## 1. External Balance Consequences of Remittances and the Policy Response

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### Context and structural diagnosis
- Guatemala is in a "stable, but low-investment equilibrium" characterized by low private investment and low public investment despite prudent macroeconomic management.
- Drivers of low investment:
  - Scarcity of public inputs: infrastructure, security, educated and healthy labor force.
  - Political uncertainty and an incumbent-friendly investment climate.
  - Revealed preference for a small-footprint state: low taxes and low public debt, but weak social indicators.
  - Spending inefficiencies, including on account of corruption, and other PFM issues.
- Rising remittances:
  - Drive private savings up, but not sufficiently to prevent loss of competitiveness.
  - Most remittances finance imports, while Banguat interventions accumulate international reserves and help restrain real appreciation pressures, but do not eliminate headwinds for the tradable sector.

### Recent macroeconomic developments — key figures and trends
- Output and demand:
  - Real GDP growth: 3.7 percent in 2024.
  - Preliminary 2025Q1 y-o-y growth: 3.9 percent.
  - Projected growth: 3¾ percent in 2025; around 3½ in 2026–27; potential convergence to 4 percent in outer years with reforms and investment.
- Inflation and monetary policy:
  - Headline inflation: 1.8 percent in June.
  - Core inflation: close to 4 percent.
  - Inflation expectations: around 3.8 percent for end-2025 and 2026.
  - Banguat policy rate: peak of 5 percent; two 25 bps cuts in late 2024; easing on hold since (pause extended at June Monetary Board meeting).
  - Net costs of Banguat’s FX operations: 2.8 percent of GDP (3.3 percent of GDP in 2023).
- Fiscal sector:
  - 2024 budget outturn: overall deficit of 1 percent of GDP (1.3 percent in 2023).
  - 2025 budget: original deficit target 3.2 percent of GDP; supplementary raised deficit to 3.8 percent.
  - Low spending execution in 2024: 92 percent overall; capex execution 79 percent.
  - Public debt: under 27 percent of GDP, the lowest among Western Hemisphere countries with market access.
  - Eurobond activity: US$1.4bn issuance in August 2024; US$1.5bn issuance planned in July 2025.
- External sector and remittances:
  - Current account (CA) surplus: 2.9 percent of GDP in 2024 (narrowed slightly due to rising imports).
  - Remittances: stabilized at 19 percent of GDP; 18 percent year-on-year increase in the first half of 2025.
  - Gross international reserves: US$24.4 billion at end-2024 (21.5 percent of GDP, 175 percent of the ARA metric); reserves rose to US$27.2 billion at end-June 2025 after record US$2.4 billion in net FX purchases by Banguat in H1 2025.
  - REER: virtually flat for the year.
  - External assessment divergence:
    - EBA’s preferred CA model finds a positive CA gap (pointing to an undervalued currency).
    - Exchange Rate (ER) model assesses the currency as overvalued.
    - Staff assessment: external position is stronger than the level implied by medium-term fundamentals and desirable policies (Annex I).
- Financial sector:
  - Private credit growth: double-digits since 2021, now decelerating; nominal growth down, real growth remains robust.
  - Nonperforming loans (NPLs): 2.3 percent at end-April 2025 (1.8 percent at end-2023).
  - Provisioning: fell to 135 percent (from 189 percent at end-2023).
  - Capital and liquidity ratios: above statutory minima; profitability strong.

### External balance and remittances — mechanisms and consequences
- Mechanism:
  - Large remittance inflows increase private savings and import demand, pushing up the current account surplus in flow terms but exerting competitiveness pressures in price terms.
- Central bank response:
  - Banguat purchased FX (record US$2.4 billion in H1 2025), raising reserves to US$27.2 billion at end-June 2025.
  - Interventions helped restrain real appreciation pressures but did not fully offset headwinds to tradables.
- Analytical tension:
  - Quantity indicator (CA balance) and price indicator (ER competitiveness) diverge because of the remittance-driven wedge and central bank response, explaining differing model results (EBA CA model vs ER model).

### External vulnerabilities and exposure to U.S. policies
- Trade exposure:
  - U.S. accounts for one-third of exports.
  - Bilateral trade deficits with the U.S. triggered placement in the 10 percent tariff bracket (since April 2 announcement).
  - Guatemalan Export Agency estimates about 0.4 percent of GDP in additional costs for shipment to the U.S.
- Migration and remittances exposure:
  - Up to 900 thousand Guatemalan nationals live in the U.S. without documentation.
  - Deportations agreed to increase to 120–140 thousand people per year (from an average of 72 thousand in 2020–24), including non-Guatemalans.
  - The 18 percent y-o-y increase in remittances in H1 2025 likely reflects a one-off response by migrants to heightened deportation risks.
  - Policy shifts in destination countries could materially affect remittances and the labor market (reduced emigration could raise unemployment and/or informality).
- Risks to investment and outlook:
  - Trade-policy and geopolitically-driven risks weigh heavily on investment decisions and medium-term outlook.

### Outlook and risks — projections and balance of risks
- Growth projections:
  - 3¾ percent in 2025.
  - Around 3½ percent in 2026–27.
  - Convergence to 4 percent possible in outer years with reforms and infrastructure investment.
- Inflation: projected to gradually revert to target.
- Fiscal outlook:
  - Fiscal deficits close to 3 percent are expected to persist into the medium term.
  - Public debt projected to rise to 30 percent of GDP by the end of the projection period.
- Current account: projected to close over the medium term due to looser fiscal policy and diminishing remittances-financed private savings.
- Remittances projection: 2025 remittances projected to increase 9 percent in USD terms (subject to high uncertainty); medium-term remittances expected to rise in line with projected U.S. inflation (i.e., zero real growth).
- Balance of risks: tilted to the downside (Annex II). Selected risks:
  - Domestic: executive-judiciary standoff and fragmented Congress may impede reforms and legislative agenda.
  - External: trade policy uncertainty, migration policy shifts, lower global growth, tighter global financial conditions.
  - Other exposures: climate events.

### Policy implications and recommended priorities
- Mobilize excess domestic savings to finance public infrastructure and services to raise returns on private investment.
- Improve spending efficiency through better public financial management (PFM) and anti-corruption measures to enhance the conversion of public spending into productive public capital and services.
- Structural reforms to improve the business environment:
  - Combat corruption.
  - Improve competition and reduce jurisdictional risks.
  - Strengthen incentives for foreign and domestic investment.
- Fiscal policy stance:
  - Use the 2025 fiscal expansion to prioritize capex, education, healthcare, and conditional cash transfers while safeguarding fiscal sustainability as deficits near 3 percent of GDP.
  - Address low capex execution and carryover/CODEDE allocation uncertainties.
- Exchange rate and reserve management:
  - Continue to manage FX liquidity to moderate real appreciation pressures, recognizing trade-offs between reserve accumulation and fiscal costs (net costs of FX operations).
- Social and reintegration policies:
  - Implement programs to facilitate reintegration of returnees into the labor force to mitigate potential labor-market dislocations from increased deportations.
- Contingency planning:
  - Prepare for downside scenarios stemming from U.S. trade and migration policy shifts, tighter global conditions, or climate shocks.

### Authorities’ views, fiscal details, and execution risks
- Authorities broadly share staff’s outlook and see risks as manageable but assume tariff headwinds are transitory and remittances more resilient.
- Authorities project growth to remain close to 4 percent through the medium term.
- Fiscal figures and budget execution:
  - Amended 2025 budget deficit: 3.8 percent of GDP (if executed in full implies a 2¾ percentage point fiscal impulse).
  - Staff expects 2025 outturn to undershoot approved budget deficit and contain the deficit to around 2½ percent of GDP; fiscal stimulus still sizable at around 1½ percent of GDP.
  - Central Government Spending (Percent of GDP) — selected figures:
    - Total revenues: 12.4 12.4 12.4 12.4 (2024 Outturn; Initial Budget; Latest Budget; 2025 Proj.)
    - Total expenditures: 13.4 15.5 16.2 15.0
    - Current: 11.0 12.3 12.3 11.8
      - Operating expenditures: 9.4 10.6 10.6 10.1
      - Wages: 4.0 4.2 4.2 4.1
      - Goods & services: 1.8 2.6 2.3 2.1
      - Social security benefits: 0.9 1.0 1.2 1.2
      - Interest: 1.6 1.7 1.8 1.7
      - Transfers: 2.7 2.7 2.8 2.7
      - Other: 0.1 0.1 0.1 0.1
    - Capital: 2.4 3.2 3.8 3.2
      - CODEDEs: 0.4 0.5 1.3 -0.0
    - Primary expenditures: 11.8 13.8 14.4 13.3
    - Primary balance: 0.7 -1.4 -2.1 -0.9
    - Overall balance: -1.0 -3.1 -3.8 -2.6
- Revenue mobilization and tax administration:
  - SAT introduced a mandatory electronic invoice system; cracked down on goods smuggling; increased audits on high-net-worth individuals and large corporations.
  - Tax revenues increased from 10 to 11.8 percent between 2020 and 2024.
  - SAT noncompliance rates (authorities’ data): 70 percent for income tax and 25 percent for VAT.
  - Authorities’ target: 12.5 percent of GDP (would require additional steps).
  - Recommended revenue measures: implement SAT’s strategic plan aligned with 2024 TADAT recommendations; legal protection for SAT auditors; medium-term tax reforms including base broadening, higher PIT and VAT rates, reducing tax breaks and exemptions; review and rationalize tax expenditures (SAT estimates tax expenditures at 3 percent of GDP).
- Public spending prioritization and procurement:
  - Low alignment between priorities and allocations; capex execution weaknesses.
  - Staff recommends systematic spending reviews, integrate National Development Plan into budget, strengthen MTFF and multiannual budgeting, implement PIMA/C-PIMA and Fiscal Transparency recommendations, implement IPSAS, enhance digital PFM.
  - Procurement reforms recommended: require information on final beneficiary ownerships in procurement, upgrade digitalization (e.g., “Guatecompras 2.0”), enforce open bidding, publish procurement data, risk-based audits, reinforce Anti-corruption procurement unit, enhance civil society monitoring.
  - Note: In July 2025, the constitutional court provisionally suspended the government decision on requiring information on final beneficiary ownerships.
- Debt management and financing mix:
  - Staff encourages diversification toward domestic financing and shorter-maturity instruments, publish extended debt statistics, the MTDS and Annual Borrowing Plans.
  - Authorities plan to slightly increase Eurobond financing share over the medium term as domestic borrowing remains relatively expensive.
  - Debt portfolio metrics (authorities’ disclosure):
    - Average interest rate of the debt portfolio is 6.3 percent.
    - Average time to maturity is 10 years.
- CODEDE transfers:
  - This year’s doubling of transfers to CODEDEs to 1.3 percent of GDP requires particular attention.

### Monetary and exchange rate policies — stance and operational issues
- Policy rate and inflation (authorities’ figures):
  - Policy rate: 4.5 percent.
  - Headline inflation: 1.5 percent.
  - Ex-ante real rate: 1 percent (given 12-month expectations at 3.5 percent).
  - Staff estimate for neutral rate: 1-2 percent.
- Assessment:
  - Monetary policy stance is broadly appropriate; scope to wait on subsequent policy decisions given uncertainty over US tariffs and trade effects.
- Monetary–fiscal coordination and liquidity management:
  - Banguat uses open market operations and reserve requirements to manage liquidity.
  - Over-reliance of the budget on external financing under a shallow money market complicates Banguat’s liquidity management and raises losses covered by the treasury.
  - Recommendations: greater coordination with fiscal policy via well-communicated borrowing plans; back-testing collateral pricing; clarify operational process for liquidating collateral; shift to constant-maturity issuance of term deposits.
- Monetary policy transmission and market development:
  - Pass-through from policy rates to market rates improved since end-2022 due to higher banking competition and rising currency in circulation.
  - Structural constraints: dollarization, informality, shallow interbank market.
  - Recommendations: deepen local-currency debt markets, develop a more liquid interbank market, enhance financial inclusion; reduce reliance on reserve requirements; improve legal framework and market infrastructure.
  - Specific legal/infrastructure issues: inability to issue central bank bills due to their treatment as fiscal debt under law (Banguat uses non-tradable term deposits to absorb liquidity); lack of a single central securities depository (CSD).
  - Staff encourages establishment of a prudential market regulator and a consolidated CSD for government securities.
- FX interventions:
  - Quetzal stability via “leaning against the wind” FX interventions has drawbacks: discounts FX risks, inhibits hedging mechanisms, creates confusion about Banguat’s nominal anchor, and weighs on its balance sheet.
  - Recommendations: better fiscal–monetary coordination (domestic public borrowing to absorb excess liquidity); expand macro-prudential toolkit; develop FX hedging strategy; plan for recapitalization of Banguat and assess its income model.

