for the people, as
all PUP Government budgets have strived to be. But it will also become a
budget by the people.
Proposed Estimates of Revenue and
I will now present the outlines of the
expenditure and revenue proposals for the next fiscal year. Our
proposals represent realistic targets designed to reduce the fiscal
deficit and increase international reserves, while accomplishing the
objective of improving the quality of life of all Belizeans.
The proposed estimates of revenue and
expenditure for FY 2005/06 forecast an overall deficit of $ 66.1 million
or 2.8% of GDP. Total expenditures are projected at $640.2 million and
total revenue and grants at $574.2 million.
We have managed to contain expenditure
in the estimates by a painful process of containing the cost of
government operations to the minimum while :
providing adequate services to the
continuing the effort to reduce
maintaining a climate conducive to
economic growth and development.
This budget will therefore require all
of us as Belizeans to respond in a rational manner, and with the
necessary spirit of solidarity, to the challenges that face us.
Let us not forget how far we have come
since 1998, as a direct result of the policies of the People's United
In 1998 my government inherited a
languishing economy with a mere 1.4% economic growth, a value added tax
of 15%, tax on income of all those earning $10,400 and above and a
public service where 800 officers had been fired and no increments paid
for two years.
We transformed the economy to one that
averaged a 5% growth since 1998, replaced the 15% VAT with an 8% sales
tax that had a long list of exemptions to benefit the poor, exempted all
those earning $20,000 and below from income tax, abolished the 5% tax on
savings and modified the business tax by reducing most rates, except for
No to IMF retrenchment
In clear distinction to the UDP
government's treatment of public officers, we restored transfer grants,
the rural hardship allowance, the commuting allowance, and the rent
allowance for school principals, all of which had been taken away under
The wages bill for public officers which
stood at $128.8 million in 1998 today stands at $225.5 million and,
along with pension payments, accounts for 52% of government's recurrent
expenditure. Under this government, public officers have continued to
receive annual increments in an unbroken fashion.
The IMF says this is too much and calls
for no increments to be paid and for retrenchment. But the PUP
Government says No to retrenchment.
At the same time, we must frankly
acknowledge that the high percentage of government spending devoted to
paying salaries is clearly a ground for serious criticism. This is a
matter that must be kept under constant review along with our social
Keeping our commitment to public
officers and teachers
Since signing the Collective Bargaining
Agreement with the public officers and teachers in February of 2003, we
have honored our commitment to raise the salaries of junior and senior
public officers by 5% and 8%, respectively. We have thus raised public
officers' salaries as well as the amounts paid to pensioners twice in
two successive years, which cost the public purse many millions of
dollars. We intend to honor the final increase under this agreement, but
we ask the unions to join the national effort of working to reduce the
fiscal deficit and focus the resources on the priorities of health,
education and poverty elimination.
We think this is a very reasonable
request considering the benefits that have been enjoyed over the past
six years. After consultation with the respective Unions, therefore, we
propose that the agreed increases in salaries for all public officers,
and the increases for pensioners, be staggered over the next 3 years
beginning July 2005.
And, with due regard to the interests of
all Belizeans, and especially of the working poor, we must insist that
the system of meritocracy contemplated by the Collective Bargaining
Agreement be expeditiously implemented so that any increase in salary is
based on proven performance in providing better service to the people.
And speaking of our working poor, it
cannot be right that so much of our scarce resources are spent on
employees whose pay far exceeds the minimum wage and that no provision
is made for those who work so hard for a minimum wage that does not
provide them with a living wage. I have therefore instructed the
Minister of Labour to speed up the process of the current consultations
being carried out by the Labour Advisory Board and to ensure that as
soon as practicable the minimum wage is raised to an appropriate level.
At the same time, in the spirit of
sharing the burden, members of my Cabinet have agreed to take a 10% pay
cut, and I am asking all members of the National Assembly to do likewise
in a spirit of solidarity.
The increase in pay for public officers
reduces significantly the amount of money we have to spend in projects
benefiting the Belizean people, so we need to prioritize and ensure that
every dollar is well targeted and well spent.
