## 1. Structural Reforms and Export Development in Guatemala

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### Context and recent developments
- Pre-pandemic strengths and gaps:
  - Strong macroeconomic fundamentals but persistent social and infrastructure gaps; slow implementation of business climate and public sector reforms (governance and anti-corruption); limited capacity for public investment; low quality and coverage of basic public services.
- COVID-19 policy response (2020):
  - Fiscal package of about 2.3 percent of GDP to protect the most vulnerable, improve healthcare capacity, and support SMEs.
  - Banguat policy rate reduced by 100 bps to a historic minimum and liquidity facilities activated.
  - Monetary Board relaxed reserve requirements and eased credit regulations temporarily to facilitate restructuring of bank loans.
- COVID-19 health statistics (as of April 18, 2022):
  - Confirmed cases: 839,416 (4.8 percent of the population).
  - Deaths: 17,457 (0.1 percent of the population).
  - Two-dose vaccination: about 35.8 percent of the population; authorities plan to reach 60 percent by end-2022.
- Output, labor market and inflation:
  - Real GDP growth: 8 percent in 2021 led by manufacturing, construction, trade and services.
  - Formal employment regained its pre-pandemic level.
  - Headline inflation breached target (4 ± 1 percent) between 2020H2-2021H1, eased thereafter; signs of increasing inflation for food, some energy, and household goods since 2021Q4.
  - Two-year ahead inflation expectations around 4 percent (Banguat surveys).
- Monetary and external accounts:
  - Policy rate: unchanged at 1.75 percent since June 2020 (over 200 bps lower than neutral stance implication).
  - Net international reserves increased by US$2.5 billion to US$20.9 billion in 2021 (7.7 months of next-year imports).
  - 2021 general SDR allocation of US$ 586 million received and intended to be kept as reserves.
- Current account and external assessment:
  - CA balance declined from 5.5 percent of GDP in 2020 to 2.5 percent in 2021.
  - EBA CA norm around -2.3 percent of GDP; staff adjustment of 2 percentage points of GDP to account for security conditions on investment.
  - EBA model implies an undervaluation of the REER of 16 percent if the CA gap is closed by further deterioration of the trade balance.
- Financial sector:
  - Regulatory forbearance measures ended in 2021; nonperforming loans estimated at 2 percent of total loans at end-December 2021.
  - Banks’ capital adequacy ratio improved in 2021; liquidity broadly in line with pre-pandemic levels.
  - Private credit growth: 12.1 percent y/y in 2021 (large corporates 10.2 percent; consumer loans 15.1 percent).
  - Deposits increased in 2021 and banks’ ROE at highest level since 2010.
- Fiscal outturn:
  - Tax revenues: 11.7 percent of GDP in 2021.
  - Total expenditure: 13.5 percent of GDP in 2021.
  - Primary surplus: 0.6 percent of GDP in 2021.
  - 2022 budget envisaged overall deficit of 2.8 percent of GDP; implied fiscal impulse estimated at 1.9 percent of GDP.
  - Authorities announced temporary measures around 0.2 percent of GDP and infrastructure budget increase equivalent to 0.45 percent of GDP.
  - Authorities estimate 2.2 percent of GDP overall deficit and fiscal impulse of 1.1 percent of GDP given updated projections; staff projects overall deficit of 2.3 percent of GDP.

### Outlook and risks
- Macroeconomic projections:
  - Real GDP growth projected at 4 percent in 2022.
  - Inflation projected to average 4.4 percent in 2022 (within Banguat’s target band 4 ± 1 percent).
  - Medium-term growth expected close to potential (around 3½ percent).
  - Public debt expected to stabilize around 30 percent of GDP.
  - FDI projected at 1.3 percent of GDP (pre-pandemic average 2015-19) absent substantial structural reforms.
- External outlook:
  - Higher import prices and slower remittance growth (if U.S. slows) projected to further deteriorate the trade balance in 2022.
  - CA balance expected to return to surplus further ahead as commodity prices ease, tourism recovers, and remittances decelerate.
- Political and governance timeline risks:
  - Key public appointments in 2022: Attorney General (17 May), Human Rights Attorney (20 August), Comptroller General (6 December).
  - 2023 general elections expected to cause delays to the legislative agenda.
- Downside risks (mostly external):
  - War in Ukraine, new COVID-19 variants, de-anchoring of inflation expectations in advanced economies, continued global supply chain disruptions, abrupt tightening of global financial conditions.
  - Elevated and volatile commodity prices and social discontent risk from rising food and energy prices or during selection of key public officials.

### Policy discussions and recommendations
- Near-term stance:
  - Pace of policy normalization—led by monetary policy—should be carefully calibrated and communicated to mitigate inflationary pressures and downside risks.
  - Policy mix in 2022 expected to remain supportive: gradual data-driven monetary normalization aided by a more expansionary fiscal stance.
- Fiscal policy:
  - Approved 2022 budget plus temporary initiatives and increased infrastructure spending—financed by 2021 fiscal space—are appropriate to support recovery.
  - If conditions worsen, be ready to increase targeted transfers temporarily (including redeploying some 2020 social measures).
- Monetary policy and central bank framework:
  - Monetary normalization must be carefully calibrated and data driven; timing is crucial to avoid de-anchoring inflation expectations.
  - Clear and consistent communication strategy recommended; greater exchange rate flexibility can help absorb external shocks.
  - Banguat could consider upgrades to its inflation targeting framework through greater FX flexibility and further communication improvements.
    - FX interventions should be limited to disorderly market conditions, rules-based, and clearly communicated.
    - FX interventions have contributed to Banguat’s losses in recent years, eroding its capital base; recapitalization of the central bank, in line with Article 9 of Banguat Law, would help reduce excess liquidity, develop the local currency bond market, and enhance central bank credibility.
    - Excessive FX intervention has resulted in excess liquidity lodged at the central bank, limited credit penetration, and underdevelopment of a secondary interbank market.
  - Refine forward-looking communication to emphasize monetary policy prospects under baseline and sensitivity scenarios consistent with growth and inflation projections.
- Structural reforms:
  - Create durable fiscal space to address infrastructure and social gaps.
  - Foster private sector investment by advancing governance and anti-corruption reforms, addressing labor market weaknesses and security concerns.
  - Strengthen the financial system and financial inclusion.
  - Craft an ambitious but realistic structural reforms agenda given limited political space.

### Fiscal stance, targets, and revenue measures (medium-term)
- Authorities envisage countercyclical fiscal policies with gradual reduction of fiscal deficit to 1.4 percent of GDP by 2026.
- Staff projects fiscal balance of -1.8 percent of GDP by 2026.
- Authorities’ medium-term plan relative to 2022 budget:
  - 1pp of GDP reduction in primary expenditure (to historical averages).
  - 0.4pp of GDP increase in total revenues.
- Policy levers:
  - Enhance social transfers and spending efficiency (including tax spending).
  - Increase tax revenues, including reduction of tax exemptions.
  - Improve tax compliance (strengthening clearance process; imports valuation controls in customs; enhanced control of medium and large taxpayers; implementation of digital invoices).
- Multi-year Budget, 2022-26 (Percent of GDP) — Text Table 3:
  - Total Revenues: 11.4, 11.6, 11.7, 11.8, 11.9
  - Tax Revenues: 10.6, 10.9, 10.9, 11.0, 11.1
  - Non Tax Revenues: 0.7, 0.8, 0.8, 0.8, 0.8
  - Total Expenditure: 14.1, 13.9, 13.7, 13.4, 13.2
  - Primary Expenditure: 12.6, 12.3, 12.1, 11.9, 11.7
  - Interest: 1.5, 1.6, 1.5, 1.5, 1.5
  - Primary Balance: -1.3, -0.7, -0.4, -0.1, 0.2
  - Fiscal Balance: -2.8, -2.3, -2.0, -1.6, -1.4

### Public finance management (PFM) and governance reforms
- Strengthen PFM to create fiscal space for social and infrastructure needs.
- Recommended enhancements:
  - Improve procurement law and leverage transparency and digitalization.
  - Pursue reform of civil service and salaries laws to align compensation with performance and merit hiring.
  - Enhance macroeconomic forecasting, debt sustainability analysis, and management of the single Treasury account (Fund TA support noted).

### Social protection, targeting, and data
- Findings:
  - Social transfers are very low: below 0.1 percent of GDP in recent years.
  - Poverty estimated around 46 percent of the population in 2019.
  - Social transfers concentrated in the Department of Guatemala; rural areas have minimal access.
- Recommendations:
  - Periodically assess poverty and priority social needs to improve calibration and targeting; adopt results-based approach.
  - Complete ongoing National Households’ Income and Expenditure Survey (ENIGH); last ENIGH published in 2014.
  - Scale up priority social spending using existing fiscal space and leveraging Bono Familia experience.
- Data and capacity support:
  - IMF TA supporting ENIGH compilation and analysis and support to tax agency (SAT).

### Infrastructure needs and public investment
- Findings:
  - Public capital stock has fallen 20pp since 2010.
  - Low public investment due to low domestic revenues and planning/allocation/implementation inefficiencies (partly governance-related).
  - IMF PIM efficiency frontier: Guatemala has relatively low infrastructure index relative to public capital stock per capita.
  - Output multiplier for infrastructure investment likely substantially higher than for other fiscal interventions.
- Recommendations:
  - Scale up public investment to improve competitiveness and productivity.
  - Improve PPP legal framework, enhance safeguards against corruption risks, streamline procedures, fast-track smaller PPPs with safeguards.
  - Participate in IMF’s Public Investment Management Assessment (PIMA) including climate module.
  - Design climate-resilient infrastructure and strengthen enabling environment given high vulnerability to climate risks.

### Medium-Term Fiscal Framework (MTFF) and debt strategy
- Current: fiscal prudence guided by annual deficits rather than explicit medium-term strategy.
- Staff recommends:
  - Enhance governance and regulatory fiscal framework; reduce expenditure rigidities.
  - Develop institutional capacity to formalize MTFF with explicit medium-term anchor operationalized through consistent annual deficit limits.
  - Detail public debt strategy—composition of domestic and external debt and maturity plans—aligned with MTFF.
  - Provide detail on financing strategy for large climate events and supplementary risk retention instruments.

### Boosting medium-term growth: labor market, business climate, governance
- Structural/demographic facts:
  - Working-age population growth expected at 1.9 percent per year until 2035.
  - 75 percent of Guatemalans employed in the informal sector.
  - Female labor force participation: 38 percent vs 84 percent for men.
- Reforms and progress:
  - Law to facilitate insolvency procedures passed.
  - Construction Single Window established.
  - Guatemala No Se Detiene Plan implemented to promote e-commerce, digitalization, transparency, exports, tourism, human capital and infrastructure.
  - IGSS seeks to operationalize ILO Convention 175 (formalizing part-time work).
- Governance/anti-corruption priorities:
  - Strengthen Attorney General’s Office, reduce bureaucratic impediments, tackle corruption, lower court case backlogs.