### Financial sector policies, governance, and structural agenda
- Financial sector soundness and supervision:
  - SIB strengthened supervision: enhanced stress testing, stricter reporting for systemic risks, regulatory measures on credit cards, operational risks, electronic payments, voluntary inclusion of savings and credit cooperatives.
  - Consumer credit rose 18 percent in 2024; NPLs and consumer exposures require scrutiny given remittance risks.
  - Recommendations: revise the 2002 Law on Banks and Financial Groups; implement IFRS; strengthen early warning systems, recovery planning, inter-agency coordination, stress-testing protocols, resolution mechanisms; develop macroprudential toolkit and institutional mandate; strengthen cybersecurity; approve e-money law; implement financial inclusion strategy.
- Governance and anti-corruption:
  - National Commission Against Corruption (CNC) launched in 2024; probity offices introduced; national anti-corruption strategy expected in second half of 2025.
  - Beneficial Ownership Law submitted to Congress in February 2025; Law of Protection of Whistleblowers submitted in March 2025.
  - AML/CFT Law adoption and regulations pending ahead of the fifth mutual evaluation round expected in 2027.
- Subnational oversight and infrastructure:
  - Enhanced oversight of municipal investments through CODEDEs needed; CODEDE allocations doubled in 2025.
  - Infrastructure agenda: priority road infrastructure law passed in late-2024; PPP law amendments and focused laws for ports/airports needed to close infrastructure gap.
- Labor market and social policies:
  - Informality: about 70 percent of workers employed in the informal sector.
  - 2025 minimum wage increase: 10 percent for all activities except maquilas (6 percent); Guatemala’s minimum wage remains around US$400 per month.
  - “Return Home” (Retorno al Hogar) plan includes housing and land subsidies, scholarships, apprenticeships, trainings, and labor certification for returning migrants; staff recommends integrating these programs into the budget and designing active labor market policies.

### Annex I, Box highlights, and stress assessments (selected)
- Annex I external sector assessment:
  - External position in 2024 stronger than fundamentals and desirable policies; CA surplus 2.9 percent in 2024; remittances 19 percent of GDP in 2024.
  - EBA estimates for 2024: CA-Actual (A): 2.9; CA Norm (D): -2.1; CA gap (G = C - F): 3.0; REER Gap (I = G / H): -11.5 (percent; "-" indicates undervaluation).
  - REER appreciated by 2.2 percent in 2024; REER appreciation since 2010: 52 percent; since 2020: 4.9 percent.
- Box 1 (Remittances and external balance):
  - Over two decades, remittances rose to nearly 20 percent of GDP; dollar amounts increased fourfold in the last decade.
  - Banguat’s FX participation acted as a “leaning against remittances” intervention rule: dampened appreciation but involved sizable sterilization costs.
  - Root cause of CA gap: low investment; solution is higher public and private investment.
- Box 3 (Spending efficiency and development outcomes):
  - Key shortfalls: over half rural population lacks basic health services; secondary school enrollment below 50 percent; nearly one in five lacks safe water and sanitation; social protection covers around one in ten Guatemalans.
  - Illustrative path: gradually increasing spending by 2 percentage points of GDP between 2024 and 2032 while shifting composition toward priority sectors could accelerate progress.
- Debt sustainability and external DSA:
  - External debt declined from 37.4 percent of GDP in 2013 to 23.4 percent of GDP in 2024; projected baseline 20.7 percent in 2030.
  - 3-Year debt reduction metrics and stress tests indicate moderate overall risk; contingent stress scenario: one-time increase in stock of debt from 27 to 37 percent of GDP.
  - Key DSA statistics preserved verbatim in source (e.g., Unpaid social contributions: 6.2 percent of GDP; Banguat government receivables: 3.4 percent of GDP).
- Data and capacity development:
  - Data Adequacy Assessment Rating: B.
  - Planned IMF CD missions through FY 2026 across revenue administration, PFM, central bank operations, financial supervision, AML/CFT, and statistics.

*Source: IMF staff chapter “1. External Balance Consequences of Remittances and the Policy Response” (content unit provided).*

### 1. External Balance Consequences of Remittances and the Policy Response ________________________ 26

### 1. External Balance Consequences of Remittances and the Policy Response

### Context and structural diagnosis
- Guatemala is in a "stable, but low-investment equilibrium" characterized by low private investment and low public investment, despite prudent macroeconomic management.
- Drivers of low investment:
  - Scarcity of public inputs: infrastructure, security, educated and healthy labor force.
  - Political uncertainty and an incumbent-friendly investment climate.
  - Revealed preference for a small-footprint state: low taxes and low public debt, but weak social indicators.
  - Spending inefficiencies, including on account of corruption, and other PFM issues.
- Rising remittances:
  - Drive private savings up, but not sufficiently to prevent loss of competitiveness.
  - Most remittances finance imports, while Banguat interventions accumulate international reserves and help restrain real appreciation pressures, but do not eliminate headwinds for the tradable sector.

### Recent macroeconomic developments — key figures and trends
- Output and demand
  - Real GDP growth: 3.7 percent in 2024.
  - Preliminary 2025Q1 y-o-y growth: 3.9 percent.
  - Projected growth: 3¾ percent in 2025; around 3½ in 2026–27; potential convergence to 4 percent in outer years with reforms and investment.
- Inflation and monetary policy
  - Headline inflation: 1.8 percent in June.
  - Core inflation: close to 4 percent.
  - Inflation expectations: around 3.8 percent for end-2025 and 2026.
  - Banguat policy rate: peak of 5 percent; two 25 bps cuts in late 2024; easing on hold since (pause extended at June Monetary Board meeting).
  - Net costs of Banguat’s FX operations: 2.8 percent of GDP (3.3 percent of GDP in 2023).
- Fiscal sector
  - 2024 budget outturn: overall deficit of 1 percent of GDP (1.3 percent in 2023).
  - 2025 budget: original deficit target 3.2 percent of GDP; supplementary raised deficit to 3.8 percent.
  - Low spending execution in 2024: 92 percent overall; capex execution 79 percent.
  - Public debt: under 27 percent of GDP, the lowest among Western Hemisphere countries with market access.
  - Eurobond activity: US$1.4bn issuance in August 2024; US$1.5bn issuance planned in July 2025.
- External sector and remittances
  - Current account (CA) surplus: 2.9 percent of GDP in 2024 (narrowed slightly due to rising imports).
  - Remittances: stabilized at 19 percent of GDP; 18 percent year-on-year increase in the first half of 2025.
  - Gross international reserves: US$24.4 billion at end-2024 (21.5 percent of GDP, 175 percent of the ARA metric); reserves rose to US$27.2 billion at end-June 2025 after record US$2.4 billion in net FX purchases by Banguat in H1 2025.
  - REER: virtually flat for the year.
  - External assessment divergence:
    - EBA’s preferred CA model finds a positive CA gap (pointing to an undervalued currency).
    - Exchange Rate (ER) model assesses the currency as overvalued.
    - Staff assessment: external position is stronger than the level implied by medium-term fundamentals and desirable policies (Annex I).
- Financial sector
  - Private credit growth: double-digits since 2021, now decelerating; nominal growth down, real growth remains robust.
  - Nonperforming loans (NPLs): 2.3 percent at end-April 2025 (1.8 percent at end-2023).
  - Provisioning: fell to 135 percent (from 189 percent at end-2023).
  - Capital and liquidity ratios: above statutory minima; profitability strong.

### External balance and remittances — mechanisms and consequences
- Large remittance inflows increase private savings and import demand, pushing up the current account surplus in flow terms but exerting competitiveness pressures in price terms.
- Banguat’s FX interventions have:
  - Purchased FX (record US$2.4 billion in H1 2025), raising reserves to US$27.2 billion at end-June 2025.
  - Helped restrain real appreciation pressures but not fully offset headwinds to tradables.
- Analytical tension:
  - Quantity indicator (CA balance) and price indicator (ER competitiveness) diverge because of the remittance-driven wedge and central bank response.
  - This explains differing model results (EBA CA model vs ER model).

### External vulnerabilities and exposure to U.S. policies
- Trade exposure:
  - U.S. accounts for one-third of exports.
  - Bilateral trade deficits with the U.S. triggered placement in the 10 percent tariff bracket (since April 2 announcement).
  - Guatemalan Export Agency estimates about 0.4 percent of GDP in additional costs for shipment to the U.S.
- Migration and remittances exposure:
  - Up to 900 thousand Guatemalan nationals live in the U.S. without documentation.
  - Deportations agreed to increase to 120–140 thousand people per year (from an average of 72 thousand in 2020–24), including non-Guatemalans.
  - The 18 percent y-o-y increase in remittances in H1 2025 likely reflects a one-off response by migrants to heightened deportation risks.
  - Policy shifts in destination countries could materially affect remittances and the labor market (reduced emigration could raise unemployment and/or informality).
- Trade-policy and geopolitically-driven risks weigh heavily on investment decisions and medium-term outlook.

### Outlook and risks — projections and balance of risks
- Growth projections:
  - 3¾ percent in 2025.
  - Around 3½ percent in 2026–27.
  - Convergence to 4 percent possible in outer years with reforms and infrastructure investment.
- Inflation: projected to gradually revert to target.
- Fiscal outlook:
  - Fiscal deficits close to 3 percent are expected to persist into the medium term.
  - Public debt projected to rise to 30 percent of GDP by the end of the projection period.
- Current account: projected to close over the medium term due to looser fiscal policy and diminishing remittances-financed private savings.
- Remittances projection: 2025 remittances projected to increase 9 percent in USD terms (subject to high uncertainty); medium-term remittances expected to rise in line with projected U.S. inflation (i.e., zero real growth).
- Balance of risks: tilted to the downside (Annex II).
  - Domestic: executive-judiciary standoff and fragmented Congress may impede reforms and legislative agenda.
  - External: trade policy uncertainty, migration policy shifts, lower global growth, tighter global financial conditions.
  - Other exposures: climate events.

### Policy implications and recommended priorities
- Mobilize excess domestic savings to finance public infrastructure and services to raise returns on private investment.
- Improve spending efficiency through better public financial management (PFM) and anti-corruption measures to enhance the conversion of public spending into productive public capital and services.
- Structural reforms to improve the business environment:
  - Combat corruption.
  - Improve competition and reduce jurisdictional risks.
  - Strengthen incentives for foreign and domestic investment.
- Fiscal policy stance:
  - Use the 2025 fiscal expansion to prioritize capex, education, healthcare, and conditional cash transfers while safeguarding fiscal sustainability as deficits near 3 percent of GDP.
  - Address low capex execution and carryover/CODEDE allocation uncertainties.
- Exchange rate and reserve management:
  - Continue to manage FX liquidity to moderate real appreciation pressures, recognizing trade-offs between reserve accumulation and fiscal costs (net costs of FX operations).
- Social and reintegration policies:
  - Implement programs to facilitate reintegration of returnees into the labor force to mitigate potential labor-market dislocations from increased deportations.
- Contingency planning:
  - Prepare for downside scenarios stemming from U.S. trade and migration policy shifts, tighter global conditions, or climate shocks.

*Source: IMF staff chapter “1. External Balance Consequences of Remittances and the Policy Response” (content unit provided).*

### 16.      The authorities broadly share staff’s outlook, and they see risks as manageable. Their

### The authorities broadly share staff’s outlook, and they see risks as manageable.

### Overview
- Authorities and staff broadly agree on the outlook but differ on assumptions about the length and magnitude of shocks: authorities assume tariff headwinds are transitory and remittances more resilient.
- Authorities project growth to remain close to 4 percent through the medium term.
- Domestic progress noted: approval of the 2025 budget and the competition law.
- External position: Guatemala is relatively well-positioned to absorb additional trade shocks.
- Lower net emigration could boost domestic employment if accompanied by targeted efforts to expand formal job opportunities.

### Propelling higher investment and governance
- Achieving a higher investment equilibrium requires:
  - A concerted policy effort.
  - Steadfast progress on governance.
  - A scale-up of infrastructure investment and social spending while fighting corruption and preserving policy buffers.
- Recommendations:
  - Maintain priority spending at elevated levels while improving expenditure efficiency and raising revenues.
  - Improve monetary–fiscal coordination and shift toward domestic financing of the budget to: channel domestic savings into infrastructure investment; reduce Banguat’s costs of liquidity management; reduce currency risks; support domestic financial market development.
  - Monetary policy readiness to respond to external shocks.
  - Strengthen governance, economic institutions and policy frameworks to contain residual risks and unleash private sector investment.