IMPROVING THE LIVES OF PEOPLE
Estimates of Expenditure
The proposed Estimates of Expenditure
give priority to Health, Education and Poverty Elimination and provide
all ministries with adequate operational budgets.
Total proposed expenditure of $640.2
$493.7 million [77.1%] in recurrent
$146.5 million [22.9%] in capital
Of the total recurrent expenditure:
$225.0 million [45.6%] is for
$118.4 million [24%] is for debt
$34.6 million [7%] is for pensions
and gratuities, and
$115.8 million [23.5%] is for goods
Total outlay on Capital II projects is
proposed at $80.8 million and on Capital III, $65.8 million.
In addition, a total of $100.6 million
is proposed to cover amortization which comes due in 2005/2006.
Madam Speaker, I will now highlight some
aspects of proposed expenditure that focus on the key priorities of my
Government's expenditures in the health
sector for Fiscal Year (FY) 2004/05 is projected to amount to $50.9
million, including expenditures on Health Sector Reform and on
furthering the national HIV/AIDS Strategy. The proposed estimates for FY
2005/06 will see expenditure increasing to $61.5 million including
accelerated implementation of the Health Sector Reform project and the
national HIV/AIDS strategic plan.
In relation to the latter, significant
counterpart funding is being provided against external grants which are
being mobilized through the National AIDS Commission and other agencies
to strengthen the national fight against HIV/AIDS.
Very significantly, in the context of
Health Sector Reform, we propose to roll out the National Health
Insurance system to begin to benefit, in the coming financial year, the
people of the southern districts.
Government's outlays on primary and
secondary education is expected to total $128.4 million for FY
2004/2005. The estimates for FY 2005/06 envisage an increase to $152.6
million. This includes an increased allocation for pre-schools, more
than $67 million in funding to primary schools, and $30 million to
secondary schools. There are also significant expenditures on
construction of Centers for Employment Training (CETs). A significant
part of this investment is recurrent in nature as GOB provides financial
support for teachers in primary, secondary and tertiary level schools
throughout the country. Seven million dollars has also been provided for
the University of Belize .
The Social Investment Fund [SIF] is the
primary agency through which the Government implements projects which
impact positively and directly on the lives of Belizeans struggling with
In fiscal year 2005/2006 total Capital
III expenditure through the SIF is proposed to include :
$5.1 million from a concessional loan
from the CDB which was signed in fiscal year 2004/2005 but should
commence active implementation in 2005/2006
$6.2 million in grant funding from
the CDB under its Basic Needs Trust Fund
$4.1 million in grant funding under
the Commonwealth Debt Initiative
In addition, Government is providing
$4.3 million from local resources to the SIF, to meet counterpart
contributions for the foreign funding and to meet the operational
expenditures of the SIF.
SIF funding is targeted towards basic
health, education, water and sanitation and road infrastructure in
poorer rural and urban communities.
Maintaining and expanding social and
We are cutting back expenditure on
non-essential infrastructure, but we are ensuring that critical elements
are provided for. A total of $26.9 million is allocated in Capital II
and Capital III for expansion, maintenance and upgrade of economic
infrastructure. This includes:
$3.1 million for maintenance of
bridges, roads and drainage in villages and rural communities and
Over $11 million for other roads
including the Placencia Road , the Blue Creek to Orange Walk Road and
the Southern Highway
$2.0 million for basic infrastructure
projects for poverty alleviation on South Side of Belize City. This is
expected to be channelled into addressing the problems of drainage and
sanitation, expanding potable water and electricity.
Maintaining Internal and External
Government's promise of maintaining
internal and external security was fulfilled in FY 2004/05 with outlays
of $62.6 million. This included the strengthening of sections of the
Police Department, like the Police Dragon Unit and the National Crimes
Investigation Branch, as well as improving immigration services and
providing for the prison system.
