The international community must "finalize and use" a multi-dimensional vulnerability (MVI), which could help developing countries access necessary financing for recovery and resilience, Prime Minister of Belize Hon. John Briceño urged during his speech at the IX Summit of the Americas.
"Action must include the finalization and use of a multi-dimensional vulnerability index so that countries like ours can affordably finance our recovery and build resiliency. Action must include debt relief. Action must include a coordinated multilateral response to the deepening food and energy crises," Briceño reiterated, as he began to wrap up his roughly ten-minute speech at the summit.
The call for the MVI is one that has been repeatedly raised by other CARICOM leaders, including Barbadian Prime Minister Mia Mottley. The call stems from the fact that the international financial institutions (IFIs) tend to provide concessionary recovery financing and debt-relief assistance to developing countries that have per capita income levels below certain thresholds.
For instance, the World Bank's International Development Association (IDA) provides either grants or low-to-no interest concessionary financing to the world's poorest countries. The eligibility status is set at countries having a Gross National Income (GNI) of less than US$1205 in 2022.
In real terms, Belize's GNI per capita for 2020 was US$3817, down from $4322 the year before. Belize's 2020 GNI level still meant that the country was classified as a Lower-Middle-Income country, and, therefore, ineligible for the much-needed IDA-level assistance.
CARICOM leaders, including Briceño, argue that the eligibility criteria should not be based on GNI per capita and any other income-level statistic, but rather on vulnerability to external shocks. This vulnerability could be measured via the likes of the MVI.
According to a 2019 MVI study produced by the Caribbean Development Bank (CDB), Belize is classified as having medium-to-high vulnerability to external shocks stemming from its exposure to volatility in international prices for food and energy, natural disasters, climate change, disruptions in access to strategic imports, and more.
As observed two years ago, the Belizean economy contracted sharply due to the virtual shutting down of the tourism sector, which, by definition, is a highly concentrated export market that has most of the country's tourists originating from the United States of America and Canada. For this reason, when the US-based Center for Disease Control and Prevention (CDC) enacted its 2020 no-sail orders for the cruise lines in response to the COVID-19 pandemic, this had an almost immediate negative impact on an industry that generates roughly 60% of Belize's foreign exchange (FOREX) earnings.
Moreover, unlike the United States and other developed countries that enjoy complete monetary autonomy, Belize, a country with a fixed-exchange-rate system, cannot so liberally engage in the type of fiscal stimuli packages as was seen in the USA. The Belizean dollars in circulation must maintain a delicate balance with FOREX holdings, if, inter alia, the currency peg will remain robust. Additionally, a shortage of FOREX also suggests that the country would have challenges paying for essential imports.
Belize also relies heavily on the primary sector. Therefore, with climate change helping to produce more intense floods, tropical storms, and hurricanes, this sector needs urgent assistance as it pertains to building resilience.
These vulnerabilities have been shown to stymie economic growth, and often force developing countries to borrow from domestic, commercial, bilateral, and multilateral sources to help recover from shocks and build resilience. However, as debt levels climb, the cost of borrowing increases, especially as rating agencies such as Standards and Poors (S&P) or Moody's announce downgrades. This, therefore, compounds the degree of debt distress faced by affected economies. It is a scenario that some economists have described as a vicious cycle.