### A. Fiscal Policy — Key findings and figures
- The amended 2025 budget implies a significant fiscal expansion.
- If executed in full, the amended budget’s deficit of 3.8 percent of GDP would imply a 2¾ percentage point fiscal impulse for the year.
- This year’s doubling of transfers to CODEDEs to 1.3 percent of GDP requires particular attention.
- Central Government Spending (Percent of GDP) — selected figures from budget table:
  - Total revenues: 12.4 12.4 12.4 12.4 (2024 Outturn; Initial Budget; Latest Budget; 2025 Proj.)
  - Total expenditures: 13.4 15.5 16.2 15.0
  - Current: 11.0 12.3 12.3 11.8
    - Operating expenditures: 9.4 10.6 10.6 10.1
    - Wages: 4.0 4.2 4.2 4.1
    - Goods & services: 1.8 2.6 2.3 2.1
    - Social security benefits: 0.9 1.0 1.2 1.2
    - Interest: 1.6 1.7 1.8 1.7
    - Transfers: 2.7 2.7 2.8 2.7
    - Other: 0.1 0.1 0.1 0.1
  - Capital: 2.4 3.2 3.8 3.2
    - CODEDEs: 0.4 0.5 1.3 -0.0
  - Primary expenditures: 11.8 13.8 14.4 13.3
  - Primary balance: 0.7 -1.4 -2.1 -0.9
  - Overall balance: -1.0 -3.1 -3.8 -2.6

- Staff expects the 2025 outturn to undershoot the approved budget deficit due to execution bottlenecks, containing the deficit to around 2½ percent of GDP; fiscal stimulus still sizable at around 1½ percent of GDP.
- Authorities’ medium-term plans envisage deficits hovering just under 3 percent of GDP, predicated on:
  - (i) a 1p.p. of GDP improvement in tax revenue from tax administration measures, and
  - (ii) an ½ p.p. of GDP wage bill erosion in the outer years.
- Staff projections do not embed the two assumptions above, instead assuming historical execution rates, producing overall deficits close to Ministry of Finance projections.
- Policy guidance:
  - Return deficits to the 2 percent historical average in outer years, supported by upfront plans (if not immediate measures).
  - Focus consolidation on revenue mobilization and improved use of existing resources rather than curbing capex or social spending.

### Revenue mobilization and tax administration
- Recent tax administration measures and outcomes:
  - SAT introduced a mandatory electronic invoice system; cracked down on goods smuggling; increased audits on high-net-worth individuals and large corporations.
  - Tax revenues increased from 10 to 11.8 percent between 2020 and 2024.
  - Authorities’ target: 12.5 percent of GDP (would require additional steps).
- SAT noncompliance rates (authorities’ data): 70 percent for income tax and 25 percent for VAT.
- Recommendations to raise revenues:
  - Fight tax evasion and fraud by implementing SAT’s new strategic plan aligned with 2024 TADAT recommendations and using digitalization and new analytical tools (illustrated by “Caso B410”).
  - Approve legislation to legally protect SAT’s auditors from personal legal actions in the exercise of their mandate.
  - Medium-term tax reforms: base broadening, higher PIT and VAT rates, reducing tax breaks and exemptions, clarifying eligibility criteria for general vs. simplified regimes; initial focus on reviewing and rationalizing tax expenditures (SAT estimates tax expenditures at 3 percent of GDP, though significant parts are constitutionally mandated).

### Public spending prioritization and procurement
- Deficiencies in budget process:
  - Poor alignment between priorities (education, health, infrastructure, social protection) and actual budget allocation and execution.
  - Weak integration of planning instruments into expenditure frameworks and multiannual budget.
  - Deficiencies in identification, prioritization and execution of investment projects; gaps in institutional coordination and limited use of performance indicators.
- Staff recommendations:
  - Strengthen capacity for systematic spending reviews and expenditure quality/efficiency evaluations.
  - Integrate and map the National Development Plan into the budgetary process.
  - Strengthen MTFF and multiannual budget with technical analysis underpinning expenditure projections.
  - Implement PIMA/C-PIMA (2023) and Fiscal Transparency (2022) Evaluation recommendations.
  - Implement IPSAS and enhance digital public financial management.
- Social programs:
  - Improve targeting and transparency of programs such as “Bono Social” via means-testing, digitalized payment systems, regular audits and civil society monitoring to improve reach and reduce precautionary savings.
- Procurement reforms:
  - Current system issues: low competition, weak oversight, heavy reliance on direct contracts.
  - Staff supports requiring information on final beneficiary ownerships in procurement; additional reforms: upgrade digitalization (e.g., “Guatecompras 2.0”), stronger enforcement of open bidding, mandatory publication of procurement data, risk-based audits, reinforce Anti-corruption procurement unit, enhance civil society monitoring.
  - Note: In July 2025, the constitutional court provisionally suspended the government decision on requiring information on final beneficiary ownerships.

### Debt management and financing mix
- Concerns with over-reliance on external financing:
  - Risks: inhibiting domestic capital market development; complicating liquidity management for Banguat and banks; raising currency risks; inconsistent with available domestic savings (positive CAB).
- Staff encourages:
  - Diversify funding base and consolidate domestic issuances.
  - Introduce shorter-maturity instruments to help develop the yield curve.
  - Publish extended debt statistics, the MTDS and Annual Borrowing Plans to improve transparency and investor relations.
- Authorities’ view: plan to slightly increase the share of Eurobond financing over the medium term as domestic borrowing remains relatively expensive.
- Debt portfolio metrics (authorities’ disclosure):
  - Average interest rate of the debt portfolio is 6.3 percent.
  - Average time to maturity is 10 years.

### Authorities’ fiscal strategy and views
- Authorities will continue to raise capital expenditure and social spending while improving quality and efficiency of spending.
- They will strengthen transparency and oversight of CODEDEs’ allocations and municipal capacity.
- Medium-term plans: expand civil services and goods/services and infrastructure investment (projects include modernization of the largest port, railway system, and building a metro in Guatemala City).
- Financing: existing fiscal space and accumulated deposits will help finance higher spending; projected overall deficits close to 3 percent of GDP with tax administration gains of 1 percent of GDP over the next four years.
- SAT will continue strengthening compliance and auditing using digitalization and border enforcement; TADAT report will help establish a strategic plan to improve tax mobilization.

### B. Monetary and Exchange Rate Policies — stance and operational issues
- Policy rate and inflation:
  - Policy rate: 4.5 percent.
  - Headline inflation: 1.5 percent.
  - Ex-ante real rate: 1 percent (given 12-month expectations at 3.5 percent).
  - Staff estimate for neutral rate: 1-2 percent.
- Assessment: monetary policy stance is broadly appropriate; scope to wait on subsequent policy decisions given uncertainty over US tariffs and trade effects.
- Monetary–fiscal coordination and liquidity management:
  - Banguat uses open market operations and reserve requirements to manage liquidity.
  - Over-reliance of the budget on external financing under a shallow money market complicates Banguat’s liquidity management and raises losses covered by the treasury.
  - Recommendations: greater coordination with fiscal policy via well-communicated borrowing plans; back-testing collateral pricing; clarify operational process for liquidating collateral; shift to constant-maturity issuance of term deposits.
- Monetary policy transmission and market development:
  - Pass-through from policy rates to market rates improved since end-2022 due to higher banking competition and rising currency in circulation.
  - Structural constraints remain: dollarization, informality, shallow interbank market.
  - Recommendations: deepen financial market development (expanded local-currency debt markets, more liquid interbank market, enhanced financial inclusion); reduce reliance on reserve requirements; improve legal framework and market infrastructure.
  - Specific legal/infrastructure issues: inability to issue central bank bills due to their treatment as fiscal debt under law (Banguat uses non-tradable term deposits to absorb liquidity); lack of a single central securities depository (CSD) causing fragmentation.
  - Staff encourages establishment of a prudential market regulator and a consolidated CSD for government securities.
- Policy framework fine-tuning:
  - Quetzal stability via “leaning against the wind” FX interventions has drawbacks: discounts FX risks, inhibits hedging mechanisms, creates confusion about Banguat’s nominal anchor, and weighs on its balance sheet.
  - Greater financial integration could strain the policy framework.
  - Banguat had to accommodate capital outflows when the interest rate differential turned negative in 2023–24.
  - Recommendations: better fiscal–monetary coordination (domestic public borrowing to absorb excess liquidity); expand macro-prudential toolkit; develop a strategy for expanding FX hedging; plan for recapitalization of Banguat and assess its income model to ensure room for future liquidity management needs.

_Italic: IMF staff report excerpt on Guatemala: fiscal, monetary, and policy recommendations._

### 32.      The authorities agreed that the current monetary policy stance is appropriate and

### Monetary, Financial Sector, and Structural Policies (Guatemala)

### Monetary Policy
- The authorities agreed that the current monetary policy stance is appropriate and should continue to be guided by incoming data amid heightened uncertainty.
- Transmission of policy rate changes to lending rates remains structurally weak, particularly among large banks.
- Strong competition for credit during 2022–23 limited increases in lending rates despite policy tightening.
- Credible monetary policy and well-anchored inflation expectations helped reduce inflation from nearly 10 percent to just over 4 percent with only moderate policy rate increases.
- As of June 2025, the continued persistence of headline inflation below the lower bound of the target range may justify a moderate reduction in the policy rate; any adjustment remains contingent on incoming data and a comprehensive assessment of the balance of risks.

### Monetary–Fiscal Coordination and Liquidity Management
- Effective monetary-fiscal coordination is important to contain sterilization costs, but structural features complicate liquidity management.
- Significant structural liquidity requires ongoing sterilization operations distinct from conventional monetary policy instruments.
- Coordination with the Ministry of Finance: Central Bank conducts shorter-term operations and the Treasury operates at longer maturities to avoid competition in the liquidity market; framework can be affected by market dynamics and budget execution.
- Excess banking sector liquidity, seasonal factors, and banks’ preference for Treasury securities constrain the effectiveness of monetary stabilization tools.
- Authorities consider addressing these challenges will require:
  - Cleaning up the Central Bank’s balance sheet;
  - Refining reserve requirements and liquidity management practices;
  - Advancing structural reforms to deepen financial markets.
- Many reforms will require legislative support.

### Exchange Rate Policy
- Exchange rate stability primarily reflects sound macroeconomic fundamentals rather than active targeting.
- Central Bank FX interventions are limited to smoothing excessive short-term volatility.
- Further adaptation, including structural reforms, will be necessary to respond to potential disruptions in remittance flows or higher financial inflows.

### Financial Sector Policies — Findings and Risks
- The Superintendency of Banks (SIB) has strengthened banking supervision (enhanced stress testing, stricter reporting for systemic risks) and advanced regulatory measures on credit cards, operational risks, electronic payments, and voluntary inclusion of savings and credit cooperatives in the Credit Risk Information System.
- Consumer credit rose 18 percent in 2024, including credit card debts and NPLs, requiring additional scrutiny given risks of disruptions to remittance inflows.
- Staff advises continued improvements to risk-based monitoring and extending supervision to cover fintech and bank digitalization risks.
- Increasing transparency in bank ownership structures and stronger cross-border cooperation with regional regulators (consolidated supervision and related parties’ transactions) would mitigate risks related to money laundering and connected lending.

### Financial Sector Policy Recommendations and Reform Priorities
- Revise the 2002 Law on Banks and Financial Groups to align with international standards of regulatory, supervisory, and crisis management practices.
- Timely implementation of accounting frameworks based on International Financial Reporting Standards (IFRS) to increase transparency and communication with market participants.
- Strengthen banks’ oversight during gradual implementation of the Credit Risk Management Regulation (entered into force in 2024), especially for banks with large exposures in corporate and consumer sectors.
- Enhance:
  - Early warning systems;
  - Recovery planning (including requirement and supervision of banks’ capital planning);
  - Inter-agency coordination;
  - Stress-testing protocols and resolution mechanisms.
- Develop the macroprudential toolkit (e.g., borrower- and broad-based measures) and adopt an institutional arrangement empowered to make macroprudential policy decisions with a clear mandate and objectives.
- Continue actions to strengthen cybersecurity.
- Foster financial inclusion and market development by:
  - Approving the e-money law (draft currently in Congress);
  - Implementing the 2024–27 financial inclusion strategy;
  - Improving financial education and internet connectivity;
  - Promoting public-private partnerships.
- Improve public debt management to support market development by:
  - Securing a steady supply of domestic securities throughout the calendar year;
  - Selling securities at market prices (instead of suspending announced auctions);
  - Beginning to replace stock of non-tradeable securities with tradable instruments;
  - Advancing the draft Secondary Market Law.