The estimates for FY 2005/06 envisage
outlays of $64.3 million on the internal and external security of Belize
. Of the proposed allocation, an estimated 62% will be for the Police
and 32% for the BDF. We are also providing for the startup of the Coast
Guard. And we are doing so in a pragmatic way. Rather than seeking to
add significantly to our personnel and capital costs, we are proposing
to set up the Coast Guard by bringing together the existing agencies to
pool available resources. In this way, we will be able to keep
additional costs only to those strategic elements that are not currently
Control of Public Expenditure
Even as we set out this plan to focus
our efforts on the social and economic needs of our most vulnerable, we
are continuing our efforts to control and better manage the public
With this budget, we are implementing
our decisions to reduce expenditure on foreign representation. We are
reducing foreign representation by closing several embassies and
consulates and streamlining human and financial resources in the
We are eliminating expenditure on new
We are implementing new strategies to
control expenditure on high cost goods and services, especially fuel and
We are providing no funds to acquire new
vehicles this fiscal year the public service will use existing
vehicles as efficiently as possible in support of efforts to provide the
services which the people of Belize demand, need and indeed pay for
through taxes. This will mean firm implementation of policies already in
place in relation to access and use of vehicles, particularly, but not
limited to the use of vehicles for commuting to work.
We are seeking to improve internal
controls by ensuring compliance with existing regulations and
strengthening those which need to be strengthened.
The Financing Gap
On January 6, Government for the first
time in Belize 's history, and in the new spirit of consultation with
our social partners, shared the summary of the draft budget even as it
was in preparation. We did so in order to facilitate meaningful
discussion of strategies and to receive proposals from the social
partners to close the financing gap. In these consultations we heard the
views and received a number of very useful suggestions on closing the
At the time of those discussions, the
projections for the upcoming year included:
Total revenues and grants of $511.4
Total expenditures of $655.8 million
Overall deficit of $144.45 million,
Amortization of $120.1 million, and
Financing gap of $264.5 million.
As we said to our social partners,
clearly this financing gap needed to be closed, whether by reducing
expenditures, raising revenues and/or new borrowings.
Following our consultations, we
continued to fine-tune the proposed budget and through a combination of
expenditure reduction and revenue measures, have reduced the projected
financing gap to $166.7 million as reflected in these estimates.
Total expenditure was reduced by $15.6
million cutting across both recurrent and capital expenditures.
We also subtracted, from the provision
for amortization, the sinking fund set aside for certain debt repayments
which become due in 2005.
Total revenue and grants were
increased by 62.8 million.
The net result of the changes made after
our consultations with the social partners is as follows: the financing
gap for fiscal year 2005/2006 is estimated at $166.7 million including:
A recurrent surplus of $52.6 million
An overall deficit of $66.1 million
And amortization of $100.6 million.
We have hard choices to make here: after
having cut the projected expenditure to the bone, consistent with our
social and economic priorities, and taking into account the increases in
pay to public officers, we faced the need to raise revenue to ensure
that we could bring the deficit to below 3% of GDP.
I am in total agreement with our social
partners when they insist that we must significantly improve our revenue
collection record, so that we can reduce the need for any new revenue
measures. We have already taken some measures, particularly with regard
to Customs Duties, Land Taxes and Business Taxes and we are examining
all the suggestions in this regard made by our social partners.
We have also engaged our international
partners, and particularly the IDB, which has a mission in Belize this
week dealing with best practices in both revenue and expenditure
management, to assist us in improving our revenue collection in all
areas, but particularly in the customs department.
And here we have to be frank and open
with our people. It is a belief shared by government and all our social
partners that millions of dollars of revenue that we desperately need to
implement our pro-poor policies are lost because people corruptly evade
Consider that those who evade customs
duties, for example, are twice robbing the people: first by denying them
the revenue required for their essential services such as education and
health, and secondly by charging them for the uncustomed goods as if
they had paid the duties. The evasion of taxes directly affects the poor
people by depriving the government of monies to carry out poverty
It is equally unacceptable for those
individuals to refuse to pay legitimate taxes such as the land tax,
which fell short by $16 million in the current financial year. It cannot
be right that those who own thousands of acres of Belizean land, the
legitimate patrimony of the Belizean people, should refuse to pay their
taxes, which really are quite small compared to the great wealth
represented by these lands.
