Exchange Rates and Belize's Trade Performance: The Implications of the Fixed BZD-USD Peg for Imports, Exports, and the Persistent Trade Deficit

Belize operates a fixed exchange rate regime since May 1976, fixing the value of Belize Dollar at BZ$2.00/US$1.00. It is a small open economy and a net importer of energy and manufactured products. It thus faces a chronic trade deficit, averaging approximately US$850 million between 2015 and 2024. In this paper, we analyse the effects of Belize’s fixed exchange rate on import demand, export supply, and trade balance using secondary data from credible sources such as the Central Bank of Belize, Statistical Institute of Belize, World Bank WITS, and OEC data between 2015 and 2024. Graphical analysis and descriptive statistics, along with a simple open economy framework, reveal that a fixed exchange rate anchors inflation in Belize, averaging below 3 percent in most years. However, it contributes to a trade deficit since a real appreciation in the currency arises either due to differential inflation or productivity differences, and import demand increases due to domestic income effects. Major findings include fuel and machinery imports comprising approximately 50 percent of total imports, and agriculture and marine products dominating total exports.

Abbreviations: BZD (Belize dollar), USD (United States dollar), TB (trade balance), CBB (Central Bank of Belize), REER (real effective exchange rate)