## 1gtmea2020001

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---

### EXECUTIVE SUMMARY — context, vulnerabilities, and pandemic status
- Macroeconomic background:
  - Guatemala had prolonged macroeconomic stability with average growth of 3½ percent post-GFC.
  - Activity accelerated in 2019: growth 3.8 percent (3.1 percent in 2018).
  - Inflation: 3.7 percent in 2019; eased to 1.8 percent in 1Q2020. Central Bank target range 4±1 percent.
  - Financial system end-2019: banks well capitalized, profitable and liquid; NPLs 2.2 percent.
  - External position improved in 2019: current account balance increased to 2.4 percent (from ¾ percent in 2018).
- Structural and social vulnerabilities increasing pandemic risk:
  - Basic healthcare covers about 50 percent of Guatemalans; healthcare coverage of the poor and rural populations is 60 and 46 percent, respectively.
  - Doctors and medical personnel stand at 0.7 and 1.8 per 1,000 population (1.8 and 6.3, respectively, in good performing peers of similar per capita income).
  - Prevalence of stunting in children under 5 is 46½ percent nationally and up to 70 percent in some departments; acute malnutrition post-COVID up to 57 percent in some Dry Corridor departments.
  - Remittances account for about 30 percent of households’ income; consumption is over 85 percent of GDP.
- COVID-19 status as of May 27th: 3,954 confirmed cases with 63 fatalities.

### POLICY RESPONSE BY AUTHORITIES — containment and stimulus measures
- Containment:
  - State of Calamity declared on March 13th; National Emergency and Economic Recovery Plan launched on March 18th.
  - Country-wide curfew (5 pm to 5 am), border closures, suspension of non-essential activities, mass gatherings, and domestic travel. Retail re-openings in May with weekend full shutdowns.
- Fiscal response and composition:
  - Targeted fiscal measures amounting to about 3 percent of GDP (three fiscal packages).
  - Projected decline in revenues of 0.9 percent of GDP; combined yield fiscal support of about 4 percentage points of GDP.
  - Fiscal deficit around 6 percent of GDP (versus historical average of 1.8 percent of GDP).
  - Specific allocations: healthcare spending 0.2 percent of GDP; cash and other transfers 1.2 percent of GDP; salary subsidies 0.3 percent of GDP; funding to firms 0.6 percent of GDP; other public services 1 percent of GDP.
- Key programs in the National Emergency and Economic Recovery Plan:
  - Family Bonus: US$780 million (1.0% of GDP); beneficiaries: 2 million heads of vulnerable households; benefit: 130 dollar for up to 3-month period.
  - Employment Protection Fund: US$260 million (0.3% of GDP); beneficiaries: 300,000 households (1,5 million people); benefits: US$10 per day during 3 months.
  - Working Capital Credit Fund: US$440 million (0.6% of GDP); beneficiaries: SMEs; loans at favorable terms (grace periods and below-market interest rates).
- Monetary and financial measures:
  - Monetary policy easing and expanded liquidity provision; supportive prudential measures.
- Extraordinary fiscal financing:
  - Congress approved partial monetization of the fiscal deficit: Central Bank to purchase up to US$1.4 billion in treasury bonds from the Ministry of Public Finance pursuant to government agreement 59-2020 (20-year bonds at rates broadly consistent with current market conditions).

### REQUEST FOR IMF SUPPORT — RFI specifics and staff assessment
- Authorities requested financial support under the Rapid Financing Instrument (RFI) of 100 percent of quota (SDR 428.6 million).
- SDR428.6 million equals about US$585 million (annual access of 100 percent of quota).
- RFI resources to be disbursed to the MINFIN and used for budgetary support to counter the economic and social impact of the pandemic.
- IMF staff assessment:
  - Guatemala meets RFI eligibility and faces an urgent BOP need.
  - Public debt assessed sustainable and capacity to repay the Fund adequate.
  - A safeguards assessment of Banguat will be needed and must be completed before Executive Board approval of any subsequent arrangement.

### MACROECONOMIC OUTLOOK — pre- and post-COVID quantitative effects (2020) and projections
- 2020 shock overview (pre-COVID → post-COVID; Δ):
  - GDP growth: 3.6 percent → -2.0 percent (Δ -5.7 percentage points).
  - Inflation: 3.7 percent → 2.1 percent (Δ -1.6 percentage points).
  - Fiscal deficit: 2.1 percent of GDP → 6.1 percent of GDP (Δ 4.0 percentage points).
  - Public debt: 27.5 percent of GDP → 32.5 percent of GDP (Δ 5.0 percentage points).
  - Current account: 1.5 percent of GDP → -0.5 percent of GDP (Δ -2.0 percentage points).
- Staff projections:
  - 2020: -2.0 (Real GDP annual percent change)
  - 2021: 4.0
  - 2022: 3.7
  - 2023: 3.6
  - 2024: 3.5
  - 2025: 3.5
- Consumer prices (end of period):
  - 2019: 3.4; 2020: 2.1; 2021: 3.1; 2022: 3.9; 2023: 4.1; 2024: 4.1; 2025: 4.1
- Current account balance (percent of GDP):
  - 2019: 2.4; 2020: -0.5; 2021: 0.1; 2022: -0.1; 2023: -0.4; 2024: -0.7; 2025: -0.9

### BALANCE OF PAYMENTS SHOCK, FINANCING NEEDS, AND PROPOSED SOURCES
- Estimated BOP financing gap for 2020: US$1.5 billion (2.0 percent of GDP).
- Selected drivers (US$ millions; percent of GDP preserved where shown):
  - Current account: 1,185 → -345 (Change: -1,530) (in percent of GDP: 1.5 → -0.5; Change: -2.0).
  - Non-oil goods balance: -5,996 → -5,526 (Change: 470).
  - Oil balance: -3,124 → -1,678 (Change: 1,446).
  - Services balance: 53 → -685 (Change: -738); Tourism: 445 → 203 (Change: -242).
  - Net income: -2,046 → -1,489 (Change: 557).
  - Remittances: 11,574 → 8,395 (Change: -3,179).
  - Financial inflows (net): -185 → -1,171 (Change: -986); FDI net: 797 → 338 (Change: -459); Portfolio investment, net: -331 → 1,197 (Change: 1,230); Other investment, net: -949 → -2,706 (Change: -1,757).
  - Resulting residual BOP financing gap (after assumed reserve change): ...1,074 (in millions of US dollars).
- Potential financing package (US$ millions, as presented):
  - IMF (RFI): 585
  - Other IFIs, net: 489 (IADB 271, WB 200, CABEI 18)
  - Domestic bond issuance: US$398
  - Central bank monetization: US$1.4 billion
  - Staff view: reserves would be left at 144 percent of the ARA metric after the envisaged financing package.
- Prospective RFI (memorandum): 585 (0.8 percent of GDP).