### Financial sector and regulatory reforms
- Banking system sound; expedite reforms to supervisory and regulatory framework.
- Pending legislative measures:
  - Amendments to Banking and Financial Groups Law (Basel III alignment) pending Congress.
  - Draft AML/CFT law (FATF alignment) pending Congress.
- Fintech and market development:
  - Prepare legal framework for e-money; adopt new Securities Market Law to support market development and strengthen oversight.

### Authorities’ views and priorities
- Authorities broadly concur with staff outlook; emphasize strong economic momentum via recovery, private investment, favorable external environment.
- Authorities expect larger remittances and lower inflation than staff for 2022.
- Priorities (Ministry of Finance):
  - Sustain momentum and spur investments, enable targeted temporary subsidies, increase infrastructure spending, better capture social indicators, improve business climate, continue tax admin/digitalization/transparency efforts, rebuild buffers to return debt to pre-pandemic level, commit to COP 26 pledges.
- Monetary and financial policy:
  - Authorities favor data-driven, clearly communicated monetary policy and support expediting financial regulation measures.

### STAFF APPRAISAL — Macroeconomic outlook and resilience
- Economy described as "remarkably resilient during the pandemic."
- Real GDP: 8 percent in 2021; projected around 4 percent in 2022; converge to potential 3½ percent.
- Inflation: mostly contained in 2021; projected to rise in 2022 but remain within Banguat target range.
- External position: stronger than implied by fundamentals and desirable policies; gap expected to narrow.
- Social indicators likely deteriorated during the pandemic; infrastructure and social gaps persist.

### External Sector Assessment (Annex I) — key points
- External position in 2021 stronger than level implied by fundamentals and desirable policies.
- NIIP deficit fell from 22 percent of GDP in 2015 to 7 percent in 2021.
- External assets increased from 19 percent of GDP in 2015 to 47 percent in 2021; external liabilities stable at 50-55 percent of GDP.
- FDI accounted for 40 percent of external liabilities in 2021.
- CA balance: 5.5 percent (2020) → 2.5 percent (2021); remittances 17.8 percent of GDP in 2021.
- EBA table highlights (percent of GDP unless noted):
  - NIIP: -6.9 (2021)
  - Gross Assets: 46.6 (2021)
  - Gross Liabilities: -53.4 (2021)
  - CA-Actual: 5.5 (2020); 2.5 (2021)
  - Adjusted CA (D): 5.1 (2020); 3.3 (2021)
  - Adjusted CA norm (G): -2.0 +/- 1.2 (2020); -0.3 (2021)
  - CA gap (H = D - G): 7.1 +/- 1.2 (2020); 3.6 (2021)
  - REER Gap (K=H/J): [-69,-49] (2020); -16.3 (2021)
- REER: quetzal depreciated by 1.2 percent y/y vs USD in 2021; REER depreciated by 0.6 percent in 2021; cumulative appreciation around 40 percent since 2010.
- Reserves and FX intervention:
  - NIR increased by US$2.5 billion in 2021 to US$20.9 billion.
  - End-2021 reserves are 174 percent of IMF’s ARA metric for countries with stabilized arrangements.
  - Reserves cover more than 7.7 months of next year’s goods and services imports, 43 percent of broad money, 334 percent of short-term external debt.
  - De facto exchange rate arrangement: classified as a stabilized arrangement.

### External Debt Sustainability (Annex III) — baseline trajectory highlights
- External debt (percent of GDP): 2017: 34.9; 2018: 33.4; 2019: 32.3; 2020: 31.2; 2021: 34.9; 2022: 31.0; 2027: 29.9.
- Identified external debt-creating flows (percent of GDP): 2017: -5.3; 2018: -2.8; 2019: -5.0; 2020: -6.1; 2021: -9.4; 2022: -2.2.
- Deficit in balance of goods and services (percent of GDP): 2017: 9.1; 2021: 14.2; 2022: 16.1; 2027: 12.8.
- External debt-to-exports ratio (percent): 2017: 188.5; 2021: 195.7; 2022: 159.6; 2027: 180.0.
- Gross external financing need (US$ billions): 2017: 4.5; 2021: 3.0; 2022: 6.6; 2027: 7.1.
- Debt-stabilizing non-interest current account (long-run): -2.4 percent of GDP.

### Remittances impact — VAR analysis (Section 3)
- Methodology:
  - VARs estimated (levels and first differences) for 2002Q3–2021Q3 (levels) with remittances ordered as exogenous.
- Baseline results:
  - On impact, an exogenous increase in remittances leads to increases in imports and exports and an appreciation of the REER.
  - In log levels: increase in remittances of around 4.5 percent → imports increase around 2.5 percent on impact (imports ≈ ½ of remittance response).
  - VAR in first differences (accumulated): increase in remittances of around 4.5 percent → imports increase around 2 percent; exports increase lower and not statistically significant.
  - Overall: weak response of REER, exports and imports; small effects on trade balance and no persistent impact after one year.
- Robustness:
  - Local projection method (Jorda 2005) and Towbin and Weber (2013) VAR produce similar results; TW suggests slightly stronger responses but not statistically different.
  - Inclusion of private consumption and investment produces no meaningful difference.

### Capacity Development (CD) and IMF TA (FY21–23)
- CD priorities: revenue administration, PFM, monetary and macroprudential policy, financial supervision/AML-CFT, real sector and government finance statistics.
- Selected CD missions (2020–22) include customs anti-fraud, customs digitalization, post clearance audit program, fiscal sustainability model, monetary policy modeling and communication, stress testing, e-money training, public sector debt statistics.
- Planned CD missions 2022–2023 span customs, revenue administration, MTFF, assets/liabilities management, central bank operations, inflation targeting, banking supervision, stress testing, cybersecurity, GFS, national accounts, CPI update, ENIGH support.
- Technical assistance and mission lists summarized across FAD, MCM, LEG, STA, CAPTAC-DR.

### Data, statistics, and Fund relations
- Key indicators and selected figures:
  - Population 2021 (millions): 17
  - GDP per capita (US$, 2021): 5,025
  - Real GDP (annual percent change): 2018: 3.4; 2019: 4.0; 2020: -1.8; 2021: 8.0; 2022: 4.0; 2023: 3.6; 2024–2027: 3.5 each year.
  - Consumer prices (average): 2021: 4.3; 2022: 4.4; 2023: 4.3; 2024: 4.2; 2025–2027: 4.0.
  - Current account balance (percent of GDP): 2021: 2.5; 2022: -0.4; 2023: 0.6; 2024: 0.9; 2025: 1.0; 2026: 1.0; 2027: 0.9.
  - Remittances (percent of GDP): 2021: 17.8; 2022: 16.9; 2023: 16.9; 2024: 16.3; 2025: 15.8; 2026: 15.3; 2027: 14.9.
  - Net International Reserves (months of next-year NFGS imports): 2021: 7.7; projected 7.7 in 2022; 7.5 in 2023; 7.2 in 2024; 7.0 thereafter.
  - Central Government overall balance (percent of GDP): 2021: -1.2; 2022: -2.3; 2023: -2.0; 2024: -1.9; 2025: -1.9; 2026: -1.8; 2027: -1.8.
  - Central Government debt (percent of GDP): 2021: 30.8; 2022: 30.5; 2023: 30.5; 2024: 30.4; 2025: 30.3; 2026: 30.1; 2027: 29.9.
- Monetary and fiscal data (selected levels and projections):
  - Stock of NIR (US$ millions): 2018: 11,617; 2019: 13,769; 2020: 18,468; 2021: 20,940; projected 20,940 for 2022–2027.
  - Central government revenue (millions of quetzales): 2021: 82,107; 2022: 87,272; 2027: 117,118.
  - Central government expenditure (millions of quetzales): 2021: 89,987; 2022: 103,957; 2027: 135,593.
- Statistical issues and progress:
  - ENIGH outdated (last 2014); CPI weights from 2009–10 ENIGH; PPI not yet disseminated; unemployment estimated biannually.
  - Migration to BPM6, Reserves Data Template dissemination, CDIS dissemination; legislation to mandate private sector data provision to Banguat pending.
- Fund relations and institutional data:
  - Quota: 428.6 SDR Million.
  - SDR net cumulative allocation: 611.70 SDR Million.
  - Exchange rate arrangement: de jure floating since March 1994; de facto classified as “stabilized”.
  - Fluctuation margin increased to 0.9 percent effective January 1, 2022 (previously 0.85 percent).
  - Banguat net purchases to avoid further appreciation: US$2,119 million in 2021.

### Recommendation
- It is recommended that the next Article IV consultation with Guatemala be held on the standard 12-month cycle.

*Source: IMF staff report — 1. Structural Reforms and Export Development in Guatemala*

### 1. Structural Reforms and Export Development in Guatemala  ___________________________________ 16

### 1. Structural Reforms and Export Development in Guatemala

### Context and recent developments
- Guatemala entered the pandemic with strong macroeconomic fundamentals but persistent social and infrastructure gaps, including slow implementation of business climate and public sector reforms (governance and anti-corruption), limited capacity for public investment, and low quality and coverage of basic public services.
- Policy response to COVID-19 in 2020:
  - Fiscal package of about 2.3 percent of GDP to protect the most vulnerable, improve healthcare capacity, and support SMEs.
  - Banguat reduced the policy rate by 100 bps to a historic minimum and activated liquidity facilities.
  - Monetary Board relaxed reserve requirements and eased credit regulations temporarily to facilitate restructuring of bank loans.
- COVID-19 (as of April 18, 2022):
  - 839,416 confirmed cases (4.8 percent of the population).
  - 17,457 deaths (0.1 percent of the population).
  - About 35.8 percent of the population had received two doses of vaccine; authorities plan to reach 60 percent by end-2022.
- Output and labor market:
  - Real GDP growth of 8 percent in 2021, led by manufacturing, construction, trade and services (transportation, hospitality and health).
  - Formal employment regained its pre-pandemic level.
- Inflation and expectations:
  - Headline inflation breached the upper limit of the target band (4 ± 1 percent) between 2020H2-2021H1, eased thereafter, but signs of increasing inflation for food, some energy, and household goods since 2021Q4.
  - Two-year ahead inflation expectations remain firmly anchored around 4 percent (Banguat surveys).
- Monetary and external accounts:
  - Policy rate remained unchanged at 1.75 percent since June 2020 (over 200 bps lower than what a neutral stance would imply).
  - Net international reserves increased by US$2.5 billion to US$20.9 billion in 2021 (7.7 months of next-year imports).
  - 2021 general SDR allocation of US$ 586 million was received and authorities intend to keep it as reserves.
- Current account and external assessment:
  - CA balance declined from 5.5 percent of GDP in 2020 to 2.5 percent in 2021 as strong remittances were more than offset by a substantial increase in imports and weaker terms of trade.
  - EBA CA norm around -2.3 percent of GDP; staff adjustment of 2 percentage points of GDP to account for security conditions on investment.
  - CA norm remains below the pandemic-adjusted CA deficit of 3.3 percent. EBA model implies an undervaluation of the REER of 16 percent if the CA gap is to be closed by further deterioration of the trade balance.
- Financial sector:
  - Regulatory forbearance measures ended in 2021; nonperforming loans estimated at 2 percent of total loans at end-December 2021.
  - Banks’ capital adequacy ratio improved in 2021; liquidity indicators broadly in line with pre-pandemic levels.
  - Private credit growth rose 12.1 percent y/y in 2021 driven by large corporates (10.2 percent) and consumer loans (15.1 percent).
  - Deposits increased in 2021 and banks’ ROE reached its highest level since 2010.
- Fiscal outturn:
  - Tax revenues rose to 11.7 percent of GDP in 2021; total expenditure fell to 13.5 percent of GDP in 2021.
  - Primary surplus of 0.6 percent of GDP recorded in 2021.
  - Congress passed a budget law for the first time since 2019: 2022 budget envisaged an overall deficit of 2.8 percent of GDP, driven by a 0.6pp increase in public expenditure and a 1pp decline in revenues; implied fiscal impulse estimated at 1.9 percent of GDP.
  - Authorities announced temporary measures around 0.2 percent of GDP to mitigate energy and food price increases, and an infrastructure budget increase equivalent to 0.45 percent of GDP.
  - Authorities estimate a 2.2 percent of GDP overall deficit and a fiscal impulse of 1.1 percent of GDP given updated revenue projections and historical expenditure execution; staff projects an overall deficit of 2.3 percent of GDP.

