## _cr09305

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---

### Executive Summary — Background and Program Status
- 18 month Stand-By Arrangement (SBA) with total access of SDR 630.6 million (300 percent of quota) approved April 22, 2009.
- With completion of this review, a total of SDR 462.44 million will be available for drawing.
- Authorities are treating the arrangement as precautionary.
- All end-June quantitative performance criteria were met; net international reserves and fiscal deficit targets met by a wide margin.
- Government deposits at the central bank were below the end-June indicative target.
- Amendments to the banking law (end-June structural benchmark) were submitted to Congress in June.
- Decline in inflation below the consultation band triggered a consultation with staff.

### Recent economic developments and outlook
- Real GDP growth and high-frequency indicators:
  - Output growth slowed from 6 percent in 2006–07 to 4 percent in 2008, with a sharp deceleration in the fourth quarter.
  - Growth projected to be below ½ percent in 2009 (projected 1 percent at program approval; revised projection below ½ percent).
  - High-frequency monthly indicator: slowed to 1.6 percent (y-o-y) in June (down from 2.1 percent a year earlier).
  - Growth projections (range): 2009: between 0.4 and 1.2 percent; 2010: between 1.3 and 2.1 percent.
- Inflation:
  - Headline inflation: -0.3 percent (y-o-y) at end-July from a peak of 14.2 percent in mid-2008.
  - Inflation fell to 0.6 percent (y-o-y) at end-June 2009, below the consultation band set in the program.
  - Staff projection: inflation projected to reach 1.5 percent in 2009, and rise to 3.8 percent in 2010.
  - Monetary Board reduced the policy interest rate by 250bp since January 2009 to 4.75 percent (other authority statements note 275 basis points to 4.50 percent).
- External sector:
  - Current account deficit narrowing sharply because of a large fall in imports; in the first half of 2009 the current account turned into surplus driven by a decline in investment and lower oil and food prices.
  - Capital and intermediate goods imports declined by more than 30 percent (y-o-y) in the first half of 2009.
  - Capital account surplus shrinking as private sector debt rollover rates decreased and domestic banks partially repaid external credit lines; net private credit flows turned negative partially offsetting inflows from FDI and private borrowing.
  - External current account balance projections: -1.7 percent of GDP in 2009 (down from -4.0 percent in 2008); projected -3.3 percent of GDP in 2010 (table of projections shows multiple series preserved).
  - Net international reserves (selected values): 2007: 4.1; 2008: 4.4; projected 2009: 4.4; alternative projections: 4.7 (2009 EBS/09/49rev proj.); 2010: 4.4 and 4.9 (multiple series preserved).
  - Real effective exchange rate: depreciated by about 6 percent since end-December 2008.
  - Central bank modified foreign exchange intervention rule to allow intervention up to US$24 million daily when exchange rate deviates from its 5-day moving average by 0.5 percent (previously 0.75 percent) and to allow intra-day intervention.

### Fiscal developments and targets
- Fiscal deficit increasing due to a sharp decline in revenues associated with contraction in imports and domestic demand.
- Fiscal deficit reached 0.9 percent of GDP in January–July 2009 due to an 8 percent (y-o-y) decline in tax revenues and a boost in spending (13 percent y-o-y during January/June).
- Authorities safeguarded social spending; conditional cash transfer program "Mi familia progresa" expanded to 0.3 percent of GDP.
- Revised central government balance targets and financing:
  - Agreement to revise upward the 2009 fiscal deficit target to 3.4 percent of GDP (compared to 2.8 percent in the original program).
  - Staff agreed 2010 fiscal deficit target at 3.0 percent of GDP.
  - Consolidated public sector deficit could reach 2009: 3.0 percent of GDP; 2010: 2.6 percent of GDP.
- Central government (percent of GDP series as presented):
  - Revenues: 12.1 11.3 10.6 11.4 10.9 (series preserved).
  - Expenditures: 13.7 14.1 14.0 14.0 14.0 (series preserved).
  - Central government balance (series preserved): -1.4 (2007), -1.6 (2008), -2.8 (2009 EBS/09/49rev proj.), -3.4 (2009 EBS/09/49rev proj.), -2.6 (2009 projection table), -3.0 (2010 projection table).
- Financing composition (central government balance table excerpt):
  - Financing: 1.6 2.8 3.4 2.6 3.0 (series preserved).
  - External (net): 0.3 1.6 1.3 1.6 1.4.
  - Domestic bond issuance (net): 0.7 1.0 1.4 0.6 1.3.
  - Use of deposits: 0.8 0.1 0.7 0.4 0.3.
  - Memorandum item: GDP (millions of quetzales) 294,664 314,445 310,005 335,288 323,299.