### REAL ECONOMY AND SECTORAL IMPACTS
- Remittances and exports:
  - Between March 19th and May 8th: remittances contracted by 17 percent; export growth fell to 1 percent (pre-COVID: 18 percent growth).
  - Tourism receipts shrunk over 50 percent since start-2020.
- Labor and firms:
  - Around 30 percent of firms in agricultural and manufacturing sectors suspended workers.
  - 80 percent of hotels registered zero occupancy rate since end-March.
  - Call center and BPO industry operating at 80 percent capacity.
- Consumption and activity indicators:
  - 40 percent drop in use of credit card lines during April.
  - Electricity generation fell by 25 percent since suspension of non-essential activities.

### RISKS TO THE OUTLOOK (tilted to the downside)
- External risks:
  - Deterioration in U.S. and trading partners could worsen remittances and exports; remittances nearly 14 percent of GDP; 33 percent of exports go to the U.S.
- Health and social risks:
  - Weak healthcare system, widespread poverty, severe malnutrition, and challenges screening returning migrants could exacerbate the outbreak and delay recovery.
- Fiscal and financing risks:
  - Tax collections may decline more than projected.
  - Reliance on monetization of deficit and uncertainty around domestic bond placement (MINFIN yet to place around US$1,500 million to finance envisaged deficit).
  - Banks’ liquidity hoarding has reduced domestic demand for treasury bonds.
- Market signal:
  - EMBI spread: 353 b.p. at June 3; its increase (100 b.p.) during the last few months reflects a general trend in emerging economies.

### MONETIZATION — staff advice and risks
- Monetization decision:
  - Congress authorized Banguat to finance a fiscal package of 1.9 percent of GDP; Central Bank to purchase up to US$1.4 billion in treasury bonds.
  - Purchases pursuant to government agreement 59-2020: 20-year bonds at rates broadly consistent with current market conditions.
- Staff-identified risks of monetization:
  - Raises sterilization costs for the Central Bank.
  - Can potentially impair the anchoring of inflation expectations.
  - May amplify exchange rate volatility and undermine Central Bank credibility.
- Staff recommendations:
  - Contain any further deficit monetization and seek sources other than the RFI (at 100 percent of quota) as new spending needs present and/or revenues disappoint.
  - Central Bank should closely monitor banking system liquidity, international reserves, and inflation expectations, and stand ready to adjust monetary operations to secure price stability.

### MONETARY POLICY, LIQUIDITY, AND FX OPERATIONS
- Monetary policy actions:
  - Since March 18th, Banguat lowered the monetary policy rate by 75 basis points to a historic low of 2 percent.
  - Currency in circulation increased by almost 6 percent in the first 3 weeks of the crisis.
- Liquidity operations and measures:
  - Early redemption of time deposits made in the Central Bank.
  - Purchase in secondary market of Treasury Bonds.
  - Repo operations at 30, 90 and 180 days (for up to USD 1,000 million). Collateral: Treasury Bonds of the Republic of Guatemala (in USD).
  - Flexibilization of reserve requirements (treasury and central bank bond enter the computation of reserves).
  - Temporary suspension of term deposits by maturity dates.
- FX intervention:
  - Banguat net sales of US$386 million from March 19th to April 3rd to dampen excessive exchange rate volatility (depreciation limited to 4 percent in the week of March 23rd).
  - Staff recommends preserving existing reserve buffers and limiting FX intervention to episodes of disorderly market conditions; encourage gradual exchange rate flexibility while closely monitoring inflation expectations and balance sheet exposures.

### PRUDENTIAL, SUPERVISORY, AND FINANCIAL STABILITY MEASURES
- Prudential easing:
  - Monetary Board’s Resolution JM-32-2020 eased credit risk regulations until end-2020 to enable banks to renegotiate loan terms on a case-by-case basis for operations past due 30 days or less by February 29th.
  - Grace periods allowed without automatically implying lower credit risk classification.
  - Banks may use generic provisions to cover specific provisions in justified cases; such provisions should be restored within six months after the end of the temporary measures.
- Staff advice:
  - Measures should be transparent, targeted, and prudent to prevent buildup of financial risks and moral hazard.
  - Banks should conduct loan portfolio reviews and risk assessments regularly.
  - Superintendency of Banks should closely monitor risk exposures to debtors benefiting from temporary measures, NPL classification, potential losses, and provisioning.

### REVENUE ADMINISTRATION, TRANSPARENCY, AND PROCUREMENT
- Revenue administration priorities:
  - Execute a revenue administration continuity plan tracking taxpayer deferrals and expedited refund payments.
  - During recovery, focus on reducing VAT and corporate income tax gaps.
  - Key measures: enhanced customs controls; more automatic revenue administration processes; a comprehensive plan for VAT credit control; strengthened Large Taxpayer Office.
- Procurement and transparency:
  - MINFIN adopted regulations to ensure pandemic-related expenses are channeled through Guatecompras and reported in the dedicated budgetary program.
  - Launch of the State of Calamity dashboard for accountability of COVID-related expenditures.
  - Staff recommends publishing:
    - quarterly reports of COVID-19 related expenditures on the website of the Ministry of Public Finance and all related signed procurement contracts (www.guatecompras.gt), including names of awarded companies and beneficial owner(s) and an ex-post validation of delivery;
    - the audit report by an independent external auditor of RFI-financed spending no later than six months after the end of the fiscal year.

### DEBT SUSTAINABILITY ANALYSIS — baseline, scenarios, and key projections
- Bottom line:
  - Debt is sustainable; central government debt expected to remain sustainable.
  - 2020 projections: debt to GDP ratio increase from 26.6 to 32.5 percent.
  - Real GDP growth projected at -2.0 percent in 2020.
  - 2021–25: debt expected to stabilize around 35 percent of GDP; gross financing needs remain below 5 percent of GDP during 2021-25; external debt around 40 percent of total debt.
- Stress tests and scenarios:
  - Standardized macro-fiscal stress tests: debt to GDP ratios remain below 40 percent in all standardized tests.
  - WEO alternative scenarios (Scenario A: longer containment; Scenario B: new outbreak in 2021) include a 20 percent exchange rate depreciation in 2020; in both scenarios debt stabilizes below 50 percent of GDP and gross financing needs stabilize below 5 percent of GDP.
- Selected baseline numeric trajectories (exact values preserved):
  - Nominal gross public debt: 2018: 24.6; 2019: 26.5; 2020: 26.6; 2021: 32.5; 2022: 33.7; 2023: 34.4; 2024: 35.0; 2025: 35.1
  - Public gross financing needs: 2018: 3.5; 2019: 2.9; 2020: 3.5; 2021: 7.6; 2022: 4.5; 2023: 4.1; 2024: 3.5; 2025: 3.8
  - Primary deficit (percent of GDP): 2018: 0.7; 2019: 0.3; 2020: 0.6; 2021: 4.1; 2022: 1.0; 2023: 0.7; 2024: 0.2; 2025: 0.0