### Outlook and risks
- Macroeconomic projections:
  - Real GDP growth projected at 4 percent in 2022, supported by policy mix, recovery of lagging sectors (tourism), favorable credit conditions, and remittances tied to the U.S. economy.
  - Inflation projected to average 4.4 percent in 2022 (within Banguat’s target band 4 ± 1 percent).
  - Medium-term growth expected close to potential (around 3½ percent).
  - Inflation projected to gradually return to the midpoint of the inflation target band with policy normalization and easing global pressures.
  - Public debt expected to stabilize around 30 percent of GDP (Annex II).
  - FDI (in percent of GDP) projected at the pre-pandemic average during 2015-19 (1.3 percent of GDP) absent substantial structural reforms.
- External outlook:
  - Higher import prices and slower growth in remittances (if U.S. growth slows) projected to further deteriorate the trade balance in 2022.
  - CA balance expected to return to surplus further ahead as commodity prices ease, tourism recovers, and remittances decelerate from their pandemic surge.
- Political and governance timeline risks:
  - Key public appointments in 2022: Attorney General (17 May), Human Rights Attorney (20 August), Comptroller General (6 December).
  - 2023 general elections expected to cause further delays to the legislative agenda.
- Downside risks (mostly external, Annex IV):
  - War in Ukraine, new COVID-19 variants, de-anchoring of inflation expectations in advanced economies, continued global supply chain disruptions, abrupt tightening of global financial conditions.
  - Elevated and volatile commodity prices could accelerate global inflationary pressures and slow external demand.
  - Social discontent risk from rising food and energy prices or during selection of key public officials.

### Policy discussions and recommendations
- Near-term stance:
  - Pace of policy normalization—led by monetary policy—should be carefully calibrated and communicated to mitigate inflationary pressures and downside risks.
  - Policy mix in 2022 expected to remain supportive: gradual data-driven monetary normalization aided by a more expansionary fiscal stance.
- Fiscal policy:
  - Approved 2022 budget plus temporary initiatives and increased infrastructure spending—financed by fiscal space created in 2021—are appropriate to support the recovery.
  - If conditions worsen, authorities should stand ready to increase targeted transfers temporarily (including redeploying some 2020 social measures) to shield the most vulnerable and contain social unrest.
- Monetary policy and central bank framework:
  - Monetary normalization must be carefully calibrated and data driven; timing is crucial to avoid de-anchoring inflation expectations and necessitating larger-than-warranted rate hikes that could derail recovery.
  - Clear and consistent communication strategy recommended to guide market expectations; greater exchange rate flexibility can help absorb external shocks.
  - Banguat could consider upgrades to its inflation targeting framework through greater FX flexibility and further communication improvements.
    - FX interventions should be limited to disorderly market conditions, remain rules-based, and be clearly communicated to avoid misperceptions about policy objectives.
    - FX interventions have contributed to Banguat’s losses in recent years, eroding its capital base; recapitalization of the central bank, in line with Article 9 of Banguat Law, would help reduce excess liquidity, develop the local currency bond market, and enhance central bank credibility.
    - Excessive FX intervention has resulted in excess liquidity lodged at the central bank, limited credit penetration, and underdevelopment of a secondary interbank market, mitigating monetary policy transmission.
  - Further refinements to forward-looking communication should emphasize monetary policy prospects under baseline and sensitivity scenarios consistent with growth and inflation projections.
- Structural reforms to boost inclusive medium-term growth:
  - Create durable fiscal space to address infrastructure and social gaps.
  - Foster private sector investment through a more efficient business environment by advancing governance and anti-corruption reforms, addressing labor market weaknesses and security concerns.
  - Strengthen the financial system and financial inclusion.
  - Craft an ambitious but realistic structural reforms agenda given limited political space.

*Source: IMF staff report — 1. Structural Reforms and Export Development in Guatemala*

### 17.      Addressing social and infrastructure gaps, while remaining fiscally prudent, crucially

### 17.      Addressing social and infrastructure gaps, while remaining fiscally prudent, crucially depends on higher tax revenues and spending efficiency improvements

### Fiscal stance, targets, and revenue measures
- Authorities envisage countercyclical fiscal policies with a gradual reduction of the fiscal deficit to 1.4 percent of GDP by 2026 (Text Table 3).
- Staff projects a fiscal balance of -1.8 percent of GDP by 2026, due to more conservative tax administration gains and higher interest payments than the authorities.
- Relative to the proposed budget for 2022, the authorities’ medium-term plan corresponds to:
  - a 1pp of GDP reduction in primary expenditure (to historical averages)
  - a 0.4pp of GDP increase in total revenues
- Policy levers emphasized:
  - Enhancing social transfers and spending efficiency (including tax spending)
  - Increasing tax revenues, including reduction of tax exemptions
  - Continued improvements in tax compliance (strengthening clearance process; imports valuation controls in customs; enhanced control of medium and large taxpayers; implementation of digital invoices)

- Text Table 3. Guatemala: Multi-year Budget, 2022-26 (Percent of GDP)
  - Total Revenues: 11.4, 11.6, 11.7, 11.8, 11.9
  - Tax Revenues: 10.6, 10.9, 10.9, 11.0, 11.1
  - Non Tax Revenues: 0.7, 0.8, 0.8, 0.8, 0.8
  - Total Expenditure: 14.1, 13.9, 13.7, 13.4, 13.2
  - Primary Expenditure: 12.6, 12.3, 12.1, 11.9, 11.7
  - Interest: 1.5, 1.6, 1.5, 1.5, 1.5
  - Primary Balance: -1.3, -0.7, -0.4, -0.1, 0.2
  - Fiscal Balance: -2.8, -2.3, -2.0, -1.6, -1.4

### Public finance management (PFM) and governance reforms
- Continued strengthening of the PFM framework is essential to create fiscal space for social and infrastructure needs.
- Recommended enhancements:
  - Improve procurement law and leverage transparency and digitalization (consistent with the 2020-2024 General Policy of the Government)
  - Pursue reform of civil service and salaries laws to align compensation with performance and hire based on merit
  - Further enhance macroeconomic forecasting, debt sustainability analysis, and management of the single Treasury account (noted Fund TA support)

### Social protection, targeting, and data
- Key findings:
  - Social transfers are very low: below 0.1 percent of GDP in recent years.
  - Poverty estimated at around 46 percent of the population in 2019.
  - Social transfers are concentrated in the Department of Guatemala, leaving rural areas with minimal access to public services.
- Policy recommendations:
  - Allocate resources to periodically assess poverty and priority social needs to improve calibration and targeting of policies and yield a results-based approach.
  - Complete the ongoing National Households’ Income and Expenditure Survey (ENIGH); the last ENIGH was published in 2014.
  - Scale up priority social spending using existing fiscal space and leveraging experience from the Bono Familia program.
- Data and capacity support:
  - IMF is providing TA to support compilation and analysis of ENIGH and to the tax agency (SAT).

### Infrastructure needs and public investment
- Findings:
  - Public capital stock has fallen 20pp since 2010, weighing on the business climate and private investments.
  - Low resource allocation for public investment stems from both low domestic revenues and planning, allocation, and implementation inefficiencies (partly due to governance weaknesses).
  - IMF’s public investment efficiency frontier shows Guatemala has a relatively low infrastructure index relative to its public capital stock per capita.
  - Given infrastructure gaps, the output multiplier for infrastructure investment is likely substantially higher than for other fiscal interventions.
- Policy recommendations:
  - Scale up public investment to improve competitiveness and accelerate productivity growth.
  - Improve the legal framework on Public-Private Partnerships (PPPs), including enhancing safeguards against corruption risks, to promote infrastructure projects, attract investment, and improve project quality and maintenance.
  - Streamline PPP procedures and consider fast-tracking smaller PPP initiatives with the right safeguards.
  - Participate in the IMF’s Public Investment Management Assessment (PIMA) program (including the module on climate) to obtain a standardized diagnostic and concrete recommendations.
  - Design climate-resilient infrastructure and strengthen enabling environment given high vulnerability to climate risks.

### Medium-Term Fiscal Framework (MTFF) and debt strategy
- Current situation:
  - Guatemala has traditionally been fiscally prudent, guided by prudent standalone annual fiscal deficits rather than an explicit medium-term fiscal strategy.
- Staff recommendations:
  - Enhance governance and regulatory fiscal framework, reduce rigidities of existing expenditures.
  - Gradually develop institutional capacity to formalize MTFF implementation under an explicit medium-term anchor operationalized through consistent annual deficit limits and a medium-term fiscal strategy.
  - Calibrate fiscal targets, maintain rigorous and transparent methodologies, and monitor policy tradeoffs, inconsistencies, risks (including climate events), and biases in intertemporal fiscal projections.
  - Improve the Medium-Term Debt Sustainability framework by detailing a public debt strategy—composition of domestic and external debt and maturity plans—aligned with the MTFF to better anchor market and investor expectations.
  - Provide more detail on financing strategy for large climate events and on how to supplement risk retention instruments and meet financing gaps for mitigation and adaptation targets.