### Governance and Structural Agenda — Findings
- The administration launched the National Commission Against Corruption (CNC) in 2024 to detect and prevent corruption, promote transparency in public management, and collaborate with civil society.
- CNC introduced probity offices in the Executive Branch and is preparing a national anti-corruption strategy expected in the second half of 2025.
- Guatemala registered in 2024 its first-in-a-decade upgrade on Transparency International’s corruption perceptions index, though still below regional averages.
- Entrenched interests and severe weakness in the rule of law, including a judiciary perceived as partially co-opted, pose significant implementation and uncertainty risks.
- Beneficial Ownership Law submitted to Congress in February 2025 to create a Beneficial Ownership Registry at the SAT; information to be used exclusively by specified government entities.
- Law of Protection of Whistleblowers submitted to Congress in March 2025 to establish procedures and protective measures for administrative reporting of irregularities.
- Adoption and implementation of an AML/CFT Law and accompanying regulations aligned with international standards is pending and urgent ahead of the fifth mutual evaluation round expected in 2027; a joint IMF/IADB/World Bank TA team helped identify remaining legal gaps.

### Subnational Oversight and Infrastructure
- Enhanced oversight of municipal investments through CODEDEs is needed; CODEDE allocations for local infrastructure and social programs doubled in 2025.
- Central government actions: regular audits of CODEDE expenditures, digitization of financial procedures, and publication of resource flows from the Ministry of Finance through CODEDEs to municipalities; constrained by limited administrative capacity and local resistance.
- Staff recommends strengthening capacity-building and consistent enforcement of anti-corruption measures for swift legal action in embezzlement or fraud cases.
- Infrastructure agenda needs to be fast-tracked; priority road infrastructure law passed in late-2024 created a special investment regime and envisages the Directorate of Priority Road Projects.
- Closing the infrastructure gap will require private participation and amendments to the PPP law currently under discussion in Congress; narrower-focused laws needed for port and airport modernization (e.g., Puerto Quetzal).

### Labor Market, Formalization, and Social Policies
- Informality remains high: about 70 percent of workers employed in the informal sector.
- Main drivers of informality: barriers to entry, red tape, high transaction costs, weak enforcement of labor laws, lack of access to credit.
- 2025 minimum wage increase: 10 percent for all activities except maquilas (6 percent); Guatemala’s minimum wage remains around US$400 per month.
- Government steps to increase formalization: simplified tax regime for SMEs Monotributo, electronic invoicing, temporary forgiveness of penalties for late registration.
- Competition Law implementation could help address barriers to entry.
- “Return Home” (Retorno al Hogar) plan includes housing and land subsidies, scholarships, apprenticeships, trainings (including financial literacy), and labor certification for returning migrants; staff recommends integrating these programs into the budget process and designing active labor market policies recognizing pressures from reduced emigration.
- Progress noted on participation of urban and rural women in the labor market; action plan for the Equal Participation in Employment and Entrepreneurship initiative launched in December 2024.

### Authorities’ Views (selected)
- Authorities assess the financial system as sound, well capitalized, liquid and profitable; expect private credit growth to continue moderating and are closely monitoring credit quality.
- They consider the Credit Risk Management Regulation effective in managing credit risks in banks and assess the severity of tariffs’ adverse impact as manageable.
- They view the impact of decelerating remittances on bank credit quality as limited and emphasize digitalization of financial services and the draft e-money law to improve financial inclusion.
- Authorities support replacing the 2002 Law on Banks and Financial Groups with a new law if Congressional support is secured.
- Authorities concur with channels of impact and policy recommendations under the adverse scenario but view a potential U.S. slowdown as likely less severe for Guatemala given lower growth synchronization with the U.S.

### Policy Response under a Downside Scenario
- Downside scenario (drawing on the RAM, Annex II) could combine a global slowdown, tighter international financing conditions, and additional obstacles to migration and remittances.
- Expected effects: lower growth and remittances; pressure on the labor market from falling net emigration; weaker commodity prices and reduced wage pressures easing inflation; tighter financial conditions and falling remittances exerting downward pressure on the exchange rate.
- Current account balance would remain in surplus due to import contraction (including lower FDI) partly offsetting reduced remittances and exports.
- Fiscal deficit would widen slightly, driven by lower VAT revenues on imports.

Recommended coordinated stabilization package under the downside scenario:
- Monetary: Some monetary policy easing could be possible given global disinflationary forces; Banguat should prioritize exchange rate flexibility to prevent further loss of competitiveness in the tradable sector.
- Fiscal: Support economic activity and vulnerable households by:
  - Allowing automatic stabilizers to work;
  - Accelerating execution of approved budget expenditures, particularly infrastructure projects (without compromising expenditure quality);
  - Deploying targeted social transfers (e.g., Bono Familia).
- A more adverse external environment would raise urgency of structural and governance reforms recommended under the baseline, particularly measures targeting informality in the labor market.

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

### 49.      Guatemala’s economy remains resilient and is generally well positioned to face rising

### Guatemala’s economy remains resilient and is generally well positioned to face rising external shocks and persistent domestic challenges.

### Outlook and growth challenges
- Prudent macroeconomic policies have delivered low inflation, robust policy buffers, and a sustained current account surplus.
- Despite a challenging political environment, recent unexpected legislative successes have boosted optimism about advancing reforms critical to fostering stronger and more inclusive growth.
- Sustaining growth momentum over the medium term requires determined policy implementation to raise private investment from current low levels by providing complementary public inputs— infrastructure, an educated and healthy workforce, and enhanced security—which in turn requires both more and higher-quality public spending.
- Staff welcomes efforts to enhance expenditure quality and efficiency through better budget formulation, targeting, execution, and control, alongside the swift implementation of the anti-corruption agenda.

### Fiscal stance, risks, and recommendations
- The 2025 expansionary fiscal stance is appropriate given projected softening in private demand.
- Historically high transfers to Departmental Development Councils (CODEDEs) warrant close monitoring to mitigate risks of misallocation and inefficiency.
- Ongoing multi-institutional efforts to strengthen transparency, accountability, and oversight of CODEDE transfers, as well as to build municipal capacity, are welcome and should be sustained.
- Medium-term fiscal sustainability requires revenue and expenditure reforms to accommodate higher infrastructure and social spending:
  - Fiscal deficits should converge to historical norms (around 2 percent of GDP) without jeopardizing investment priorities.
  - Enhance revenue mobilization as highlighted in the 2024 TADAT assessment and complement with comprehensive tax policy reforms in the medium term.
  - Systematic expenditure reviews and alignment of budgets with the National Development Plan would help target resources more effectively.
  - A new Public Procurement Law could ease constraints on capital spending execution.
  - Improved targeting of social programs would increase their impact.
  - Reinforce the Medium-Term Fiscal Framework and multiannual budgeting to bolster market confidence in fiscal sustainability.

### Debt management and financing strategy
- Guatemala’s strong credit profile enables access to external financing on favorable terms.
- Greater reliance on domestic funding under a credible medium-term debt management strategy would:
  - help reduce real appreciation pressures,
  - mitigate currency risks,
  - deepen domestic financial markets,
  - and lower the sterilization costs incurred by Banguat in maintaining price stability.
- Staff recommends:
  - consolidating domestic issuances,
  - introducing shorter-maturity instruments to develop the yield curve,
  - and regularly publishing the MTDS and annual borrowing plans.

### Monetary policy and exchange rate
- The current monetary policy stance is broadly appropriate; there is scope to further strengthen policy transmission.
- Given high global uncertainty, maintaining the current policy rate and awaiting clearer signals is prudent.
- Continued efforts to strengthen monetary policy transmission are warranted, including:
  - further development of financial markets,
  - greater competition in banking,
  - and reduced reliance on reserve requirements.
- These should be supported by improvements in the legal and operational framework for monetary policy.
- Banguat’s response to large remittance inflows—guided by an intervention rule—has been broadly appropriate but involved trade-offs: a relatively stable exchange rate and sizable sterilization costs.
- Strengthened policy coordination between Banguat and the Ministry of Finance could help alleviate sterilization costs (¶53).

### Financial sector soundness and supervision
- The banking sector appears sound, with strong capital and liquidity buffers and robust profitability.
- Already strengthened regulation and supervision should be reinforced by:
  - expanding risk-based supervision,
  - enhancing oversight of fintech and digital financial services.
- Priority reforms include:
  - revisions to the 2002 Law on Banks and Financial Groups,
  - transitioning to International Financial Reporting Standards,
  - advancing the draft Secondary Market Law,
  - approving the e-money law,
  - and implementing the financial inclusion strategy.

### Governance and structural reforms
- Strengthening governance and advancing structural reforms remain critical to fostering inclusive growth and restoring public trust.
- Legislative priorities include adopting:
  - a new AML/CFT law,
  - a Beneficial Ownership Law,
  - a new Public Procurement Law,
  - and a Law for the Protection of Whistleblowers.
- Given the forthcoming GAFILAT mutual evaluation in 2027, delays in passing the AML/CFT law could complicate Guatemala’s path to investment grade.
- Institutional gains—such as the establishment of the National Commission Against Corruption and rollout of probity offices across the executive branch—should be consolidated through a medium-term anti-corruption strategy.
- Amending the law on partnerships for development and adopting a new ports law would accelerate infrastructure investment, helping close persistent gaps and crowd in private investment.
- Continued efforts to formalize the economy and improve the business environment will help prepare Guatemala for the economic impact of declining net emigration.

### Box 1 — Remittances and external balance: key findings and policy implications
- Over two decades, remittances rose to nearly 20 percent of GDP; dollar amounts increased fourfold in the last decade alone.
- Remittances supported private consumption and GDP but altered external balance composition: the current account swung into positive territory in 2016 while exports as a share of GDP fell as gradual real appreciation eroded price competitiveness.
- Different EBA approaches conflict:
  - The current account model assesses external balance as stronger-than-fundamentals, suggesting an undervalued exchange rate.
  - REER models (levels and index) suggest a sizeable overvaluation.
- Large remittances create a wedge between quantity- and price-based assessments of external balance because remittances raise the external balance but do not reflect higher competitiveness.
- Banguat’s FX participation mechanism effectively operated as a “leaning against remittances” intervention rule:
  - While insufficient to fully neutralize appreciation pressures, it significantly dampened their effect.
  - Non-intervention would have reduced savings and the current surplus but increased REER-measured overvaluation and further harmed exports; full absorption would have preserved export price competitiveness but generated unjustifiably high private savings and larger sterilization costs.
- Guatemala’s large savings-investment balance stems from low investment, not high savings; reducing the excess balance should be achieved through higher investment.
- The expected reduction in remittances could ease appreciation pressures, but restoring export competitiveness will also require addressing infrastructure and other bottlenecks that inhibit private investment.

### Box 2 — Potential implications of changing trade policy on exports
- The US is the number one export market for Guatemala and most CAPDR countries; between a third and a half of exports of most CAPDR countries are destined for the US.
- CAPDR countries together account for around 1½ percent of all US imports; most CAPDR countries run bilateral trade deficits vis-à-vis the US, limiting direct trade-policy retaliation effects.
- Indirect channels through interplay with USMCA trade can affect Guatemala:
  - Complementarity channel: participation of Guatemala in USMCA-based supply chains (around one-tenth of total CAPDR export value added comes from Canada, Mexico and the US); Guatemala is less integrated into cross-border supply chains than other regional peers.
  - Substitution channel: similarity of CAPDR export baskets with Mexico’s, with many products exported to the U.S. also exported by Mexico and covered by USMCA, putting Guatemala at a disadvantage on the US market.
- In the medium term, Guatemala should prepare for policy-driven reshaping of global trade patterns; countries experienced in diversifying exports towards new markets will be favored.
- CAPDR countries have made progress in penetrating new markets (markets extensive margin) and in manufacturing exports, but taking advantage of these opportunities requires adequate infrastructure and complementary inputs.

### Box 3 — Spending efficiency and development outcomes
- Public spending remains too low and unevenly distributed to meet core development challenges.
- Key social and infrastructure shortfalls:
  - In rural areas, over half of the population lacks access to basic health services.
  - Preventable maternal and child mortality remains high.
  - Secondary school enrollment is below 50 percent.
  - Nearly one in five people lacks access to safe water and sanitation.
  - Social protection coverage reaches only around one in ten Guatemalans.
- Spending is often fragmented, poorly targeted, and skewed toward administrative costs rather than frontline services, limiting impact on poverty reduction and human capital development.
- Guatemala’s healthy life expectancy in 2024 is broadly consistent with its low level of public health spending, suggesting outcomes reflect a constrained fiscal envelope rather than marked inefficiency.
- Illustrative expenditure paths show that gradually increasing spending by 2 percentage points of GDP between 2024 and 2032—while shifting composition toward priority sectors—could accelerate progress toward sectoral frontiers.
- Country experiences show progress is possible with reprioritization and institutional support (examples: Peru, Vietnam, Ethiopia, El Salvador).

### Miscellaneous recommendation
- It is recommended that the next Article IV Consultation take place on the standard 12-month cycle.