### STAFF APPRAISAL — key recommendations and authorities’ commitments
- Staff appraisal highlights:
  - Short-term outlook weakened considerably and remains subject to extreme uncertainty.
  - Authorities’ fiscal response appropriate; staff recommends stepping up temporary testing and treatment facilities in rural areas.
  - More accommodative monetary stance appropriate; Banguat should continue monitoring banking system liquidity and be prepared to take additional measures if necessary.
  - Temporary relaxation of prudential regulations should be accompanied by close monitoring of credit exposures, NPL classification, potential losses, and credit risk management practices.
- Key staff recommendations:
  - Refrain from further deficit monetization; ensure Central Bank monetization is temporary and limited; seek alternative financing sources if additional spending needs or revenue shortfalls arise.
  - Central Bank should be ready to adjust monetary operations as needed to secure price stability.
  - Publish quarterly reports and procurement contracts for COVID-19 related spending and provide an independent external audit of RFI-financed spending no later than six months after the end of the fiscal year.
  - Complete a safeguards assessment of Banguat in connection with the RFI and provide external audit reports to IMF staff.
- Authorities’ commitments noted:
  - Contain monetization of the fiscal deficit and explore alternative financing sources.
  - Not to impose new or intensify existing exchange and trade restrictions.
  - Undergo a safeguards assessment and improve transparency and procurement reporting for pandemic-related expenditures.

_ Source: 1gtmea2020001 - 12.      Staff advised the authorities to refrain from (PDF). _

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and key vulnerabilities
- Guatemala had a prolonged period of macroeconomic stability underpinned by prudent fiscal management and a credible monetary policy, with average growth of 3½ percent post-GFC.
- Structural and social vulnerabilities that increase pandemic risk:
  - Weak healthcare coverage: basic healthcare covers about 50 percent of Guatemalans; healthcare coverage of the poor and rural populations is 60 and 46 percent, respectively. Doctors and medical personnel stand at 0.7 and 1.8 per 1,000 population (1.8 and 6.3, respectively, in good performing peers of similar per capita income).
  - High chronic malnutrition and food insecurity: prevalence of stunting in children under 5 is 46½ percent nationally and up to 70 percent in some departments; acute malnutrition post-COVID up to 57 percent in some Dry Corridor departments.
  - High dependence on remittances: remittances account for about 30 percent of households’ income; consumption is over 85 percent of GDP.
- As of May 27th, there were 3,954 confirmed COVID-19 cases with 63 fatalities in Guatemala.

### Policy response by authorities
- Early crisis actions:
  - State of Calamity declared on March 13th; National Emergency and Economic Recovery Plan launched on March 18th.
  - Country-wide curfew (5 pm to 5 am), border closures, suspension of non-essential activities, mass gatherings, and domestic travel. Retail re-openings in May with weekend full shutdowns.
- Economic and fiscal measures:
  - Targeted fiscal measures amounting to about 3 percent of GDP (three fiscal packages), combined with a projected decline in revenues of 0.9 percent of GDP, yield fiscal support of about 4 percentage points of GDP and a fiscal deficit around 6 percent of GDP (versus a historical average of 1.8 percent of GDP).
  - Specific allocations in the fiscal package: healthcare spending 0.2 percent of GDP; cash and other transfers 1.2 percent of GDP; salary subsidies 0.3 percent of GDP; funding to firms 0.6 percent of GDP; other public services 1 percent of GDP.
  - Programs described in the National Emergency and Economic Recovery Plan:
    - Family Bonus: US$780 million (1.0% of GDP), beneficiaries: 2 million heads of vulnerable households, benefits: 130 dollar for up to 3-month period.
    - Employment Protection Fund: US$260 million (0.3% of GDP), beneficiaries: 300,000 households (1,5 million people), benefits: US$10 per day during 3 months.
    - Working Capital Credit Fund: US$440 million (0.6% of GDP), beneficiaries: SMEs, loans at favorable terms (grace periods and below-market interest rates).
- Monetary and financial measures:
  - Monetary policy easing and expanded liquidity provision; supportive prudential measures.
- Extraordinary fiscal financing:
  - Pressing measures and faltering revenues prompted Congress approval for partial monetization of the fiscal deficit (within the purview of the Constitution).

### Request for IMF support
- Authorities requested financial support under the Rapid Financing Instrument (RFI) of 100 percent of quota (SDR 428.6 million).
- The full amount will become available upon Board approval and will be used for budgetary support.
- IMF staff assessment: Guatemala meets RFI eligibility, faces an urgent balance of payments (BOP) need; public debt is assessed sustainable and capacity to repay the Fund is adequate.

### Pre-COVID-19 macroeconomic position
- Activity accelerated in 2019: growth 3.8 percent (3.1 percent in 2018).
- Inflation: 3.7 percent in 2019; eased to 1.8 percent in 1Q2020. Central Bank target range 4±1 percent.
- Fiscal stance: cumulative fiscal impulse over 2017−2019 reached 1.0 percent of GDP.
- Monetary policy: monetary policy rate over 2017−2019 stood at 2¾ percent below its natural rate; real interest rates slipped into negative territory.
- Financial system end-2019: banks well capitalized, profitable and liquid; NPLs 2.2 percent.
- External position improved in 2019: current account balance increased to 2.4 percent (from ¾ percent in 2018).

### Impact of COVID-19: outlook and key quantitative effects (2020)
- Growth:
  - Pre-COVID: GDP growth 3.6 percent.
  - Post-COVID: GDP growth projected -2.0 percent.
  - Δ Change: -5.7 percentage points.
- Inflation:
  - Pre-COVID: 3.7 percent.
  - Post-COVID: 2.1 percent.
  - Δ Change: -1.6 percentage points.
- Fiscal deficit:
  - Pre-COVID: 2.1 percent of GDP.
  - Post-COVID: 6.1 percent of GDP.
  - Δ Change: 4.0 percentage points.
- Public debt:
  - Pre-COVID: 27.5 percent of GDP.
  - Post-COVID: 32.5 percent of GDP.
  - Δ Change: 5.0 percentage points.
- Current account:
  - Pre-COVID: 1.5 percent of GDP.
  - Post-COVID: -0.5 percent of GDP.
  - Δ Change: -2.0 percentage points.
- Staff projects a contraction in 2020 to -2 percent and a rebound to 4 percent in 2021.