### Boosting medium-term growth: labor market, business climate, and governance
- Structural challenges and demographics:
  - Working-age population expected to grow by 1.9 percent per year until 2035.
  - 75 percent of Guatemalans employed in the informal sector.
  - Large wage premium relative to productivity and impediments to firm creation have constrained formal sector job creation.
  - Female labor force participation: 38 percent vs 84 percent for men.
- Reforms and progress:
  - Passage of the law to facilitate insolvency procedures to promote firm creation.
  - Establishment of the Construction Single Window to ease issuance of construction licenses.
  - Implementation of the Guatemala No Se Detiene Plan focusing on e-commerce, digitalization, transparency, fostering exports and tourism, enhancing human capital and infrastructure.
  - IGSS seeking to operationalize ILO Convention 175 (formalizing part-time work) to support formal employment and encourage female labor force participation.
- Governance and anti-corruption:
  - Anti-corruption and governance measures, including improvements to the judiciary and legislative environment, are essential to raise economic prospects.
  - Strengthening the Attorney General’s Office (AGO) and reducing bureaucratic impediments, tackling corruption, and lowering court case backlogs remain priorities.

### Financial sector and regulatory reforms
- Banking system remains sound, but reforms to improve supervisory and regulatory framework should be expedited.
- Pending legislative measures:
  - Amendments to the Banking and Financial Groups Law (incorporating international standards) pending approval by Congress.
  - Draft law on AML/CFT (aligning with FATF standards) pending approval by Congress.
- Fintech and market development:
  - Fintech can boost inclusive growth and financial inclusion but requires up-to-date regulation and supervision to manage risks.
  - Preparation of legal framework for e-money is welcomed to address supervisory and regulatory challenges.
  - Adoption of the new Securities Market Law should support development of financial markets and strengthen the supervisory and regulatory framework.

### Authorities’ views and priorities
- Authorities broadly concurred with staff’s outlook and emphasized strong economic momentum driven by broad-based recovery, robust private investments, and a favorable external environment.
- Expectations and policy stance:
  - Authorities expect a larger increase in remittances and lower inflation than staff for 2022.
  - They view downside risks as largely exogenous and consider the economy well-placed to absorb shocks.
  - They emphasized concerns about excessive FX inflows in a small FX market and participation in the FX market to mitigate adverse impacts.
- Ministry of Finance priorities:
  - Sustain economic momentum and spur further investments, including from foreign sources.
  - Enable targeted and temporary subsidies to alleviate poverty and inflationary pressures.
  - Increase infrastructure spending to support the recovery.
  - Better capture social indicators to design more efficient policy responses.
  - Improve the business climate to generate investment, create employment, and reduce poverty.
  - Continue initiatives in tax administration, digitalization, transparency, and insolvency law to promote Guatemala as a sustainable and stable environment for economic activity.
  - Rebuild buffers to quickly return the debt level to its pre-pandemic level while exploring improvements to the MTFF and public investment framework.
  - Reiterate commitment to COP 26 pledges, including securing resources for mitigating deforestation.
- Monetary and financial policy:
  - Authorities agree monetary policy should remain data driven and clearly communicated.
  - At the time of the mission, authorities indicated conditions for withdrawing monetary accommodations were not fully met given low levels of inflation and anchored inflation expectations.
  - Authorities support expediting financial regulation measures.

*Source: IMF staff chapter — 17. Addressing social and infrastructure gaps, while remaining fiscally prudent, crucially depends on higher tax revenues and spending efficiency improvements.*

### Annex VII for details of previous Fund TA on financial issues including supporting the AML/CFT upgrades, stress

### 1gtmea2022001 - Annex VII for details of previous Fund TA on financial issues including supporting the AML/CFT upgrades, stress testing and for the Fintech law

### STAFF APPRAISAL — Macroeconomic outlook and resilience
- The Guatemalan economy was "remarkably resilient during the pandemic" and the near-term outlook is favorable, but long-standing social and infrastructure gaps remain.
- Real GDP grew 8 percent in 2021 and is projected to grow around 4 percent in 2022 and then converge to its potential rate of 3½ percent.
- Inflationary pressures were mostly contained in 2021; inflation is projected to rise in 2022 in line with global inflationary pressures but should remain within Banguat’s inflation target range.
- The external position remains stronger than the level implied by medium-term fundamentals and desirable policies, but the gap is expected to narrow.
- Social indicators likely deteriorated during the pandemic and longstanding infrastructure and social gaps persist.

### Near-term policy calibration and financial stability
- Fiscal stance in 2022—including the temporary measures announced to mitigate the impact of higher import prices and the increase in the infrastructure budget—are appropriate.
- If economic conditions worsen, authorities should consider temporarily re-deploying some of the targeted 2020 social measures.
- Monetary policy normalization must be carefully calibrated amid tighter global financial conditions, and remain data driven to maintain inflation expectations anchored.
- Recommendations to stabilize expectations and absorb shocks:
  - Implement a clear and consistent communication strategy to guide market expectations.
  - Allow greater exchange rate flexibility to help absorb external shocks.
- The SIB should continue to closely monitor nonperforming loans and any potential financial stability risks, including those stemming from tighter global financial conditions.

### Fiscal policy, revenue, and spending recommendations
- Accelerating efforts to address long-standing social gaps is crucial while maintaining fiscal sustainability.
- Increasing tax revenues further and improving spending efficiency to create fiscal space is necessary to close these gaps.
- SAT should build upon recent tax administration improvements.
- Spending-side reforms should focus on:
  - Increasing budget flexibility.
  - Bolstering the cost-effectiveness of procurement.
  - Improving the coverage and quality of public services.
  - Rationalizing tax incentives and exemptions.
- Authorities could further strengthen their long-term strategic infrastructure vision with a focus on projects with highest inclusive growth potential.
- Additional upgrades to the medium-term fiscal framework could be explored, such as:
  - Multi-annual budget planning.
  - Formalization of an explicit fiscal anchor.

### Structural reforms to boost investment and governance
- The government aims to enhance the business climate and promote investment opportunities to boost economic growth.
- Recent and proposed measures to support private investment and formalization:
  - Passage of the law to facilitate insolvency procedures to promote firm creation.
  - Introduction of the Construction Single Window to ease issuance of construction licenses.
  - Government efforts to boost affordable housing and streamline the PPP framework to expedite key identified infrastructure projects.
  - Formalizing part-time work to help lift formalization.
  - Expedite implementation of the 2020-2024 General Policy of the Government and the Guatemala No Se Detiene Plan to improve the business climate and security.
- Governance and anti-corruption priorities:
  - Reforms improving the judiciary and legislative environment, including strengthening the Attorney General’s Office, remain important.
  - Broad-based transparency and digitalization efforts across the public administration are welcomed.
  - A results-based approach could help ensure efforts translate into sustainable and concrete outcomes for all Guatemalans.

### Financial sector soundness and legal/regulatory reforms
- The banking system remains sound, but reforms to improve the supervisory and regulatory framework should be expedited.
- Key pending laws and frameworks:
  - The Banking and Financial Groups and AML/CFT laws align regulations with Basel III and FATF standards respectively and are pending Congress approval.
  - Speedy implementation of the legal framework for Fintech and e-money is encouraged; implementation is "well underway."
  - Adoption of the new Securities Market Law will support the development of financial markets while strengthening the supervisory and regulatory framework.
- Authorities emphasized:
  - COVID-19 support measures to the financial sector were successfully withdrawn without any worth noting issues.
  - Direct bond placements with Banguat did not have any negative impact on the economy and markets.
  - Need to continue to closely monitor financial stability risks and expedite passage of the banking law, the revised AML/CFT law and finalize the legal framework for Fintech and e-money to address legal, supervisory, and regulatory challenges.
  - Adoption of the new Securities Market Law will be important to strengthen foundations for financial market development and supervisory/regulatory frameworks.

*Annex VII, 1gtmea2022001*

### 32.      It is recommended that the next Article IV consultation with Guatemala be held on the

### 1gtmea2022001 - 32.      It is recommended that the next Article IV consultation with Guatemala be held on the

### Recommendation
- It is recommended that the next Article IV consultation with Guatemala be held on the standard 12-month cycle.

### COVID-19: cases, deaths, and vaccination (as of April 18, 2022)
- Number of Confirmed COVID-19 Cases: presented as 7-day moving average, per 100,000 inhabitants (figure provided).
- COVID-19 Positivity Rate: presented as 7-day moving average; Percent (figure provided).
- Number of COVID-19 related deaths: presented as 7-day moving average, per 100,000 inhabitants (figure provided).
- COVID-19 Vaccination rates: Percent of population; note: "It represents 14.5 million doses administered."
- Source: COVID-19 Dashboard, Ministry of Health.

### Recent economic developments (summary from Figure 2)
- Recovery led by private consumption supported by remittances.
- Recovery concentrated in the tertiary sector.
- Confidence improved significantly with the reopening of the economy and reached multi-year highs.
- Substantial recovery since April 2021 with job creation following.
- Inflation "bucked a global trend" as pandemic and weather-related temporary factors faded fast.
- Sources: National Authorities and IMF Staff Calculations.

### External developments (summary from Figure 4)
- Current account (CA) surplus deteriorated significantly in 2021 despite support by remittances, as the trade balance worsened.
- Real effective exchange rate slightly depreciated in 2021 despite remittances high growth.
- International reserves are on the rise and well above the benchmark of 3 months of imports.
- Net international investment position remains negative, though much lower compared to regional peers.
- Current account is expected to remain in surplus over the medium term.
- A large share of external liabilities constitutes non-debt creating FDI inflows.
- Sources: National Authorities and IMF Staff Calculations.

### Monetary policy and financial sector developments (Figures 5–6)
- Banguat lowered the monetary policy rate pre-emptively to a historic low of 1.75 percent in 2020 to provide ample liquidity.
- Timely regulatory forbearance supported credit expansion despite the pandemic.
- Great influx of FX at end-2021 and beginning of 2022 provided confidence in the financial system.
- Liabilities to non-residents continued to decline.
- Five largest lines of credit own nearly 90 percent of loans under regulatory forbearance.
- Banks’ capital adequacy ratio continued to increase in 2021; non-performing loans continued to decline at a steady pace.
- Loan-deposit ratio rose after a strong decline in deposits late-2021.
- Dollarization ratio continued declining while banks' overall exposure to FX remains positive.
- Sources: National Authorities and IMF Staff Calculations.