### Medium-term fiscal sustainability and reform agenda
- Guatemala’s debt-to-GDP ratio described as moderate, but low tax revenues limit repayment capacity.
- Mission recommendation: increase tax revenues and return to deficit levels below 2 percent of GDP starting in 2011 to stabilize public debt at around 26 percent of GDP.
  - This would require discretionary measures equivalent to about ½ percent of GDP.
- Staff recommended rekindling fiscal reform agenda:
  - Revenue-enhancing reform.
  - Limiting tax exemptions.
  - Further strengthening tax administration.
- Authorities indicated plans to pursue an income tax reform once growth bounces back.
- Staff concern about law on free trade zones (ZOLIC) broadening tax exemptions; authorities noted enabling regulations would minimize scope.
- Emphasis on preparing medium-term fiscal framework (MTFF) and medium-term expenditure framework (MTEF).

### Monetary policy and inflation consultation
- Monetary easing:
  - Monetary Board reduced policy interest rate by 250bp since January 2009 to 4.75 percent (other authority statements cite 275bp to 4.50 percent).
  - Monetary easing had limited pass-through to bank lending rates due to weak transmission and cautious bank lending stance.
- Inflation dynamics and outlook:
  - Headline inflation: -0.3 percent y-o-y by end-July from a peak of 14.2 percent a year earlier.
  - Core inflation: 1.7 percent (from a peak of 9.4 percent in July 2008).
  - Monthly inflation turned positive in recent months; annual inflation expected to return to positive territory during second half of 2009.
  - Staff view: gradual relaxation of monetary policy appropriate; some room to cut the policy interest rate while inflation remains low and FX conditions calm.
  - Authorities committed to shift to use of an overnight interest rate by 2010 and to work on deepening secondary markets for securities.
- Exchange rate policy:
  - Flexible exchange rate has helped cushion the global crisis.
  - Discretionary foreign-exchange interventions to smooth volatility agreed.
  - September modification in FX intervention rule described as transitory to allow more timely intervention.
  - Staff recommends continuing exchange rate flexibility and safeguarding international reserves.

### Financial sector performance and regulatory measures
- Financial system resilience and indicators:
  - System capitalization stable at 13.5 percent of risk-weighted assets (system capitalization figure as presented).
  - Nonperforming loans rose moderately from low levels; credit growth halted.
  - On-shore banks statutory capital to risk-weighted assets: 12.8 (2006); 12.3 (2007); 13.5 (2008); n.a. (2009 June).
  - Nonperforming loans to total gross loans: 3.4 (2006); 2.6 (2007); 2.3 (2008); 3.0 (2009 March).
  - Return on assets: 1.2 (2006); 1.5 (2007); 1.7 (2008); 2.0 (2009 March).
  - Return on equity: 15.0 (2006); 16.8 (2007); 16.3 (2008); 20.3 (2009 March).
- Banking law amendments (submitted to Congress end-June 2009) aim to:
  - Reduce risks from offshore operations and connected lending (firewalls; minimum of $12,500 for off-shore deposits; align grounds for revoking offshore licenses; limits on related lending).
  - Strengthen supervision and enforcement powers of the superintendency (annual rating requirement; limits on total loans to shareholders; powers to request regularization plans and issue cease and desist orders; power to limit or prohibit dividend distribution).
  - Enhance bank resolution procedures and safety net (expanded lender of last resort scope for Central Bank; increase in banks' contributions to deposit insurance scheme (FOPA) with risk-related variable contribution; allow foreign banks to participate in domestic banks' resolution).
- Draft regulations on banks’ liquidity management and foreign currency risk management: elaboration by end-December 2009; implementation beginning first quarter of 2010.
- Staff welcomed stepped-up supervision, revamped provisioning requirements, and stress tests (in collaboration with the World Bank).