### Balance of payments shock and financing (2020, US$ and percent of GDP figures preserved)
- Estimated BOP financing gap for 2020: US$1.5 billion (2.0 percent of GDP).
- Main drivers (Pre-COVID → Post-COVID; change):
  - Current account: 1,185 → -345 (Change: -1,530) (in percent of GDP: 1.5 → -0.5; Change: -2.0).
  - Non-oil goods balance: -5,996 → -5,526 (Change: 470).
  - Oil balance: -3,124 → -1,678 (Change: 1,446).
  - Services balance: 53 → -685 (Change: -738); Tourism: 445 → 203 (Change: -242).
  - Net income: -2,046 → -1,489 (Change: 557).
  - Remittances: 11,574 → 8,395 (Change: -3,179).
  - Financial inflows (net): -185 → -1,171 (Change: -986); Foreign direct investment, net: 797 → 338 (Change: -459); Portfolio investment, net: -331 → 1,197 (Change: 1,230); Other investment, net: -949 → -2,706 (Change: -1,757).
  - Resulting residual BOP financing gap (after assumed reserve change): ...1,074 (in millions of US dollars).
- Potential financing to fill the gap:
  - IMF (RFI): 585 (US$585 million).
  - Other IFIs, net: 489 (US$489 million), of which IADB 271, WB 200, CABEI 18.
  - Change of reserves ("+": increase): 1,000 → -443 (change shown).
- Staff view: reserves would be left at 144 percent of the ARA metric after the envisaged financing package.

### Real economy and sectoral impacts
- Remittances and exports:
  - March 19th through May 8th: remittances contracted by 17 percent; export growth fell to 1 percent (pre-COVID: 18 percent growth).
  - Tourism receipts shrunk over 50 percent since start-2020.
- Labor and firms:
  - Around 30 percent of firms in agricultural and manufacturing sectors suspended workers.
  - 80 percent of hotels registered zero occupancy rate since end-March.
  - Call center and BPO industry operating at 80 percent capacity.
- Consumption and activity indicators:
  - 40 percent drop in use of credit card lines during April.
  - Electricity generation fell by 25 percent since suspension of non-essential activities.

### Risks to the outlook (tilted to the downside)
- External demand and remittances: deterioration in U.S. and trading partners could worsen remittances and exports; remittances nearly 14 percent of GDP; 33 percent of exports go to the U.S.
- Pandemic scale and duration: Guatemala’s weak healthcare system, widespread poverty, severe malnutrition, and challenges screening returning migrants could exacerbate the outbreak and delay recovery.
- Fiscal revenue downside: tax collections may decline more than projected (staff providing TA to formulate a business continuity plan for the tax agency).
- Financing risks: reliance on monetization of deficit and uncertainty around domestic bond placement (Ministry of Public Finance yet to place around US$1,500 million to finance envisaged deficit); sovereign placed a Eurobond of US$1,200 million on April 21st; banks’ liquidity hoarding has reduced domestic demand for treasury bonds.

### Policy discussions and fiscal strategy
- National Emergency and Economic Recovery Plan components:
  - Ramp up healthcare capacity (temporary hospitals, expanded supplies and equipment).
  - Temporary measures targeted to the most vulnerable (food support, risk bonus for healthcare personnel, emergency funding for SMEs, support for grassroots commerce).
  - Temporary relief to firms (expedited tax credit refunds, deferral of tax payments and social security contributions), cash transfers, salary subsidies, and loans at favorable terms.
- Fiscal packages and projected fiscal accounts (2020, percent of GDP):
  - Revenues: Pre-COVID 11.4 → Post-COVID 10.5 (Δ -0.9).
  - Tax revenues: 10.7 → 9.8 (Δ -0.9).
  - Expenditure: 13.5 → 16.5 (Δ 3.0); Current: 10.9 → 13.2 (Δ 2.4); Wages: 4.0 → 4.8 (Δ 0.7); Transfers: 2.2 → 3.4 (Δ 1.2); Capital: 2.6 → 3.3 (Δ 0.7).
  - Overall balance: -2.1 → -6.1 (Δ -4.0) (in millions of dollars: ...... -2,893 shown in staff estimates).
- Financing strategy to cover additional needs (~4 percent of GDP):
  - Mobilized IFI loans: US$489 million (US$200 million WB loan for disaster relief; US$271 million IADB loans for budget support); US$18 million CABEI loans for hospital infrastructure.
  - Planned RFI draw: US$585 million (100 percent of quota).
  - Domestic bond issuance: US$398 million.
  - Central bank monetization at market conditions: US$1.4 billion.
  - April 30th: government enacted regulations to contain operating expenses.
- Staff notes significant risks to the financing strategy, including monetization and larger-than-expected revenue erosion.

*IMF staff; June 11, 2020*

### 12.      Staff advised the authorities to refrain from

### 1gtmea2020001 - 12.      Staff advised the authorities to refrain from

### Monetization decision and context
- Circumstances prompting monetization:
  - Congress authorized the Central Bank—as per the exceptional circumstances envisaged in Art. 133 of the Constitution—to finance a fiscal package of 1.9 percent of GDP, accounting for half of the emergency response.
  - As a result, the Central Bank will purchase up to US$1.4 billion in treasury bonds from the Ministry of Public Finance.
- Monetization terms:
  - Pursuant to government agreement 59-2020, the Central Bank is to purchase 20-year bonds at rates broadly consistent with current market conditions.
- Staff advice and risks of monetization:
  - Risks identified: raises sterilization costs for the Central Bank; can potentially impair the anchoring of inflation expectations; amplify exchange rate volatility; and undermine the credibility of the Central Bank.
  - Staff recommends: contain any further deficit monetization and seek sources other than the RFI (at 100 percent of quota) as new spending needs present and/or revenues disappoint (¶13).
  - The Central Bank should closely monitor banking system liquidity, international reserves, and inflation expectations, and stand ready to adjust monetary operations to secure price stability.

### Fiscal financing and key figures
- Fiscal package and financing composition (as presented):
  - Monetization: 11,0001,4211.9
  - Domestic financing: 3,0843980.5
  - Other IFIs: 3,7824890.6
    - o/w IADB: 2,0952710.4
    - o/w WB: 1,5482000.3
    - o/w CABEI: 139180.0
  - IMF (RFI purchases): 4,5245850.8
  - Financing Gap: 22,3902,8933.8
  - Pre-Covid19 Financing 1/: 13,0071,6812.2
  - Total Financing: 35,3964,5746.1
  - Overall balance: -35,396-4,574-6.1
  - Revenues: 61,1557,90210.5
  - Expenditure: 96,55112,47616.5
  - Current: 77,3199,99113.2
  - Capital: 19,2322,4853.3
  - Sources: Fund staff estimates.
  - Note: 1/ Pre-COVID projections are as of January 2020.
- RFI support proposed:
  - Staff proposes to provide support for 100 percent of quota under the RFI.
  - Annual access of 100 percent of quota equals SDR428.6 million, or about US$585 million.
  - RFI resources will be disbursed to the MINFIN and used to counter the economic and social impact of the pandemic.
  - Remaining needs expected to be filled by the WB, IADB, CABEI, domestic bond issuance, and monetization.