### Key macroeconomic and fiscal indicators (selected figures extracted from Tables)
- Population 2021 (millions): 17
- Gini index (2014): 49
- Percentage of indigenous population (2016): 41
- Life expectancy at birth (2019): 74
- Population below the poverty line (Percent, 2014): 59
- Adult illiteracy rate (2018): 19
- Rank in UNDP development index (2019; of 189): 127
- GDP per capita (US$, 2021): 5,025

- Real GDP (annual percent change): 2018: 3.4; 2019: 4.0; 2020: -1.8; 2021: 8.0; 2022: 4.0; 2023: 3.6; 2024: 3.5; 2025: 3.5; 2026: 3.5; 2027: 3.5
- Consumer prices (average): 2018: 3.8; 2019: 3.7; 2020: 3.2; 2021: 4.3; 2022: 4.4; 2023: 4.3; 2024: 4.2; 2025: 4.0; 2026: 4.0; 2027: 4.0
- Current account balance (percent of GDP): 2018: 0.9; 2019: 2.4; 2020: 4.9; 2021: 2.5; 2022: -0.4; 2023: 0.6; 2024: 0.9; 2025: 1.0; 2026: 1.0; 2027: 0.9
- Remittances (percent of GDP): 2018: 12.6; 2019: 13.6; 2020: 14.6; 2021: 17.8; 2022: 16.9; 2023: 16.9; 2024: 16.3; 2025: 15.8; 2026: 15.3; 2027: 14.9
- Net International Reserves (stock in months of next-year NFGS imports): 2018: 6.5; 2019: 8.6; 2020: 8.0; 2021: 7.7; 2022: 7.7; 2023: 7.5; 2024: 7.2; 2025: 7.0; 2026: 7.0; 2027: 7.0
- Central Government overall balance (percent of GDP): 2018: -1.9; 2019: -2.2; 2020: -4.9; 2021: -1.2; 2022: -2.3; 2023: -2.0; 2024: -1.9; 2025: -1.9; 2026: -1.8; 2027: -1.8
- Central Government debt (percent of GDP): 2018: 26.4; 2019: 26.4; 2020: 31.5; 2021: 30.8; 2022: 30.5; 2023: 30.5; 2024: 30.4; 2025: 30.3; 2026: 30.1; 2027: 29.9

### Central government operations (selected levels, Table 2; in millions of quetzales)
- Revenue: 2019: 66,551; 2020: 64,063; 2021: 82,107; 2022: 87,272; 2023: 92,149; 2024: 96,837; 2025: 102,293; 2026: 109,410; 2027: 117,118
- Expenditure: 2019: 79,833; 2020: 93,527; 2021: 89,987; 2022: 103,957; 2023: 107,341; 2024: 112,606; 2025: 119,009; 2026: 126,664; 2027: 135,593
- Net lending (+)/borrowing (–): 2019: -13,281; 2020: -29,463; 2021: -7,880; 2022: -16,684; 2023: -15,193; 2024: -15,769; 2025: -16,716; 2026: -17,254; 2027: -18,475

### Balance of payments highlights (Table 3; in millions of U.S. dollars and percent of GDP)
- Current account balance (US$ millions): 2018: 649; 2019: 1,821; 2020: 3,832; 2021: 2,177; 2022: -331; 2023: 574; 2024: 917; 2025: 1,066; 2026: 1,191; 2027: 1,193
- Trade balance (goods) (US$ millions): 2018: -7,985; 2019: -7,967; 2020: -6,314; 2021: -10,920; 2022: -13,475; 2023: -13,406; 2024: -13,818; 2025: -14,219; 2026: -14,653; 2027: -15,216
- Exports, f.o.b. (US$ millions): 2018: 9,644; 2019: 9,919; 2020: 10,127; 2021: 12,413; 2022: 14,057; 2023: 14,142; 2024: 14,461; 2025: 15,002; 2026: 15,566; 2027: 16,136
- Imports, f.o.b. (US$ millions): 2018: 17,629; 2019: 17,885; 2020: 16,441; 2021: 23,333; 2022: 27,533; 2023: 27,547; 2024: 28,279; 2025: 29,221; 2026: 30,219; 2027: 31,352
- Change in reserve assets (US$ millions): 2018: 988; 2019: 1,798; 2020: 3,189; 2021: 2,809; 2022: 0; projections show 0 thereafter.
- Stock of NIR (in millions of U.S. dollars): 2018: 11,617; 2019: 13,769; 2020: 18,468; 2021: 20,940; and projected 20,940 for 2022–2027.

### Monetary sector (selected levels and projections, Table 4)
- Net international reserves (in millions of U.S. dollars): 2018: 11,617; 2019: 13,769; 2020: 18,468; 2021: 20,940; 2022: 21,277; projected 21,277 for 2023–2027.
- Currency in circulation (millions of quetzales): 2018: 38,023; 2019: 44,016; 2020: 56,243; 2021: 63,417; 2022: 67,929; projections increase to 96,103 by 2027.
- Credit to the private sector (millions of quetzales): 2018: 202,221; 2019: 212,195; 2020: 225,715; 2021: 254,439; 2022: 271,877; projections reach 384,899 by 2027.
- Liabilities to the private sector (millions of quetzales): 2018: 275,517; 2019: 301,864; 2020: 356,269; 2021: 396,450; 2022: 424,868; projected 596,634 by 2027.
- M2 (percent change): listed as 8.4, 9.4, 9.6, 18.9, 11.6, 7.1, 7.5, 7.3, 7.0, 7.0 (years correspond to series presented).

### Financial soundness indicators (Table 5, selected)
- Regulatory capital to risk-weighted assets (on-shore banks): 2010: 15.2; 2011: 15.3; 2012: 14.7; 2013: 14.8; 2014: 14.6; 2015: 14.1; 2016: 13.8; 2017: 14.7; 2018: 14.8; 2019: 15.5; 2020: 16.1; 2021: 17.3
- Nonperforming loans to total gross loans (on-shore banks): 2010: 2.1; 2011: 1.6; 2012: 2.1; 2013: 1.3; 2014: 1.2; 2015: 1.3; 2016: 1.4; 2017: 2.1; 2018: 2.3; 2019: 2.2; 2020: 2.2; 2021: 1.8
- Foreign currency-denominated loans to total loans (on-shore banks): 2010: 30.2; 2011: 34.0; 2012: 35.2; 2013: 36.7; 2014: 38.5; 2015: 39.9; 2016: 39.0; 2017: 38.6; 2018: 39.2; 2019: 36.8; 2020: 36.1; 2021: 35.2
- Foreign currency-denominated liabilities to total liabilities (on-shore banks): 2010: 24.6; 2011: 27.5; 2012: 28.6; 2013: 30.3; 2014: 31.1; 2015: 30.8; 2016: 29.8; 2017: 29.8; 2018: 29.1; 2019: 29.5; 2020: 27.7; 2021: 26.4

*Source: IMF staff compilation from the provided chapter content.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- The external position of Guatemala in 2021 was stronger than the level implied by fundamentals and desirable policies.
- The current account (CA) surplus declined in 2021 to close to pre-pandemic levels.
- The net international investment position (NIIP) remained low despite significant investment needs.
- The real effective exchange rate (REER) remained stable.
- Reserves continued their accumulating trend of recent years.

### Potential Policy Responses
- Guatemala’s CA gap is significantly explained by policy gaps, mainly by lower than desirable fiscal deficit and health expenditure.
- Further strengthening of the fiscal framework could help maintain fiscal sustainability while providing space to increase health expenditure and other social and development needs.
- Fostering the business environment, strengthening governance and anti-corruption reforms, improving security situation, and addressing infrastructure and social gaps would:
  - boost investment,
  - decrease migration and remittance inflows,
  - narrow the CA gap.

### Foreign Assets and Liabilities: Position and Trajectory
- Background findings:
  - NIIP deficit fell from 22 percent of GDP in 2015 to 7 percent in 2021.
  - External assets (mainly other investment assets) increased from 19 percent of GDP in 2015 to 47 percent in 2021.
  - External liabilities remained stable between 50-55 percent of GDP due to limited public borrowing and weak capacity to attract foreign capital.
  - The US$ 2.2 billion sale of Tigo Guatemala contributed to an increase in external liabilities from US$41 to US$46 billion between 2020 and 2021 but remaining practically unchanged as a share of GDP.
  - FDI remained the largest component of external liabilities in 2021 accounting for 40 percent of the total.
  - Portfolio investment accounted for 18 percent and other investments for 29 percent.
  - Public external debt comprised around 25 percent of external liabilities in 2021 or around 15 percent of GDP.
- Assessment:
  - The current NIIP projected path does not imply risks to external sustainability or a need for a CA adjustment.
  - Without a structural take off in FDI or public sector external borrowing, the NIIP is projected to increase towards balance.

- Key 2021 statistics (percent of GDP unless otherwise noted):
  - NIIP: -6.9
  - Gross Assets: 46.6
  - Gross Liabilities: -53.4
  - Debt Liabilities: -33.5
  - Debt Assets: n.a.

### Current Account
- Background findings:
  - CA balance declined from 5.5 percent in 2020 to 2.5 percent in 2021.
  - Remittances in 2021 reached 17.8 percent of GDP, exceeding 2019 (14 percent) and 2020 (15 percent) levels.
  - Imports of goods and services reached 32 percent of GDP in 2021, up from 28 percent of GDP in 2019.
  - Exports of goods and services returned to pre-pandemic levels of 18 percent of GDP in 2021.
  - Goods exports performed strongly in textiles, manufacturing, and coffee; tourism receipts remained depressed.
- Outlook:
  - Remittances are expected to moderate as the effect of the U.S. stimulus fades but are likely to remain above pre-Covid levels due to expected boosts from the U.S. infrastructure bill.
  - After an oil price related surge in fuel imports in 2022, total imports should decline with the projected downward correction in oil prices and remittances.
  - Exports are projected to decline as a share of GDP due to a switch back in world demand from manufacturing goods to services.
- Assessment:
  - The EBA methodology suggests the external position in 2021 was stronger than consistent with fundamentals and desirable medium-term policies.
  - The assessment improved relative to 2020 (“substantially stronger”) due to:
    1. The much lower actual CA surplus in 2021 (from 5.5 in 2020 to 2.5 in 2021);
    2. A higher remittance adjustor, reflecting the unusually high remittance outturn in 2021;
    3. A higher CA norm and higher elasticity, largely due to changes in the underlying EBA model and an upward adjustment reflecting negative impacts of structural bottlenecks on investment.
  - Several Covid-19 adjustors were added to the EBA CA model to account for temporary pandemic impacts (medical goods, household consumption of services, tourism, transport).
  - An additional remittances adjustor using EBA-Lite is estimated at 1.2 percent of GDP.
  - Overall, the impact of all Covid-19 adjustors results in an increase in the CA of 0.2 percent of GDP.

- Table I.1 EBA estimates for 2020 and 2021 (percent of GDP except REER Gap)
  - CA-Actual (A): 5.5 (2020); 2.5 (2021)
  - Cyclical contributions /2 (B): -0.3 (2020); -0.2 (2021)
  - COVID-19 Adjustments ('C): 0.7 (2020); -0.6 (2021)
    - Tourism: -0.4 (2020); -0.5 (2021)
    - Transport: -0.8 (2020)
    - Household consumption: -0.3 (2020)
    - Medical goods: -0.3 (2020)
    - Remittances: 0.2 (2020); 1.2 (2021)
    - Oil adjustor: 0.9 (2020)
  - Adjusted CA (D = A-B-C): 5.1 (2020); 3.3 (2021)
  - CA Norm /2 ('E): -4.0 +/- 1.2 (2020); -2.3 (2021)
  - Adjustments to the norm /3 (F): -2.0 (2020); -2.0 (2021)
  - Adjusted CA norm (G = E-F): -2.0 +/- 1.2 (2020); -0.3 (2021)
  - CA gap (H = D - G): 7.1 +/- 1.2 (2020); 3.6 (2021)
  - Contribution of identified policy gaps /2/4: 2.0 (2020); 1.9 (2021)
  - Elasticity /2 (J): 0.12 (2020); 0.22 (2021)
  - REER Gap (percent) /5 (K=H/J): [-69,-49] (2020); -16.3 (2021)
  - Notes in table:
    - The standard error of the CA norm is 0.6 percent of GDP.
    - Adjustment to the norm upward reflects the negative impact of Guatemala's security conditions on investment not captured by the EBA CA model.
    - Of the policy gap, 1.3 percent owes to lower fiscal deficit, 0.5 percent owes to lower health spending, and 0.1 percent higher credit than desirable policies.
    - "-" indicates undervaluation.