### Risks to the program and balance of payments
- Risks remain tilted to the downside.
- External financing requirements:
  - Now estimated at 12 percent of GDP in 2009 (compared to 16.2 percent of GDP at program approval) and 13.8 percent of GDP in 2010.
  - Potential financing gap under the program (2.5 percent of GDP) could materialize during 2009–10 if rollover rates of external nontrade-related private debt do not recover.
- Political risks:
  - Political uncertainties and delays in Congress approval of key legislation (e.g., draft banking law; authorization of US$350 million World Bank loan) could make fiscal policy procyclical and weaken growth and banking soundness.
  - Government withdrew a reform on indirect taxation from Congress in late August due to lack of political support.
- Regional risk: potential deterioration in Honduras poses risks given close financial and trade links.
- Selected balance of payments excerpts (series preserved):
  - Gross external financing requirement (percent of GDP sequences as presented).
  - Current account deficit: 1.9 1.5 0.6 1.2 1.7 0.6 1.2 (series preserved).
  - External debt amortizations: 4.3 4.7 3.9 4.0 4.7 3.9 4.0 (series preserved).
  - Rollover of private sector debt (in %): 141% 91% 64% 96% 65% 35% 65% (series preserved).

### Program modalities, monitoring, and safeguards
- Program fully financed for 2009–10.
- New set of quantitative performance criteria agreed through end-March 2010 and indicative targets up to end-2010.
- Staff supports:
  - Revising 2009–10 fiscal targets upwards to avoid procyclical stance.
  - Leaving net international reserves (NIR) targets unchanged.
  - Adjusting the inflation consultation bands to reflect lower-than-anticipated inflation outlook for 2009–10.
- Structural benchmarks:
  - Elaboration of draft regulations on banks' liquidity management — end-December 2009.
  - Elaboration of draft regulations on banks' foreign currency credit risk — end-December 2009.
- Safeguards assessment update:
  - Since 2002, Bank of Guatemala strengthened financial reporting transparency and FX reserves management.
  - Additional measures needed: establish a nonexecutive audit committee; direct access of internal auditors to senior management and the Monetary Board; address remaining vulnerabilities in legal structure and independence.
  - Bank implementing International Financial Reporting Standards.

### Staff appraisal and recommendations
- Staff appraisal summary conclusions:
  - Guatemalan economy negatively affected by the global crisis: growth slowing due to falling domestic demand and declines in exports, remittances, tourism receipts, and capital inflows.
  - Authorities’ macroeconomic response appropriate: balancing demand support and fiscal sustainability while avoiding disorderly exchange rate adjustments.
  - Financial system measures taken to bolster resilience; vigilance and swift approval and implementation of banking law amendments would strengthen resilience further.
  - Fiscal policy outlook: with revenues falling, spending increases deficits in 2009 and 2010; scope for positive fiscal impulse limited given financing constraints and sustainable public debt concerns; prioritize protection of social programs.
  - Monetary policy: gradual easing appropriate; ensure real policy rate remains positive; welcome shift toward overnight policy rate and deeper secondary markets.
  - Exchange rate: flexibility facilitated adjustment; interventions to smooth volatility while safeguarding reserves.
- Specific staff views and recommendations:
  - Fiscal policy should continue striking balance between avoiding a procyclical stance and maintaining debt sustainability.
  - Monetary policy should remain supportive as long as inflation remains subdued and there are no external pressures.
  - Staff supports authorities’ intention to increase fiscal deficit in 2009 and 2010.
  - Staff supports authorities’ requests for:
    - Revising upward the overall balance of the central government (end-September performance criterion).
    - Revising the inflation consultation bands.
  - Staff recommends completion of the first review of the SBA while noting downside risks from large private sector debt rollover needs and/or a deeper recession.

### Program financing, SBA purchase schedule and Fund relations
- Stand-By Arrangement purchase schedule (selected):
  - Board approval (April 22, 2009): 420.40 Million SDR / 655.0 Million US$ / 1200.00 Percent of Quota / 66.67 Percent of Total Access.
  - First review (September 15, 2009): 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access.
  - Subsequent reviews (Dec 15, 2009; Mar 15, 2010; Jun 15, 2010; Sep 15, 2010): each 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access.
  - Total under arrangement: 630.60 Million SDR / 982.5 Million US$ / 2300.00 Percent of Quota / 100.00 Percent of Total Access.
  - Note: US$/SDR exchange rate of 0.64182 as of August 13, 2009 (table footnote).
- Indicators of Fund credit (selected series preserved in document).
- Guatemala has no outstanding purchases or loans with the Fund prior to the SBA.
- Resident Representative office in Guatemala opened in 2003; Mr. Fernando Delgado appointed Regional Resident Representative for Central America in August 2009.
- Technical assistance and multilateral cooperation:
  - CAPTAC-DR regional Technical Assistance Center opened June 2009 in Guatemala City.
  - STA provided TA on quarterly national accounts in July 2009.
  - MCM advisory missions (March 2008–May 2009) assisted in designing action plan for secondary markets and improving monetary policy effectiveness.
  - World Bank: Second Programmatic Fiscal and Institutional Development Policy Loan approved July 28, 2009 for $350 million.
  - IDB: portfolio of approved sovereign guaranteed investment and policy-based loans under execution amounted to US$1,466 million, with undisbursed balance of US$888.5 million (as of August 7, 2009).

