2009 Index of Economic Freedom

Quick Facts

Population:

• 0.3 million

GDP (PPP):

• $2.3 billion
• 5.6% growth
• 5.5% 5-year compound annual growth
• $7846 per capita

Unemployment:

• 9.4%

Inflation (CPI):

• 3.0%

FDI Inflow:

• $73.0 million

Belize's economic freedom score is 63, making its economy the 66th freest in the 2009 Index. Its overall score remains unchanged from last year because gains in trade freedom and government size were largely offset by worsened corruption. Belize is ranked 13th out of 29 countries in the South and Central America/Caribbean region.

Belize scores well in business freedom and labor freedom. Flexible labor regulations and an employment market with no major regulatory distortions make Belize's labor freedom score about 19 points above average. Despite a high top income tax rate, corporate taxes are low, and government tax revenue is not particularly large as a percentage of GDP. The government has explored the idea of tax reform to enhance competitiveness. Inflation is low and prices are stable, but some price controls also exist.

Belize's overall economic freedom remains constrained by other institutional weaknesses. High tariff and non-tariff barriers are the main problem for trade freedom. Special licensing requirements discourage foreign investment in a wide array of sectors, and foreign exchange regulations are inconsistent and non-transparent. The judicial system remains vulnerable to political interference, and corruption is too common.

Background Back to the top

Belize is a parliamentary democracy and member of the British Commonwealth. In February 2008, the United Democratic Party (UDP) defeated the incumbent People's United Party (PUP) in national elections. New UDP Prime Minister Dean Barrow won by exploiting years of dissatisfaction with alleged corruption, mismanagement of state-owned enterprises, botched telecommunications privatization, and extensive social problems. Tourism and agriculture are major contributors to the economy. Sugar has been the principal export in recent years, but the government is trying to foster exports of other products such as shrimp, citrus, bananas, papayas, and soybeans. Crime and money-laundering are serious problems, and Belize has one of the region's highest murder rates. International relations are dominated by a long-running territorial dispute with Guatemala and membership in CARICOM.

Business Freedom 75.5 Back to the top

The overall freedom to start, operate, and close a business is relatively well protected under Belize's national regulatory environment. Despite a lack of transparency in the administration of some laws and procedures, obtaining a business license takes less than the world average of 18 procedures and 225 days. The process for closing a business is relatively easy and straightforward.

Trade Freedom 69.6 Back to the top

Belize's weighted average tariff rate was 10.2 percent in 2006. Import restrictions, restrictive import and export licensing rules for some products, corruption in customs administration, and weak enforcement of intellectual property rights add to the cost of trade. Ten points were deducted from Belize's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 68.8 Back to the top

Belize has high income tax rates and a moderate corporate tax rate. The top income tax rate is 45 percent, and the top corporate tax rate is 25 percent. Other taxes include a goods and services tax (GST) and a stamp duty. In the most recent year, overall tax revenue as a percentage of GDP was 21.6 percent.

Government Size 77.6 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 27.3 percent of GDP. Continued and transparent fiscal consolidation should help authorities achieve the long-term debt strategy set forth in 2007.

Monetary Freedom78.4 Back to the top

Inflation is moderate, averaging 3.4 percent between 2005 and 2007. The government maintains the prices of some basic commodities, such as rice, flour, beans, sugar, bread, butane gas, and fuel, and controls the retail price of electricity. Ten points were deducted from Belize's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom50.0 Back to the top

Belize generally is open and non-discriminatory toward foreign investment, but there are some restrictions in certain sectors. Full foreign ownership of businesses is legal, although the government encourages local partnerships. Laws and regulations do not significantly distort or impede investment, but bureaucracy can be non-transparent. Both residents and non-residents may hold foreign exchange accounts subject to government approval. Officially, no person other than authorized dealers and depositories may retain any foreign currency without the consent of the central bank. All capital transactions must be approved by the central bank. Belize law requires that the government assess and pay appropriate compensation if it expropriates an asset.

Financial Freedom50.0 Back to the top

Belize's financial system is small but growing, and obtaining credit is relatively straightforward. From 2001 through 2006, bank lending to the private sector increased by more than 70 percent. There are five commercial banks, seven international banks, three quasi-government banks, and 14 credit unions. Subsidiaries of foreign banks are active and competitive, but approval is required to secure a foreign currency loan from outside Belize, and only authorized dealers are permitted to retain foreign currency. The government influences the allocation of credit through the quasi-government banks. There are controls regarding transactions of capital and money market instruments. The International Financial Services Act promotes offshore financial services, and the government offers extensive banking confidentiality.

Property Rights50.0 Back to the top

Although the judiciary is independent under the terms of Belize's constitution, it is also subject to political influence. There is a severe lack of trained prosecutors, and police officers often assume that role in the magistrates' courts. There are lengthy trial backlogs. Expropriation of personal property is possible but relatively rare. Protection of intellectual property rights is lax.

Freedom From Corruption30.0 Back to the top

Corruption is perceived as widespread. Belize ranks 99th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Money laundering, primarily related to narcotics trafficking and contraband smuggling, occurs through banks operating in Belize.

Labor Freedom80.6 Back to the top

Belize's labor market operates under flexible employment regulations that can enhance employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee can be costless. Labor regulations do not distort efficient business activity to any significant degree.