### Real Exchange Rate (REER)
- Background findings:
  - The quetzal depreciated by 1.2 percent year-on-year relative to the US dollar in 2021.
  - REER depreciated by 0.6 percent in 2021 (a 2.6 percent appreciation in the nominal rate was more than offset by 3.1 percent inflation).
  - REER has experienced a cumulative appreciation of around 40 percent since 2010, largely supported by robust remittances inflows.
- Assessment:
  - The EBA CA methodology suggests the REER is below the level implied by fundamentals (i.e., undervaluation) although considerably less so than in 2020.
  - Under the assumption that the estimated CA gap will be closed by an adjustment in the trade balance, the EBA model implies a REER undervaluation of 16 percent.

### Capital and Financial Accounts: Flows and Policy Measures
- Background findings:
  - FDI grew substantially after its 2020 decline, reaching 3.3 US$ billion in 2021 (3.9 percent of GDP), four times higher than in 2020 (US$ 796 million).
  - The 2021 FDI surge largely reflected a US$2.2 billion acquisition by Millicom International Cellular of 45 percent of the equity of Tigo Guatemala.
  - Other FDI inflows were about 1.5 percent of GDP, similar to 2019 but below the 2010-15 average (2.4 percent of GDP).
  - Portfolio investment flows of 2.2 percent of GDP, mainly related to government bond sales, were much higher than in previous years.
- Assessment:
  - There are no significant macroeconomic risks from capital flows given their relatively low level.
  - The solid fiscal stance and low public debt level imply that government bond-related portfolio investment flows do not carry important risk.

### FX Intervention and Reserves Level
- Background findings:
  - Net international reserves (NIR) increased by US$2.5 billion in 2021 reaching US$20.9 billion in 2020.
  - Reserve accumulation was lower than the US$3.7 billion accumulated in 2020 despite the increased SDR allocation of US$ 586 million in August 2021 and in line with the lower current account surplus relative to 2020.
  - Guatemala substantially accumulated reserves since the mid-2010s largely because of a significant increase in remittances from the United States.
  - The de facto exchange rate arrangement of Guatemala is classified as a stabilized arrangement.
- Assessment:
  - End-2021 reserves are 174 percent of the IMF’s metric for Assessing Reserve Adequacy (ARA metric) for countries with stabilized exchange rates like Guatemala.
  - Reserves cover:
    - more than 7.7 months of next year’s goods and services imports,
    - 43 percent of broad money,
    - 334 percent of short-term external debt.
  - In 2021, FX intervention has been asymmetric towards accumulation of foreign exchange.

*Source: IMF staff estimates from Annex I. External Sector Assessment.*

### Annex III. External Debt Sustainability

### Annex III. External Debt Sustainability

### Baseline external debt trajectory (2017–2027)
- Baseline: External debt (in percent of GDP) by year:
  - 2017: 34.9
  - 2018: 33.4
  - 2019: 32.3
  - 2020: 31.2
  - 2021: 34.9
  - 2022: 31.0
  - 2023: 31.3
  - 2024: 31.0
  - 2025: 30.6
  - 2026: 30.3
  - 2027: 29.9
- Change in external debt (percentage points, 2017–2027): 
  - 2017: -0.5
  - 2018: -1.5
  - 2019: -1.0
  - 2020: -1.1
  - 2021: 3.6
  - 2022: -3.8
  - 2023: 0.3
  - 2024: -0.3
  - 2025: -0.4
  - 2026: -0.3
  - 2027: -0.4

### Identified external debt-creating flows and components
- Identified external debt-creating flows (4+8+9), in percent of GDP (2017–2027): 
  - 2017: -5.3
  - 2018: -2.8
  - 2019: -5.0
  - 2020: -6.1
  - 2021: -9.4
  - 2022: -2.2
  - 2023: -2.9
  - 2024: -3.2
  - 2025: -3.2
  - 2026: -3.3
  - 2027: -3.2
- Current account deficit, excluding interest payments, in percent of GDP (2017–2027):
  - 2017: -2.4
  - 2018: -2.2
  - 2019: -3.6
  - 2020: -6.1
  - 2021: -3.5
  - 2022: -0.6
  - 2023: -1.5
  - 2024: -1.8
  - 2025: -1.8
  - 2026: -1.8
  - 2027: -1.7
- Deficit in balance of goods and services (percent of GDP, 2017–2027):
  - 2017: 9.1
  - 2018: 10.7
  - 2019: 10.3
  - 2020: 8.5
  - 2021: 14.2
  - 2022: 16.1
  - 2023: 15.0
  - 2024: 14.2
  - 2025: 13.7
  - 2026: 13.2
  - 2027: 12.8
- Exports (in percent of GDP, 2017–2027):
  - 2017: 18.5
  - 2018: 18.2
  - 2019: 17.6
  - 2020: 16.3
  - 2021: 17.8
  - 2022: 19.5
  - 2023: 18.9
  - 2024: 18.2
  - 2025: 17.7
  - 2026: 17.1
  - 2027: 16.6
- Imports (in percent of GDP, 2017–2027):
  - 2017: 27.6
  - 2018: 28.9
  - 2019: 27.9
  - 2020: 24.8
  - 2021: 32.0
  - 2022: 35.5
  - 2023: 33.9
  - 2024: 32.5
  - 2025: 31.3
  - 2026: 30.3
  - 2027: 29.4
- Net non-debt creating capital inflows (negative, percent of GDP, 2017–2027):
  - 2017: -1.3
  - 2018: -1.1
  - 2019: -1.0
  - 2020: -1.0
  - 2021: -3.9
  - 2022: -1.3
  - 2023: -1.3
  - 2024: -1.3
  - 2025: -1.3
  - 2026: -1.3
  - 2027: -1.3

### Automatic debt dynamics and contributions
- Automatic debt dynamics (percent of GDP, 2017–2027):
  - 2017: -1.6
  - 2018: 0.5
  - 2019: -0.4
  - 2020: 1.0
  - 2021: -2.1
  - 2022: -0.4
  - 2023: -0.1
  - 2024: -0.1
  - 2025: -0.2
  - 2026: -0.2
  - 2027: -0.2
- Contribution from nominal interest rate (percent of GDP, selected years shown in table):
  - 2017: 1.2
  - 2018: 1.3
  - 2019: 1.3
  - 2020: 1.3
  - 2021: 1.2
  - 2022: 1.0
  - 2023–2027: around 0.9 to 0.8 (as shown in table)
- Contribution from real GDP growth (percent of GDP, 2017–2027):
  - 2017: -1.0
  - 2018: -1.2
  - 2019: -1.3
  - 2020: 0.6
  - 2021: -2.2
  - 2022: -1.3
  - 2023: -1.1
  - 2024: -1.0
  - 2025: -1.0
  - 2026: -1.0
  - 2027: -1.0
- Contribution from price and exchange rate changes (percent of GDP, 2017–2020 shown):
  - 2017: -1.8
  - 2018: 0.3
  - 2019: -0.4
  - 2020: -0.8
  - (table notes continuation for projections)

### Residuals, debt-to-exports and gross external financing needs
- Residual, including change in gross foreign assets (percent of GDP, 2017–2027):
  - 2017: 4.8
  - 2018: 1.2
  - 2019: 4.0
  - 2020: 5.0
  - 2021: 13.1
  - 2022: -1.6
  - 2023: 3.2
  - 2024: 2.8
  - 2025: 2.9
  - 2026: 2.9
  - 2027: 2.8
- External debt-to-exports ratio (in percent) by year:
  - 2017: 188.5
  - 2018: 183.2
  - 2019: 183.5
  - 2020: 191.0
  - 2021: 195.7
  - 2022: 159.6
  - 2023: 165.6
  - 2024: 169.9
  - 2025: 173.3
  - 2026: 176.7
  - 2027: 180.0
- Gross external financing need (in billions of US dollars, 2017–2027):
  - 2017: 4.5
  - 2018: 5.2
  - 2019: 4.2
  - 2020: 1.8
  - 2021: 3.0
  - 2022: 6.6
  - 2023: 5.6
  - 2024: 5.7
  - 2025: 6.0
  - 2026: 6.7
  - 2027: 7.1
- Gross external financing need (in percent of GDP): selected values shown in table include 6.3, 7.1, 5.5, 2.4, 3.5 (corresponding to earlier years)

### Scenario and debt-stabilizing metric
- Scenario with key variables at their historical averages (ten-year historical average scenario) shows external debt around:
  - 2017–2022: 31.0, 30.9, 31.0, 31.1, 31.3, 31.3 (as presented in table)
- Debt-stabilizing non-interest current account (long-run), in percent of GDP:
  - -2.4

### Key macroeconomic assumptions underlying the baseline
- Real GDP growth (in percent), selected years and averages as shown in table:
  - Historical/earlier years: 3.1, 3.4, 4.0
  - Pandemic and recovery years: -1.8, 8.0
  - Projected/ongoing years: 3.5, 2.4, 4.0, 3.6, 3.5, 3.5
- GDP deflator in US dollars (change in percent), selected sequence:
  - 5.2, -1.0, 1.2, 2.4, 2.6, 2.6, 1.7, 2.1, 1.8, 3.6, 3.4, 3.4
- Nominal external interest rate (in percent), selected values shown in table:
  - 3.6, 3.8, 4.0, 3.6, 3.5, 3.5, 0.3, 2.9, 3.1, 3.1, 3.0, 2.9
- Growth of exports (US dollar terms, percent): 7.0, 0.8, 1.8, -6.7, 20.8, 3.1, 7.5, 16.0, 2.5, 3.5, 3.7, 3.8, 3.7 (as shown)
- Growth of imports (US dollar terms, percent): 8.3, 7.2, 1.7, -10.5, 43.0, 5.7, 14.2, 17.9, 0.7, 2.6, 3.3, 3.4, 3.7
- Current account balance, excluding interest payments (percent of GDP): 2.4, 2.2, -3.6, -6.1, 3.5, 1.2, 3.1, 0.6, 1.5, 1.8, 1.8, 1.8, 1.7
- Net non-debt creating capital inflows (percent of GDP): 1.3, 1.1, 1.0, 1.0, 3.9, 1.9, 0.9, 1.3, 1.3, 1.3, 1.3

### Figure III.1: Bound tests — key values shown
- Baseline external debt (2027 average projection shown in figure): 29.9
- Interest-rate shock scenario point shown: 30.1
- Figure notes:
  - Individual shocks are permanent one-half standard deviation shocks.
  - Figures in boxes represent average projections for variables in the baseline and scenario.
  - Ten-year historical average for the variable is also shown.
  - Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.
  - One-time real depreciation of 30 percent occurs in 2010 (noted in figure caption).