*Source: IMF staff report (Guatemala).*

### Box 3. Figure 1. Healthcare Efficiency Frontier and Possible Expenditure Path for 2024-2032

### Box 3. Figure 1. Healthcare Efficiency Frontier and Possible Expenditure Path for 2024-2032

### Figure description and scenario
- Illustration compares Healthy life expectancy against Public health spending as a % of GDP, showing an Efficiency Frontier for Healthcare Spending (excluding Advanced Economies).
- An Illustrative Public Expenditure Path for 2024–2032 allocates public spending (percent GDP) across categories: Other, Infrastructure, Social assistance, Education, and Health.

### Key statistics and plotted values
- Healthy life expectancy axis: 0, 2, 4, 6, 8, 10, 12, 14, 16, 18, 20 (labels shown on x-axis timeline 2024–2032 for spending path).
- Healthy life expectancy markers: 40, 45, 50, 55, 60, 65, 70, 75 (vertical axis labels).
- Guatemala 2024 and Guatemala 2032 points indicated relative to the efficiency frontier.
- Efficiency Frontier for Healthcare Spending label present.
- Numerical labels shown near frontier/points: 6.6, 6.5, 1.8, 2.3, 0.5, 0.8, 3.2, 4.0, 2.5, 3.0 (these numbers appear in the figure context).
- Time series for illustrative public expenditure path: 2024, 2025, 2026, 2027, 2028, 2029, 2030, 2031, 2032 (x-axis).
- Expenditure categories plotted over 2024–2032: Public spending, Other, Infrastructure, Social assistance, Education, Health.

### Main findings and implications
- Moving closer to the efficiency frontier requires addressing institutional and structural inefficiencies in public spending.
- Guatemala has implemented public financial management reforms: changes to the budget process, introduction of results-based budgeting, and efforts to strengthen the multiannual fiscal framework.
- Persistent challenges include:
  - Fragmented planning and budgeting process with weak links between medium-term objectives and actual allocations.
  - Multiannual budget often lacks realism.
  - Significant sectoral allocation changes during budget approval and execution that reduce policy coherence.
  - Performance budgeting frameworks tend to focus on outputs rather than outcomes.
  - Limited strategic reviews of spending and lack of systematic evaluations.

### Institutional roles and suggested mechanisms
- Institutionalizing tools for spending evaluation could support regular assessments of expenditure quality:
  - Example: establishing a Value-for-Money function within the Ministry of Finance to identify reallocations from ineffective to higher-impact programs.
- Guatemala’s Directorate for Fiscal Policy Analysis (DAPF) could lead cross-ministry efforts to align spending with sectoral plans and development goals.

### Policy recommendations and required actions
- Define clear and realistic spending priorities anchored in development objectives.
- Support priorities with credible multiannual expenditure paths and mechanisms to track progress.
- Enhance use of the medium-term fiscal framework and improve indicator harmonization.
- Conduct strategic reviews of overlapping programs (example given: food security and nutrition).
- Institutionalize regular evaluations and strategic reviews to enable reallocations based on effectiveness.

### Risks of inaction
- Without a consistent and strategic increase in priority spending—anchored in clear development objectives and guided by stronger institutional processes—it will be difficult to:
  - Scale up essential public services.
  - Achieve targets set out in national development plans and the SDGs.

*Source: Authors’ elaboration based on data provided by the Guatemalan authorities.*

### Box 4. Figure 2. Time-Varying Pass-Through from Policy Rates to Bank Deposit Rates

### Box 4. Figure 2. Time-Varying Pass-Through from Policy Rates to Bank Deposit Rates

### Overview
- The chart panel presents time-varying estimates of the pass-through from policy rates to local currency deposit rates in Guatemala.
- Estimates are based on a regression model relating local currency deposit rates to: policy rates, cash ratios, banking system concentration, and their interaction terms.
- Two model variants are reported:
  - Model 1 (linear).
  - Model 2 (nonlinear) — imposes a non-negativity constraint on the marginal effect of the policy rate involving the interaction terms.
- Error bounds in Panel A are a 95th percent confidence interval estimated (simulated) from the two models.
- Source: Banco de Guatemala and IMF staff calculations.

### Model specification and sample
- Regression relates: local currency deposit rates = f(policy rates, cash ratios, banking system concentration, interactions).
- Model variants:
  - Model 1 (linear).
  - Model 2 (nonlinear; non-negativity constraint on marginal effect).
- Sample period: Jan 2010 - Mar 2025
- Observations (Obs.): 183
- R-square: 0.91 (Model 1) and 0.85 (Model 2)

### Key quantitative findings (Panels A–C)
- Panel A: Estimated pass-through coefficient (time series) with dotted lines showing 95th perc. confidence bounds (visual).
- Panels B and C: Cumulative contribution to change in pass-through of policy rate to deposit rate — cumulative contribution from Mar-2016 to Mar-2025, decomposed into:
  - Contribution from change in cash ratio
  - Contribution from change in banking system concentration
- Selected numeric shares and contributions (as reported in the figure/table):
  - Variance share:
    - Bank concentration: 73% (Model 1) and 21% (Model 2)
    - Cash ratio: 18% (Model 1) and 70% (Model 2)
    - Covariance: 9% (Model 1) and 10% (Model 2)
  - Contribution to change in marginal effect of policy rate since Mar-2016:
    - Bank concentration: 17 pp (Model 1) and 4 pp (Model 2)
    - Cash ratio: 38 pp (Model 1) and 30 pp (Model 2)

### Estimated interaction-term coefficients (Selected model metrics, coefficients with p-values)
- Coefficients on interaction terms (p-value in parentheses):
  - Bank concentration: -0.25 (0.01) in Model 1; -0.03 (0.01) in Model 2
  - Cash ratio: 0.09 (0.00) in Model 1; 0.05 (0.00) in Model 2

### Interpretation and contextual notes
- The nonlinear Model 2 constrains the marginal effect of the policy rate to be non-negative through interaction terms; this alters the decomposition of variance and contributions relative to Model 1.
- The error bounds in Panel A combine uncertainty from both models and reflect a 95th percent confidence interval.
- Footnotes and ancillary points included in the original figure:
  1. Prepared by Marco Gross (MCM).
  2. "The upward trend in the cash-in-total money ratio may be partly due by sustained inbound remittance flows to Guatemala and an alleged preference of the receivers for holding cash."
  3. "The remaining 9 percent of the variance of the marginal effect is attributable to the covariance between the two factors, implying that changes in banking concentration and cash ratios often moved together in a way that partially offset or amplified the net volatility in the marginal effect. This interdependence implies that the two drivers should be analyzed jointly, not in isolation."

*Source: Banco de Guatemala and IMF staff calculations.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- The external position of Guatemala in 2024 was stronger than the level implied by fundamentals and desirable policies.
- Current Account (CA) surplus: 2.9 percent in 2024 (3.1 percent in 2023).
- Remittance inflows: 19 percent of GDP in 2024.
- Trade balance: deficit of 15.5 percent of GDP in 2024 (15.1 percent in 2023).
- Net International Investment Position (NIIP) is on the verge of turning positive despite significant investment needs.
- Real effective exchange rate (REER) moderately appreciated.
- Net international reserves: US$22.9 billion at end-2024.

### Potential Policy Responses
- Root cause of CA gap: low investment.
- Recommended policy directions:
  - Eliminate long-standing structural gaps.
  - Raise public infrastructure spending.
  - Improve the quality of education and health.
  - Maintain a sustainable fiscal framework.
- Expected outcomes:
  - Spur private investment—including FDI—and associated imports, reducing the CA gap.
  - Transition from a remittances-led growth model toward a domestic-driven, sustainable, and inclusive growth model with higher capital formation, imports, and foreign investment inflows.
  - Help soften exchange rate pressures.

### Foreign Assets and Liabilities: Position and Trajectory
- 2024 changes:
  - Assets increased by US$6.4 billion.
  - Liabilities increased by US$4.1 billion.
- Gross Assets: 43.9 percent of GDP in 2024.
- Gross Liabilities: 44.8 percent of GDP in 2024.
- FDI annual liabilities: 1.6 percent of GDP in 2024 (in line with the average of the last 10 years, excluding the 2021 sale of Tigo Guatemala).
- FDI share of external liabilities: over 53 percent in 2024.
- Other investments: 26 percent of external liabilities in 2024.
- External debt: comprised more than half of external liabilities in 2024; about a quarter of GDP.
- Assessment: Projected NIIP path does not imply risks to external sustainability absent sustained trend changes in FDI or public sector external borrowing; NIIP projected to increase towards balance.

### Current Account
- Background:
  - CA surplus decreased from 3.1 percent of GDP in 2023 to 2.9 percent in 2024.
  - Remittances: 19 percent of GDP in 2024, more than offsetting the trade deficit (15.5 percent).
  - Exports of goods and services: decreased from 16.6 to 15.9 percent of GDP (volumes and prices increased).
  - Imports of goods and services: 31.4 percent of GDP in 2024 (inched down) amid strong growth in volumes and lower international commodity prices.
- Outlook:
  - Remittances: after accelerating in the first months of 2025, expected to decelerate later in 2025 and stabilize at lower levels in the medium term due to more restrictive U.S. migration policies.
  - Trade balance in goods: expected to deteriorate in the near term (external headwinds to exports, including tariffs).
  - Medium-term CA: projected to converge to a balanced position.
  - Staff’s baseline: does not assume trade diversification (upside risk).
- Assessment via EBA:
  - External Balance Assessment (EBA) suggests the external position in 2024 was stronger than consistent with fundamentals and desirable medium-term policies.
  - Table I.1 (EBA estimates) key figures for 2024:
    - CA-Actual (A): 2.9 (percent of GDP)
    - Cyclical contributions (B): 0.0
    - Adjusted CA (C = A - B): 2.9
    - CA Norm (D): -2.1
    - Adjustments to the norm (E): -2.0
    - Adjusted CA norm (F = D - E): -0.1
    - CA gap (G = C - F): 3.0
    - Contribution of identified policy gaps: 1.2
    - of which: Fiscal Balance: 1.4
    - Elasticity (H): 0.26
    - REER Gap (I = G / H): -11.5 (percent; "-" indicates undervaluation)
  - For comparison, 2023 EBA estimates are reported in the source.

### Real Exchange Rate
- Background:
  - REER appreciated by 2.2 percent in 2024.
  - REER appreciation since 2010: 52 percent.
  - REER appreciation since 2020: 4.9 percent.
  - Quetzal vs. U.S. dollar: quetzal appreciated by 1.5 percent from end-2023 to end-2024.
- Assessment:
  - EBA CA methodology implies the REER remains below the level implied by fundamentals, albeit by less than in 2023.
  - Under the assumption that the CA gap is closed by an adjustment in the trade balance, EBA implies a REER undervaluation of 11.5 percent in 2024 (vs. 14.6 percent in 2023).
  - EBA REER Level and Index models indicate REER overvaluation of 31.7 and 13.8 percent, respectively, in 2024.
  - Large remittances create a wedge between quantity- and price-based assessments of external balance, as remittance-driven surpluses do not reflect improved price competitiveness.

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Net FDI inflows: 1.6 percent of GDP in 2024 (below the 2011-15 average of 2.4 percent).
  - Portfolio investment inflows surpassed outflows in 2024, reflecting inflows generated from the issuance of Eurobonds by the central government (US$ 1.4 billions).
  - Other Investment outflows: reduced to US$2.3 billion in 2024 (vs. US$3.1 billion in 2023).
- Assessment:
  - No major macroeconomic risks from capital flows given their relatively low level.
  - Solid fiscal stance, low public debt and sizable reserves should be sufficient to address risks associated with large flows into Eurobonds.

### FX Intervention and Reserves Level
- Background:
  - Net International Reserves (NIR, IMF definition) increased from US$19.9 billion (163 percent of ARA metric) end-2023 to US$22.9 billion (175 percent) end-2024, supported by strong remittances and a US$1.4 billion Eurobond issued in August 2024.
  - Private sector capital outflows, specifically increased deposits abroad by non-financial corporations and households (Other Investment Net), have softened pressure on reserves and the exchange rate.
  - De facto exchange rate arrangement: classified as crawl-like (reclassified in 2025 from stabilized to crawl-like).
- Assessment:
  - End-2024 reserves equal 175 percent of the IMF’s metric for Assessing Reserve Adequacy (ARA metric) for countries with crawl-like/stabilized exchange rates like Guatemala.
  - Reserves cover:
    - More than 7 months of next year’s goods and services imports.
    - About 37 percent of broad money.
    - About 500 percent of short-term external debt on residual maturity.
  - FX interventions in 2024: net FX purchases reached US$1.9 billion (tilted towards buying foreign currency).