We cannot allow these big landowners to
get away with that, for the effect is to place a greater burden on those
who can least afford it. We will vigorously enforce the land tax laws,
and once again I ask those who have been evading the tax, or refusing to
pay it, to change their attitude and contribute fairly as they should to
the development of our country and our people.
But it is wishful thinking to believe,
as some of our social partners argue, that merely improving our
collections on current taxes would close the finance gap. Regrettable as
it is, and as much as it goes against the grain of a PUP government that
is noted for having significantly reduced taxes over the past six years,
we have to face the hard reality: new revenue measures are necessary.
New Tax Measures
In deciding on what revenue measures to
propose, we have necessarily been guided by matters such as the
effectiveness of a particular tax and the ease of collecting it. But
above and beyond such practical considerations, I have been guided by
the principle I stated in my New Year's message: that those who have
benefited from the impressive economic growth of the past six years will
agree with our policy that the burden of any new taxes should not fall
disproportionately on the shoulders of the working poor.
In this context, the easiest tax to
raise to get the quickest and surest return is the general sales tax,
which is why the IMF recommends that we raise this tax, currently at 9%,
by three percent, to make it 12%. But even though a large number of the
items purchased by poor people are already exempt from this sales tax
and will continue to be exempt, this is the tax that would most directly
affect many ordinary Belizeans. I
am happy to announce, therefore, that we do not propose to raise this
sales tax at all.
There is another sales tax in the
higher bracket of 13% for a very limited number of goods which impact
mostly on those who are better able to afford such items - which we
propose to raise to 14%. We will also move some goods that are clearly
luxury items, such as private luxury boats, into this bracket. Let those
who can best afford to pay taxes, bear their appropriate share of the
For this very reason, we are proposing
an increase in various business taxes. These are taxes that should be
absorbed by the business people and not passed on to the consumer, and
the relevant government agencies and consumer activists will, I am sure,
be vigilant to ensure that this is the case and that they will expose
any attempt by business to pass this tax on to the unsuspecting
We therefore propose to raise:
Trade and other business taxes that
are presently at 0.75%, 1.25% and 1.5%, to 1.75 %, except for radio,
television and newspapers, for which there will be no tax increase.
Business tax on professionals, from
4% to 6%.
Business tax on banks under the Banks
and Financial Institutions Act, from 10% to 15%.
Business tax on Banks in PIC groups
of companies to 8%
Business tax on real estate agents
from 4% to 15% on their commissions.
Business tax on gross casino earnings
from 4% to 15%.
However, in order to protect small and
medium enterprises, we propose to raise the threshold for businesses
taxable under business tax from $54,000 to $75,000. Business that gross
$75,000 or less shall no longer be required to pay business tax. Small
businesses provide significant employment, and encouraging small
businesses to be established and to grow is a key aspect of our struggle
We also propose to increase the
environmental tax from 1% to 3%, and to increase the environment tax on
vehicles over 4 cylinders to 5%, with a view to reducing the number of
gas-guzzling and polluting vehicles such as the ubiquitous SUVs. The
Environmental Tax does not apply to locally produced goods and has
several exceptions for basic items.
We propose to triple the tax on
firearms, except for shotguns used by farmers.
And then, finally, there are what are
popularly known as the sin taxes. We propose to double the excise on
alcohol from $30 to $60 per gallon, to increase the excise on tobacco
from $4 to $12 per carton, to double the excise on soft drinks, and to
increase the excise on beer by 100%, from $1.80 to $3.60 per gallon.
Of course, in order to compensate for
the increases in excise and maintain the competitiveness of our local
produce, we also propose to raise revenue replacement duty on imported
beer, soft drinks, alcohol and tobacco.