*Source: IMF staff estimates and country desk data as presented in Annex III. External Debt Sustainability.*

### 3.      Vector autoregression (VAR) analysis is used to evaluate the impact of remittances.

### 1gtmea2022001 - 3.      Vector autoregression (VAR) analysis is used to evaluate the impact of remittances.

### VAR methodology and data
- VARs estimated to capture dynamic responses of the REER, real imports, real exports and domestic demand to a remittances shock.
- VARs impose no restrictions other than the ordering of variables such that remittances are assumed to be exogenous.
- Because all variables are trending, VARs in levels and growth rates are estimated.
- Estimation period for the VAR in levels: 2002Q3 to 2021Q3. (VAR in first differences: 2002Q4 to 2021Q3 noted in figure caption.)
- Ordering note: exports are ordered prior to imports; imports are ordered last (imports are impacted contemporaneously by all shocks; exports are not assumed to be affected by import shocks contemporaneously). Results do not change if imports are ordered first.
- Unit root tests suggest that remittances, REER, exports, imports, private consumption and GDP have a unit root. Residuals of the VARs in levels fail to reject the null of stationarity, implying cointegration of the estimated variables in the VAR.

### Baseline VAR results (levels and first differences)
- On impact, an exogenous increase in remittances:
  - Leads to an increase in imports and exports.
  - Leads to an appreciation of the REER on impact.
- Statistical significance:
  - Responses of exports and the REER are statistically insignificant after one year.
  - In the VAR in log levels: an increase in remittances of around 4.5 percent results in an increase in imports of around 2.5 percent on impact (the increase in imports is around ½ of the response in remittances).
  - In the VAR estimated in first differences (accumulated response): an increase in remittances of around 4.5 percent is accompanied by an increase in imports of around 2 percent (around ½ of the increase in remittances), while the increase in exports is lower and not statistically significant.
- Overall conclusion: weak response of the exchange rate, exports and imports to an increase in remittances; small effects on the trade balance and no persistent impact after one year.

### Robustness checks and alternative estimation methods
- Methods applied:
  - Local projection method (LPM) of Jorda (2005).
  - VAR of Towbin and Weber (2013) (TW), including testing whether responses after 2014Q1 are statistically different.
- Findings:
  - LPM responses are in line with baseline results.
  - TW methodology suggests slightly stronger responses of the real exchange rate, exports and imports, but these are not statistically significant relative to the baseline results.
  - Robust analysis suggests baseline results (small impacts on exports and imports on impact but no persistent impact after one year) are robust to alternative estimation methods.

### Additional variables (robustness to inclusion of consumption and investment)
- Inclusion of total private consumption and investment in the VAR produces no meaningful difference from baseline.
- Total consumption and investment:
  - Respond only marginally to an increase in remittances within the first two quarters after the shock.
  - Results are statistically insignificant after the initial quarters.

### Interpretation and consistency with previous work
- Results consistent with IMF Country report 19/168: insignificant impacts on the REER but small effects on the trade balance.
- Supporting evidence and behavioral explanations from prior reports:
  - IMF country report 16/282 noted that around ½ of total remittances go to rural areas where food (largely sourced domestically) represents a large share of overall household consumption.
  - IMF country report 18/155 showed that households receiving remittances have higher consumption of durable goods (which may have a large import content) than non-remittance receiving households, but they also spend more on non-tradeable services such as health and education.
  - These patterns imply a large share of remittances is spent on goods and services that do not have a large import share, partly explaining the muted response of imports documented in the VAR results.

*Source: IMF staff estimates and Haver analytics, VAR estimation and robustness analysis as presented in the supplied content.*

### 6.      The main CD objectives focus on consolidating past achievements and on ensuring

### 6.      The main CD objectives focus on consolidating past achievements and on ensuring

### Overview
- Past achievements on the ITF front include improvements to the modelling framework and inflation expectation measurement.
- On tax and custom administration, improvements include strengthening of the legal framework, approval of Strategic Plan to improve compliance and strengthen support functions, start-up of the internal affairs and compliance risk management offices, greater focus on the management of large taxpayers and to custom’s processes.
- On financial supervision and AML/CFT efforts, CD support provided important inputs for a draft Banking and Financial Groups Law—aligning legislation to Basel III standards—and the law of AML/CFT—aligning with FATF standards—both of which are pending approval by Congress, as well as improvements to the Stress Testing framework.
- On the statistics front there has been progress on the production of government statistics (general government) and on the production of a producer price index.
- The CD program continues to address the surveillance priorities set out in Section A, which, post-COVID have become even more relevant to support a sustainable recovery and medium-term objectives.
- Amid unprecedented levels of uncertainty, every effort will be made to maintain the flexibility of the CD work program to accommodate emerging needs while addressing surveillance priorities.

### Key CD workstreams in FY21-23
- Revenue administration FAD/CAPTAC-DR. Support directed to:
  - (i) strengthening the large taxpayers’ management;
  - (ii) implementing a compliance risk management strategy;
  - (iii) digitalizing core processes and taxpayers’ services; and
  - (iv) enhancing SAT’s administrative enforcement faculties.
- PFM FAD/CAPTAC-DR. Centered on strengthening the medium-term fiscal framework with a focus on increasing efficiency, transparency, accountability, prioritizing public spending while maintaining fiscal sustainability.
- Monetary and macroprudential policy and central bank operations: enhancing the ITF MCM/CAPTAC-DR. Support directed to:
  - (i) building further forecasting capacity to define monetary policy under risk scenarios;
  - (ii) enhancing the monetary operations framework; and
  - (iii) improving communication strategy for improved anchoring of inflation expectations.
- Financial supervision and regulation LEG/MCM/CAPTAC-DR. Continues tailored implementation of the Basel standards, seeks to enhance credit risk management, bolster non-banking sector supervision and provides support for the preparation of the legal framework for e-money.
- Real sector and government finance statistics STA/CAPTAC-DR. Support channeled to:
  - (i) updating the CPI basket;
  - (ii) updating the household survey data;
  - (iii) consolidating the government financial statistics analytical framework and increasing public debt coverage data.

### IMF Capacity Development Missions 2020-22 (selected findings and activities)
- Revenue Administration and Customs missions included:
  - Air cargo process improvement CAPTAC-DR/FAD December 2021
  - Document systems entry point & participants guide FAD November 2021
  - Trade operators' registry for special procedures CAPTAC-DR/FAD October 2021
  - Customs Anti-fraud strategy CAPTAC-DR/FAD October 2021 and August 2021
  - Strengthen Tax Refund Procedures FAD September 2021
  - Definition of a Customs Digitalization action plan (various missions) CAPTAC-DR/FAD March-May 2021
  - Post clearance audit program CAPTAC-DR February 2021
  - Improving cargo and clearance processes CAPTAC-DR November 2020
  - Design and implement a comprehensive Business Continuity Plan FAD June 2020
  - Strategic Planning CAPTAC-DR June 2020
- Public Financial Management missions included:
  - Fiscal Sustainability Model FAD January 2022
  - Budget - Economic Forecasts CAPTAC-DR March 2021
  - Treasury CAPTAC-DR March 2021 and August 2020
  - Budget - Medium Term Fiscal Framework CAPTAC-DR February 2021
  - Budget – Financial Programming CAPTAC-DR February 2020
- Monetary Policy and Central Bank Operations missions included:
  - Monetary Policy Modeling, Forecasting & Communication MCM September 2021
  - Profitability and Capital Adequacy Assessment MCM/ CAPTAC-DR August 2021
- Financial Supervision and Regulation missions included:
  - Stress Testing MCM January 2022
  - Training on e-money MCM December 2021
  - Financial Groups Regulation CAPTAC-DR February 2020
  - Cybersecurity supervision CAPTAC-DR/MCM January 2020
  - LEG: Strengthen AML/CFT Risk-based Supervision of Financial and Non-financial institutions – Ongoing since 2018
- Real and Government Statistics missions included:
  - Public Sector Debt Statistics STA October 2021
  - Government Finance Statistics and Public Sector Debt Statistics STA June 2021
  - National Accounts CAPTAC-DR March 2021
  - Data Governance CAPTAC-DR February 2021
  - Training (in-country): Applied Sampling Techniques CAPTAC-DR October 2020
  - e-GDDS STA February 2020

### IMF Capacity Development Planned Missions 2022-2023 (objectives)
- Revenue Administration, Customs and Tax Policy:
  - Customs Administration CAPTAC-DR: Strengthened revenue administration management and governance arrangements for customs
  - Revenue Administration CAPTAC-DR: Strengthened revenue administration management and governance arrangements for tax authority
  - International taxation FAD: Improved tax and non-tax revenue policy in line with international taxes
- Public Financial Management:
  - Medium-Term Fiscal Framework FAD: Comprehensive, credible, and policy-based budget preparation
  - Assets and Liabilities Management FAD: Improved assets and liabilities management
  - Coverage and Quality of Fiscal Reporting FAD: Improved coverage and quality of fiscal reporting
  - Fiscal Risks Management FAD: Strengthened identification, monitoring, and management of fiscal risks
  - PFM Hackaton FAD: Improved budget execution and control
- Monetary Policy and Central Bank Operations:
  - Central Bank Monetary Policy Operations and Balance Sheet MCM: Enhance the central bank’s decision-making capacity and internal organization
  - Monetary and Macroprudential Policies Inflation Targeting MCM: Adopting a formal inflation targeting regime
- Financial Supervision and Regulation:
  - Banking Supervision & Regulation MCM: To implement a risk-based supervision (RBS) system and upgrade other supervisory processes
  - Insurance Supervision & Regulation MCM: Develop/strengthen regulation of insurance companies and risk-based supervision capability of the insurance supervisor
  - Stress Testing MCM: Strengthen the toolkit for the identification of threats to financial stability and corrective policies
  - Cybersecurity supervision and regulation MCM: Develop/strengthen cybersecurity regulations and supervisory frameworks
- Real and Government Statistics:
  - Government Finance STA: Strengthen compilation and dissemination of macroeconomic and financial statistics for decision making according to internationally accepted statistical standards, including developing statistical infrastructure, source data, serviceability and/or metadata
  - Real Sector - National Accounts STA
  - Real Sector – Prices STA

