## 1gtmea2026001 - 2026. While appropriately temporary and modest in size, universal fuel subsidies should

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### CONTEXT
- Prudent macroeconomic management underpins Guatemala’s resilience; inadequate public infrastructure and public services constrain growth potential.
- Favorable fundamentals: low and stable inflation, ample external and fiscal buffers, and a recent current account surplus.
- High remittance inflows support household consumption, alleviate poverty, and augment domestic savings; they have prompted costly foreign exchange interventions to dampen appreciation pressures on the real exchange rate.
- Political developments noted: approval of the AML/CFT law and timely appointments to key institutions (Attorney General, Constitutional Court, Electoral Tribunal) enabling renewed focus on implementation.

### RECENT DEVELOPMENTS AND KEY STATISTICS
- Growth and activity:
  - 2025 growth: "At 4.3 percent, 2025 growth was stronger than expected."
  - 2026 activity: "economic activity expanding 4.5 percent y/y through April."
- Inflation and expectations:
  - End-2025 inflation: "1.7 percent in 2025."
  - April 2026: "jumping to 3.2 percent y/y in April on account of spiking fuel prices."
  - May 2026: "decelerated to 2.9 percent y/y in May."
  - Core inflation and inflationary expectations: "around 3¾ and 4 percent, respectively."
  - Inflation target: "4 percent ±1 percentage point."
- Monetary policy and central bank actions:
  - Policy rate cuts: "Four quarter-percentage cuts between mid-2025 and February 2026 lowered the policy rate to 3.5 percent."
  - Sterilization: Banguat sterilized a record "GTQ9.2 billion (1 percent of GDP) in 2025."
  - Net cumulated quasi-fiscal costs: "2.4 percent of GDP (from 3 percent of GDP at end-2024)."
- Fiscal and public finance:
  - 2025 fiscal deficit: "widened to 1.9 percent of GDP" (about 1 percentage point higher than in 2024).
  - 2025 budgeted deficit: "3.8 percent."
  - Capital expenditure execution in 2025: "78 percent" (noted as modest execution, especially low for transfers to CODEDEs).
  - 2026 budget: "targeting a deficit of 3.6 percent of GDP"—approved but "swiftly suspended by the Constitutional Court"; "a January budget amendment largely restored the expenditure envelope to initial levels."
  - 2026 oil price shock response: temporary untargeted fuel subsidies "totaling 0.2 percent of GDP."
  - Public debt: "under 27 percent of GDP at end-2025."
  - Central government non-remunerated deposits at Banguat: "3.4 percent of GDP at end-2025."
  - External financing: "a US$1.5 billion Eurobond was issued in July 2025."
  - Banguat law note: 2002 Banguat law requires government to offset central bank losses by issuing marketable government securities; "compliance has been partial and inconsistent."

### EXTERNAL POSITION, REMITTANCES, AND RESERVES
- Remittances:
  - "Remittances jumped to a record 21 percent of GDP in 2025."
  - Staff view: above-trend remittances largely reflect precautionary motives; supporting evidence includes weaker response of consumption and imports and significant rise in banking system deposits.
  - Remittance inflows decelerated in 2026 to "7.5 percent y/y in January-May."
- Reserves and FX intervention:
  - International reserves reached "US$32.7 billion at end-2025 (26.5 percent of GDP, 203 percent of the ARA metric)."
  - Record-high net foreign exchange purchases amounted to "US$5.3 billion."
  - Interventions did not prevent a "3.3 percent real y/y appreciation at end-2025."
- External position assessment:
  - Staff assesses Guatemala’s external position stronger than implied by fundamentals and desirable policies.
  - IIP turned positive in 2025—mainly due to rising reserve assets.
  - Quantity-based EBA CA model suggests an undervalued REER; REER (price-based) model suggests overvaluation. Divergence explained by remittances and central bank response.
  - Current account surplus primarily reflects structurally low investment.
  - Policy implication: external rebalancing should rely on policies aimed at stimulating private investment.

### CREDIT, BANKING SYSTEM, AND FINANCIAL STABILITY
- Credit and banking metrics:
  - Credit to the private sector decelerated: after double-digit nominal growth during 2021–24, credit growth slowed to "about 8 percent in 2025" and continued decelerating in early 2026.
  - Banking system exhibits strong capitalization and liquidity.
  - Nonperforming loans (NPLs): "2.4 percent at end-2025"; concentrated in consumer, microcredit, and mortgage portfolios.
  - Provisioning levels: "131 percent (from 135 percent)."
  - Expected loss-based provisioning phased in until 2028.

### OUTLOOK AND RISKS
- Staff baseline outlook:
  - "3.8 percent growth in 2026," converging to "4 percent" as oil shock dissipates and reforms yield returns.
  - Inflation expected to remain within target, despite an uptick in 2026.
  - Current account surplus projected to narrow as remittances stagnate and private investment picks up.
  - Fiscal deficit projected to undershoot the budgeted "3.6 percent of GDP in 2026" and stabilize around "2½ percent of GDP in the medium term" under staff’s revenue projections.
- Risks (broadly balanced):
  - Domestic: legislative fragmentation delaying reforms; institutional capacity constraints; completion of judicial appointments could enable reform focus.
  - External: heightened geopolitical tensions; volatile commodity prices—particularly oil; tighter global financial conditions.
  - Migration and remittances: tighter U.S. migration policies could reduce remittances and increase domestic labor market pressures.
  - Climate risk: high vulnerability to climate shocks; a severe 2026–27 El Niño poses considerable near-term risks.
- Authorities’ views:
  - Authorities forecast growth of "around 4 percent in 2026 and over the medium term."
  - Inflation expected to remain well anchored and within target under authorities’ baseline; severe shocks could temporarily exceed the target.

### FISCAL POLICY, PUBLIC INVESTMENT, AND PIMA RECOMMENDATIONS
- Findings:
  - Expansionary fiscal policy in 2025 aimed to narrow infrastructure and social gaps; capital spending enlargement was partly offset by modest execution.
  - Transfers to CODEDEs exhibited especially low execution.
  - Improved revenue mobilization and spending efficiency, supplemented by tax reforms, could lower medium-term deficits to "2 percent of GDP" while preserving capital spending.
  - Public debt dynamics described as low and sustainable.
- Policy recommendations and priorities:
  - Shift universal fuel subsidies to targeted options going forward; universal subsidies described as "appropriately temporary and modest in size" but should "shift to targeted options."
  - PFM reforms should:
    - Strengthen the medium-term fiscal framework.
    - Reduce revenue earmarking.
    - Ease constraints on debt management.
    - Improve treasury-debt management coordination.
  - Implement PIMA recommendations to address "perennially low capex execution," including:
    - Restrict budget inclusion to projects with a favorable technical opinion from SEGEPLAN (except emergencies).
    - Strengthen central monitoring of major infrastructure projects for multi-year execution visibility.
    - Improve coordination among MinFin, SEGEPLAN, and line ministries on reallocations, cash management, and implementation realities.
  - Passage and operationalization priorities:
    - Passage of pending infrastructure-related legislation: public procurement law, ports and airports law.
    - Operationalization of recent laws: priority road infrastructure law, PPP law.
  - Better targeting, planning, and oversight of capital transfers to CODEDEs to help contain fiscal risks.
- Decentralized investment (CODEDEs) specific recommendations:
  - Contain extraordinary CODEDE allocations and improve targeting; extraordinary allocations’ regional distribution should follow clear criteria.
  - Enhance planning and strategic guidance for project selection; clearer guidance from SEGEPLAN.
  - Develop a credible, prioritized, multi-year pipeline of local projects consistent with implementation capacity.
  - Improve project oversight by strengthening the Comptroller General’s office and the Secretariat for Executive Coordination of the Presidency, and incentivize civil society participation.
- Social safety nets and oil shock response:
  - The oil price shock calls for expanded, more cohesive and better targeted social safety nets.
  - In absence of reliable means-testing data, the universal fuel subsidy is considered superior to earlier alternatives given its temporary nature and contained fiscal cost—"around 0.2 percent of GDP for up to three months."
  - World Bank-supported work to extend coverage of the social registry should advance to enable targeted responses.
- Medium-term fiscal consolidation:
  - MTFF envisages deficits coming down to close to "2 percent by 2031" largely on optimistic revenue assumptions and falling investment; staff recommend convergence towards the historical average of "around 2 percent of GDP" under less optimistic revenue projections while preserving capital spending.

### REVENUE MOBILIZATION, TAX POLICY, AND TREASURY-DEBT COORDINATION
- Revenue context and targets:
  - Tax revenue has hovered near "12 percent of GDP" for decades despite administrative gains.
  - Authorities’ declared target: "12.7 percent of GDP by 2030."
  - Revenue gains expected from SAT’s modernization (electronic invoicing, customs modernization) could raise revenue to "12.7 percent of GDP by 2030" without raising tax rates or introducing new taxes.
- Tax policy recommendations:
  - Undertake comprehensive tax reforms to rationalize tax expenditures and exemptions, broaden the tax base, clarify eligibility across tax regimes, and strengthen personal income taxation progressively.
  - Avoid piecemeal measures; pursue a comprehensive review of tax policy.
- Treasury, earmarking, and market development:
  - High central government deposits at Banguat reflect budget rigidities, weak execution, and coordination issues.
  - Extensive earmarking (pre-committing "between a third and half of all budget revenues") limits fungibility and incentivizes seeking alternative resources.
  - Staff recommends reviewing and simplifying earmarking in parallel with strengthening the MTFF and multi-year budgeting.
  - Closer treasury–debt management coordination would avoid overborrowing, reduce financing costs, and improve cash management.
  - Greater reliance on domestic funding anchored in a credible medium-term debt management strategy would reduce currency risks and Banguat’s sterilization costs.
  - Local bond market development priorities:
    - Regular and predictable issuance calendar.
    - Strengthen price formation by clearing auctions at market-determined prices.
    - Establish a single window for purchases of government securities.
    - Homogenize trading, custody, registration, clearance and settlement infrastructure.
    - Lift restrictions preventing the Guatemalan Institute for Social Security from trading bonds.
    - Modernize legal and regulatory framework to allow liability management operations and retire old non-tradable bonds.

### MONETARY POLICY, LIQUIDITY MANAGEMENT, AND FINANCIAL INFRASTRUCTURE
- Findings:
  - The pause in the monetary easing cycle is warranted given very high uncertainty, especially concerning fuel and food prices.
  - Banguat kept the policy rate unchanged after cuts lowered it to "3.5 percent."
  - Banguat actively managed quetzal and FX liquidity (sterilization "GTQ9.2 billion in 2025").
- Recommendations:
  - Continue a cautious stance in monetary policy given uncertainty.
  - Improve financial sector oversight, promote financial inclusion, and deepen domestic markets.
  - Address partial/inconsistent compliance with the 2002 Banguat law regarding quasi‑fiscal loss offsetting.
  - Simplify reserve remuneration procedures, improve collateral framework (including establishing a central securities depository), and over the medium term lower reserve requirement ratios and/or increase remuneration to improve policy transmission.
  - Reinforce Banguat’s balance sheet through timely recapitalization and a comprehensive review of its income model.
  - Fast-track the Secondary Market Law and expand the macroprudential toolkit and FX hedging instruments.

### FINANCIAL SECTOR POLICY, SUPERVISION, AND INCLUSION
- Modernization and regulatory priorities:
  - Revise the 2002 Law on Banks and Financial Groups to align with international standards.
  - Full transition to IFRS expected by 2030 following a Monetary Board decision and transition period.
  - Continue phased implementation of expected loss provisioning (phased until 2028) and Credit Risk Management Regulation with strengthened supervision.
  - Invest in cybersecurity resilience and expand financial inclusion via the 2024–27 National Financial Inclusion Strategy.
  - Draft e-money law under consideration in Congress to provide regulatory foundation for fintech.
- Authorities’ views:
  - Banking system remains sound with strong capital and liquidity buffers.
  - Stress tests confirm resilience.
  - Technical discussions on law revisions are advanced but without an established timeline.
  - Authorities plan semi-annual Financial Stability Reports and to consult with IDB on the secondary market law.