### Risk Assessment Matrix — Selected Risks and Policy Advice
- Global risks:
  - Trade policy and investment shocks: High likelihood / Medium impact.
    - Policy advice: Engage in negotiations, leverage trade agreements, explore new markets.
  - Sovereign debt distress: High likelihood / Low impact.
    - Policy advice: Adjust fiscal policy in line with the cycle, increase revenue, calibrate borrowing, strengthen policy coordination.
  - Tighter financial conditions and systemic instability: Medium likelihood / Medium impact.
    - Policy advice: Gradually adjust the policy rate, allow exchange rate to serve as a shock absorber, strengthen policy coordination.
  - Deepening geoeconomic fragmentation: High likelihood / Medium impact.
    - Policy advice: Accelerate structural investments, expand social programs, advance productivity-raising reforms, implement robust anti-corruption measures.
  - Cyberthreats and Climate change: Medium likelihood / Medium impact.
    - Policy advice: Provide liquidity support where needed, adopt contingency plans, enhance monitoring of exposures, deploy targeted support to affected areas.
- Regional and commodity risks:
  - Regional conflicts and commodity price volatility: Medium likelihood / Medium impact.
    - Policy advice: Gradually allow the exchange rate to serve as a shock absorber; deploy targeted social transfers; accelerate structural reforms.
- Domestic risks:
  - Social discontent: Medium likelihood / Low impact.
    - Policy advice: Build coalitions to accelerate structural investments and expand social programs; improve spending efficiency and transparency; advance anti-corruption measures.
  - Abrupt drop in remittances due to U.S. migration policy shifts: Medium likelihood / High impact.
    - Policy advice: Accelerate structural reforms; deploy targeted fiscal support to vulnerable groups; gradually allow the exchange rate to serve as a shock absorber on remittances.
  - Fall in net emigration due to U.S. migration policy shifts: Medium likelihood / High impact.
    - Policy advice: Deploy targeted social transfers to vulnerable segments; gradually allow the exchange rate to serve as a shock absorber.

### Public and External Debt Sustainability (DSA) — Summary
- Overall risk of sovereign stress: Moderate.
- Near-term: Medium term: Moderate.
- Public debt assessment summary:
  - Public debt assessed as moderate.
  - Public debt projected to climb above 30 percent of GDP with a 1.0 percent primary deficit to manage infrastructure and social spending investments.
  - Gross financing needs: about 3.6 percent in 2025; expected to be stable at around 4 percent over the medium term.
  - Financing sources: official external sources, domestic debt, Eurobonds, and accumulated cash.
  - Policy recommendation: Greater reliance on domestic financing under a sound medium term debt management strategy (MTDS) will help the macro-policy mix.
  - Broader coverage beyond the central government would aid a more comprehensive assessment.
- Debt coverage and disclosures:
  - Debt coverage in the DSA: central government (CG) included; other subsectors (Extra budgetary funds, Social security funds, State governments, Local governments, Public nonfinancial corporations, Central bank, Other public financial corporations) noted with inclusion flags in the source.
  - If central government: non-central government entities are insignificant (Yes).

*IMF staff estimates and assessments as presented in the source document.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Coverage and data gaps
- Coverage color code shown: █ chosen coverage     █ Missing from recommended coverage     █ Not applicable
- Holder / Issuer tabular excerpt (preserve formatting):
  - Budget. central govt01.801.801.705.3
  - Extra-budget. funds00000000
  - Social security funds00000000
  - State govt.00000000
  - Local govt.00000000
  - Nonfin pub. corp.00000000
  - Central bank00000000
  - Oth. pub. fin. corp00000000
  - Total001.801.801.705.3
- Comments on recording and coverage:
  - Basis of recording; Valuation of debt stock.
  - EBFs don't have bond instruments, only domestic banks credit.
  - Reporting on Intra-Government Debt Holdings: Nonfin. pub. corp.; GG: expected; State govt.; Local govt.; CG; CPS.
  - IPSGSs 3/ (Insurance, Pension, and Standardized Guarantee Schemes) typically including government employee pension liabilities.
  - Notes on accounting bases: non-cash basis 4/, cash basis; non-consolidated vs consolidated; other account payable 2/ could use stock of arrears as proxy.
- Data limitations and adjustments:
  - The MoF data does not include unpaid social contributions (6.2 percent of GDP) and Banguat's government receivables (3.4 percent of GDP) associated with Banguat's monetary policy operations.
  - Authorities' preliminary data on the Non Financial Public Sector debt suggests an adjustment of about -2 percent of GDP without including debt with the Social Security and the Central Bank.
  - The coverage in this SRDSA focuses on the central government due to data availability concerns for the broader public sector (historical availability and composition).
  - Authorities continue efforts to improve data timeliness, quality and coverage with IMF TA.

### Public debt composition, structure, and projections
- Perimeter notes:
  - Several figures note: "Note: The perimeter shown is central government." and "Note: The perimeter shown is general government." as indicated in the source.
- Currency composition and projection (figure caption excerpts preserved):
  - Projection timelines shown: 2015, 2017, 2019, 2021, 2023, 2025, 2027, 2029, 2031, 2033, 2035.
  - Charts distinguish Foreign currency vs Local currency.
  - Commentary: "The authorities are expected to continue to benefit from multilateral funding, eurobonds, and domestic banks. In the medium-term, the authorities are expected to shift from eurobnonds to local bonds gradually."
- Creditors and holders (percent of GDP) timelines preserved for 2015–2023 and projections beyond:
  - External private creditors, External official creditors, Domestic other creditors, Domestic commercial banks, Domestic central bank.
- Governing law and debt instruments noted (central government):
  - Domestic law vs Foreign law ex. multilateral; Multilateral.
  - Marketable debt vs Nonmarketable debt shown over 2020–2030.
- Maturity profile:
  - Residual maturity: 15.  years
  - Maturity buckets shown: ≤ 1 year, 1-5 years, > 5 years with timelines 2020–2030 and projections.

### Baseline scenario and realism of assumptions
- Table/figure captions preserved: "Table 3. Guatemala: Baseline Scenario (Percent of GDP unless indicated otherwise)" and "Figure 2. Guatemala: Realism of Baseline Assumptions".
- Realism analysis highlights (verbatim from source):
  - "Realism analysis does not point to major concerns. The forecast track record is generally within bounds for optimism. Debt creating flows show primary deficit and real interest rate nad relative inflation contribute to debt. The risk premium is expected to remain relatively constant."
- Forecast track record and comparator notes:
  - Forecast vintages: "Projections made in the October and April WEO vintage."
  - Comparator Group: Emerging Markets, Non-Commodity Exporter, Surveillance.
- Debt-creating flows and adjustment capacity:
  - 3-Year Debt Reduction: distribution details and references to percentile ranks (e.g., 3-year debt reduction above 75th percentile (5.9 ppts of GDP); percentile rank 44.1).
  - 3-Year Adjustment in Cyclically-Adjusted Primary Balance (percent of GDP) and Fiscal Adjustment and Possible Growth Paths are presented with multipliers (Multiplier=0.5, Multiplier=1, Multiplier=1.5) in the figure captions.

### Medium-term risk analysis and stress testing
- Debt fanchart module:
  - Fanchart width13.20.2 (percent of GDP)
  - Debt fanchart index (DFI) 1.5
  - Terminal debt-to-GDP x 23.00.5
  - Risk signal: 3/ Moderate
- Gross Financing Needs (GFN) module:
  - Average baseline GFN3.91.3 (percent of GDP)
  - Initial Banks' claims on the gen. govt (pct bank assets) 16.15.2
  - Chg. In banks' claims in stress (pct banks' assets) 11.23.8
  - GFN financeability index (GFI)10.3
  - Risk signal: 4/ Moderate
- Final medium-term assessment and probabilities:
  - Final assessment: Prob. of missed crisis, 2025-2030, if stress not predicted: 18.2 pct.
  - Prob. of false alarms, 2025-2030, if stress predicted: 38.6 pct.
  - Commentary summary from source:
    - "The medium-term risks are estimated to be moderate by the probabilistic analysis and the GFN financiability module, with a medium-term index below the low risk threshold. The Debt Fanchart Module is moderate partly due to relatively low uncertainty in debt projections. The GFN module indicates moderate risks due to low GFN in the baseline and relatively stable bank claims on government. The stress tests show that GFN and debt remain on relatively low levels. The contingent stress scenario shows a one-time increase in the stock of debt from 27 to 37 percent of GDP. However, debt levels in the stress scenarios remain below the median country."
- Stress test triggers and depiction:
  - Several stress test visual elements preserved: triggered stress tests (stress tests not activated in gray); financing provided by banks; Actual vs Baseline vs Stress scenario timelines.

### Key statistics and indicators (verbatim values preserved)
- Unpaid social contributions: 6.2 percent of GDP
- Banguat government receivables associated with monetary policy: 3.4 percent of GDP
- Authorities' preliminary NFPS adjustment: about -2 percent of GDP
- Residual maturity: 15.  years
- Fanchart width: 13.20.2 (percent of GDP)
- Debt fanchart index (DFI): 1.5
- Terminal debt-to-GDP x: 23.00.5
- Average baseline GFN: 3.91.3 (percent of GDP)
- Initial banks' claims on general government (pct bank assets): 16.15.2
- Change in banks' claims in stress (pct bank assets): 11.23.8
- GFN financeability index (GFI): 10.3
- Final assessment probabilities:
  - Prob. of missed crisis, 2025-2030: 18.2 pct.
  - Prob. of false alarms, 2025-2030: 38.6 pct.

### Policy implications and considerations (from source commentary)
- Data and coverage:
  - Continue efforts to improve data timeliness, quality and coverage with IMF TA to better capture broader public sector liabilities (notably Social Security and Central Bank exposures).
- Financing strategy:
  - Authorities expected to continue leveraging multilateral funding, eurobonds, and domestic banks in the near term, with a medium-term shift from eurobonds to local bonds gradually.
- Risk monitoring:
  - Given moderate medium-term risk signals from the Debt Fanchart and GFN modules, maintain monitoring of bank claims on government and GFN trajectories; scenario analysis suggests contingent liabilities can raise debt from 27 to 37 percent of GDP in a one-time shock but remain below peer medians.

*Source: IMF staff estimates and projections.*

### 1.      Guatemala’s external debt (sovereign and private) to GDP is low and resilient to standard

### 1. Guatemala’s external debt (sovereign and private) to GDP is low and resilient to standard DSA-shocks

### Baseline trends and composition
- External debt as a share of GDP declined from 37.4 percent of GDP in 2013 to 23.4 percent of GDP in 2024.
- Under the baseline scenario, external debt is projected to continue its downward trend, declining below 21 percent in 2030 (baseline projection: 20.7 percent in 2030; debt-stabilizing non-interest current account: -1.6).
- Private sector external debt contributed most to the decline between 2013 and 2024:
  - External private bank debt fell from 8.2 percent of GDP in 2013 to 5.9 percent of GDP in 2024.
  - Nonbank private sector external debt fell from 19.3 percent of GDP in 2013 to 8.0 percent of GDP in 2024.
- Official external debt ratio declined from 14.3 percent of GDP in 2013 to 12.2 percent of GDP in 2024.

### Identified external debt-creating flows and automatic dynamics (selected from Table 1)
- Change in external debt (yearly): 2020: 0.3; 2021: -2.2; 2022: -4.5; 2023: -1.7; 2024: -0.4; 2025: -0.9; 2026: -0.2; 2027: -0.1; 2028: -0.6; 2029: -0.5; 2030: -0.4.
- Identified external debt-creating flows (4+8+9): 2020: -6.3; 2021: -8.9; 2022: -4.8; 2023: -6.2; 2024: -5.7; 2025: -4.5; 2026: -3.7; 2027: -3.1; 2028: -2.6; 2029: -2.2; 2030: -1.8.
- Current account deficit, excluding interest payments: 2020: -6.1; 2021: -3.1; 2022: -2.1; 2023: -4.1; 2024: -4.0; 2025: -4.0; 2026: -3.3; 2027: -2.6; 2028: -2.0; 2029: -1.4; 2030: -0.9.
- Automatic debt dynamics components (selected): Contribution from nominal interest rate: 2020: 1.1; 2021: 0.9; 2022: 0.9; 2023: 1.1; 2024: 1.1; 2025: 1.1; 2026: 1.0; 2027: 1.0; 2028: 1.0; 2029: 0.9; 2030: 0.9.
- Contribution from real GDP growth: 2020: 0.6; 2021: -2.3; 2022: -1.1; 2023: -0.8; 2024: -0.8; 2025: -0.8; 2026: -0.7; 2027: -0.7; 2028: -0.7; 2029: -0.8; 2030: -0.7.
- Residual, including change in gross foreign assets (2-3): 2020: 6.6; 2021: 6.6; 2022: 0.3; 2023: 4.5; 2024: 5.3; 2025: 3.5; 2026: 3.5; 2027: 3.1; 2028: 2.0; 2029: 1.7; 2030: 1.4.