### Monetary policy and liquidity measures
- Monetary policy stance:
  - Since March 18th, the Central Bank of Guatemala (Banguat) has lowered the monetary policy rate by 75 basis points to its historic low of 2 percent.
  - Currency in circulation increased by almost 6 percent in the first 3 weeks of the crisis.
- Liquidity and operational measures:
  - Early redemption of time deposits made in the Central Bank.
  - Purchase in secondary market of Treasury Bonds.
  - Repo operations at 30, 90 and 180 days.
  - Temporary suspension of term deposits by maturity dates.
  - Flexibilization of reserve requirements (treasury and central bank bond enter the computation of reserves).
  - Repo operations at 30, 90 and 180 days for up to USD 1,000 million. Collateral: Treasury Bonds of the Republic of Guatemala (in USD) placed in local/international markets.
- Foreign exchange intervention:
  - Banguat net sales of US$386 million from March 19th to April 3rd to dampen excessive exchange rate volatility (depreciation limited to 4 percent in the week of March 23rd).
  - Staff recommends preserving existing reserve buffers and limiting FX intervention to episodes of disorderly market conditions; encourage gradual exchange rate flexibility while closely monitoring inflation expectations and balance sheet exposures.

### Prudential and supervisory measures
- Credit risk regulation easing:
  - Monetary Board’s Resolution JM-32-2020 eased credit risk regulations until end-2020 to enable banks to renegotiate loan terms on a case-by-case basis for operations that were past due 30 days or less by February 29th.
  - Grace periods allowed without automatically implying lower credit risk classification.
  - Banks may use generic provisions to cover specific provisions in justified cases; such provisions should be restored within six months after the end of the temporary measures.
- Staff advice on prudential easing:
  - Measures should be transparent, targeted, and prudent to prevent a buildup of financial risks and moral hazard.
  - Banks should conduct loan portfolio reviews and risk assessments regularly.
  - The Superintendency of Banks should closely monitor risk exposures to debtors benefiting from temporary measures, NPL classification, potential losses, and provisioning.

### Revenue administration, transparency, and procurement
- Revenue administration priorities:
  - Redoubling tax administration efforts is critical to contain erosion of tax revenues.
  - During the crisis, the tax authority should execute a revenue administration continuity plan that tracks taxpayer deferrals and expedited refund payments.
  - During the recovery, focus on reducing VAT and corporate income tax gaps.
  - Key measures: enhanced customs controls; more automatic revenue administration processes; a comprehensive plan for VAT credit control; and a strengthened Large Taxpayer Office.
- Procurement and transparency measures:
  - MINFIN adopted regulations under the State of Calamity to ensure pandemic-related expenses are channeled through the government e-procurement system (Guatecompras) and reported in the dedicated budgetary program.
  - Launch of the State of Calamity dashboard to enhance accountability of COVID-related expenditures.
  - Staff recommends publishing: (i) quarterly reports of COVID-19 related expenditures on the website of the Ministry of Public Finance and all related signed procurement contracts (www.guatecompras.gt), including names of awarded companies and beneficial owner(s) and an ex-post validation of delivery; and (ii) the audit report by an independent external auditor of RFI-financed spending no later than six months after the end of the fiscal year.

### Eligibility, safeguards, and debt sustainability
- Eligibility and modality:
  - Guatemala meets the eligibility requirements for support under the RFI; faces an urgent BOP need.
  - An upper-credit-tranche arrangement is not feasible at this stage due to urgent BOP needs and high uncertainty about the pandemic.
- Safeguards:
  - A safeguards assessment of Banguat will be needed and must be completed before Executive Board approval of any subsequent arrangement.
  - Authorities commit to provide the most recently completed external audit reports and to authorize external auditors to hold discussions with staff.
  - Authorities confirm they will establish a framework between Banguat and MINFIN to clarify roles for timely servicing of payments to the IMF.
- Debt sustainability assessment:
  - Guatemala is assessed as having sustainable debt and adequate capacity to repay the Fund.
  - RFI resources represent about 0.8 percent of GDP.
  - Assessment supported by authorities’ track record of servicing debt, long maturity profile of outstanding debt, and legal prioritization of debt services.

### Authorities’ views and staff appraisal
- Authorities’ views:
  - Authorities project a significant economic impact with unusually high levels of uncertainty; broadly agree with staff’s macroeconomic outlook and BOP financing estimates.
  - Authorities emphasized containment measures and unprecedented stimulus focused on healthcare capacity, protecting the vulnerable, and temporary relief to firms.
  - Authorities deem short-term inflationary risks from monetization low given demand restraint; intend to keep monetization temporary and limited and expect sterilization costs to be limited given quasi-market returns for acquired treasury bonds.
  - SIB is monitoring bank conduct on loan restructurings and has expanded information requirements to ensure restructurings are targeted to temporarily illiquid but solvent borrowers.
- Staff appraisal key points:
  - Short-term outlook weakened considerably and remains subject to extreme uncertainty.
  - Authorities’ fiscal response appropriate; staff recommends stepping up temporary testing and treatment facilities in rural areas.
  - Pursuit of more accommodative monetary stance deemed appropriate; staff encourages Banguat to continue monitoring banking system liquidity and be prepared to take additional measures if necessary.
  - Temporary relaxation of prudential regulations should be accompanied by close monitoring of credit exposures, NPL classification, potential losses, and credit risk management practices.
  - Staff reiterates: authorities should refrain from further deficit monetization; ensure Central Bank monetization is temporary and limited; seek alternative financing sources if additional spending needs or revenue shortfalls arise; Central Bank should be ready to adjust monetary operations as needed to secure price stability.

*Source: 1gtmea2020001 - 12.      Staff advised the authorities to refrain from (PDF).*

### 30.      Staff supports the authorities’ request for an RFI in the amount of SDR428.6 million

### Staff supports the authorities’ request for an RFI in the amount of SDR428.6 million (100 percent of quota)

### Rationale for the RFI request
- Staff supports the authorities’ request for an RFI in the amount of SDR428.6 million (100 percent of quota).
- The unprecedented economic fallout from the COVID-19 outbreak and the already urgent BOP needs justify the authorities’ request for emergency financial assistance from the Fund through an RFI.
- Guatemala’s solid track record of prudent macroeconomic policies provides the necessary reassurance for public debt sustainability and capacity to repay the Fund.