### GOVERNANCE, AML/CFT, AND STRUCTURAL AGENDA
- Governance and anti-corruption:
  - Authorities established the National Anti-Corruption Commission, adopted a code of ethics, and launched the Integrity and Corruption Prevention Strategy 2025-32.
  - Legislative initiatives under consideration include beneficial ownership, whistleblower protection, and public procurement laws.
- AML/CFT:
  - Recent approval of the AML/CFT law expands requirements to designated non-financial businesses and professions; accompanying regulations remain needed ahead of the 2027 GAFILAT mutual evaluation.
- Structural constraints and reforms:
  - Binding constraints: rule of law, red tape (including in international trade), informality, and infrastructure/regulatory bottlenecks affecting tradable sector competitiveness.
  - Recommendations: swift passage of AML/CFT regulations; improve rule of law; eliminate red tape; address informality; continue reforms to reduce infrastructure and regulatory bottlenecks; advance Competition Law regulations and non-tariff barrier reductions.

### SCALING UP PUBLIC INFRASTRUCTURE — RATIONALE, ACTIONS, AND EXECUTION CHALLENGES
- Rationale:
  - Scaling up public infrastructure is critical to redressing competitiveness and reducing dependence on remittances.
  - Increased public infrastructure investment would reduce the CA surplus short run and strengthen productivity and competitiveness medium term.
- Authorities’ actions and constraints:
  - 2026 budget allocated a record "3.6 percent of GDP for capital spending," about "1 percentage point above the 2022–24 actuals."
  - Capital transfers to CODEDEs allocation for 2026: "1½ percent of GDP"; more than half at Congress’s discretion ("extraordinary" allocation).
  - G2G turnkey contract with the U.S. Army Corps of Engineers aims to expand Puerto Quetzal and connecting road; project about "½ percent of GDP"; feasibility studies in 2027; port expansion by 2032.
  - DIPP established by the 2024 Priority Infrastructure Law; disputes over legal standing delay operationalization.
  - 2025 PPP law amendments simplify procedures and revamp ANI; ANI still assembling PPP pipeline.
- Execution challenges and staff recommendations:
  - MICIVI’s execution rate around "70 percent in 2024 and 2025" indicating bottlenecks.
  - Staff recommend implementing PIMA recommendations (tighten central control, strengthen monitoring, improve coordination).
  - For CODEDEs: contain extraordinary allocations, improve targeting, develop multi-year pipelines, and strengthen oversight.
  - Resolve legal obstacles to operationalize DIPP while avoiding additional budget rigidities; promptly approve and implement the new Public Procurement Law; strengthen project preparation capacity for PPPs; timely implementation of ports and airport laws to crowd in private participation.
- Authorities’ view:
  - Investment agenda seen as potential to unlock private investment, increase productivity, and aid long-term growth.
  - Authorities intend to work with the World Bank on assessing public investment processes; MinFin requested World Bank assistance on CODEDEs.
- Priority Road Infrastructure Law note:
  - Envisages allocating "30 percent of central government deposits at Banguat at the end of a year to finance DIPP’s next year’s operations."

### EXTERNAL SECTOR: CA, IIP, AND EBA ESTIMATES
- Key figures and trajectories (selected):
  - Current Account (CA) surplus in 2025: "4.7 percent of GDP (2.9 percent in 2024)."
  - Remittances in 2025: "20.7 percent of GDP."
  - Net international reserves (end-2025, IMF definition): increased to "US$30.9 billion (203 percent of ARA metric)."
  - NIIP: "3.3 (2025, percent of GDP)"; Gross Assets: "49.5 (2025, percent of GDP)"; Gross Liab.: "46.2 (2025, percent of GDP)."
- EBA estimates for 2025 (selected values):
  - CA-Actual (A): "4.7 (percent of GDP)."
  - CA Norm (D): "-1.3."
  - Adjusted CA norm (F): "0.7."
  - CA gap (G = C - F): "4.0."
  - Elasticity (H): "0.27."
  - REER Gap (I = G / H): "-14.8 13.4 33.6" (price- and quantity-based model divergence reported as presented).
- Real Exchange Rate:
  - REER appreciated by "3.3 percent at end-2025 y/y" (50 percent since 2010 and 5.9 percent since 2020).
  - The quetzal appreciated "0.6 percent at end-2025 relative to the U.S. dollar."
  - EBA CA methodology suggests REER undervaluation of "14.8 percent" under certain assumptions; complementary models indicate sizable overvaluation (33.6 and 13.4 percent).
- Capital flows and FX:
  - Inward FDI (2025): "1.4 percent of GDP."
  - Portfolio investment: inflows surpassed outflows in 2025; Eurobond issuance "US$1.5 billion" in July 2025.
  - FX interventions: net FX purchases in 2025 reached "US$5.3 billion."
  - Reserves coverage: end-2025 reserves are "203 percent of the IMF’s ARA metric," cover almost "9 months of next year’s goods and services imports" and about "44 percent of broad money."

### PUBLIC DEBT, DSA, AND FINANCING NEEDS
- Public debt levels and projections:
  - Central Government debt (percent of GDP): "26.7 (Actual 2025)" rising to "27.4 (2026)," "28.0 (2027)," and reaching "31.5 (2035)" in baseline projections as presented.
  - Public debt described as low and sustainable; baseline projects gradual rise in medium term.
- Fiscal and financing indicators (selected):
  - Primary balance (central government, percent of GDP): "0.4 (2023); 0.7 (2024); -0.3 (2025); -1.1 (2026)" and thereafter in array as presented.
  - Overall balance (central government, percent of GDP): "-1.3; -1.0; -1.9; -2.7; -2.6; -2.6; -2.6; -2.6; -2.6 (2023–2031 series presented)."
  - Gross financing needs (GFN): "2.9 (2025), 4.2 (2026), 3.8 (2027)" and series through 2035 as presented.
- DSA assessment:
  - Overall risk of sovereign stress: "Moderate."
  - Debt stabilization in the baseline: "No."
  - Key drivers: projected primary deficit of "around ¾ percent of GDP" supporting infrastructure investment.
  - Long-term risks: "Moderate" given persistent spending needs and climate exposure, mitigated by low initial debt and strong buffers.
- Stress tests and medium-term risk analysis:
  - Debt fanchart index (DFI): "1.5"; GFN financeability index (GFI): "8.2."
  - Final assessment signals moderate medium-term risks; probabilistic analysis suggests a "Prob. of missed crisis, 2026-2031" of "9.1 pct" if stress not predicted.

### POLICY RESPONSE UNDER AN ADVERSE SCENARIO (OIL PRICE SHOCK)
- Impact channels:
  - Oil prices above baseline raise headline inflation directly and indirectly; supply‑driven shocks have strong nonlinear pass‑through to inflation and activity.
  - Falling global output would depress external demand and reduce remittances.
- Recommended coordinated stabilization package:
  - Monetary policy: use reserves, maintain some exchange rate flexibility, data-dependent approach if shock persists while activity weakens.
  - Fiscal policy: allow automatic stabilizers to work; replace universal fuel subsidies with more targeted options; consider lump-sum transfers for fuel purchases and liquidity support for oil-intensive firms if oil prices remain elevated into 2027.
  - Structural emphasis: raise urgency of scaling up infrastructure investment and governance reforms.
- Authorities’ views:
  - Authorities agree ample reserve buffers buy time; broad-based subsidies help mitigate second-round effects but recognize the value of moving toward more targeted systems as the social registry is strengthened.

### BOX 1 — OIL PRICE SHOCKS AND INFLATION PASS-THROUGH: KEY FINDINGS
- Guatemala is a net energy importer with high exposure to oil prices; fiscal measures (temporary fuel tax reductions or fuel subsidies) have occasionally been implemented to dampen inflationary impact.
- Empirical estimates (local projections, nonlinear specification):
  - A 50 percent increase in global oil prices raises prices by "about 1 percentage point after 12 months and around 1.2 percentage points after 18 months" (baseline).
  - A 50 percent year-on-year increase in oil prices is estimated to reduce economic activity by "an average of 0.5–0.6 percentage points during the first 12 months," followed by a partial rebound.
  - Guatemala exhibits a systematically stronger inflation response to oil price shocks relative to the panel average; positive shocks generate larger responses than comparable declines.
  - Robustness checks using exogenous supply shocks suggest the effect on CPI doubles.

### DATA ADEQUACY AND ANNEX V HIGHLIGHTS
- Data Adequacy Assessment Rating: "B."
- Key shortcomings: limited availability in labor market data, the Producer Price Index (PPI), and the Balance of Payments (BoP).
- Government finance statistics coverage confined to the central government; work underway to expand perimeter to the nonfinancial public sector.
- Recent developments:
  - January 2026: Banguat published regional GDP (project initiated in 2023).
  - National accounts updated to 2025 SNA and BoP to BPM7; expected finalized by 2029.
  - Environmental macroeconomic accounting expected finalized later in 2026.
  - Labor market data: MoU between Banguat and INE signed late 2023; data for 2024Q4-2025Q4 publicly available.
- Corrective actions and capacity development priorities:
  - Expand GFSM coverage beyond central government; finalize balance sheets.
  - Finalize GDP (2025 SNA) and BoP (BPM7) updates by 2029.
  - Finalize environmental macroeconomic accounting in 2026.
  - Continue publication of timely labor market data and enhance dissemination of macro-financial series.
- Selected data timeliness examples (as of June 22, 2026): Exchange Rates "11-June-26 / 18-June-26"; Consumer Price Index "May-26 / 8-June-26"; Central Bank Balance Sheet "April-26 / 27-May-26"; External Current Account Balance "2025Q4 / April-26."

*International Monetary Fund — Guatemala: mission discussions and analysis, July 10, 2026*

### 2026. While appropriately temporary and modest in size, universal fuel subsidies should

### 1gtmea2026001 - 2026. While appropriately temporary and modest in size, universal fuel subsidies should

### CONTEXT
- Prudent macroeconomic management underpins Guatemala’s resilience, but inadequate public infrastructure and public services constrain growth potential.
- Favorable fundamentals cited: low and stable inflation, ample external and fiscal buffers, and recent current account surplus.
- High remittance inflows support household consumption, alleviate poverty, and augment domestic savings; they have prompted costly foreign exchange interventions to dampen appreciation pressures on the real exchange rate.
- Political developments: approval of the AML/CFT law and timely appointments to key institutions (Attorney General, Constitutional Court, Electoral Tribunal) noted as enabling renewed focus on implementation.

### RECENT DEVELOPMENTS AND KEY STATISTICS
- 2025 growth: "At 4.3 percent, 2025 growth was stronger than expected."
- 2026 activity: "economic activity expanding 4.5 percent y/y through April."
- Inflation:
  - End-2025 inflation: "1.7 percent in 2025."
  - April 2026: "jumping to 3.2 percent y/y in April on account of spiking fuel prices."
  - May 2026: "decelerated to 2.9 percent y/y in May."
  - Core inflation and inflationary expectations: "around 3¾ and 4 percent, respectively."
  - Inflation target: "4 percent ±1 percentage point."
- Monetary policy:
  - Policy rate cuts: "Four quarter-percentage cuts between mid-2025 and February 2026 lowered the policy rate to 3.5 percent."
  - Banguat actions: sterilized a record "GTQ9.2 billion (1 percent of GDP) in 2025."
  - Net cumulated quasi-fiscal costs: "2.4 percent of GDP (from 3 percent of GDP at end-2024)."
- Fiscal developments:
  - 2025 fiscal deficit: "widened to 1.9 percent of GDP" (about 1 percentage point higher than in 2024).
  - 2025 budgeted deficit: "3.8 percent."
  - Capital expenditure execution in 2025: "78 percent" (noted as modest execution, especially low for transfers to CODEDEs).
  - 2026 budget: "targeting a deficit of 3.6 percent of GDP"—approved but "swiftly suspended by the Constitutional Court"; "a January budget amendment largely restored the expenditure envelope to initial levels."
  - 2026 oil price shock response: temporary untargeted fuel subsidies "totaling 0.2 percent of GDP."
- Public debt: "under 27 percent of GDP at end-2025."
- External financing: "a US$1.5 billion Eurobond was issued in July 2025."
- Central government non-remunerated deposits at Banguat: "3.4 percent of GDP at end-2025."
- Banguat law note: the 2002 Banguat law requires government to offset central bank losses by issuing marketable government securities; "compliance has been partial and inconsistent."

