11. A further strengthening of governance and transparency is also needed to control contingent liabilities. The mission welcomes recent steps in this area, including the reform of the Finance and Audit Act, greater dissemination of economic and fiscal data, and inquiries into the dealings of the Social Security Board (SSB) and the Development Finance Corporation (DFC). Priority actions in the immediate future should include improving risk management at the SSB, avoiding financial slippage at Belize Water Services, and winding down the activities of the DFC in an orderly way. To avoid further liabilities to the government, the DFC should be allowed to collect without interference on its loan portfolio.

12. In the monetary area, the authorities should strengthen their capability to implement monetary policy. Currently, the principal instruments of credit policy are the cash reserve and liquid assets requirements, which have not always been effective in curbing excess liquidity. This suggests that the CBB might benefit from broadening its monetary instruments, possibly with technical assistance from the IMF. To increase monetary control, the authorities should also consider eliminating-in due course-the government's overdraft at the CBB.

13. Significant progress has been made in strengthening bank supervision, but further steps to foster a sound and resilient financial sector should be taken. Several of the recommendations of the IMF's 2003 assessment have been implemented, including a significant increase in resources to conduct bank supervision. However, the authorities still need to strengthen the operational independence of the supervisors and must urgently increase the resources for insurance supervision. In addition, loan-loss provisions in the banking system are too low by international standards and should be raised through regulatory action.

From challenge to opportunity

14. Belize's economic and financial situation will leave little room for slippage in implementing the outlined policy framework. Even in the mission's illustrative active policy scenario international reserves would remain low and the debt burden high for several years, and substantial vulnerabilities and risks would persist in the event of adverse shocks. Revenue estimates from oil are also subject to a wide margin of error because they depend on a large number of uncertain technical and policy parameters. More generally, there is some risk that unreasonable expectations of oil revenue develop, notwithstanding the fact that the reserves that have been proven so far and the envisaged production levels are relatively limited. In the circumstances, it will be critical for policymakers to manage these risks and to stay "ahead of the curve" by adjusting early to any changes in the domestic and external environments.

15. The mission believes that the authorities-and more broadly the country-can rise to the challenge and achieve a return to sustainability and durable growth. During the consultation, the authorities shared the thrust of the suggested policy framework and reforms. Given the importance of strong ownership for encouraging creditor support and maintaining policy discipline and commitment over a prolonged period of time, the mission encourages the authorities to promote a broad social and political consensus on the basic tenants of their policy approach.

IMF EXTERNAL RELATIONS DEPARTMENT