### Key macroeconomic developments and projections
- Real GDP projections (annual percent change):
  - 2019: 3.8
  - 2020: -2.0
  - 2021: 4.0
  - 2022: 3.7
  - 2023: 3.6
  - 2024: 3.5
  - 2025: 3.5
- Consumer prices (end of period):
  - 2019: 3.4
  - 2020: 2.1
  - 2021: 3.1
  - 2022: 3.9
  - 2023: 4.1
  - 2024: 4.1
  - 2025: 4.1
- Current account balance (percent of GDP):
  - 2019: 2.4
  - 2020: -0.5
  - 2021: 0.1
  - 2022: -0.1
  - 2023: -0.4
  - 2024: -0.7
  - 2025: -0.9

### Fiscal sector highlights
- Central government overall balance (percent of GDP):
  - 2019: -2.2
  - 2020: -6.1
  - 2021: -3.1
  - 2022: -2.8
  - 2023: -2.4
  - 2024: -2.2
  - 2025: -2.0
- Central government revenues (percent of GDP):
  - 2019: 10.5
  - 2020: 10.5
  - 2021: 11.0
  - 2022: 11.4
  - 2023: 11.7
  - 2024: 11.8
  - 2025: 11.9
- Central government expenditures (percent of GDP):
  - 2019: 13.5
  - 2020: 16.5
  - 2021: 14.1
  - 2022: 14.1
  - 2023: 14.1
  - 2024: 14.1
  - 2025: 14.0
- Central government debt (percent of GDP):
  - 2019: 26.6
  - 2020: 32.5
  - 2021: 33.7
  - 2022: 34.4
  - 2023: 35.0
  - 2024: 35.1
  - 2025: 35.0
- Note: For 2020, includes GTQ 11 billion for Banguat’s direct purchase of government bonds amounting to 6.5 percent of total assets as of March 2020. The receipts will be directed to emergency-related spending totaling 1.9 percent of 2020 GDP, according to Decree 13-2020.

### External sector and balance of payments
- Prospective RFI shown in staff projections:
  - Prospective RFI: 585 (in table context; staff text supports SDR428.6 million request)
  - Prospective RFI (percent of GDP, memorandum): 0.8
- Net international reserves (NIR) (stock in millions of U.S. dollars):
  - 2019: 13,769
  - 2020 (projection): 13,326
  - 2021–2025 (projection): 13,326 each year through 2025
- NIR in months of next-year NFGS imports:
  - 2019: 8.7
  - 2020: 7.5
  - 2021: 7.1
  - 2022: 6.8
  - 2023: 6.4
  - 2024: 6.1
  - 2025: 6.1
- Remittances (percent of GDP and levels):
  - Remittances contributed strongly to the current account prior to COVID-19.
  - Remittances (percent of GDP):
    - 2019: 13.7
    - 2020: 11.1
    - 2021: 12.4
    - 2022: 12.7
    - 2023: 12.9
    - 2024: 12.9
    - 2025: 12.8
  - The report notes inflows of remittances have declined sharply since the beginning of COVID-19.
- Gross external financing requirements (in millions of U.S. dollars):
  - 2020: 6,304
  - 2021: 4,974
  - 2022: 6,641
  - 2023: 6,664
  - 2024: 7,480
  - 2025: 7,997
- Gross financing sources and composition (selected 2020 items, in millions of U.S. dollars):
  - Foreign direct investment (net), 2020: 338
  - Public sector debt disbursements, 2020: 1,292
  - Private sector debt disbursements, 2020: 2,455
  - Accumulation of reserves (change), 2020: -443
  - Financing gap (A+C-B), 2020: 0 (but a financing gap of 1,517 appears for 2020 in one table context)

### Monetary policy and financial sector responses
- Banguat (Bank of Guatemala) monetary policy actions:
  - Banguat has lowered the monetary policy rate by 75 basis points to a historic low of 2 percent.
  - Banguat provided additional liquidity to meet banks’ precautionary demand for cash in both national and foreign currency.
  - Cumulative net FX intervention activity and intervention were used to dampen excessive FX volatility.
- Monetary aggregates and credit:
  - M2 (percent change, selected years shown as projections):
    - 2020: 9.6
    - 2021: 2.6
    - 2022: 3.9
    - 2023: 6.9
    - 2024: 6.6
    - 2025: 6.7
  - Credit to the private sector (annual growth rate):
    - 2019: 4.9
    - 2020: 3.5
    - 2021: 6.8
    - 2022: 7.3
    - 2023: 7.2
    - 2024: 7.2
    - 2025: 7.2

### Financial soundness indicators (selected)
- On-shore banks:
  - Nonperforming loans to total gross loans (2019): 2.2
  - Regulatory capital to risk-weighted assets (2019): 15.5
  - Return on assets (2019): 1.7
  - Return on equity (2019): 17.9
  - Provisions to non-performing loans (2019): 135.9

### Fiscal and financing implications of COVID-19 (summary points)
- The COVID-19 outbreak has:
  - Accelerated economic decline and caused activity to falter in 2020.
  - Led to sharp declines in remittances and tourism due to travel restrictions.
  - Weakened tax collections amid tax evasion and enforcement challenges, limiting infrastructure and social spending.
- Market response:
  - Markets have been favorable since the onset of the crisis, allowing the issuance of a Social Bond for health spending, amidst faltering tax collections.

*Source: IMF staff report for Guatemala (excerpt).*

### Annex I. Public Debt Sustainability Analysis

### Annex I. Public Debt Sustainability Analysis

### Bottom line / Baseline
- Debt is sustainable.
- The debt of the central government is expected to remain sustainable.
- 2020 projections:
  - Debt to GDP ratio: increase from 26.6 to 32.5 percent.
  - Gross financing needs: increase to 7.6 percent of GDP in 2020.
  - Real GDP growth: projected at -2.0 percent in 2020 (see Assumptions).
- 2021–25 projections:
  - Debt is expected to stabilize around 35 percent of GDP.
  - Gross financing needs will remain below 5 percent of GDP during 2021-25.
  - External debt will remain around 40 percent of total debt.
- Strengths and vulnerabilities:
  - Strengths: prudent economic policies and low indebtedness have proved attractive to investors.
  - Offsetting weakness: a narrow tax base limits productive spending and debt carrying capacity.
- Risks to the baseline stem from longer than expected supply disruptions and depressed remittances.