### POLICY DISCUSSIONS — FISCAL POLICY AND PUBLIC INVESTMENT
Findings:
- Expansionary fiscal policy in 2025 aimed to narrow infrastructure and social gaps; capital spending enlargement was partly offset by modest execution.
- Transfers to CODEDEs exhibited especially low execution.
- Improved revenue mobilization and spending efficiency, supplemented by tax reforms, could lower medium-term deficits to "2 percent of GDP" while preserving capital spending.
- Public debt dynamics described as low and sustainable.

Policy recommendations and priorities:
- Shift universal fuel subsidies to targeted options going forward; universal subsidies described as "appropriately temporary and modest in size" but should "shift to targeted options."
- PFM reforms should:
  - Strengthen the medium-term fiscal framework.
  - Reduce revenue earmarking.
  - Ease constraints on debt management.
  - Improve treasury-debt management coordination.
- Implement PIMA recommendations to address "perennially low capex execution."
- Passage and operationalization priorities:
  - Passage of pending infrastructure-related legislation: public procurement law, ports and airports law.
  - Operationalization of recent laws: priority road infrastructure law, PPP law.
- Better targeting, planning, and oversight of capital transfers to departmental development councils (CODEDEs) to help contain fiscal risks.

### MONETARY AND FINANCIAL SECTOR POLICY
Findings:
- The pause in the monetary easing cycle is warranted given very high uncertainty, especially concerning future fuel and food prices.
- Banguat kept the policy rate unchanged after cuts lowered it to "3.5 percent."
- Banguat actively managing quetzal and FX liquidity (sterilization GTQ9.2 billion in 2025).

Recommendations:
- Continue cautious stance in monetary policy given uncertainty.
- Improve financial sector oversight, promote financial inclusion, and deepen domestic markets to strengthen the sector’s contribution to development.
- Address partial/inconsistent compliance with the 2002 Banguat law regarding quasi‑fiscal loss offsetting.

### OTHER POLICIES AND STRUCTURAL AGENDA
Findings:
- AML/CFT law approval is welcome; accompanying regulations are still needed.
- Binding constraints to private sector-led growth include rule of law, red tape (including in international trade), informality, and infrastructure and regulatory bottlenecks affecting tradable sector competitiveness.

Recommendations:
- Swift passage of accompanying regulations for the AML/CFT law.
- Boost growth by:
  - Improving rule of law.
  - Eliminating red tape, including in international trade.
  - Addressing informality.
  - Continuing reforms to reduce infrastructure and regulatory bottlenecks.

### IMPLEMENTATION AND INSTITUTIONAL NOTES
- Mission and report logistics: discussions took place in Guatemala City during May 27 – June 5, 2026; team composition and meetings with high-level national authorities are listed in the report preface.
- Implementation of PIMA recommendations and passage/operationalization of infrastructure laws are emphasized as critical to improve capital expenditure execution and contain fiscal risks.

*International Monetary Fund — Guatemala: mission discussions and analysis, July 10, 2026*

### 4.7 percent of GDP in 2025, as remittances jumped to a record 21 percent of GDP. Staff’s view that

### 1gtmea2026001 - 4.7 percent of GDP in 2025, as remittances jumped to a record 21 percent of GDP. Staff’s view that

### External position, remittances, and reserves
- Remittances jumped to a record 21 percent of GDP in 2025.
- Staff’s view: above-trend remittances largely reflect precautionary motives—Guatemalans in the U.S. shifting savings home in response to tighter migration policies.
- Supporting evidence for precautionary motive:
  - Weaker response of consumption and imports.
  - Significant rise in banking system deposits.
- Trade balance remained flat, despite favorable terms-of-trade.
- International reserves reached US$32.7 billion at end-2025 (26.5 percent of GDP, 203 percent of the ARA metric).
- Record-high net foreign exchange purchases amounted to US$5.3 billion, mirroring the surge in remittances.
- Interventions did not prevent a 3.3 percent real y/y appreciation at end-2025.
- Remittance inflows decelerated in 2026 to 7.5 percent y/y in January-May, including due to the large base effect.
- Source of figures: Banguat and IMF Staff estimates.

### External position assessment and implications
- Staff assesses Guatemala’s external position to be stronger than implied by medium-term fundamentals and desirable policies (Annex I).
- The IIP turned positive in 2025—mainly on account of rising reserve assets.
- The IMF’s EBA current account model (quantity-based) suggests an undervalued real exchange rate due to a positive current account gap.
- The REER model (price-based) suggests overvaluation.
- The divergence is explained by substantial remittance inflows and the central bank’s policy response.
- The current account surplus primarily reflects structurally low investment.
- Policy implication: external rebalancing should rely on policies aimed at stimulating private investment—the main thrust of these Article IV consultations.
- Three policy objectives emphasized:
  - Better public infrastructure both at national and local levels.
  - More efficient delivery of social services (education and healthcare).
  - Structural reforms aimed at improving investment climate.
- Source of figures: Banguat and IMF Staff estimates.

### Credit, banking system, and financial stability
- Credit to the private sector decelerated: after double-digit nominal growth during 2021–24, credit growth slowed to about 8 percent in 2025 and continued decelerating in early 2026.
- Banking system exhibits strong capitalization and liquidity.
- Nonperforming loans (NPLs) stood at 2.4 percent at end-2025; concentrated in consumer, microcredit, and mortgage portfolios.
- Provisioning levels declined modestly to 131 percent (from 135 percent).
- The Financial Sector Stability Report—featuring the authorities’ first published stress tests—deemed the banking system capable of absorbing shocks and preserving financial stability over the medium term.
- Note: The expected loss-based provisioning system is phased in until 2028, allowing banks to adjust reserves gradually.

### Outlook and risks
- Staff baseline outlook:
  - 3.8 percent growth in 2026, reflecting a moderate fiscal impulse and the strong first months of 2026.
  - GDP growth converging to 4 percent as the oil shock dissipates and public investment and structural reforms yield returns.
  - Inflation expected to remain within target, despite an uptick in 2026.
  - Current account surplus projected to narrow as remittances stagnate and private investment picks up.
  - Fiscal deficit projected to undershoot the budgeted 3.6 percent of GDP in 2026 and stabilize around 2½ percent of GDP in the medium term under staff’s revenue projections.
- Risks (broadly balanced):
  - Domestic: legislative fragmentation delaying key reforms; institutional capacity constraints hindering implementation; completion of judicial appointments could enable reform focus.
  - External: heightened geopolitical tensions and escalation of global conflicts; volatile commodity prices—particularly oil—intensifying inflationary pressures; tighter global financial conditions.
  - Migration and remittances risk: further tightening of U.S. migration policies could reduce remittances; reduced outward migration may increase domestic labor market pressures, including unemployment and informality.
  - Positive external factor: bilateral trade agreement with the United States positions Guatemala favorably, particularly in the textile sector.
  - Climate risk: high vulnerability to climate shocks; a severe 2026–27 El Niño poses considerable near-term risks.
- Authorities’ views:
  - Authorities forecast growth of around 4 percent in 2026 and over the medium term.
  - Inflation expected to remain well anchored and within target under the authorities’ baseline and an adverse oil price scenario, temporarily exceeding the target only under a severe shock.
  - A severe El Niño expected to impact mostly prices (likely in 2027), with limited impact on economic activity.

### Scaling up public infrastructure (policy discussion)
- Rationale:
  - Scaling up public infrastructure is critical for redressing competitiveness and reducing dependence on remittances.
  - The current account surplus masks an underlying trade balance deficit offset by very large remittance inflows, which put appreciation pressure on the exchange rate.
  - Scaling-up public infrastructure investment would reduce the CA surplus in the short run and strengthen productivity and competitiveness in the medium term.
- Authorities’ actions and constraints:
  - The 2026 budget allocated a record 3.6 percent of GDP for capital spending, about 1 percentage point above the 2022–24 actuals. Much of the difference reflects low historical execution rates; if execution improves only slowly (staff baseline), 2026 capex will end up only marginally above past years.
  - The Medium-Term Fiscal Framework (MTFF) envisages capex/GDP reverting to historical averages, mainly due to falling CODEDE allocations; current spending is projected to rise as share of GDP (¶22); staff’s baseline assumes reining in transfers to CODEDEs will take longer.
  - Capital transfers to CODEDEs increased steadily; the allocation for 2026 amounts to 1½ percent of GDP. More than half is at Congress’s discretion (the “extraordinary” allocation); total includes carryovers of previous years’ non-executed funds.
  - A Government-to-Government (G2G) turnkey contract with the U.S. Army Corps of Engineers aims to expand Puerto Quetzal and the connecting road; the project is about ½ percent of GDP. Timeline: feasibility studies in 2027, port expansion by 2032 with some efficiency-improving processes implemented earlier.
  - The 2024 Priority Infrastructure Law established the Directorate of Priority Road Projects (DIPP) as a decentralized, autonomous body; disputes over DIPP’s legal standing delay operationalization.
  - 2025 amendments to the Public-Private Partnership law simplify procedures and revamp the National Infrastructure Agency (ANI); ANI is still assembling a pipeline of PPP projects.
  - Other legislative initiatives: Public Procurement Law submitted to Congress late 2025; ports and airports laws in the pipeline.
- Execution challenges and staff recommendations:
  - MICIVI’s execution rate at around 70 percent in 2024 and 2025 highlights bottlenecks in project preparation, procurement, and contract management.
  - Staff recommend advancing implementation of the 2023 Public Investment Management Assessment (PIMA) recommendations, including:
    - Tighten central control over investment projects included in the budget: budget inclusion should be restricted to projects that have received a favorable technical opinion from SEGEPLAN, except emergency-response projects.
    - Strengthen central monitoring of major infrastructure projects to provide a multi-year view of project execution.
    - Improve coordination among MinFin, SEGEPLAN, and line ministries in project execution to align budget reallocations, cash management, and adjustments with implementation realities.
- Decentralized investment (CODEDEs) recommendations:
  - CODEDEs account for one tenth of all budgeted 2026 spending and one third of capital spending.
  - Staff recommend:
    - Containing extraordinary CODEDE allocations and improving their targeting; extraordinary allocations’ regional distribution should be subject to clear criteria reflecting regional development disparities.
    - Enhancing planning, strategic guidance and coordination for project selection; clearer guidance from SEGEPLAN to align CODEDE projects with national priorities.
    - Developing a credible, prioritized, multi-year pipeline of local social and infrastructure projects at the CODEDE level, consistent with implementation capacity.
    - Improving project oversight by strengthening the Comptroller General’s office and the Secretariat for Executive Coordination of the Presidency, and incentivizing civil society participation.
- Legislation and institutional recommendations:
  - Staff encourage swift resolution of legal obstacles to operationalize DIPP while avoiding additional budget rigidities.
  - Prompt approval and implementation of the new Public Procurement Law recommended to reduce inefficiencies, enhance transparency, and improve value for money.
  - Fully operationalizing the PPP framework requires strengthening project preparation capacity and developing a credible pipeline of ANI projects.
  - Timely implementation of ports and airport laws would reduce legal and procedural uncertainty and crowd in private participation.
- Authorities’ views:
  - Authorities view the investment agenda as having potential to unlock higher private investment, increase productivity, and aid long-term growth.
  - Authorities recognize improving execution of capital spending is a key challenge; ongoing reforms to public procurement, budget planning, and public financial management aim to address constraints.
  - Authorities intend to work with the World Bank on assessing the public investment process; the Ministry of Finance has requested World Bank assistance on CODEDEs.
- Note: The Priority Road Infrastructure Law envisages allocating 30 percent of central government deposits at Banguat at the end of a year to finance DIPP’s next year’s operations.

