By: Omar Silva

Editor, National Perspective Bz DIGITAL 2024

www.nationalperspectivebz.com

Belize City, Wednesday, 16th October 2024

As the Federal Reserve in the United States continues its course of interest rate cuts, it is crucial to understand how these actions could potentially impact Belize, particularly the everyday citizens who often feel left behind by economic policies. At the heart of this change is the Secured Overnight Financing Rate (SOFR), which has a direct influence on Belize’s borrowing costs from international institutions like the Inter-American Development Bank (IDB). The big question is: Can this trickle down to benefit Belizeans at the base of the economic ladder?

Understanding the Connection: Fed Rate Cuts and Belize’s Borrowing Costs

Belize relies heavily on international loans to finance critical projects, from infrastructure to social programs. Recently, the IDB transitioned to using SOFR as a benchmark for its loans to Belize. As the Federal Reserve cuts its interest rates to counter inflation and stimulate the U.S. economy, SOFR typically follows suit. This translates to lower borrowing costs for countries like Belize that have loans tied to SOFR.

For instance, the $10 million loan Belize secured from the IDB in late 2022 to promote digital innovation among small businesses is based on SOFR. With the Federal Reserve signalling further rate cuts, Belize could see reduced interest payments on future loans, allowing the government to save money and reinvest those savings in vital development areas.

How Do These Savings Benefit the Everyday Belizean?

While reduced borrowing costs are a clear win for the government, the real challenge is how these savings can benefit Belizeans who live pay check to pay check and struggle to access credit from local banks. Historically, Belizean financial institutions require significant collateral to issue loans, leaving out a large portion of the population, especially those in urban slums including the rural areas or those without assets to offer as security.

However, with the potential savings from lower borrowing costs, the government has an opportunity to turn this macroeconomic shift into real benefits for the masses. Here’s how:

1. Redirecting Savings to Social Programs

One of the most tangible ways the government can ensure that these lower borrowing costs benefit Belizeans at the grassroots level is by reinvesting the savings into programs that target the most vulnerable. For example, funds could be allocated to improve healthcare, education, and housing programs, directly addressing the everyday needs of struggling Belizeans.

By focusing on social safety nets, such as expanding affordable housing projects or investing in education scholarships, the government can make a lasting impact on those who are typically left out of the economic conversation.

2. Microfinance and Loan Guarantee Programs

A significant challenge facing the "little man" is access to credit. Many Belizeans are unable to secure loans from banks because they have no collateral to offer. The government could address this by creating or expanding microfinance programs that offer small, unsecured loans to individuals and small businesses. This would empower grassroots entrepreneurs who are often unable to get their foot in the door with traditional banks.

Additionally, the government could use the savings from reduced debt servicing to establish loan guarantee programs. These programs would act as a safety net for banks, allowing them to issue loans to low-income individuals without the need for traditional collateral. By sharing the risk, the government can stimulate local business growth and provide opportunities for economic mobility.

3. Investing in Job-Creating Projects

Lower borrowing costs give the government a unique opportunity to invest in large-scale projects that create jobs. Infrastructure development, agriculture, and tourism are sectors that can provide immediate employment opportunities to Belizeans at all skill levels. By investing in projects that provide steady jobs, the government can stimulate economic growth from the ground up.

For example, instead of simply reducing the cost of borrowing, the government could use these funds to invest in sustainable agriculture initiatives that employ rural Belizeans, or in public infrastructure projects that enhance transportation while providing work for those in construction and related industries.

4. Creating Financial Education Programs

Financial literacy is a key component of economic empowerment. While reduced borrowing costs may provide relief to the government, individuals still need the tools to navigate their own financial situations. The government could take this opportunity to invest in financial education programs that teach Belizeans how to manage credit, save for the future, and take advantage of available resources.

These programs could be offered through community centers, schools, or partnerships with local banks and NGOs, ensuring that Belizeans at the grassroots level are equipped with the knowledge they need to make informed financial decisions.

Turning Potential into Action

While the potential benefits of Federal Reserve rate cuts are clear, the challenge lies in ensuring these benefits reach the ordinary Belizean. For too long, economic policies have seemed distant from the realities of the everyday citizen, creating an illusion of prosperity that rarely reaches the grassroots. But this time, with proper planning and focused implementation, the government has a unique chance to transform this macroeconomic shift into a force for social and economic inclusion.

The bottom line is simple: lower borrowing costs should not only ease the government’s debt burden; they should also pave the way for new investments that create jobs, empower individuals, and support small businesses. With a strategic approach, Belize can turn this opportunity into real benefits for its people—especially those at the base of the economic ladder, who need it the most.

Conclusion: From Illusion to Reality

For the ordinary Belizean, especially those without assets or access to credit, the potential savings from lower borrowing costs might seem like just another government headline. But with careful planning, the government can ensure that these savings translate into tangible benefits that reach all corners of the country. By reinvesting in social programs, expanding access to credit, and focusing on job-creating projects, the government can make sure that this opportunity doesn’t remain an illusion—but becomes a reality for all Belizeans.

The challenge now is to act. The government has a window to not only reduce its debt burden but also to create meaningful opportunities for its people. Whether or not this opportunity is seized will determine if Belizeans at the grassroots level will feel the benefits of these economic shifts—or if they will continue to struggle, waiting for promises to materialize.