### Stress tests and alternative scenarios
- Standardized macro-fiscal stress tests:
  - Public debt is resilient to short term shocks: debt to GDP ratios remain below 40 percent in all standardized (primary balance, real GDP growth, exchange rate and interest rate shocks) tests.
- WEO alternative scenarios (two severe scenarios assessed):
  - Scenario A: measures to contain the spread of the virus last longer than in the baseline.
  - Scenario B: a new outbreak in 2021.
  - In both scenarios, a 20 percent exchange rate depreciation is considered in 2020.
- Outcomes under stringent scenarios:
  - Debt stabilizes below 50 percent of GDP.
  - Gross financing needs stabilize below 5 percent of GDP.

### Key projections and indicators (selected exact values from baseline table)
- Nominal gross public debt:
  - 2018: 24.6
  - 2019: 26.5
  - 2020: 26.6
  - 2021: 32.5
  - 2022: 33.7
  - 2023: 34.4
  - 2024: 35.0
  - 2025: 35.1
  - 2025 (final printed): 35.0
- Public gross financing needs:
  - 2018: 3.5
  - 2019: 2.9
  - 2020: 3.5
  - 2021: 7.6
  - 2022: 4.5
  - 2023: 4.1
  - 2024: 3.5
  - 2025: 3.8
  - 2025 (final printed): 3.4
- Real GDP growth (in percent):
  - 2018: 3.2
  - 2019: 3.2
  - 2020: 3.8 (historical)/-2.0 (projection shown elsewhere)
  - 2020 (projection used in baseline and figures): -2.0
  - 2021: 4.0
  - 2022: 3.7
  - 2023: 3.6
  - 2024: 3.5
  - 2025: 3.5
- Inflation (GDP deflator, in percent):
  - 2018: 3.5
  - 2019: 1.2
  - 2020: 3.4
  - 2021: 1.0
  - 2022: 1.9
  - 2023: 3.0
  - 2024: 3.0
  - 2025: 3.1
- Nominal GDP growth (in percent):
  - 2018: 6.8
  - 2019: 4.5
  - 2020: 7.4
  - 2021: -1.1
  - 2022: 6.0
  - 2023: 6.9
  - 2024: 6.7
  - 2025: 6.7
  - 2025 (final printed): 6.8
- Effective interest rate (in percent):
  - 2018: 6.8
  - 2019: 6.4
  - 2020: 6.7
  - 2021: 7.2
  - 2022: 6.9
  - 2023: 6.7
  - 2024: 6.9
  - 2025: 6.9

- Change in gross public sector debt (cumulative):
  - 2018: 0.5
  - 2019: 1.4
  - 2020: 0.1
  - 2021: 6.0
  - 2022: 1.1
  - 2023: 0.7
  - 2024: 0.6
  - 2025: 0.1
  - 2025 (cumulative printed): -0.1
  - Total cumulative (printed): 8.4

- Identified debt-creating flows (cumulative):
  - 2018: 0.5
  - 2019: 1.5
  - 2020: 0.2
  - 2021: 5.6
  - 2022: 1.0
  - 2023: 0.6
  - 2024: 0.4
  - 2025: 0.1
  - 2025 (cumulative printed): -0.1
  - Total cumulative (printed): 7.5

- Primary deficit (percent of GDP):
  - 2018: 0.7
  - 2019: 0.3
  - 2020: 0.6
  - 2021: 4.1
  - 2022: 1.0
  - 2023: 0.7
  - 2024: 0.2
  - 2025: 0.0
  - 2025 (printed): -0.2
  - Cumulative (printed): 5.7

- Primary (noninterest) revenue and grants (percent of GDP):
  - 2018: 11.5
  - 2019: 11.3
  - 2020: 11.3
  - 2021: 10.5
  - 2022: 11.0
  - 2023: 11.4
  - 2024: 11.7
  - 2025: 11.8
  - 2025 (printed): 11.9
  - Cumulative (printed): 68.3

- Primary (noninterest) expenditure (percent of GDP):
  - 2018: 12.2
  - 2019: 11.7
  - 2020: 11.9
  - 2021: 14.6
  - 2022: 12.0
  - 2023: 12.0
  - 2024: 11.9
  - 2025: 11.8
  - 2025 (printed): 11.7
  - Cumulative (printed): 74.0

- Automatic debt dynamics (interest rate/growth differential contributions and components) — selected values:
  - 2018: -0.1
  - 2019: 1.1
  - 2020: -0.2
  - 2021: 2.2
  - 2022: 0.3
  - 2023: -0.1
  - 2024: 0.1
  - 2025: 0.0
  - 2025 (printed): 0.0
  - Cumulative (printed): 2.6
  - Real interest rate contributions (selected):
    - 2018: 0.7
    - 2019: 1.2
    - 2020: 0.8
    - 2021: 1.7
    - 2022: 1.5
    - 2023: 1.1
    - 2024: 1.2
    - 2025: 1.2
    - Cumulative (printed): 8.0
  - Real GDP growth contributions (selected):
    - 2018: -0.7
    - 2019: -0.8
    - 2020: -0.9
    - 2021: 0.5
    - 2022: -1.2
    - 2023: -1.2
    - 2024: -1.2
    - 2025: -1.2
    - Cumulative (printed): -5.4

- Other identified debt-creating flows (including use of deposits):
  - 2018: 0.0
  - 2019: 0.1
  - 2020: -0.2
  - 2021: -0.8
  - 2022: -0.3
  - 2023: -0.1
  - 2024: 0.1
  - 2025: 0.1
  - Cumulative (printed): -0.8
- Contingent liabilities: 0.0 across projection years.
- Privatization receipts: mostly 0.0 with a -0.1 entry in one projection year.
- Residual, including asset changes:
  - 2018: 0.0
  - 2019: -0.1
  - 2020: -0.1
  - 2021: 0.4
  - 2022: 0.1
  - 2023: 0.2
  - 2024: 0.2
  - 2025: 0.0
  - Cumulative (printed): 0.9

### Assumptions (selected and exact)
- The COVID-19 pandemic is expected to reduce Guatemala’s real GDP growth rate to -2.0 percent in 2020, from the earlier IMF staff projection of 3.6 percent.
- In 2021, growth is projected to rebound to 4 percent.
- The baseline growth and fiscal projections are in line with the WEO assumptions.
- The authorities are broadly aligned with staff’s macroeconomic framework.

### Coverage, contingent liabilities, and fiscal context
- Coverage:
  - The public debt sustainability analysis considers a restricted coverage of the public sector at the central government level due to data availability.
  - Public sector is defined as central government.
- Non-financial public sector (NFPS) performance:
  - The rest of non-financial public sector has presented a cash surplus in recent years (mainly coming from the social security system).
  - In 2019, the NFPS posted a deficit of 1.8 percent of GDP.
  - In 2019, the Central Government deficit was -2.3 percent of GDP.