### Other fiscal issues and revenue mobilization
- Fiscal stance and projections:
  - Under staff’s revenue and spending execution assumptions, 2026 will see a moderate fiscal expansion.
  - 2026 budget targets an overall deficit of 3.6 percent of GDP and is expansionary; higher capital spending contributes around a third of the 1.7 percent of GDP fiscal impulse embedded in the budget forecast.
  - Staff expects 2026 to end in a deficit of only 2.7 percent (producing a 0.8 percent of GDP impulse), with expenditure shortfalls from low capex execution partly offset by softer tax revenue owing to staff’s lower growth projections.
- Social safety nets and the oil price shock:
  - The oil price shock calls for expanded, more cohesive and better targeted social safety nets.
  - In the absence of reliable means-testing data, the universal fuel subsidy is superior to earlier-considered alternatives given its temporary nature and contained fiscal cost—around 0.2 percent of GDP for up to three months.
  - Universal subsidies are regressive and weaken price signals; to allow more targeted future responses, World Bank-supported work to extend coverage of the social registry should advance.
- Medium-term fiscal consolidation:
  - The current MTFF envisages deficits coming down to close to 2 percent by 2031, mostly on account of optimistic revenue assumptions and a fall in investment spending, while current spending is projected to continue rising some 1 percent of GDP.
  - Staff recommend deficits converging towards the historical average of around 2 percent of GDP even under less optimistic revenue projections (staff’s baseline), while preserving capital spending at current levels.
- Revenue mobilization:
  - Despite measurable gains by the tax administration (SAT) in compliance, digitalization, tax refund governance, and customs modernization, tax revenue has been hovering near 12 percent of GDP for decades.
  - Authorities’ declared target: 12.7 percent of GDP by 2030.
  - Converting SAT’s efforts into higher tax revenue will require further improvements in tax administration and, over the medium term, carefully sequenced tax policy reforms.
  - Staff discourage piecemeal measures in favor of a comprehensive review of tax policy.
- Staff recommendations to strengthen revenue collection:
  - Strengthen tax compliance through risk-based enforcement and digital tools; fully implement SAT’s strategic plan aligned with the 2024 TADAT findings and medium-term fiscal planning.
  - Improve the efficiency and governance of tax refunds: safeguards should ensure faster processing is accompanied by strong risk management and controls to mitigate fraud risks.
  - Continue customs modernization and anti-smuggling efforts: simplify and modernize customs procedures while maintaining effective controls and strengthening revenue collection.
  - Complement administrative gains with tax policy reforms over time; near-term priority is avoiding measures that would further erode the tax base.

*Source: Banguat and IMF Staff estimates; IMF staff analysis as presented in the provided content.*

### introduction of special tax regimes—and limiting domestic and cross-border tax arbitrage. Over

### introduction of special tax regimes—and limiting domestic and cross-border tax arbitrage. Over

### Tax policy, tax expenditures, and revenue mobilization
- Authorities should undertake comprehensive tax reforms to:
  - rationalize tax expenditures and exemptions,
  - broaden the tax base,
  - clarify eligibility across tax regimes,
  - strengthen personal income taxation in a progressive manner.
- Revenue modernization strategy and expected gains:
  - Revenue gains rely on SAT’s modernization strategy, including electronic invoicing, stronger customs administration, and compliance-enhancing measures.
  - These are expected to increase tax revenues to 12.7 percent of GDP by 2030 without raising tax rates or introducing new taxes.

### Quality of spending and public expenditure management
- Authorities are increasingly focused on raising quality of spending as a prerequisite for building public support for revenue-raising measures.
- Recent steps and institutional coordination:
  - Early efforts have helped establish a stronger foundation for coordinated reforms between MinFin, line ministries and SEGEPLAN.
  - Promote systematic use of indicators to align development plans, budget allocations, and multiannual targets and projections.
  - These initiatives could eventually inform budget process reforms under a new Organic Budget Law.
- Analytical capabilities needed:
  - Develop analytical capabilities to evaluate spending policies and assess distributional impact to improve targeting and value-for-money of programs (examples: fuel subsidies, social programs).

### Treasury cash balances, earmarking, and medium-term fiscal planning
- High treasury cash balances:
  - High central government deposits at Banguat provide a significant liquidity cushion but reflect budget rigidities, weaknesses in expenditure execution and liquidity management, and imperfect coordination between the Treasury and the Public Credit departments.
  - Extensive earmarking of revenues limits fungibility and incentivizes MinFin to seek alternative fungible resources.
  - Legal constraints in debt financing (such as the need to repay short-term T-bills within the same fiscal year they are issued) incentivize greater reliance on costly long-term borrowing (with typical maturities of 7 to 20 years).
  - Combined with chronic capex under-execution and weak cash forecasting, this contributes to rising non-remunerated government deposits and undermines the case for higher revenue mobilization.
- Earmarking and medium-term fiscal frameworks:
  - Extensive revenue earmarking—pre-committing between a third and half of all budget revenues—has partially provided predictability in the absence of medium-term budgeting but reduced budget flexibility.
  - Staff recommends reviewing and simplifying—possibly gradually—earmarking in parallel with strengthening the MTFF and multi-year budgeting to preserve predictability for priority spending while improving flexibility and alignment with national priorities.
  - MTFFs should build on and inform multi-year sectoral strategies and spending plans.
  - A new Organic Budget Law could enable needed reforms while preserving legally-mandated allocations.

### Treasury–debt coordination and domestic market development (policy recommendations)
- Closer treasury–debt management coordination would:
  - avoid overborrowing,
  - reduce unnecessary financing costs,
  - improve overall cash management,
  - facilitate implementation of the medium-term debt management strategy.
- Greater reliance on domestic funding—anchored in a credible medium-term debt management strategy—would:
  - reduce currency risks,
  - deepen domestic financial markets,
  - improve the macro-policy mix,
  - lower Banguat’s sterilization costs.
- Developing the local bond market requires:
  - Ensuring the effective functioning of the primary market for government securities:
    - MinFin should adhere to a regular and predictable issuance calendar throughout the year.
    - Strengthening price formation—by clearing auctions at market-determined prices—is essential.
  - Eliminating market fragmentation to ensure an efficient and liquid market for government securities:
    - Establish a single window for all purchases of government securities.
    - Homogenize infrastructure for trading, custody, registration, clearance and settlement of government securities.
    - Lift restrictions preventing the Guatemalan Institute for Social Security from trading bonds.
  - Modernizing the legal and regulatory framework:
    - The Organic Budget Law should facilitate MinFin’s issuance of T-bills and allow for liability management operations (e.g., buybacks and exchanges).
    - MinFin should be able to issue securities at a discount when conditions warrant it.
    - Retire old non-tradable bonds issued in physical format through liability management.

### Authorities’ fiscal views and targets
- Authorities reiterate commitment to addressing large infrastructure and social needs while maintaining fiscal sustainability.
- Fiscal stance and expectations:
  - View the temporary and measured increase in the fiscal deficit as appropriate to support priority spending and expect the deficit to gradually converge to around 2 percent of GDP over the medium term.
  - Consider the temporary universal fuel subsidy necessary while the social registry is being developed to enable more targeted support over time; diesel support is highlighted as particularly important.
  - Given the low public debt level, authorities consider available fiscal space allows financing of priority spending while preserving debt sustainability and keeping public debt around 30 percent of GDP.
- Institutional and policy plans:
  - A new Organic Budget Law to be prepared in the coming months would aim at strengthening budget formulation, medium-term planning, and expenditure management.
  - Continue developing the domestic debt market, in line with Fund advice.

### Monetary policy and exchange rate framework
- Current stance and context:
  - The current monetary policy stance is appropriate.
  - While a more accommodating stance could have been argued before the War in the Middle East—when inflation was over 2 percentage points below target—Banguat’s asymmetric approach to policy rate decisions (slower for cuts than for hikes) is judged vindicated.
  - High uncertainty—primarily concerning oil price developments—prevents a clear-cut recommendation on future policy rate decisions.
  - Well-anchored inflationary expectations and strong reserve buffers bolster Banguat’s space for maneuver.
- Communication and strategic framework:
  - The 2026–30 Institutional Strategic Plan recognizes the role of communication in enhancing policy credibility and public understanding.
  - Communication could be better integrated with policy analysis and provide greater clarity on FX intervention objectives and the international reserve accumulation rule.
- Reserve requirements, collateral frameworks, and liquidity management:
  - High FX interventions to limit appreciation pressures from large remittances, combined with significant external borrowing and a shallow domestic market, have contributed to a structural liquidity surplus in the banking system.
  - Given Banguat’s historical capitalization issues, preference to manage excess liquidity mainly through high (and largely unremunerated) reserve requirements—with sterilization instruments operating on the margin—is reasonable.
  - Recent reforms include narrowing the policy corridor and streamlining term-deposit maturities.
  - Recommendations include simplifying reserve remuneration procedures, improving the collateral framework (notably by establishing a central securities depository), and over the medium term lowering reserve requirement ratios and/or increasing remuneration of reserves to improve monetary policy transmission.
  - Reinforcing Banguat’s balance sheet—through timely recapitalization and a comprehensive review of its income model—is critical to ensure adequate policy space.
  - Improved coordination with MinFin would support better cash and debt management, liquidity forecasting, information sharing, and lower sterilization costs.
- Market development and legal reforms:
  - Deepening domestic markets—secondary markets for securities and derivatives, expanding local-currency debt markets, strengthening the interbank market, and promoting financial inclusion—would enhance monetary policy transmission.
  - Staff recommends fast-tracking the Secondary Market Law currently under preparation.
  - Additional priorities include expanding the macroprudential toolkit and fostering FX hedging instruments.

### Authorities’ monetary views
- Authorities stress a cautious policy approach and clear communication to anchor expectations and preserve credibility.
- They avoid frequent policy adjustments to limit market volatility and note that well-anchored inflation expectations support price stability.
- On reserve requirements, authorities do not see a case for lowering the ratio, given the banking system’s structural liquidity surplus; releasing additional liquidity is viewed as unlikely to significantly stimulate credit or investment.
- The proposed Secondary Market Law is seen as supporting domestic capital market development and preparing Guatemala for eventual investment-grade status, with urgency due to a limited political window before the electoral cycle intensifies.

### Financial sector policies and supervision
- Modernization priorities:
  - Revise the 2002 Law on Banks and Financial Groups to align with international standards of regulatory, supervisory, and crisis management practices.
  - Full transition to IFRS accounting would increase transparency; full implementation is expected only by 2030 following a Monetary Board decision and transition period.
  - Ongoing gradual shift to expected loss provisioning to increase system resilience.
  - Phased implementation of the Credit Risk Management Regulation should be accompanied by strengthened supervisory oversight.
  - Continued investments in cybersecurity resilience are essential.
- Financial inclusion and market development:
  - Progress on the 2024–27 National Financial Inclusion Strategy includes expanding access points, promoting digital payments, and strengthening financial literacy.
  - The draft e-money law remains under consideration in Congress and would provide regulatory foundation for fintech and broaden access once approved.
  - Developing the secondary market (see ¶32) and better public debt management (see ¶27) will positively affect the financial sector.
- Authorities’ financial sector views:
  - Banking system remains sound with strong capital and liquidity buffers and solid profitability.
  - Stress tests confirm resilience to adverse macroeconomic shocks.
  - Credit growth has moderated; nonperforming loans have edged down slightly.
  - Technical discussions on revisions to the 2002 Law are advanced but without an established timeline.
  - Authorities plan to publish Financial Stability Reports semi-annually and consult with the IDB on the secondary market law with intent to submit a draft to Congress later this year.