With these new revenue measures, and
taking into account incremental increases in revenue due to economic
growth, estimates of revenue and grants for fiscal 2005/2006 are set at
a total of $574.2 million of which $543.3 is recurrent revenue, $13.5
million is capital revenue and $14.4 is grant funding largely for
Capital III projects.
The Way Ahead
This is not the IMF way. The IMF, as we
all know, proposed large increases in sales tax as well as business tax;
the lowering of the income tax threshold, so that all those people
earning between $15,000 and $20,000 would have to pay income tax. They
proposed large increases in excise taxes that would have greatly
increased the cost of these products to the consumer. That is not the
way we have chosen to go.
Neither do we propose to go the UDP way.
After all the measures proposed today, the people of Belize are still
not as heavily taxed as they were under the heartless UDP
administration. There is no VAT at 15%, no 5% tax on savings, and no
income tax on people earning as little as $10,400. After the measures we
are proposing are applied, people earning less than $20,000 are still
exempt from income tax; the general sales tax remains at 9%, and there
is no tax on savings. Neither is there any retrenchment or freezing of
Yes, we have had to propose new revenue
measures, but we have been effective in reducing the amounts we needed
to raise by sharply reducing government expenditure, and we have chosen
the measures carefully to ensure that those best able to pay, bear a
fair share of the burden, while avoiding undue hardship to public
officers, teachers, and the working class. That is the PUP way.
The past year has been a tough one, full
of challenge and adversity, but one that also presented us with
opportunities to make things better.
For those of us in leadership positions,
painful lessons have been learnt. The road ahead is hard, and we are
under no illusions about that.
But we take comfort in the fact that
despite adverse global economic conditions the Belizean economy has
continued on the path to growing prosperity increased agricultural
production, major expansion of shrimp farms and fish farms, new
infrastructural development in our cities, towns and villages.
We have seen over $250 million in major
direct new private sector investments, and there is much more in the
pipeline; and over thirty-five new small and medium enterprises have
been established. All this activity created hundreds of new jobs in a
We must maintain this hard won economic
development in the face of the destabilizing effects of a market-driven
globalization that show no pity for small states in our Caribbean
History shows that our PUP governments'
greatest successes and greatest victories come when we stand up on the
side of freedom and economic justice for our people.
As a responsible government we have
chosen to face the challenges head-on, by pursuing political and
financial reform, taking tough measures to reduce the fiscal deficit,
and managing the country's debts in a prudent manner while delivering
better services to the people and tackling the serious social and
economic issues in our society.
The national interest demands that a
government must govern for the common good. We must consult. We must
dialogue. We must listen to the people. We must act. We may not always
get it right. But in the end the people have the final say in deciding
whether our achievements far outweigh our shortcomings.
The Belizean sense of national purpose,
tolerance and fair-play is a powerful force that manifests itself in
times of need.
The political will for change and good
governance has been demonstrated and will continue and intensify. Sound
management of public finances and the public debt is an unshakeable
resolution, as is our commitment to improve the quality of life and the
freedoms that Belizeans enjoy.
At a time like this I am reminded of the
words spoken by the leader of a great country who faced his own stormy
days: If a free society cannot help the many who are poor it cannot
save the few who are rich.
We have a lot of work to do.
We have to build communities that do not
live in anger or in fear.
The eradication of poverty cannot be a
hollow mantra but must become a genuine reality.
We must build an economy that values
work fairly, where everyone has the opportunity to earn a living wage an
economy where people participate in making decisions that affect their
lives and work cooperatively to create a development that is sustainable
Above all, we must build a better world
for our children, who must enjoy the right to a happy home, good
nutrition, sound education, healthy bodies and minds in an atmosphere
where their creativity is given full sway and they become cultured
people, for that is the meaning of freedom.
The measures we take today, the work we
continue tomorrow, are done not with an eye to the next election but to
the next generation.
Let us continue to work together, in
solidarity and with justice, to create a new prosperity in this land of
hope and promise for all Belizeans.
With hard work and the blessings of the
Almighty we will emerge from our time of adversity as a stronger, more
confident, stable and secure nation and people.