### Key social, demographic, and selected statistical indicators (as presented)
- Population 2006 (millions): 13.0
- Gini index (2002): 55.1
- Percentage of indigenous population (2006): 38.4
- Life expectancy at birth (2005): 69.7
- Percentage of population below the poverty line (2006): 51.0
- Adult illiteracy rate (2005): 28.2
- Rank in UNDP development index (2008): 121 of 179
- GDP per capita (US$, 2007): 2,550
- Selected public finance levels (central government, millions of quetzales):
  - Total revenues: 29,250 (2006); 33,611 (2007); 35,578 (2008); 35,504 (2009); 32,966 (2010).
  - Total expenditures: 33,721 (2006); 37,382 (2007); 40,355 (2008); 44,221 (2009); 43,537 (2010).
  - Overall balance (millions): -4,471 (2006); -3,772 (2007); -4,777 (2008); -8,718 (2009); -10,571 (2010).

*Source: Excerpts from the IMF Country Report (document content supplied).*

### Executive Summary

### _cr09305 - Executive Summary

### Background
- An 18 month Stand-By Arrangement (SBA) with total access of SDR 630.6 million (300 percent of quota) was approved by the Executive Board on April 22, 2009.
- With completion of this review, a total of SDR 462.44 million will be available for drawing.
- The authorities are treating the arrangement as precautionary.

### Economic outcomes / Recent developments
- Real GDP growth:
  - Output growth slowed from 6 percent in 2006–07 to 4 percent in 2008, with a sharp deceleration in the fourth quarter.
  - Growth is projected to be below ½ percent in 2009 (projected 1 percent at program approval; revised projection below ½ percent).
  - High-frequency monthly indicator: slowed to 1.6 percent (y-o-y) in June (down from 2.1 percent a year earlier).
- Inflation:
  - Inflation plummeted to -0.3 percent (y-o-y) at end-July, from a peak of 14.2 percent in mid-2008.
  - Inflation fell to 0.6 percent (y-o-y) at end-June 2009, below the consultation band set in the program.
  - Staff projection: inflation projected to reach 1.5 percent in 2009, and rise to 3.8 percent in 2010.
- External sector:
  - The current account deficit is narrowing sharply because of a large fall in imports; in the first half of 2009 the current account turned into surplus driven by a decline in investment and lower oil and food prices.
  - In the first half of 2009, capital and intermediate goods imports declined by more than 30 percent (y-o-y).
  - Capital account surplus is shrinking as private sector debt rollover rates decreased and domestic banks partially repaid external credit lines; net private credit flows turned negative partially offsetting inflows from FDI and private borrowing.
  - External current account balance projections: -1.7 percent of GDP in 2009 (down from -4.0 percent in 2008); projected -3.3 percent of GDP in 2010 (table of projections).
  - Net international reserves: 4.1 (2007), 4.4 (2008), projected 4.4 (2009), projected 4.7 (2009 EBS/09/49rev proj.), projected 4.4 and 4.9 (2009/2010 projections as presented).
  - Real effective exchange rate: depreciated by about 6 percent since end-December 2008.
  - Central bank modified foreign exchange intervention rule to allow intervention up to US$24 million daily when exchange rate deviates from its 5-day moving average by 0.5 percent (previously 0.75 percent) and to allow intra-day intervention.
- Financial sector:
  - The financial system is holding up well: banks’ deposits have increased, liquidity ample, and the central bank did not renew temporary liquidity facilities.
  - System capitalization remained stable at 13.5 percent of risk-weighted assets.
  - Nonperforming loans have risen moderately from low levels; credit growth has come to a halt.
  - Banks are paying back external credit lines; private sector external debt numbers listed: 6,913; 8,283; 8,946; 8,703 (annual figures as presented).
- Fiscal developments:
  - Fiscal deficit is increasing due to a sharp decline in revenues associated with contraction in imports and domestic demand.
  - Fiscal deficit reached 0.9 percent of GDP in January–July 2009 due to an 8 percent (y-o-y) decline in tax revenues and a boost in spending (13 percent y-o-y during January/June).
  - Authorities have safeguarded social spending; the conditional cash transfer program "Mi familia progresa" is being expanded to 0.3 percent of GDP.
  - Central government balance and public sector debt projections:
    - Central government balance: -1.4 (2007), -1.6 (2008), -2.8 (2009 EBS/09/49rev proj.), -3.4 (2009 EBS/09/49rev proj.), -2.6 (2009 projection table), -3.0 (2010 projection table).
    - Public sector debt: 21.8, 20.2, 22.8, 23.2, 24.4, 25.6 (year-by-year values as presented).
- Program performance:
  - All end-June quantitative performance criteria were met.
  - Net international reserves and fiscal deficit targets were met by a wide margin.
  - Government deposits at the central bank were below the end-June indicative target.
  - On the structural front, amendments to the banking law (end-June structural benchmark) were submitted to Congress in June.
  - The decline in inflation below the consultation band triggered a consultation with staff.