### Governance, financial integrity, and structural agenda
- Anti-corruption and rule of law:
  - Authorities have taken initial steps: establishing the National Anti-Corruption Commission, adopting a code of ethics, and launching the Integrity and Corruption Prevention Strategy 2025-32.
  - These efforts emphasize integrity, transparency, and accountability across the Executive branch and empower officials and citizens to report corruption.
  - Improvements are driving Guatemala’s ranking on Transparency International’s corruption perceptions index for a second year in a row, though the country remains below regional averages.
  - Appointment of a new Attorney General and selection of new Constitutional Court members may support a government-wide anti-corruption strategy, including judicial integrity and independence.
  - Legislative initiatives under consideration (beneficial ownership, whistleblower protection, public procurement) would be important steps for rebuilding public trust.
- AML/CFT developments:
  - Recent approval of the AML/CFT law aims to consolidate and modernize the legal framework, expand AML/CFT requirements to designated non-financial businesses and professions (lawyers, notaries, accountants, and real estate brokers), and strengthen risk-based AML/CFT supervision and customer due diligence requirements.
  - Finalization and implementation of associated regulations is critical ahead of the forthcoming GAFILAT mutual evaluation round expected in 2027.

*International Monetary Fund — GUATEMALA (excerpt)*

### 40. Timely advancement in other legislation and its implementation would further

### 40. Timely advancement in other legislation and its implementation would further

### Strengthening governance institutions and improving the business climate
- Competition Law
  - The approval of the regulations for the Competition Law, in effect since late-2025, will help operationalize the Superintendency of Competition.
  - Clear actions to strengthen its expertise and institutional capacity are also required.
- Non-tariff barriers to trade and private investment
  - The trade agreement with the U.S. fostered removal of some non-tariff barriers holding back trade.
  - Additional measures aimed at streamlining administration procedures could further improve the business climate.
- Diversification of the tradable sector
  - Guatemala’s exports have shrunk as share of GDP—being marginalized by remittances-driven consumption—yet exports grew significantly both in volume and sophistication, particularly within the CAPDR region.
  - Recommendation: advance existing initiatives aimed at geographical and product diversification of exports, including through new trade agreements.

### Formalization, labor market, and programs for returning migrants
- Formalization
  - Formalizing Guatemala’s economy—where some three-quarters of workers remain informal—would ease reintegration of returning migrants and support private-sector growth.
  - Government steps taken: simplified tax regime for SMEs Monotributo, electronic invoicing, temporary forgiveness of penalties for late registration.
  - Implementation of the Competition Law could also help address barriers to entry.
- Retorno al Hogar program
  - Supports returning migrants through housing, training, and job certification.
  - Staff recommend integrating these programs into the budget process and designing active labor market policies that recognize greater pressures on the labor market from reduction in emigration rather than from returning migrants.
- Gender and inclusion
  - Efforts to boost women’s participation—launched in late 2024—are ongoing with expanded training and entrepreneurship support.

### Authorities’ views (legislation and trade)
- AML/CFT law
  - The approval of the AML/CFT law marked an important achievement in advancing financial integrity.
  - Authorities have been working on the associated regulations, aiming at finalizing them in the Autumn.
- Digitalization and red tape
  - Progress on digitalization and related legislative changes, including measures to reduce red tape, expected to proceed gradually due to technical and institutional complexity.
- Trade and exports
  - Authorities note exports to the CAPDR region have now eclipsed those to the U.S., and they are negotiating new trade agreements to facilitate tradable sector growth.
- Competition Law implementation
  - Implementation is still at an early stage and authorities are working to advance the process.

### Policy response under an adverse scenario (oil price shock and broader external stress)
- Macroeconomic channels and expected effects
  - Oil prices above the one factored under the baseline would raise headline inflation directly (transportation, energy) and indirectly (food).
  - Supply‑driven oil price shocks are expected to have a strong and nonlinear pass‑through to inflation and economic activity (Box 1).
  - Falling global output would depress external demand for Guatemala’s goods and services (incl. tourism) and reduce remittances, putting pressure on the exchange rate.
  - Some pressure on the external balance would be removed automatically through the risk-off effect on private investment (incl. imports of consumer durables).
- Recommended coordinated stabilization package
  - Monetary policy
    - Banguat’s strong credibility provides scope to partially “see through” the inflationary impact of the shock.
    - Use of ample reserves can reduce the effect of exchange rate passthrough.
    - Maintain some exchange rate flexibility to prevent further loss of competitiveness.
    - If the external oil price shock persists while economic activity weakens, monetary policy will face a trade‑off requiring a careful, data‑dependent approach to prevent second‑round inflationary effects and preserve credibility.
  - Fiscal policy
    - Allow automatic stabilizers to work.
    - Replace universal fuel subsidies with more targeted options.
    - While means-tested infrastructure is developed, consider lump-sum transfers for fuel purchases and liquidity support for firms in oil-intensive sectors (e.g., loan guarantees for agriculture) as cost-effective options should oil prices remain elevated into 2027 (¶21).
  - Structural emphasis
    - A more adverse external environment would raise urgency of scaling up infrastructure investment, and structural and governance reforms.

### Authorities’ views on the shock and subsidies
- Authorities are cognizant of the risks related to the oil price shock and are monitoring developments closely.
- They agree that ample reserve buffers buy time to analyze the situation before making policy decisions.
- Broad-based subsidies help mitigate second-round effects of heightened oil prices on inflation, though authorities recognize the value of moving toward a more targeted subsidy system as administrative tools, including the social registry, are strengthened.

### Staff appraisal: macro fundamentals, constraints, and priorities
- Macroeconomic fundamentals
  - Prudent macroeconomic policies have underpinned resilience, delivering low and stable inflation, solid fiscal and external buffers, and current account surpluses.
- Constraints and social issues
  - Growth potential constrained by poor public infrastructure, dampening private investment.
  - Social indicators weak, with high informality and poverty levels.
  - Large remittance inflows support consumption but complicate monetary management and weigh on competitiveness.
- Risks
  - Risks broadly balanced: high energy prices and tighter migration and trade policies could weaken growth and raise inflation.
  - Upside: faster-than-expected decline in oil prices; progress under the bilateral trade agreement could help anchor relations with the U.S.
  - Domestic risks: implementation constraints and pre-electoral pressures may delay reforms; a severe El Niño poses a significant near-term risk.
- Medium-term policy focus (main areas)
  - (i) scaling up public infrastructure investment,
  - (ii) improving public financial management and raising revenues,
  - (iii) reinforcing monetary and financial frameworks,
  - (iv) advancing financial integrity, governance and structural reforms.

### Key sectoral and structural policy recommendations
- Public investment and infrastructure
  - Higher public investment would reduce the current account surplus, boost productivity and competitiveness, support external rebalancing, and lower reliance on remittances.
  - Swift progress is needed to:
    - (i) reduce bottlenecks and improve project preparation and execution, including by implementing PIMA recommendations;
    - (ii) streamline public procurement to reduce red tape while safeguarding transparency;
    - (iii) resolve the impasse over the operationalization of the priority infrastructure law without exacerbating budget rigidities;
    - (iv) mobilize greater private sector participation in infrastructure investment.
- Decentralized public investment (CODEDEs)
  - Should become more effective and subject to adequate oversight and control by containing and better targeting extraordinary allocations.
  - Ensure project continuity through multi-year pipelines, not automatic rollover of unexecuted funds.
  - Project selection guided by stronger strategic coordination, including at the departmental level.
  - Reinforce oversight capacity of the Comptroller General and the Secretariat for Executive Coordination of the Presidency.
- Social safety nets
  - Better targeted safety nets would improve shock responsiveness.
  - Temporary and contained universal fuel subsidy can help alleviate social burden absent reliable means-testing capacity, but universal subsidies are regressive and weaken price signals.
  - Expand coverage and quality of the social registry to enable targeted responses.
- Fiscal consolidation and revenues
  - An investment-friendly consolidation should commence in the medium term, anchored by the MTFF, to reduce fiscal deficits to 2 percent of GDP in tax policy reforms while maintaining elevated capital spending and preserving social spending.
  - Improve coordination among MinFin, line ministries, and SEGEPLAN on development plans, budget allocations and multiannual targets to improve spending efficiency and value-for-money.
  - Increase fiscal revenues building on recent gains in tax administration; increasing revenues above 12 percent of GDP requires avoiding measures that erode the tax base, limiting domestic and cross-border tax arbitrage, and undertaking comprehensive tax reforms.
- Fiscal planning and earmarking
  - Credible medium-term fiscal planning can ensure predictability without costly revenue earmarking.
  - Review and simplify earmarking in tandem with strengthening the MTFF and multi-year budgeting.
  - Consider a new organic budget law as a vehicle for these reforms.
- Treasury–debt management
  - Stronger treasury–debt management coordination to improve financing efficiency and reduce costs.
  - Greater reliance on domestic funding and development of the local bond market would reduce currency risks, deepen domestic financial markets, improve the macro-policy mix, and lower Banguat’s sterilization costs.
- Monetary policy and financial infrastructure
  - Monetary stance is appropriate; strengthen monetary policy transmission and liquidity management.
  - Improve communication of objectives underlying Banguat’s FX market participation and the international reserves’ accumulation rule.
  - Complement recent operational reforms (narrowing the policy corridor, streamlining term-deposit maturities) with stronger collateral infrastructure, including a central securities depository.
- Financial regulation and supervision
  - Adopt IFRS accounting to improve transparency and comparability.
  - Bolster supervisory capacity, revamp the 2002 Law on Banks and Financial Groups, and continue investments in cybersecurity resilience.
- Secondary markets and fintech
  - Fast-track a new secondary markets law to mobilize domestic savings, strengthen monetary policy transmission, enhance financial sector competition, deepen domestic financial markets, and enable financial infrastructure for potential capital inflows if investment grade is attained.
  - A new e-money law would provide a regulatory foundation for fintech development and broaden access to formal financial services.
- AML/CFT and financial integrity
  - Approval of the new AML/CFT law marks an important step.
  - A law fully aligned with FATF standards—promptly followed by the approval and implementation of accompanying regulations—should position Guatemala well for 2027 mutual evaluation by GAFILAT.
- Governance and structural reforms
  - Complement recent initiatives (National Anti-Corruption Commission, code of ethics, Integrity and Corruption Prevention Strategy 2025–32) by advancing pending legislation on beneficial ownership transparency, whistleblower protection, and public procurement.
  - Reduce non-tariff barriers in line with commitments under the trade agreement with the U.S. to support the business environment.
  - Advance initiatives aimed at geographical and product diversification of exports, including through new trade agreements.
  - Efforts to reduce informality would further promote more inclusive and sustainable growth.

### Box 1 — Oil price shocks and inflation pass-through: key findings
- Guatemala is a net energy importer with high exposure to oil prices; fiscal measures (temporary fuel tax reductions or fuel subsidies) have occasionally been implemented and can dampen inflationary impact.
- Empirical approach
  - Estimated pass-through from global oil price changes to headline inflation and economic activity using local projections (Jordà, 2005) on both a Western Hemisphere panel and Guatemala-specific specifications.
  - Nonlinear specification allows for asymmetries and size effects, including indicators for large positive and large negative shocks where Dt+ = 1[Δoilyoy,t >25] and Dt− = 1[Δoilyoy,t <−25].
- Inflation pass-through estimates
  - A 50 percent increase in global oil prices raises prices by about 1 percentage point after 12 months and around 1.2 percentage points after 18 months (baseline estimates).
  - Guatemala exhibits a systematically stronger inflation response to oil price shocks relative to the panel average.
  - Nonlinearities: positive oil price shocks generate larger responses than comparable price declines; asymmetry is more pronounced for large shocks and when oil prices remain elevated.
- Economic activity
  - A 50 percent year-on-year increase in oil prices is estimated to reduce economic activity by an average of 0.5–0.6 percentage points during the first 12 months, followed by a partial rebound, with activity remaining below baseline in the subsequent year.
- Robustness and caveats
  - Robustness checks include additional lags of oil price growth and use of exogenous oil supply shocks based on OPEC announcements (Känzig, 2021).
  - Using exogenous supply shocks, the effect on CPI doubles.
  - Historical pass-through reflects episodes that include fiscal mitigation; stronger fiscal measures than in past episodes would dampen effects on inflation and output.
  - Effects are stronger when oil price changes are more persistent.