### External vulnerability indicators
- External debt-to-exports ratio: 2020: 196.2; 2021: 169.3; 2022: 133.8; 2023: 142.7; 2024: 146.9; 2025: 150.6; 2026: 156.5; 2027: 156.1; 2028: 151.8; 2029: 145.9; 2030: 140.9.
- Gross external financing need (US$ billions): 2020: 1.7; 2021: 3.3; 2022: 5.0; 2023: 1.3; 2024: 0.8; 2025: 0.9; 2026: 2.3; 2027: 2.6; 2028: 3.7; 2029: 4.1; 2030: 4.4.
- Gross external financing need (in percent of GDP): 2020: 2.2; 2021: 3.8; 2022: 5.3; 2023: 1.3; 2024: 0.7; 2025: 1.0; 2026: 1.8; 2027: 1.9; 2028: 2.4; 2029: 2.5; 2030: 2.5.

### Key macroeconomic assumptions (selected)
- Real GDP growth (in percent): 2020: -1.8; 2021: 8.0; 2022: 4.2; 2023: 3.5; 2024: 3.7; 2025: 3.5; 2026: 2.4; 2027: 3.8; 2028: 3.6; 2029: 3.6; 2030: 3.7; long-run: 3.8; scenario: 3.9.
- Nominal external interest rate (in percent): 2020: 3.4; 2021: 3.2; 2022: 3.4; 2023: 4.6; 2024: 5.0; 2025: 3.8; 2026: 0.6; 2027: 4.9; 2028: 5.0; 2029: 4.8; 2030: 4.6; long-run: 4.4; scenario: 4.5.
- Growth of exports (US dollar terms, in percent): 2020: -6.5; 2021: 19.9; 2022: 19.0; 2023: -4.4; 2024: 3.8; 2025: 4.0; 2026: 9.0; 2027: -0.1; 2028: 2.8; 2029: 7.6; 2030: 7.9; long-run: 9.5; scenario: 10.0.

### Stress-test scenarios and main risks
- Largest identified downside risk is a large depreciation shock: a one-time real depreciation of 30 percent occurring in 2026 would raise the external debt ratio to 33.6 percent of GDP in 2026 (figure annotations).
- A current account shock (non-interest current account shock) would increase the external debt to GDP ratio to 24.6 percent of GDP by 2030, interrupting the downward trend in the baseline.
- Other scenario results shown in bound tests:
  - Interest rate shock, growth shock, combined shock, and historical scenarios were analyzed; baseline external debt level shown as 21 (percent) in chart labels.
  - Individual shocks are permanent one-half standard deviation shocks; one-time real depreciation of 30 percent is applied in 2026 for that specific scenario.
  - Gross financing need under baseline and historical scenarios are presented in the bound-test figures.

### Implications
- Guatemala’s external debt-to-GDP ratio is low relative to historical peaks and is projected to decline further under baseline assumptions, supported by falling private external debt and stable official debt ratios.
- The debt profile is sensitive to exchange rate shocks and current account shocks; a large depreciation (30 percent) represents the most significant stress to the external debt ratio in the DSA scenarios.

*International Monetary Fund — Guatemala: External Debt Sustainability Framework, 2020–2030 (excerpts).*

### Annex VI  . Data Issues

### Annex VI. Data Issues

### Data Adequacy Assessment
- Data Adequacy Assessment Rating 1/: B
- Median Rating (by sector): B B B B B B B
  - National Accounts: B
  - Prices: B
  - Government Finance Statistics: B
  - External Sector Statistics: B
  - Monetary and Financial Statistics: B
  - Inter-sectoral Consistency: B
- Overall questionnaire assessment: based on a standardized questionnaire and scoring system (see IMF, 2024, Review of the Framework for Data Adequacy Assessment for Surveillance, Appendix I).

### Detailed Questionnaire Results and Data Quality Characteristics
- Data Quality Characteristics assessments (selected):
  - Coverage: B B B A A
  - Granularity3/: B   B B B (top and bottom cells correspond to different subcomponents as noted in the source)
  - Consistency:     B B   B
  - Frequency and Timeliness: B A A B A
- Note: When the questionnaire does not include a question on a specific dimension of data quality for a sector, the corresponding cell is blank.
- Granularity footnote 3/: Top cell for "Granularity" of Government Finance Statistics = granularity of reported government operations data; bottom cell = public debt statistics. Top cell for "Granularity" of Monetary and Financial Statistics = granularity of Monetary and Financial Statistics data; bottom cell = Financial Soundness indicators.

### Rationale, Recent Changes, and Data Gaps
- Rationale for staff assessment: The data provided to the Fund has some shortcomings but is broadly adequate for surveillance.
- Key data limitations noted:
  - Data availability remains limited in certain areas, such as the labor market, the Producer Price Index (PPI), and the Balance of Payments (BoP).
  - Coverage of government finance statistics is currently confined to the central government; efforts are underway to expand the perimeter to the nonfinancial public sector.
- Changes since the last Article IV consultation:
  - New CPI index was published in 2024 (covering data since January 2024), with December- 2024 as the reference period (replacing December 2010).
  - Weights in the new index were calculated based on the 2022-2023 National Household Income and Expenditure Survey (ENIGH).
  - The CPI index was again updated in early 2025, with an average of 2024 as a reference period.
  - The authorities have not published the weight effect study to judge the impact of changes of basket weights on inflation.
  - Authorities are considering requesting TA on the CPI diagnostics.
  - Progress on GFSM data compilation to expand coverage beyond central government: historical flow reports (2013-2024) published; work continues on balance sheets.
  - Banguat and the National Institute of Statistics (INE) signed the MoU in late 2023 with the timeline for the publication of timely labor market data.
  - The first quarterly labor report, covering data for October-December 2024, is expected to be published in 2025.
  - Banguat is piloting regional GDP calculations, with first results expected by late 2025.
  - Updates planned: GDP to the 2025 SNA and BoP to BPM7, both expected to be finalized by 2029.
  - Work on environmental macroeconomic accounting expected to be finalized in 2026.
- Use of data in Article IV consultations: Staff do not use data different from official statistics.
- Other data gaps: Further progress in enhancing data coverage and dissemination will be beneficial for staff analysis.
- Capacity constraints: The capacity of INE (the central statistical office) remains limited.

### Corrective Actions and Capacity Development Priorities
- During the 2025 Article IV consultation staff discussed data adequacy with the authorities; authorities have made some advances in CPI and labor market data and continued working on other important data initiatives.
- Capacity Development (from Annex VII, summary): Key priorities include mobilizing revenues, enhancing public financial management, strengthening monetary policy and central bank operations, enhancing financial supervision, financial integrity and the compilation of government financial statistics.

### Data Standards Initiatives and Table of Common Indicators Required for Surveillance (selected entries, As of July 15, 2025)
- Participation: Guatemala participates in the Enhanced General Data Dissemination System (e-GDDS) and publishes data on its National Summary Data Page since November 2020.
- Selected Table of Common Indicators (as reported):
  - Exchange Rates
    - Date of Latest Observation: 8- July-25
    - Date Received: 8- July-25
    - Frequency of Data: D
    - Frequency of Reporting: D
    - Expected Timeliness: ... 30D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities1
    - Date of Latest Observation: 7- July-25
    - Date Received: 8- July-25
    - Frequency of Data: D
    - Frequency of Reporting: D
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 1M
    - Expected Timeliness: 30D
  - Reserve/Base Money
    - Date of Latest Observation: 26-June-25
    - Date Received: 3-July-25
    - Frequency of Data: W
    - Frequency of Reporting: W
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 2M
    - Expected Timeliness: 30D
  - Broad Money
    - Date of Latest Observation: 26-June-25
    - Date Received: 3- July-25
    - Frequency of Data: W
    - Frequency of Reporting: W
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 1Q
    - Expected Timeliness: 30D
  - Central Bank Balance Sheet
    - Date of Latest Observation: June-25
    - Date Received: 4- July-25
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 2M
    - Expected Timeliness: 30D
  - Consolidated Balance Sheet of the Banking System
    - Date of Latest Observation: May-25
    - Date Received: 26-June-25
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 1Q
    - Expected Timeliness: 30D
  - Interest Rates2
    - Date of Latest Observation: 26-June-25
    - Date Received: 3-July-25
    - Frequency of Data: W
    - Frequency of Reporting: W
    - Publication under the Data Standards Initiatives: M M
    - Expected Timeliness: ... 10D
  - Consumer Price Index
    - Date of Latest Observation: Jun-25
    - Date Received: July-25
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 2M
    - Expected Timeliness: 2W
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government3
    - Date of Latest Observation: May-25
    - Date Received: June-25
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Publication under the Data Standards Initiatives: Q M
    - Expected Frequency: 1Q
    - Expected Timeliness: 1M
  - Stocks of Central Government and Central Government‑Guaranteed Debt5
    - Date of Latest Observation: May-25
    - Date Received: June-25
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Publication under the Data Standards Initiatives: Q ... 2Q ...
  - External Current Account Balance
    - Date of Latest Observation: 2025Q1
    - Date Received: July-25
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Publication under the Data Standards Initiatives: Q Q
    - Expected Frequency: 1Q
    - Expected Timeliness: 100D
  - Exports and Imports of Goods and Services
    - Date of Latest Observation: Mar-25
    - Date Received: 30-Apr-25
    - Frequency of Data: M
    - Frequency of Reporting: M
    - Publication under the Data Standards Initiatives: M M
    - Expected Frequency: 12W
    - Expected Timeliness: 45D
  - GDP/GNP
    - Date of Latest Observation: 2025Q1
    - Date Received: Jul-25
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Publication under the Data Standards Initiatives: Q Q
    - Expected Frequency: 1Q
    - Expected Timeliness: 100D
  - Gross External Debt
    - Date of Latest Observation: 2024Q4
    - Date Received: Apr-25
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Publication under the Data Standards Initiatives: Q ... 2Q ...
  - International Investment Position
    - Date of Latest Observation: 2025Q1
    - Date Received: July-25
    - Frequency of Data: Q
    - Frequency of Reporting: Q
    - Publication under the Data Standards Initiatives: A Q
    - Expected Frequency: 3Q
    - Expected Timeliness: 100D
- Footnotes (selected, preserved verbatim where present):
  - 1 Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions.
  - 2 Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
  - 3 Foreign, domestic bank, and domestic nonbank financing.
  - 4 The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
  - 5 Including currency and maturity composition.
  - 6 Frequency and timeliness legend: (“D”) daily; (“W”) weekly or with a lag of no more than one week after the reference date; (“M”) monthly or with lag of no more than one month after the reference date; (“Q”) quarterly or with lag of no more than one quarter after the reference date; (“A”) annual.; ("SA") semiannual;  ("I") irregular; ("NA") not available or not applicable; and ("NLT") not later than.
  - 7 Encouraged frequency of data and timeliness of reporting under the e-GDDS and required frequency of data and timeliness of reporting under the SDDS and SDDS Plus. Any flexibility options or transition plans used under the SDDS or SDDS Plus are not reflected.
  - 8 Based on the information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board.

*Source: 1gtmea2025001-source-pdf - Annex VI  . Data Issues*

### 1.      The main CD objectives focus on consolidating past achievements and making further

### 1. The main CD objectives focus on consolidating past achievements and making further progress on macro-critical reform areas.

### Capacity Development (CD) main workstreams and focus
- Revenue administration
  - Implementation of analytical tools for tax data analysis, and electronic auditing to strengthen compliance and enhance tax revenue management.
  - A TADAT follow-up is envisaged for FY26.
- Public Financial Management
  - Strengthen the medium-term fiscal framework with focus on increasing efficiency, transparency, accountability, and public spending efficiency while maintaining fiscal sustainability.
  - Convergence to the International Public Sector Accounting Standards (IPSAS) included as part of diagnosis and digitization strategy.
  - Development of the local currency bond market accompanies these efforts.
- Central Bank Operations and Monetary and Macroprudential Policies
  - Enhance the inflation targeting framework through strengthening the Forecasting and Policy Analysis System (FPAS) and developing a communication strategy.
- Financial Supervision and Regulation
  - Strengthen credit risk supervision, cybersecurity regulations, and supervisory frameworks.
- Financial Integrity
  - Strengthen the overall AML/CFT regime by developing and implementing a sound and effective risk-based approach to AML/CFT supervision.
  - Provide assistance and recommendations to further reform and strengthen the legal and regulatory framework in line with the FATF international standard.
- Governance Finance and Real Sector Statistics
  - Compilation and consolidation of public sector balances and consistency of NFPS flows and stocks.