### Policy implementation
- Program implementation has been strong; the authorities are implementing counter-cyclical policies to mitigate the slowdown.
- Monetary policy:
  - The Monetary Board reduced the policy interest rate by 250bp since January 2009 to 4.75 percent.
  - Monetary easing has had little impact on banks’ interest rates because of weak transmission and banks’ cautious lending stance.
- Fiscal policy:
  - Authorities implemented a moderate fiscal stimulus centered on supporting domestic demand while refocusing public expenditures toward social spending and public investment.
  - The fiscal deficit increase is financed by multilateral loans, domestic bond issuance and use of deposits (financing mix described in figures).
  - Congress passed key legislation including authorization to increase bond issuance to finance the 2009 budget.
- Structural measures:
  - Strengthening financial sector policies to increase banking sector resilience and enhance its safety net and resolution procedures.
  - Amendments to the banking law submitted to Congress.

### Policy recommendations and staff views
- Fiscal policy should continue striking a balance between avoiding a procyclical stance and maintaining debt sustainability.
- Monetary policy should remain supportive as long as inflation remains subdued and there are no external pressures.
- Staff supports the authorities’ intention to increase the fiscal deficit in 2009 and 2010.
- Staff supports the authorities’ request for:
  - Revising upward the overall balance of the central government (end-September performance criterion).
  - Revising the inflation consultation bands.

### Discussions
- Article: Discussions were held in Guatemala City during August 3–14.
- Staff composition: Mr. López Mejía (Head), Ms. Martin, and Mr. Morra (all WHD), and Mr. Henn (SPR). Mr. Delgado (the new regional resident representative) participated in the policy discussions. Mr. Gramajo (OED) joined the policy discussions.
- Authorities met: President Colom, Minister of Finance Fuentes Knight, Central Bank President de Bonilla, Superintendent of Banks Barquín, and other members of the economic cabinet.

*IMF staff summary: Executive Summary of _cr09305*

### 12.      There w

### 12.      There w

### Fiscal policy and 2009–10 fiscal targets
- Agreement to revise upward the 2009 fiscal deficit target to 3.4 percent of GDP (compared to 2.8 percent in the original program).
- Government revenues are expected to fall below the program projections by about 7 percent because of the expected decline in imports and a steeper economic slowdown.
- The new deficit target:
  - Fully accommodates automatic stabilizers.
  - Helps protect social spending.
  - Is still consistent with a positive fiscal impulse of about 0.4 percent of GDP (compared to 0.6 percent of GDP originally in the program).
  - Leads to a moderate increase in public debt.
- Expected financing composition (central government balance table excerpt):
  - Central government balance: -1.6 -2.8 -3.4 -2.6 -3.0
  - Revenues: 12.1 11.3 10.6 11.4 10.9
  - Expenditures: 13.7 14.1 14.0 14.0 14.0
  - Financing: 1.6 2.8 3.4 2.6 3.0
    - External (net): 0.3 1.6 1.3 1.6 1.4
    - Domestic bond issuance (net): 0.7 1.0 1.4 0.6 1.3
    - Use of deposits: 0.8 0.1 0.7 0.4 0.3
    - Other: -0.1 0.0 0.0 0.0 0.0
  - Memorandum item: GDP (millions of quetzales) 294,664 314,445 310,005 335,288 323,299
  - Sources: Ministry of Finance; and Fund staff estimates.
- Financing of the higher deficit is expected to be through higher domestic bond issuance and drawing down more government deposits than originally envisaged.
- Indicative target on government deposits at the central bank revised to a stock equivalent to 1.9 percent of GDP (authorities noted that about 2/3 of these deposits would be readily available).
- 2010 budget and targets:
  - Staff agreed to set the 2010 fiscal deficit target at 3.0 percent of GDP.
  - This deficit would be consistent with a slightly negative policy stance and would only increase the public debt-to-GDP ratio by less than 2.5 percent of GDP.
  - Financing via a combination of external borrowing (mostly from multilaterals) and domestic resources.

