Correspondent Banking concerns raised in IMF’s Staff Report on Belize
Though noting that the termination of major correspondent banking relationships with Belizean banks has so far had a limited impact on that country’s financial system and economic activity, the International Monetary Fund (IMF) in its latest staff report on Belize pursuant to its Article IV consultations agreed that the “recent termination of corresponding banking relationships with Belizean banks and banks in many other countries could have a significant impact on financial stability and economic activity in the affected countries.”
Belize is one of the few Caribbean countries, whose government still sees it fit to allow the IMF Article IV staff reports to be publicly available. Belize has been at the forefront of efforts by Caribbean governments to raise awareness about the havoc the loss of correspondent banking relationships due to international banks’ de-risking practices could have on the economies of the Region, including on their trade, investment and remittance inflows.
Last year, Bank of America, one of the largest US banks, terminated its correspondent banking relationship with Belize Bank. The IMF staff report noted that this had had a limited impact on the financial system as new arrangements were able to have been put in place with the help of the Central Bank and major credit card companies. However, among the downside risks which could affect their baseline outlook, the IMF noted that “other banks could also lose their CBRs with global banks with severe impact on international financial transactions”.
IMF directors “urged the authorities regulating international banks that are terminating correspondent banking relationships to better clarify their expectations of how these international banks should deal with local banks they perceive as “high risk””.
The IMF staff lauded Belize’s AML/CFT reform efforts, noting that “the deficiencies identified by the Caribbean Financial Action Task Force (CFATF) in 2011 have been mostly addressed”. They did, however, stress that “important reforms are still needed to ensure compliance and effective implementation of Belize’s AML/CFT regime in line with the 2012 FATF standard”.
In regards to Belize’s overall macroeconomic position, the IMF highlighted the recent improvement in economic activity. However, they noted that “Belize’s economic outlook is characterized by sluggish growth, weak fiscal stance, and external and financial sector vulnerabilities”. Though predicting that growth over the short-to-medium term would hover around 2.5 percent, they noted that excess spending could cause the fiscal outlook to worsen. They also expect public debt to increase to “unsustainable levels” in excess of 100 percent of GDP in 2016.
The full IMF Staff Report on Belize may be accessed here.
Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.