### IMF Capacity Development missions (January 2022–May 2026) — selected activities and dates
- Revenue Administration and Customs (selected)
  - Revenue Administration – Governance: CAPTAC-DR March 2025
  - Customs Administration – Risk management: CAPTAC-DR November 2024
  - Risk Management - Compliance Improvement Plan: CAPTAC-DR October 2024
  - New Customs Clearance Model for Sea Cargo operations: CAPTAC-DR August 2024 and March 2025
  - Strengthening tax revenue management: CAPTAC-DR July 2024; FAD June 2023; FAD July-August 2023
  - Tax Administration Diagnostic Assessment Tool (TADAT): CAPTAC-DR May-Jun 2024
  - Strengthen Compliance Risk Management: FAD March 2024
  - Dashboard on segmentation of operators based on risk analysis: CAPTAC-DR September 2023
  - Risk Analysis Data Assessment: CAPTAC-DR Jun 2023
  - Strengthening Sectorial Post Clearance Audit: CAPTAC-DR Jun 2023
  - Customs Anti-fraud strategy – Post Clearance Audit: FAD March 2023
  - Sea cargo process modeling and digitalization of customs processes: CAPTAC-DR November 2022
- Public Financial Management (selected)
  - Diagnostic Asset and liability management: FAD March 2025
  - IPSAS - Implementation diagnosis and digitization strategy: FAD December 2024
  - Digital PFM modernization: FAD, CAPTAC-DR July 2024, October 2024
  - Budget – Improvement in sensitivity analysis for macro fiscal projections medium term: FAD March 2024
  - Public Investment Management Assessment (PIMA) with Climate module (C-PIMA): FAD May-June 2023
  - Fiscal Transparency Evaluation (FTE) Update: FAD September 2022
  - Fiscal Sustainability Model: FAD January 2022
- Debt Management
  - Medium-Term Debt Management Strategy (MTDS): MCM October 2024
- Financial Integrity
  - Strengthening AML/CFT Risk-based Supervision/Legal and Regulatory Framework: LEG June 2021 – December 2024
- Monetary Policy and Central Bank Operations
  - Strengthening FPAS: CAPTAC-DR March 2025
  - Exploring CBDC—Legal Prerequisites, Macro-Financial Implications, and Design Options: MCM January 2025
  - Monetary and Macroprudential Policies - Inflation Targeting: CAPTAC-DR October 2024
  - Macroeconomic Model Development: CAPTAC-DR August-September 2023; November-December 2023; January, September, and October 2024
- Financial Supervision and Regulation (selected)
  - Credit Risk Supervision: CAPTAC-DR January 2025
  - Basel Standards – Capital Buffers: CAPTAC-DR February 2024
  - Basel Standards – Liquidity: CAPTAC-DR November 2023
  - Cybersecurity: CAPTAC-DR December 2022
- Real and Government Statistics (selected)
  - CPI – Update CPI basket and weights: STA September 2024; STA July 2023
  - PSFC Compilation and Consolidation: STA November 2023
  - GFS/PSDS: Compilation Public Sector Balance and Financial Liabilities: STA Jun 2023
  - Government Finance Statistics and Public Sector Debt Statistics: STA September 2022, December 2024; STA May 2022
  - Price Statistics: STA June 2022

### Planned IMF CD missions in FY 2026 (As of May 2025) — objectives by workstream
- Revenue Administration, Customs and Tax Policy
  - Strengthened revenue administration through the implementation of analytical tools for tax data, and electronic auditing. A follow-up TADAT.
  - Improved customs administration functions including new customs clearance model for sea cargo operations, control of special regimes, and data management and analytics.
- Public Financial Management and Budget Planning
  - Fiscal Risks Management: Strengthened identification, monitoring, and management of fiscal risks.
  - Coverage and Quality of Fiscal Reporting: Support for the convergence of IPSAS.
  - Assets and Liabilities Management: Support for the definition of the digital Treasury model.
  - Public Debt Management: Development of the local currency bond market.
- Monetary and Macroprudential Policies and Central Bank Operations
  - FPAS institutional process follow up.
  - Central Bank Monetary Policy Operations and Balance Sheet: Communications strategy development.
- Financial Supervision and Regulation
  - Follow-up on the Net Stable Funding Ratio (NSFR) implementation; and credit risk supervision.
- Financial Integrity
  - AML/CFT Legal and Regulatory Framework: Provide assistance and recommendations to strengthen/reform legal and regulatory AML/CFT Framework in line with FATF standard.
- Real and Government Statistics
  - Strengthen compilation and dissemination of Government Finance Statistics (GFS/PSDS).
  - NFPS consistency of flows and stocks.

### Macro-financial and institutional context — key statistics and facts
- Membership status: Joined December 28, 1945; Article VIII.
- Quota: 428.60 SDR Million (100.00 percent of quota)
- Fund holding of currency: 373.97 SDR Million (87.25 percent of quota)
- Reserve Tranche Position: 54.69 SDR Million (12.76 percent of quota)
- Net cumulative SDR allocation: 611.70 SDR Million (100.00 percent of allocation)
- SDR Holdings: 527.90 SDR Million (86.30 percent of allocation)
- Outstanding Purchases and Loans: None
- Recent financial commitments (Arrangements listed): Stand-by arrangements (historical) with Amount Approved (SDR Million): 630.60; 84.00; 84.00 (all Amount Drawn listed as 0.00)
- Outright Loans: RFI 06/10/2020 commitment, Amount Approved 428.60 (Amount Drawn 0.00)
- Projected payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs, as of June 30, 2025): Charges/Interest — 2025: 1.24; 2026: 2.45; 2027: 2. 45; 2028: 2.45; 2029: 2.45. Total — 2025: 1.24; 2026: 2.45; 2027: 2.45; 2028: 2.45; 2029: 2.45.
- Exchange rate arrangement
  - De jure floating; de facto classified as "crawl   -like".
  - Fluctuation margin determining intervention was increased to 1 percent at the beginning of 2025 (up from 0.80 percent in 2020 and 0.95 percent in 2024).
- Net International Reserves (NIR, IMF definition)
  - US$19.9 billion (163 percent of Assessing Reserve Adequacy (ARA metric)) at end-2023.
  - US$22.9 billion (175 percent of ARA metric) at end-2024.
  - As of August 2025, reserves cover over 9 months of imports and approximately 40 percent of broad money.

### Recent economic developments, outlook, and risks — key findings and projections
- Growth
  - Real GDP expanded 3.7 percent in 2024.
  - Preliminary growth of 3.9 percent (y-o-y) in Q1 2025.
  - Staff baseline projection: economic growth expected to reach 3.8% in 2025.
  - Beyond 2025, growth projected to slightly exceed 3.5 percent.
  - Authorities' central bank projects growth close to 4 percent over the medium term.
- External position and financing
  - Current account: surplus in recent years (no explicit percent provided in source).
  - Public debt: under 27 percent of GDP (noted as the lowest among Western Hemisphere countries with market access).
  - Eurobond issuances: US$1.4 billion in August 2024; US$1.5 billion in July 2025.
  - S&P upgraded sovereign credit rating to BB+ in May 2025.
- Inflation and monetary policy
  - Monetary Board reduced policy interest rate by twenty-five basis points to 4.25 percent (decision referenced as "last week" relative to the document timing).
  - Headline inflation: 1.2 percent in July (year not explicitly restated in snippet), below Banguat’s 4 percent +/- percent target.
  - Core inflation remains close to 4 percent.
  - Authorities expect inflation to return to the lower limit of the target (4 percent +/- 1 percent) during the first quarter of 2026 and be close to the midpoint by the end of this year.
  - Banguat accumulated large buffers since mid-2010s; reserves assessed as adequate in current environment.
  - Authorities endorse gradual enhancement of exchange rate flexibility and continue foreign exchange interventions limited to mitigating excessive market volatility.
- Financial inclusion and sector development
  - Authorities’ 2024-2027 financial inclusion strategy (central bank-led) aims to expand digitalization, improve financial literacy, enhance consumer protection, and expand banking services to SMEs, youth, women, and rural areas.
- Fiscal policy and public finances
  - Tax revenues increased from 10 to 11.8 percent between 2020 and 2024.
  - Authorities' tax target: 12.5 percent of GDP.
  - Government expenditure in 2024: 14.6 percent of GDP.
  - Revenues in 2024: around 12 percent of GDP.
  - Combined spending on education, health, and social assistance in 2024: below 6 percent of GDP.
  - Capital spending in 2024: 2.4 percent of GDP.
  - 2025 original budget approved in December 2024 targeted an overall deficit of 3.2 percent of GDP.
  - A supplementary budget in February 2025 raised the deficit (exact revised deficit value not provided in supplied excerpt).
- Policy priorities and reforms
  - Revenue side: strengthen tax administration capacity, broaden tax base, mandatory electronic invoice system implemented by SAT, increased audits on high-net-worth individuals and large corporations, crackdown on goods smuggling.
  - Expenditure side: improve spending quality and efficiency, better planning and prioritization of infrastructure, strengthen execution capacity at local level, implement results-based execution and monitoring tools, consider new Public Procurement law to alleviate execution bottlenecks, improve targeting in social programs.
  - Strengthen Medium-Term Fiscal Framework and multiannual budget planning underpinned by realistic, sector-informed projections to bolster confidence and fiscal sustainability.

*Source: IMF staff report content (as supplied).*

### 3.8 percent of GDP. Although the 2025 expansionary fiscal stance is appropriate, structural

### Guatemala: Fiscal, Financial, and Governance Assessment

### Fiscal stance, capital spending, and CODEDEs transfers
- 2025 expansionary fiscal stance is appropriate, but structural bottlenecks and recently strengthened anti-corruption controls are likely to limit the execution of capital spending.
- Deficit projected at around 2½ percent of GDP, well below the revised budget of 3.8 percent of GDP.
- Historically high transfers to Departmental Development Councils (CODEDEs) amount to 1.3 percent of GDP and require close oversight and monitoring amidst concerns of elevated risks of misallocation and inefficient use.
- Continued collaborative efforts among multiple institutions to enhance transparency, accountability, monitoring of CODEDEs transfers, and the capacity of municipalities are commendable and should be maintained.

### Financial sector performance and risks
- Authorities consider the banking sector to be sound; the overall financial system remains resilient.
- In 2024, bank credit to the private sector grew by 12.3 percent, financed by growth in customer deposits, which represented 90 percent of the total bank’s liabilities at the end-2024.
- Nominal credit growth is coming down, though real growth remains robust.
- According to the central bank, credit would grow by around 10 percent in 2025, supporting productive activity.
- Aggregate capital and liquidity ratios are above the statutory minimum, and profitability is strong.
- Non-Performing Loans (NPLs) remained stable at 2.5 percent as of end-June 2025, unchanged from end-2024; NPLs are primarily concentrated in consumer, microcredit, and mortgage portfolios.
- Aggregate provisioning coverage decreased to 125 percent, compared to 135 percent at end-2024, indicating a slight moderation in buffers against potential credit risks.
- Under Guatemala’s updated Credit-Risk Regulation JM-47-2022—in force since January 2024—coverage is higher (153 percent by mid-2025).

### Regulatory and inclusion initiatives
- The Superintendency of Banks (Superintendencia de Bancos, SIB) has strengthened banking supervision with enhanced stress testing, stricter reporting requirements for systemic risks, and advanced regulatory measures on credit cards, operational risks, electronic payments, and voluntary inclusion of savings and credit cooperatives in the Credit Risks Information System.
- The SIB considers the Credit Risk Management Regulation as effective in managing credit risks in banks.
- Continued advancements in the digitalization of financial services, including the draft e-money law, could help improve financial inclusion.
- Crucial steps include adopting revisions to the 2002 Law on Banks and Financial Groups, completing the transition to International Financial Reporting Standards, approving the Secondary Market Law, and continuing implementation of other elements of the financial inclusion strategy.

### Governance and structural reform agenda
- In 2024, the government launched the National Commission Against Corruption (CNC) to establish mechanisms for detecting and preventing corruption, promote transparency in public management, and collaborate with civil society and other stakeholders.
- The CNC has introduced probity offices in the Executive Branch to establish an integrity system focused on accountability, institutional strengthening, and long-term efficiency.
- The country registered in 2024 its first-in-a-decade upgrade on Transparency International’s corruption perceptions index.
- The CNC is leading the preparation of the national anti-corruption strategy, expected in the second half of 2025.
- Key legislative priorities include:
  - Beneficial Ownership Law
  - Public Procurement Law
  - Law for the Protection of Whistleblowers to ensure secure reporting channels and legal safeguards
  - Adoption of a revised AML/CFT law aligned with international standards (crucial for achieving a positive outcome in GAFILAT’s 2027 evaluation)

### Final remarks and policy implications
- The Guatemalan economy continues to show stability and soundness with inflation on target, ample international reserves, contained fiscal deficits, and a low public debt-to -GDP.
- The administration needs to advance the structural reform agenda to continue to support economic growth and increase it in the medium term, benefiting from the IMF’s technical assistance and policy advice.

*Source: Excerpt from IMF content unit (PDF chapter/section).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1gtmea2025001-source-pdf.pdf_