### Policy context and government actions (from Appendix I excerpts relevant to DSA)
- Government fiscal response to COVID-19:
  - Congress approved three supplementary budgets amounting to 3.4 percent of GDP.
  - These raised temporarily the 2020 government deficit and debt to 6.1 and 32.5 percent of GDP, respectively.
  - Financing strategy: IFIs loans, bonds issuance in the local and international market, and, in extremis and with constitutional purview, central bank monetization at market conditions.
- Authorities’ commitments relevant for debt sustainability:
  - Contain monetization of the fiscal deficit and explore alternative financing sources as additional spending needs arise and/or revenues underperform.
  - Not to impose new or intensify existing exchange and trade restrictions.
  - Undergo a safeguards assessment in connection with the RFI and provide external audit reports to IMF staff.
  - Publish quarterly reports of COVID-19 related expenditures and procurement contracts, and an independent external audit of RFI-financed spending no later than six months after the end of the fiscal year.

*Source: IMF staff. (Annex I. Public Debt Sustainability Analysis, as of April 30, 2020).*

### 2019. The economy is expected to be hit by negative external shocks through lower export growth,

### 1gtmea2020001 - 2019. The economy is expected to be hit by negative external shocks through lower export growth,

### Macroeconomic outlook and scenario
- Short-term impact: economy hit by negative external shocks from lower export growth, remittances contraction (mainly due to high unemployment levels in the U.S.), and a sharp decline in tourism revenues.
- Local disruptions: lockdown generating significant local disruptions in supply and distribution chains, negatively impacting economic activity.
- Recovery path: gradual recovery envisaged for the second half of the year, with a stronger rebound to 4.0 percent — above last decade average of 3.5 percent— in 2021, but significant downside risks remain.
- Adverse scenario risk: a protracted outbreak with prolonged global growth and financial conditions impact would have severe health and social consequences, delay recovery, and affect the fiscal stance.

### Fiscal impact and public finances
- Initial fiscal deficit projection: increase to -6.1 percent from -2.1 percent (Pre-COVID19).
- Revenue deterioration: revenues could deteriorate by about 0.9 percent of GDP in the short term.
- Additional COVID19-related spending needs: estimated at 3.1 percent of GDP in 2020.
- Overall loosening in fiscal stance envisaged: 4.0 percent of GDP in 2020 required to finance the National Emergency and Economic Recovery Plan and cover critical spending and loss of fiscal revenue.
- Fiscal stimulus composition (total 3.1 percent of GDP in 2020):
  - emergency healthcare expenditures: 0.2 percent of GDP
  - additional social spending, including direct cash transfers to the most vulnerable: 1.2 percent of GDP
  - salary subsidies: 0.3 percent of GDP
  - financing to SME’s: 0.6 percent of GDP
- Medium-term fiscal path: fiscal balance expected to improve to -3.0 percent of GDP in 2021 and continue gradual adjustment to reach the historic average (2 percent of GDP) in the following years.
- Revenue mobilization: authorities committed to strengthen tax administration capacity and gradually broaden the tax base.

### External sector and balance of payments
- Inflation to May 2020: 1.8 percent (yoy).
- Current account balance trajectory:
  - 2019: 2.4 percent of GDP
  - Pre-COVID19 envisaged: 1.5 percent of GDP
  - 2020 envisaged: -0.5 percent of GDP
  - Main drivers: fall in remittances, collapse in tourism and exports; partially offset by lower oil prices and reduced imports.
- External position change: unprecedented change in Guatemala’s external position—almost 3.0 percent of GDP.
- BOP financing need: 2.0 percent of GDP—about US$1.5 billion—in 2020.
- Financing plan: draw on the RFI and additional financing from multilateral development banks of US$489 million to preserve reserve cushions.
- Exchange rate policy: authorities do not expect pressure on the exchange rate due to the pandemic; reaffirm commitment to maintain a flexible exchange rate and act only to smooth volatility.

### Debt, markets, and financing capacity
- Debt-to-GDP projection: increase from 26.6 to 32.5 percent in 2020 due to negative economic growth, pandemic-related spending, and loss of tax revenues.
- Debt sustainability: Debt Sustainability Analysis shows Guatemala remains at low risk of debt distress.
- RFI size: represents only 0.8 percent of GDP; country’s capacity to repay the Fund is not at risk.
- EMBI spread: 353 b.p. at June 3; its increase (100 b.p.) during the last few months reflects a general trend in emerging economies rather than a country-specific situation.
- Authorities’ commitment: pursue policies ensuring macroeconomic stability and debt sustainability; maintain excellent track record of debt servicing.

### Monetary and financial sector measures
- Monetary policy stance: reductions in the monetary policy interest rate to a historic low of 2.0 percent.
- Liquidity measures: temporary measures to increase liquidity in the financial system, both domestic and in foreign currency.
- Sterilization commitment: BANGUAT committed to sterilize any monetary surplus from injection of primary liquidity to avoid pressure on inflation, interest rates, and the nominal exchange rate; will monitor and adjust stance to secure price stability if necessary.
- Monetary financing: BANGUAT considers that invoking the extraordinary constitutional provision to monetize the fiscal deficit (Article 133 of the Constitution) should not be used on a recurring basis; committed to contain monetization and seek alternative financing sources if more resources are needed.
- Inter-institutional coordination: BANGUAT and MINFIN will maintain historic close coordination to preserve macroeconomic stability and discipline.
- Banking sector measures: Bank Superintendence (SIB) temporarily eased credit risk regulations to alleviate COVID-19 impact while preserving financial stability; banks’ liquidity, Non-Performing Loans and capital adequacy are currently adequate.
- Prudential oversight: authorities closely monitoring targeted implementation to prevent financial risk and moral hazard.

### Social protection, targeted support, and transparency
- Targeted measures: support for the most vulnerable and efforts concentrated on shoring up the fragile health system.
  - delivering food and health supplies to needy families
  - risk bonus pay for healthcare personnel
  - temporary cash transfers to informal workers and SME’s
  - temporary relief for firms: expedited tax credit refunds, deferral of tax payments and social security contributions
- Accountability measures:
  - “State of Calamity Dashboard” implemented for tracking and controlling pandemic-related expenditure
  - regulations to channel expenditures through the electronic government procurement system (Guatecompras)
  - MINFIN committed to expeditiously publish quarterly reports on pandemic-related spending and carry out and publish an ex-post independent audit of the RFI-financed spending
  - commitment to undergo a safeguards assessment of BANGUAT once the pandemic recedes
- Anti-corruption and AML/CFT: government committed to strengthen domestic institutions; the Financial Intelligence Unit (IVE) continues strengthening analytical capabilities to enforce AML/CFT regulations.

*Source: 1gtmea2020001 - 2019. The economy is expected to be hit by negative external shocks through lower export growth,*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1gtmea2020001.pdf_