### Fund relations and selected financial and institutional data (As of April 30, 2022)
- Membership Status: Joined: December 28, 1945, Article VIII
- General Resources Account:
  - Quota 428.6 SDR Million 100.00 percent
  - Fund holding of currency 373.97 SDR Million 87.25 percent
  - Reserve Tranche Position 54.69 SDR Million 12.76 percent
- SDR Department:
  - Net cumulative allocation 611.70 SDR Million 100.00 percent
  - Holdings 531.50 SDR Million 86.89 percent
- Outstanding Purchases and Loans: None
- Latest Financial Commitments (Arrangements - selected):
  - Stand-by 04/22/2009 – 10/21/2010 Amount Approved 630.60 SDR Million Amount Drawn 0.00 SDR Million
  - Stand-by 06/18/2003 – 03/15/2004 Amount Approved 84.00 SDR Million Amount Drawn 0.00 SDR Million
  - Stand-by 04/01/2002 – 03/31/2003 Amount Approved 84.00 SDR Million Amount Drawn 0.00 SDR Million
- Outright Loans:
  - RFI 06/10/2020 – 05/21/2021 Amount Approved 428.60 SDR Million Amount Drawn 0.00 SDR Million
- Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Charges/Interest: 2022 0.19, 2023 0.27, 2024 0.27, 2025 0.27, 2026 0.27
  - Total: 2022 0.19, 2023 0.27, 2024 0.27, 2025 0.27, 2026 0.27
- Safeguards Assessment: Banguat assessment completed in September 2009 with recommendations to further strengthen governance and independence.
- Exchange Rate Arrangement:
  - Since March 1994, arrangement based on an interbank foreign exchange market; de jure floating exchange rate arrangement.
  - Effective January 1st, 2022, the fluctuation margin (added to or subtracted from the five-day moving average of the exchange rate) that determines whether Banguat may intervene was increased to 0.9 percent (previously 0.85 percent).
  - Banguat’s net purchases to avoid further appreciation amounted to US$2,119 million in 2021, compared to US$2,010 million and US$1,329 million in 2020 and 2019 respectively.
  - As of April 25, 2022, the reference exchange rate was Q7.65 per U.S. dollar.
  - The de facto exchange rate arrangement remains classified as “stabilized”.
- FSAP Participation: An FSAP Update carried out March 18-April 1, 2014; Financial System Stability Assessment discussed by the Executive Board on September 12, 2014.
- Article IV Consultation: Last Article IV consultation concluded by the Executive Board on June 9, 2021.
- Resident Representative: Mr. Metodij Hadzi-Vaskov is the Regional Resident Representative for Central America, Panama, and the Dominican Republic, and is based in Guatemala.

### Technical Assistance 2011–21 (selected entries)
- FAD, CAPTAC:
  - 2022 Fiscal Sustainability Model
  - 2021 Customs Anti-fraud strategy; Document systems entry point & participants guide; Strengthening Tax Refund Procedures; Budget: Economic Forecasts; Budget: Medium Term Fiscal Framework; Treasury Management; Fiscal Risks: Specific Risks; Implementing a new model for controlling special procedures operations; Post clearance audit program; Defining of a Customs Digitalization action plan
  - 2020 Improving cargo and clearance processes; Strategic Planning: Business Continuity Plan for Customs; Modernizing Treasury Management; Designing and implementing a comprehensive Business Continuity Plan; Strengthening the administration and control of special regimes based on risk management; Budget - Financial Programming
  - 2019–2011 Multiple missions on revenue administration, customs administration, treasury single account, debt management strategy, revenue forecasting, government cash flow and financial planning, among others
- MCM, CAPTAC:
  - 2022 Stress Testing (Banguat and the SIB)
  - 2021 Monetary Policy Modeling, Forecasting & Communication; Electronic money (e-money); Profitability and Capital Adequacy Assessment; Data governance
  - 2020 Financial groups regulation; Cybersecurity Risk Supervision
  - 2019–2011 Multiple missions on risk-based bank supervision, monetary operations, capital market development, debt management, and strengthening central bank macro-modeling
- STA, CAPTAC:
  - 2022 Government Finance Statistics (GFS), Financial Sector Stability Fund (FSSF, Financial Sector Statistics), Balance Sheet Analysis (BSA)
  - 2021 General Government GFS and PSDS Data Expansion
  - 2020 National Accounts: Sources and methods to include the COVID-19 impact in quarterly NA; Applied Sampling Techniques; Data dissemination e-GDDS
  - 2019–2011 Multiple missions on GFS broadening institutional coverage, CPI update assessment, Producer price index, Export and import price indices, Balance of Payments Statistics, Financial Accounts training

### Statistical issues (As of April 30, 2022)
- Assessment of Data Adequacy for Surveillance:
  - General: Data provision has some shortcomings but is broadly adequate for surveillance.
  - National accounts: Banguat publishes annual and quarterly national accounts consistent with the System of National Accounts 2008 (2008 SNA), with 2013 as the base year.
  - The annual compilation of GDP is elaborated by the three approaches of production, expenditure and income.
  - The supply and use tables are prepared for 143 economic activities, and 217 products defined in the product nomenclature for Guatemala in current values and chained-linked volume measures reference year.

*Source: Staff Report for the 2022 Article IV Consultation — Informational Annex (content unit: 1gtmea2022001).*

### 2013. The compilation of the quarterly national accounts (QNA) is performed by the production and

### 2013. The compilation of the quarterly national accounts (QNA) is performed by the production and 

### National accounts and economic activity
- The compilation of the quarterly national accounts (QNA) is performed by the production and spending approaches.
- A monthly index of economic activity consistent with the quarterly and annual accounts is disseminated on a regular basis.

### Consumer prices and labor market statistics
- Consumer price index (CPI):
  - Prepared and disseminated monthly by the National Statistics Institute (INE).
  - Uses weights from 2009–10, based on the National Household Income and Expenditure Survey (ENIGH), conducted between July 2009 and July 2010.
  - The CPI is compiled at national level and for eight regions.
- Producer price index (PPI):
  - A producer price index (PPI) is currently not disseminated.
  - Technical assistance to improve the compilation method is being provided.
- Unemployment:
  - Unemployment is estimated only on a biannual basis.

### Government finance statistics (GFS)
- MINFIN provides monthly fiscal data (national methodology for policy purposes) with institutional coverage of Budgetary Central Government for surveillance purposes.
- Limitations:
  - Revenue, expenditure, and financing statistics for social security agencies, local governments, and nonfinancial public enterprises are not reported on a monthly basis, hindering the calculation of a consolidated operations statement and balance sheet for the nonfinancial public sector.
  - On a yearly basis (2013-2021) MINFIN publishes detailed statistics for the non-financial public sector.
- Coverage and periodicity:
  - The coverage and periodicity of data on Budgetary central government financing and debt is adequate.
- Improvements and ongoing work:
  - With support of STAGO/CAPTAC-DR, MINFIN has published monthly budgetary central government fiscal data according to the Government Finance Statistics Manual 2014.
  - The publication corresponds to information on incomes, expenses, assets and liabilities; classification of expenditure by functions of government according to divisions and groups; and the statement of operation of the Central Government, which includes the Budgetary and Extrabudgetary entities.
  - MINFIN is advancing towards the compilation of local governments and social security statistics to broaden their GFS to General Government during the course of 2022.

### Monetary and financial statistics
- Monetary and financial statistics are reported on a regular monthly basis to STA using the standardized report forms (SRFs) for:
  - the central bank,
  - other depository corporations,
  - other financial corporations (OFCs).
- Definition/coverage notes:
  - OFCs comprise insurance companies, warehouses, and exchange houses.
  - Monetary data exclude credit card companies, securities dealers, other financial intermediaries, and other financial auxiliaries.
- Financial access and indicators:
  - Guatemala reports data on some key series and indicators of the Financial Access Survey (FAS), including mobile money and the two indicators adopted by the UN to monitor Target 8.10.1 of the Sustainable Development Goals (SDGs).
- Financial sector surveillance:
  - The authorities report on monthly basis all twelve-core financial soundness indicators (FSIs) and ten (out of thirteen) of the encouraged set for the deposit taking sector.
  - The authorities are working on expanding the FSI coverage of the OFCs sector.

### External sector statistics
- Progress made:
  - Significant progress on prerequisites for data quality and methodological soundness of concepts and definitions, scope, classification, and basis for recording.
  - Successfully migrated to BPM6.
  - Disseminated the Reserves Data Template.
  - Disseminated comprehensive inward/outward data on the Coordinated Direct Investment Survey (CDIS).
  - Provided total external debt statistics by sector on the World Bank’s website.
- Remaining issues:
  - Legislation on the obligation of the private sector to provide information to Banguat for statistical purposes is still pending, which affects the response rate to balance of payments surveys and limits availability of required information.
  - Compilers at the Central Bank should be encouraged to participate in the Coordinated Portfolio Investment Survey (CPIS).

### Data standards and quality
- Guatemala has implemented the recommendations of the IMF’s Enhanced General Data Dissemination System (e-GDDS) by publishing essential data through the National Summary DataPage (NSDP).
- Guatemala completed the implementation of the e-GDDS while making remarkable efforts to cope with the effects of the covid-19 pandemic on data dissemination.

### Guatemala: Table of Common Indicators Required for Surveillance (As of April 30, 2022) — selected entries
- Exchange Rates
  - Date of latest observation: 04/25/2022
  - Date received: 4/26/2022
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Frequency of Publication: D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- Reserve/Base Money
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: W
- Broad Money
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: W
- Central Bank Balance Sheet
  - Date of latest observation: 3/31/2022
  - Date received: 4/4/2022
  - Frequency of Data: D
  - Frequency of Reporting: D
  - Frequency of Publication: D
- Consolidated Balance Sheet of the Banking System
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- Interest Rates
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: W
  - Frequency of Reporting: W
  - Frequency of Publication: W
- Consumer Price Index
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- Revenue, Expenditure, Balance and Composition of Financing – Central Government
  - Date of latest observation: March 2022
  - Date received: April 2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- Revenue, Expenditure, Balance and Composition of Financing – General Government
  - Date of latest observation: Dec. 2021
  - Date received: March 2022
  - Frequency of Data: A
  - Frequency of Reporting: N/A
  - Frequency of Publication: N/A
- Stocks of Central Government and Central Government-Guaranteed Debt
  - Date of latest observation: Dec 2021
  - Date received: Jan. 2022
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of Publication: M
- External Current Account Balance
  - Date of latest observation: Q4/2021
  - Date received: April 2022
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: Q
- Exports and Imports of Goods and Services
  - Date of latest observation: Q4/2021
  - Date received: April 2022
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: Q
- GDP/GNP
  - Date of latest observation: Q4/2021
  - Date received: April 2022
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: Q
- Gross External Debt
  - Date of latest observation: Q4/2021
  - Date received: April 2022
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: Q
- International Investment Position
  - Date of latest observation: Q4/2021
  - Date received: April 2022
  - Frequency of Data: Q
  - Frequency of Reporting: Q
  - Frequency of Publication: Q

*Guatemala: Table of Common Indicators Required for Surveillance (As of April 30, 2022)*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1gtmea2022001.pdf_