*Source: IMF staff analysis contained in the provided content.*

### Box 1 Figure 2. Guatemala: Responses to Oil Supply Shocks

### Box 1 Figure 2. Guatemala: Responses to Oil Supply Shocks

### Figure caption and visualization notes
- Notes: Shaded: 68% (dark) and 90% (light) confidence intervals.

### Contextual identification
- Country: GUATEMALA
- Document series: INTERNATIONAL MONETARY FUND

*Source: 1gtmea2026001 - Box 1 Figure 2. Guatemala: Responses to Oil Supply Shocks*

### Box 5. Figure 5. EXPY Growth Decomposition

### Box 5. Figure 5. EXPY Growth Decomposition

### Recent economic developments
- Real GDP growth (2023–2031 projections): 3.5; 3.7; 4.3; 3.8; 3.8; 3.9; 3.9; 3.9; 3.9 (annual percent change)
- Consumer prices (average): 6.2; 2.9; 1.6; 3.7; 3.7; 3.7; 3.8; 4.0; 4.0 (annual percent change)
- Gross domestic investment: 16.5; 16.4; 16.8; 16.6; 16.9; 17.2; 17.3; 17.5; 17.8 (percent of GDP)
- Gross national saving: 19.6; 19.3; 21.5; 20.1; 19.7; 19.4; 18.9; 18.5; 18.2 (percent of GDP)
- Current account balance: 3.1; 2.9; 4.7; 3.5; 2.8; 2.2; 1.6; 1.0; 0.4 (percent of GDP)

### External sector: position and trajectory
- Current Account (CA) surplus in 2025: 4.7 percent of GDP (2.9 percent in 2024)
- Remittances in 2025: 20.7 percent of GDP (historically high; precautionary savings)
- Net International Investment Position (NIIP) in 2025: assets and liabilities increased by US$11.4 billion and US$6.3 billion, respectively
- External assets in 2025: 49.5 percent of GDP
- External liabilities in 2025: 46.2 percent of GDP
- FDI share of external liabilities in 2025: over 51 percent of the total
- Net international reserves at end-2025: US$30.9 billion
- Stock of NIR (in millions of U.S. dollars): 19,908; 22,930; 30,937; 33,237; 34,737; 35,237; 35,487; 35,487; 35,487 (2023–2031 series)
- NIR in months of next-year NFGS imports: 6.7; 7.2; 8.8; 8.9; 8.7; 8.2; 7.7; 7.2; 7.2 (2023–2031 series)

### Fiscal sector highlights
- Central government total revenues (in millions of quetzales): 102,016; 109,051; 119,277; 129,972; 139,192; 149,595; 161,270; 174,397; 188,847 (2023–2031)
- Central government total expenditures (in millions of quetzales): 112,246; 117,486; 137,067; 157,745; 167,323; 180,778; 194,473; 210,321; 227,424 (2023–2031)
- Primary balance (central government, in percent of GDP): 0.4; 0.7; -0.3; -1.1; -0.9; -0.9; -0.8; -0.8; -0.7 (2023–2031)
- Overall balance (central government, in percent of GDP): -1.3; -1.0; -1.9; -2.7; -2.6; -2.6; -2.6; -2.6; -2.6 (2023–2031)
- Central Government debt (percent of GDP): 27.2; 26.3; 26.7; 27.4; 28.0; 28.6; 29.1; 29.6; 29.9 (2023–2031)

### Monetary and financial sector developments
- Net international reserves (Bank of Guatemala, in millions of U.S. dollars): 19,908; 22,930; 30,937; 33,237; 34,737 (2023–2027)
- Currency in circulation (in millions of quetzales): 81,579; 88,862; 101,009; 114,223; 124,638 (2023–2027)
- Credit to the private sector (percent change): 14.9; 12.3; 7.6; 8.1; 10.1 (2023–2027, percent change)
- Banking sector: reserves as a percentage of Deposits, in NC: 14.5; 14.8; 15.0; 14.9; 14.9; 14.9; 14.7; 14.8; 14.9; 14.8 (2015–2024 series)
- Nonperforming loans to total gross loans (on-shore banks): 1.4; 2.1; 2.3; 2.2; 2.2; 1.8; 1.7; 1.3; 1.8; 2.5; 2.4 (2015–2025 series)
- Regulatory capital to risk-weighted assets (on-shore banks): 14.1; 13.8; 14.7; 14.8; 15.5; 16.1; 17.3; 16.5; 16.8; 15.7; 15.5 (2015–2025 series)

### Key macro-financial indicators and balances of payments (selected series)
- Trade balance (goods, percent of GDP): -13.8; -14.0; -13.6; -14.5; -14.3; -14.1; -13.9; -13.6; -13.4 (2023–2031)
- Exports, f.o.b. (percent of GDP): 12.5; 11.8; 11.6; 11.4; 11.3; 11.2; 11.3; 11.2; 11.2 (2023–2031)
- Imports, f.o.b. (percent of GDP): 26.3; 25.7; 25.2; 25.9; 25.6; 25.3; 25.1; 24.9; 24.6 (2023–2031)
- Net transfers (percent of GDP): 20.0; 19.9; 21.3; 21.2; 20.3; 19.4; 18.6; 17.8; 17.0 (2023–2031)
- Remittances (percent of GDP): 19.0; 19.0; 20.7; 20.3; 19.4; 18.6; 17.7; 16.9; 16.1 (2023–2031)
- Financial account balance (percent of GDP): 2.7; 2.4; 3.8; 3.5; 2.8; 2.2; 1.6; 1.0; 0.4 (2023–2031)
- Change in reserve assets (Increase (+), in billions of U.S. dollars): 0.9; 2.9; 6.0; 1.7; 1.0; 0.3; 0.2; 0.0; 0.0 (2023–2031)

### Potential policy responses and implications
- Root cause identified: Guatemala’s CA gap stems from low investment.
- Policy directions recommended in the source:
  - Eliminate long-standing structural gaps.
  - Raise public infrastructure spending.
  - Improve the quality of education and health.
  - Maintain a sustainable fiscal framework.
- Intended outcomes described in the source:
  - Spur private investment—including FDI—and associated imports, thus reducing the CA gap.
  - Shift the economy from a remittances-led growth model toward a domestic-driven, sustainable, and inclusive growth model with higher capital formation, imports, and foreign investment inflows.

*Source: Bank of Guatemala; Ministry of Finance; Superintendency of Banks; and Fund staff estimates and projections.*

### 28.4 percent, with portfolio investment liabilities

### 1gtmea2026001 - 28.4 percent, with portfolio investment liabilities

### International Investment Position (IIP) and NIIP
- External debt comprised more than half of external liabilities in 2025 or about a quarter of GDP.
- NIIP: 3.3 (2025, percent of GDP)
- Gross Assets: 49.5 (2025, percent of GDP)
- Gross Liab.: 46.2 (2025, percent of GDP)
- Assessment: The current NIIP projected path does not imply risks to external sustainability. Absent sustained trend changes in FDI or public sector external borrowing, the NIIP is projected to remain positive in the medium term.

### Current Account (CA)
- CA surplus increased from 2.9 percent of GDP in 2024 to 4.7 percent in 2025.
- Remittance inflows: 20.7 percent of GDP (2025).
- Trade deficit: 15.4 percent of GDP (2025).
- Exports of goods and services: decreased from 15.9 to 15.6 percent of GDP (2024 to 2025).
- Imports of goods and services: declined to 31 percent of GDP (2025).
- Projection: The current account balance is projected to converge to zero in the medium term as remittances decelerate and stabilize in real terms in outer years, including on account of more restrictive U.S. migration policies.
- Near-term outlook: Trade balance in goods expected to deteriorate on account of higher fuel prices; Guatemala may benefit from the bilateral trade agreement with the U.S.
- Assessment (EBA): The external position in 2025 was stronger than the level consistent with fundamentals and desirable medium-term policies.

### EBA Estimates for 2025 (selected values)
- CA-Actual (A): 4.7 (percent of GDP)
- Cyclical contributions /2 (B): 0.0
- Adjusted CA (C = A - B): 4.7
- CA Norm /3 (D): -1.3
- Adjustments to the norm /3 (E): -2.0
- Adjusted CA norm (F = D - E): 0.7
- CA gap (G = C - F): 4.0
- Contribution of identified policy gaps /2: 1.0
  - of which: Fiscal Balance: 1.0
- Elasticity /2 (H): 0.27
- REER Gap (percent) /4 (I = G / H): -14.8 13.4 33.6
- Note: EBA analysis updated as of April 2026. The standard error of the CA norm is 0.6 percent of GDP. "-" indicates undervaluation. Adjustment to the norm upward reflects the negative impact of Guatemala's security conditions on investment and capital outflows, which is not captured by the EBA CA model.

### Real Exchange Rate (REER)
- REER appreciated by 3.3 percent at end-2025 y/y (50 percent since 2010 and 5.9 percent since 2020).
- The quetzal appreciated by 0.6 percent at end-2025 relative to the U.S. dollar.
- Assessment: EBA CA methodology suggests the REER remains below the level implied by fundamentals. Under the assumption that the estimated CA gap will be closed by an adjustment in the trade balance, the EBA model implies a REER undervaluation of 14.8 percent (vs. 11.5 percent on 2024).
- Complementary evidence: EBA REER Level and Index models indicate sizable REER overvaluation (33.6 and 13.4 percent, respectively), suggesting competitiveness challenges from a trade balance perspective.
- Note: Large remittances create a wedge between quantity- and price-based assessments of external balance.

### Capital and Financial Accounts: Flows and Policy Measures
- Inward FDI (2025): 1.4 percent of GDP (slightly below the 1.6 percent 10-year average excluding the 2021 sale of Tigo Guatemala).
- Portfolio investment: inflows surpassed outflows in 2025, reflecting inflows from the issuance of Eurobonds by the central government in July (US$1.5 billion).
- Other net investment in 2025: inflows of US$2.2 billion (vs. outflows of US$2.3 billion in 2024), including the use of external financing for the acquisition of the U.S.-based Harvest Hill.
- Assessment: No major macroeconomic risks from capital flows given their relatively low level. Appropriate monetary and fiscal stance, low public debt and sizable reserves should be sufficient to address risks associated with large flows to Eurobonds.
- Footnote: In 2025, Guatemalan firm Castillo Hermanos acquired the U.S.-based Harvest Hill Beverage Company. The transaction was financed through an external bank loan and a drawdown of the firm’s deposits.

### FX Intervention and Reserves Level
- Net International Reserves (NIR, IMF definition) increased from US$22.9 billion (175 percent of ARA metric) end-2024 to US$30.9 billion (203 percent) end-2025.
- Drivers: Historically strong remittances and US$1.5 billion Eurobond; capital inflows from private sector reflected higher net incurrence of liabilities; private sector outflows (including deposits abroad) were about a quarter of the 2024 level (Other Investment Net).
- De facto exchange rate arrangement classification (2025): crawl-like (reclassified from stabilized to crawl-like in 2025).
- Reserves coverage: End-2025 reserves are 203 percent of the IMF’s metric for Assessing Reserve Adequacy (ARA metric) for countries with crawl-like/stabilized exchange rates. Reserves cover almost 9 months of next year’s goods and services imports and about 44 percent of broad money.
- FX interventions: net FX purchases in 2025 reached US$5.3 billion.
- Assessment: Reserves and policy settings are judged sufficient to address risks associated with capital flows and FX needs.

