Statement by an IMF Mission to GuatemalaPress Release No. 12/89
March 15, 2012
A staff team from the International Monetary Fund (IMF) visited Guatemala City during March 5–15, 2012 to hold discussions on the 2012 Article IV consultation with Guatemala. The mission met with Central Bank Governor Edgar Barquín; Minister of Finance Pavel Centeno; Superintendent of Banks Victor Mancilla; the Comptroller General Nora Segura; members of Cabinet and Congress of the Republic, and representatives of the private sector.
At the end of the visit Mr. Alejandro Lopez-Mejía, the IMF mission chief for Guatemala, made the following statement:
“Macroeconomic developments in Guatemala since 2010 have been broadly positive . Economic growth firmed up and was close to 4 percent in 2011, underpinned by buoyant exports and private consumption. High world commodity and food prices pushed up annual inflation to 7.6 percent in August 2011, but it has since declined to within the central bank’s target range. International trade and private capital flows also picked up and international reserves reached US$5.7 billion at end-2011 (5 percent above end-2010 levels).
Macroeconomic policies in 2011 were appropriate. The monetary policy rate was increased by 100 basis points to 5.5 percent and the deficit of the central government declined to 2.8 percent of GDP (from 3.3 percent in 2010), helping maintain public debt broadly stable at 24 percent of GDP. In addition, the financial sector remained stable and credit to the private sector recovered.
“The near-term outlook is generally positive. Economic growth in 2012 is projected to slow to about 3 percent driven by lower global activity and thereafter increase to about 3.5 percent. Inflation is expected to decline gradually, while international reserves are projected to remain at comfortable levels. However, the outlook is subject to downside risks related to the global environment, particularly on lower world activity and higher commodity prices.
“Against this backdrop, the main near-term challenges for Guatemala are maintaining prudent macroeconomic policies, improving public expenditure management, and increasing the readiness to respond appropriately to a sudden change in global conditions, taking into account the limited scope for countercyclical policies. In this context, staff welcomes the planned reduction of the central government deficit to 2.4 percent of GDP, and the authorities’ commitment to resolve the issue of contingent liabilities arising from obligations incurred in previous years. Staff also agrees with maintaining a neutral bias for monetary policy in the current juncture and welcomes the commitment to preserving exchange rate flexibility.
“For the medium term, Guatemala’s main challenges are the attainment of a higher rate of economic growth and a lasting reduction in poverty, further strengthening of the macroeconomic policy framework, and upgrading financial sector regulation and supervision. In this regard, placing revenue mobilization at the center of the growth and poverty reduction strategy is critical as it will allow the government to sustain an increase in spending in priority areas while raising productivity. Implementation of the competitiveness agenda will also be key to raise the potential growth of the economy.”