### Risk Assessment Matrix (RAM) — Selected Risks, Likelihood, Impact, and Policy Advice
- Global: Geopolitical Tensions and Intensification of Conflicts
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Accelerate public investment and expand social programs to promote inclusive growth. Advance key reforms aimed at raising productivity. Implement robust anti-corruption measures to improve the business climate.
- Trade-related Risks: Protectionism and Trade Disruptions
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Further remove non-tariff barriers to trade, leverage existing trade agreements, and explore new markets.
- Trade-related Risks: New Trade Agreements
  - Likelihood/Impact: Low Likelihood / Medium impact
  - Policy Advice: Trade agreement with the U.S. positions Guatemala well against peers, specifically in the textile industry. Leverage agreements and remove non-tariff barriers.
- Commodity Price Volatility
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Deploy targeted social transfers to vulnerable segments while accelerating structural reform agenda.
- Fiscal Vulnerabilities and Higher Interest Rates
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Adjust fiscal policy in line with the economic cycle, increase revenue to sustainably finance structural expenditures, carefully calibrate borrowing plans, and strengthen policy coordination. Gradually adjust the policy rate, allow the exchange rate to serve as a shock absorber, and strengthen policy coordination.
- Policy Uncertainty
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Gradually allow the exchange rate to serve as a shock absorber. Deploy targeted social transfers to vulnerable segments of the population.
- Disorderly AI Correction
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Gradually adjust the policy rate, allow the exchange rate to serve as a shock absorber, strengthen policy coordination, deploy targeted social transfers, and advance reforms to raise productivity.
- Cyberthreats
  - Likelihood/Impact: High Likelihood / Medium impact
  - Policy Advice: Provide liquidity to support the banking sector and adopt already developed contingency plans.
- Labor Shortages and Remittances (tighter immigration policies)
  - Likelihood/Impact: High 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, strengthen policy coordination, accelerate structural investments, take advantage of trade agreements, deploy targeted social transfers, and design active labor market policies recognizing pressures from reduced emigration and returning migrants.
- Climate change
  - Likelihood/Impact: Medium Likelihood / Medium impact
  - Policy Advice: Enhance monitoring of exposures and mitigation measures. Deploy targeted support to affected areas.
- Domestic: Social discontent
  - Likelihood/Impact: Medium Likelihood / Low impact
  - Policy Advice: Build effective working coalitions to accelerate structural investments and expand social programs. Improve spending efficiency and transparency. Advance anti-corruption measures to ensure integrity and effectiveness of public spending.
- Note: RAM as of February 2026. Relative likelihood categories: "low" <10 percent, "medium" 10–30 percent, "high" 30–50 percent. The RAM reflects staff views at the time of discussions with the authorities. Risks may interact and materialize jointly.

### Public Debt Sustainability Analysis (DSA) — Summary
- Overall risk of sovereign stress: Moderate.
- Near term: Not applicable / Medium term: Low–Moderate (assessment notes near-term not applicable where there is a disbursing IMF arrangement; for surveillance-only cases near-term assessment performed but not published).
- Fanchart assessment: Moderate.
- GFN: Moderate.
- Long term: Moderate.
- Debt stabilization in the baseline: No.
- Key drivers: Debt dynamics primarily driven by a projected primary deficit of around ¾ percent of GDP, reflecting continued efforts to support infrastructure investment.
- Gross financing needs: Estimated at 4.2 percent of GDP in 2026; projected to remain broadly stable at around 3.5–4.0 percent of GDP over the medium term.
- Financing composition: Expected to rely on a mix of external borrowing, domestic debt issuance, Eurobond placements, and the use of accumulated cash buffers.
- Coverage note: Broader coverage beyond the central government would allow for a more comprehensive assessment.
- Long-term risks: Moderate. Persistent infrastructure and social spending needs, together with climate exposure, could add to longer-term debt pressures, mitigated by low initial debt, strong buffers, and a prudent fiscal track record.

*International Monetary Fund staff.*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors

### Coverage and recording
- Color code (legend reproduced): █ chosen coverage █ Missing from recommended coverage █ Not applicable
- Holder / Issuer entries (as presented):
  - 1  Budget. central govt02.301.801.705.8
  - 2  Extra-budget. funds00000000
  - 3  Social security funds00000000
  - 4  State govt.00000000
  - 5  Local govt.00000000
  - 6  Nonfin pub. corp.00000000
  - 7  Central bank00000000
  - 8  Oth. pub. fin. corp00000000
  - Total002.301.801.705.8
- Comments (verbatim highlights):
  - Basis of recordingValuation 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
  - Debt securities
  - Commentary: The coverage in this SRDSA focuses on the central government due to data availability concerns for the broader public sector (historical availability and composition). Data reported by the MoF exclude unpaid social contributions and Banguat’s claims on the government arising from monetary policy operations (together about 10 percent of GDP).

### Debt structure and market composition (figures and commentary)
- Commentary:
  - The perimeter shown is central government for currency, instruments, and maturity charts; general government for the governing-law chart.
  - 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.
- Selected structural indicators (verbatim pieces from figures and captions):
  - Debt by Currency (Percent of GDP): Foreign currency / Local currency (projection series shown 2016–2036).
  - Public Debt by Holder (Percent of GDP): External private creditors; External official creditors; Domestic other creditors; Domestic commercial banks; Domestic central bank.
  - Public Debt by Governing Law, 2025 (percent): Domestic law; Foreign law ex. multilateral; Multilateral.
  - Debt by Instruments (Percent of GDP): Marketable debt / Nonmarketable debt.
  - Public Debt by Maturity (Percent of GDP): ≤ 1 year; 1-5 years; > 5 years. Residual maturity: 15. years

### Baseline scenario: key projections and flows (Table 3, percent of GDP unless indicated)
- Public debt (Actual / projected):
  - Actual 2025: 26.7
  - 2026: 27.4
  - 2027: 28.0
  - 2028: 28.6
  - 2029: 29.1
  - 2030: 29.6
  - 2031: 29.9
  - 2032: 30.3
  - 2033: 31.1
  - 2034: 31.1
  - 2035: 31.5
- Change in public debt (percent of GDP):
  - 2025: 0.4
  - 2026: 0.7
  - 2027: 0.6
  - 2028: 0.6
  - 2029: 0.5
  - 2030: 0.4
  - 2031: 0.4
  - 2032: 0.4
  - 2033: 0.4
  - 2034: 0.4
  - 2035: 0.4
- Contribution of identified flows (percent of GDP):
  - 2025: -0.1
  - 2026: 0.9
  - 2027: 0.8
  - 2028: 0.8
  - 2029: 0.7
  - 2030: 0.7
  - 2031: 0.6
  - 2032: 0.6
  - 2033: 0.6
  - 2034: 0.6
  - 2035: 0.6
- Primary deficit (percent of GDP):
  - 2025: 0.3
  - 2026: 1.1
  - 2027: 0.9
  - 2028: 0.9
  - 2029: 0.8
  - 2030: 0.8
  - 2031: 0.7
  - 2032: 0.7
  - 2033: 0.7
  - 2034: 0.7
  - 2035: 0.7
- Noninterest revenues and expenditures (percent of GDP):
  - Noninterest revenues: 12.6 (2025), then steady at 12.8, 12.7, 12.7, 12.7, 12.7, 12.7, 12.7, 12.7, 12.7, 12.7
  - Noninterest expenditures: 12.9 (2025), then 13.8, 13.6, 13.6, 13.5, 13.5, 13.4, 13.4, 13.4, 13.4, 13.4
- Automatic debt dynamics and related components:
  - Automatic debt dynamics: -0.4 (2025), 0.0 (2026), 0.0 (2027), -0.1 (2028 onward mostly -0.1)
  - Real interest rate and relative inflation (combined): 0.8 (2025), 1.0 (2026–2034 mostly 1.0–1.1)
  - Real interest rate: 0.8 (2025), 0.7 (2026), 0.7 (2027), 0.8 (2028), 0.8 (2029), 0.7 (2030), 0.7 (2031), 0.8 (2032), 0.8 (2033), 0.8 (2034), 0.8 (2035)
  - Relative inflation: 0.1 (2025), 0.2 (2026–2035)
  - Real growth rate: -1.1 (2025), -1.0 (2026), -1.0 (2027), -1.1 (2028), -1.1 (2029), -1.1 (2030), -1.1 (2031), n.a. (2032), -1.1 (2033), -1.1 (2034), -1.1 (2035), -1.2...
- Contribution of residual:
  - 2025: 0.5
  - 2026: -0.2
  - 2027: -0.2
  - 2028: -0.2
  - 2029: -0.2
  - 2030: -0.2
  - 2031: -0.2
  - 2032: -0.2
  - 2033: -0.2
  - 2034: -0.2
  - 2035: -0.2
- Gross financing needs (GFN) and composition (percent of GDP):
  - Gross financing needs: 2.9 (2025), 4.2 (2026), 3.8 (2027), 3.5 (2028), 3.8 (2029), 3.6 (2030), 3.6 (2031), 3.9 (2032), 3.6 (2033), 3.4 (2034), 3.5 (2035)
  - of which: debt service: 2.6 (2025), 3.1 (2026), 2.9 (2027), 2.6 (2028), 3.0 (2029), 2.8 (2030), 2.9 (2031), 3.1 (2032), 2.9 (2033), 2.7 (2034), 2.7 (2035)
  - Local currency GFN: 1.6 (2025), 1.5 (2026), 1.5 (2027), 1.1 (2028), 1.7 (2029), 1.8 (2030), 2.0 (2031), 1.7 (2032), 1.9 (2033), 1.8 (2034), 2.0 (2035)
  - Foreign currency GFN: 1.0 (2025), 1.6 (2026), 1.4 (2027), 1.5 (2028), 1.3 (2029), 1.0 (2030), 0.9 (2031), 1.4 (2032), 1.0 (2033), 0.8 (2034), 0.8 (2035)
- Memo indicators (verbatim):
  - Real GDP growth (percent): 4.3 (2025), 3.8 (2026), 3.8 (2027), 3.9 (2028), 3.9 (2029), 3.9 (2030), 3.9 (2031), 3.9 (2032), 3.9 (2033), 3.9 (2034), 3.9 (2035)
  - Inflation (GDP deflator; percent): 3.4 (2025), 3.6 (2026), 3.7 (2027), 3.7 (2028), 3.8 (2029), 4.0 (2030), 4.0 (2031), 4.0 (2032), 4.0 (2033), 4.0 (2034), 4.0 (2035)
  - Nominal GDP growth (percent): 7.8 (2025), 7.5 (2026), 7.7 (2027), 7.8 (2028), 7.9 (2029), 8.0 (2030), 8.1 (2031), 8.1 (2032), 8.1 (2033), 8.1 (2034), 8.1 (2035)
  - Effective interest rate (percent): 6.5 (2025), 6.7 (2026), 6.6 (2027), 6.6 (2028), 6.7 (2029), 6.7 (2030), 6.7 (2031), 6.8 (2032), 6.9 (2033), 6.9 (2034), 6.9 (2035)
- Commentary: In the medium-term, public debt is projected to rise continuously with primary deficits.

### Medium-term risk analysis and stress tests
- Debt Fanchart and GFN modules (selected values and signals):
  - Debt fanchart index (DFI): 1.5
  - Fanchart width: 13.2 0.2 (percent of GDP) [as presented]
  - Probability of debt non-stabilizaiton(percent): 100.00.8
  - Terminal debt-to-GDP x23.00.5
  - GFN financeability index (GFI): 8.2
  - Average baseline GFN: 3.7 1.3 (percent of GDP) [as presented]
  - Initial Banks' claims on the gen. govt(pct bank assets): 17.1 5.5
  - Chg. In banks' claims in stress (pct banks' assets): 4.1 1.4
- Risk signals and final assessment:
  - Risk signal: 3/Moderate (debt fanchart)
  - Risk signal: 4/Moderate (GFN module)
  - Medium-term index: Value / Weight / Contribution shown; overall Risk signal: 5/
  - Final assessment: Prob. of missed crisis, 2026-2031, if stress not predicted: 9.1 pct.
  - Prob. of false alarms, 2026-2031, if stress predicted: 42.0 pct.
  - Commentary: 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.

### Realism and stress visuals (high-level)
- Realism of baseline assumptions and fan-chart figures are presented (2021–2031 series).
- Stress scenario output: financing provided by banks (Actual / Baseline / Stress scenario series) and medium-term index trajectory showing classification as Low risk / Moderate.

### 2025 Article IV Recommendations — Authorities’ actions and staff appraisal (selected)
- Fiscal Policy
  - Recommendation: Strengthen revenue mobilization through improved tax administration and anti-evasion measures, including (i) implementation of SAT’s strategic plan aligned with the 2024 TADAT, (ii) adopt legal protection for SAT auditors (and public officials) in the exercise of their mandate, and, (iii) over the medium term, advance tax policy reforms, including rationalization of tax expenditures.
  - Authorities’ actions: Enhanced revenue projections, auditing, and compliance checks; mandatory electronic invoice system in place; implementation of SAT’s new strategic plan aligned with 2024 TADAT; auditors remain under SAT protection; SAT analyzing Ley de Modernización al Sistema Tributario.
  - Staff appraisal: Revenue projections in 2025 budget became more accurate; digitalization and new analytical tools helpful; progress on enforcement against tax evasion; no progress on legal protection of SAT auditors, although SAT legal advisors can assist current and former employees.
- Budgeting, public investment, and transparency
  - Recommendation: Improved targeting and transparency for social programs; prioritize scaling up investments in infrastructure; integrate and map the National Development Plan into the budgetary process; strengthen the MTFF and multiannual budget with technical analysis.
  - Authorities’ actions: 2025 and 2026 budgets prioritize investment and social spending; integration of National Development Plan within budgets (e.g., Puerto Quetzal project); transparency enhanced by open data and dashboards; internal committee broadening MTFF linkage.
  - Staff appraisal: Budgets allocate increased funding but execution has been slow; project approvals delayed; decentralized public investment through CODEDEs needs improved effectiveness and governance.
- Public financial management and IPSAS
  - Recommendation: Continue implementation of PIMA/C-PIMA and Fiscal Transparency evaluations; implement IPSAS and enhance digital PFM.
  - Authorities’ actions: Strengthened fiscal transparency; publication of citizen-friendly budget explanations; expanded reporting on budget execution; Fund TA support for IPSAS convergence; IPSAS implementation expected by 2030.
  - Staff appraisal: Progress ongoing but further timely progress needed.
- Procurement and procurement law
  - Recommendation: Strengthen public procurement and oversight of public investment; new Public Procurement Law; greater transparency and oversight for CODEDEs.
  - Authorities’ actions: Strengthening procurement transparency through Guatecompras; MINFIN launched transparency tools for CODEDE disbursements; WB support requested for CODEDE analysis; new Public Procurement Law presented to Congress.
  - Staff appraisal: Prompt approval and implementation of the new law pending; need to strengthen Comptroller General and Secretariat for Executive Coordination; incentivize civil society participation.
- Infrastructure and PPPs
  - Recommendation: Fast-track infrastructure agenda, enact infrastructure and port laws, amend PPP law.
  - Authorities’ actions: Congress enacted Priority Infrastructure Law and Competition Law; PPP law amended; new PPP agency (ANI) created replacing ANADIE.
  - Staff appraisal: Operationalization of DIPP faces legal obstacles; ports and airport laws need advancement; timely PPP operationalization required.
- Debt management
  - Recommendation: Adopt a well-calibrated Medium-Term Debt Management Strategy and Annual Borrowing Plans.
  - Authorities’ actions: Fund TA on MTDS and local bond market; Debt Portfolio Management Medium Term Strategy 2026-30 created; administrative process initiated for joint publication of Debt Strategy and Annual Borrowing Plan 2026.
  - Staff appraisal: TA provided recommendations; authorities acknowledge need for Secondary Financial Market law to improve financing access and competition.
- Monetary Policy
  - Recommendation: Maintain appropriate monetary policy stance; strengthen fiscal-monetary coordination; enhance operational framework; reduce reliance on reserve requirements; deepen domestic financial markets.
  - Authorities’ actions: Headline inflation remained below Banguat's target band (4% ±1%); four consecutive 25-basis-point rate cuts mid-2025–Feb 2026 to 3.5 percent, then easing on hold; reforms to narrow policy corridor from ±25 to ±10 basis points, streamline term-deposit maturities from seven to five, introduce organized auctions and single-price auctions, phase out non-bank participants from term-deposit auctions; developing parametric collateral valuation model.
  - Staff appraisal: Reforms welcome; expected to strengthen liquidity management, improve market pricing, and enhance monetary policy transmission.
- Foreign Exchange Policy
  - Recommendation: Prepare for larger investment flows; reduce monetary policy costs; transfer market risks to private sector; develop FX and hedging market framework.
  - Authorities’ actions: Consulting with IDB on secondary market law; intend to submit draft to Congress later this year.
  - Staff appraisal: Fast-tracking Secondary Market Law important to mobilize domestic savings, strengthen monetary policy transmission, enhance competition, deepen domestic markets, and prepare for potential capital inflows if investment grade achieved.
- Financial Sector
  - Recommendation: Strengthen bank oversight, especially large exposures; amend 2002 Law on Banks and Financial Groups; implement IFRS; foster financial inclusion.
  - Authorities’ actions: Gradual implementation of 2023 Credit Risk Management Regulation; intend to update 2002 Law; implement IFRS likely by 2030.
  - Staff appraisal: Continued strengthening of bank supervision and risk management; technical discussions initiated on law revisions.
- Structural reforms
  - Recommendation: Adopt competition law, infrastructure law, PPP law revision, ports law, securities market law, expropriation law, insolvency law; strengthen labor market.
  - Authorities’ actions: Congress adopted competition and priority infrastructure laws; continued work on other legislation; launched Equal Opportunity Initiative in December 2024.
  - Staff appraisal: Impasse over operationalization of priority infrastructure; ports and airports laws need advancement; PPP law needs full operationalization.
- Governance and anti-corruption
  - Recommendation: Develop and publish medium-term anti-corruption strategy with roadmap.
  - Authorities’ actions: Anti-corruption strategy adopted in 2025; National Commission against Corruption cooperating with entities to establish anticorruption and transparency bureaus; National Anti-Corruption Commission established; code of ethics adopted; Integrity and Corruption Prevention Strategy 2025-32 launched.
  - Staff appraisal: Initial steps taken; emphasis on integrity, transparency, accountability, and reporting mechanisms.
- AML/CFT and related laws
  - Recommendation: Adopt and implement draft AML/CFT law, Beneficial Ownership Law, and Law of Protection of Whistleblowers.
  - Authorities’ actions: AML/CFT law approved; authorities working on regulations and implementation.
  - Staff appraisal: AML/CFT Law approved, but timely implementation and related regulations needed.

*Source: IMF staff estimates, projections, and staff appraisal as presented in the chapter.*

### Annex V. Data Issues

### Annex V. Data Issues

### Data adequacy assessment (surveillance)
- Data Adequacy Assessment Rating: B
- Questionnaire Results median rating: BBBBBBB
- Detailed questionnaire results (Data Quality Characteristics):
  - Coverage: BBBAA
  - Granularity 3/: BBBB (top cell); BB (bottom cell)
  - Consistency: BBB
  - Frequency and Timeliness: BAABA
- Assessment summary:
  - Rationale for staff assessment: "The data provided to the Fund has some shortcomings but is broadly adequate for surveillance."
  - Data quality and timeliness are broadly adequate for surveillance purposes.
  - Key shortcomings: limited availability in labor market data, the Producer Price Index (PPI), and the Balance of Payments (BoP).
  - Government finance statistics coverage is currently confined to the central government; efforts underway to expand perimeter to the nonfinancial public sector.
- 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."

### Recent changes and developments
- January 2026: Banguat published regional GDP marking the success of a project initiated in 2023.
- National accounts and BoP updates:
  - Updated GDP to the 2025 SNA and BoP to BPM7; both expected to be finalized by 2029.
- Environmental macroeconomic accounting: expected to be finalized later in 2026; will aid assessment of climate risks in the financial sector.
- Government finance statistics (GFSM) compilation progress:
  - Historical flow reports published for 2013-2024.
  - Work continues on balance sheets to expand coverage beyond central government.
- Labor market data:
  - Banguat and the National Institute of Statistics (INE) signed an MoU in late 2023 with timeline for publication of timely labor market data.
  - Data for 2024Q4-2025Q4 is publicly available.
- New data series: "The new mandatory data series, particularly related to macro-financial indicators are available."
- Banguat created an export competitiveness index for comprehensive assessment of the environment in which Guatemala’s exporters operate.

### Data standards and common indicators
- 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 of June 22, 2026) — examples of data provision, observations, and timeliness:
  - Exchange Rates: Date of Latest Observation 11-June-26; Date Received 18-June-26; Frequency of Data D; Expected Timeliness 30D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: 11-June-26 / 18-June-26 / D D M M / 1M / 30D
  - Reserve/Base Money: 11-June-26 / 18-June-26 / W W M M / 2M / 30D
  - Broad Money: 11-June-26 / 18-June-26 / W W M M / 1Q / 30D
  - Central Bank Balance Sheet: April-26 / 27-May-26 / M M M M / 2M / 30D
  - Consolidated Balance Sheet of the Banking System: April-26 / 27-May-26 / M M M M / 1Q / 30D
  - Interest Rates2: 11-June-26 / 18-June-26 / W W M M / ... / 10D
  - Consumer Price Index: May-26 / 8-June-26 / M M M M / 2M / 2W
  - Revenue, Expenditure, Balance and Composition of Financing — Central Government: May-26 / June-26 / M M Q M / 1Q / 1M
  - External Current Account Balance: 2025Q4 / April-26 / Q Q Q Q / 1Q / 100D
  - Exports and Imports of Goods and Services: May-26 / June-26 / M M M M / 12W / 45D
  - GDP/GNP: 2025Q4 / April-26 / Q Q Q Q / 1Q / 100D
  - Gross External Debt: 2025Q4 / April-26 / Q Q Q / ... / 2Q
  - International Investment Position: 2025Q3 / April-26 / Q Q A / Q3Q / 100D
- Notes on frequencies and timeliness (as used in the table): “D” daily; “W” weekly; “M” monthly; “Q” quarterly; “A” annual; "SA" semiannual; "I" irregular; "NA" not available or not applicable; "NLT" not later than.

### Corrective actions and capacity development priorities
- General: During the 2026 Article IV consultation, staff discussed data adequacy with the authorities. Authorities have made advances in labor market data and continued working on other important data initiatives. INE's capacity remains limited.
- Corrective actions and capacity development priorities include:
  - Expand GFSM coverage beyond central government, finalize balance sheets.
  - Finalize GDP (2025 SNA) and BoP (BPM7) updates by 2029.
  - Finalize environmental macroeconomic accounting in 2026 to support climate risk assessment.
  - Continue publication of timely labor market data per MoU (INE and Banguat).
  - Enhance dissemination of macro-financial mandatory data series.
- Staff note on use of non-official data: none — staff use official statistics only.

### Key contextual statistics and institutional notes
- MoU between Banguat and INE: signed in late 2023 (labor market data timeline).
- Project initiation dates and milestones:
  - Regional GDP project initiated in 2023; regional GDP published January 2026.
  - 2025 SNA and BPM7 updates expected finalized by 2029.
  - Environmental macroeconomic accounting expected finalized later in 2026.
- Exchange rate operational parameter: the fluctuation margin that determines intervention eligibility reached 1.05 percent in 2026 (up from 0.80 percent in 2020, 0.95 percent in 2024 and 1.0 percent in 2025).

*Source: Annex V. Data Issues, IMF staff report (provided content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1gtmea2026001.pdf_