### Medium-term fiscal sustainability and reform agenda
- Guatemala’s debt-to-GDP ratio is described as moderate, but low tax revenues limit debt repayment capacity.
- Mission recommendation: increase tax revenues and return to deficit levels below 2 percent of GDP starting in 2011 to stabilize public debt at around 26 percent of GDP.
  - This would require discretionary measures equivalent to about ½ percent of GDP.
- Staff recommended rekindling the fiscal reform agenda including:
  - A revenue-enhancing reform.
  - Limiting tax exemptions.
  - Further strengthening tax administration.
- Authorities indicated plans to pursue an income tax reform once economic growth bounces back.
- Staff concern about a law on free trade zones (ZOLIC) broadening tax exemptions further; authorities noted enabling regulations would minimize scope of exemptions.
- Staff emphasized importance of preparing a medium-term fiscal framework (MTFF) and medium-term expenditure framework (MTEF).

### Inflation consultation and monetary and exchange rate policies
- Recent inflation dynamics:
  - Headline inflation: -0.3 percent y-o-y by end-July (from a peak of 14.2 percent a year before).
  - Core inflation: 1.7 percent (from a peak of 9.4 percent in July 2008).
- Outlook and policy stance:
  - Monthly inflation turned positive in recent months and is projected to remain so for the remainder of the year; annual inflation expected to return to positive territory during the second half of 2009.
  - With growth well below potential, inflation likely to remain subdued at historically-low levels during the remainder of 2009 and 2010.
  - Staff viewed the gradual relaxation of monetary policy as appropriate.
    - Central bank has been prudent in reducing its policy interest rate gradually to avoid disorderly adjustments in the foreign exchange market.
    - Mission suggested there was still some room to cut the policy interest rate as long as inflation remains low and foreign exchange market conditions are calm.
    - Authorities committed to shift to the use of an overnight interest rate by 2010 and to work on deepening secondary markets for securities.
- Exchange rate policy:
  - Flexible exchange rate has helped cushion the impact of the global economic crisis.
  - Agreement that discretionary foreign-exchange interventions should continue to smooth exchange rate volatility.
  - Authorities indicated the September modification in the foreign exchange intervention rule would be transitory and allow more timely intervention.
  - Staff recommended continuing exchange rate flexibility and safeguarding international reserves.

### Financial sector policies and banking law amendments
- Financial system developments and indicators (Superintendency of Banks data excerpt):
  - Capital to assets ratio: 9.8 10.1 10.5 10.4 10.5
  - Non-performing loans (Percent of total): 3.8 2.6 2.4 2.6 2.9
  - Bank Provisions to NPLs: 41.6 66.4 68.3 69.0 69.3
  - Liquid assets to deposits and financial obligations /1: 46.2 45.8 46.2 48.1 48.2
  - Return on assets (ROA): 1.7 2.2 1.7 2.2 2.0
  - Return on equity (ROE): 17 21.6 15.8 21.2 19.4
  - 1/ For Banks only. Source: Superintendency of Banks.
- Staff welcomed efforts to strengthen the financial system: enhancing on-site supervision, revamping provisioning requirements, and stress tests (in collaboration with the World Bank).
- Amendments to the Banking Law submitted to Congress (end-June 2009) aim to:
  - Reduce risks from offshore operations and connected lending:
    - Establish more effective firewalls between onshore banks and their offshore affiliates.
    - Introduction of a minimum of $12,500 for off-shore deposits.
    - Reasons for revoking banking licences for off-shore banks brought in line with those for on-shore banks.
    - Introduction of limits on related lending.
  - Strengthen supervision and enforcement power of the superintendency of banks:
    - Annual rating requirement for all banks, financial institutions and off-shore banks.
    - Introduction of an overall limit for total loans to all shareholders to control credit concentration.
    - Strengthen supervisor's capacity to request regularization plans and issue cease and desist orders.
    - Power to limit or prohibit dividend distribution for prudential reasons.
    - Reform capital adequacy regulations, including deductions from consolidated capital of excess risk with shareholders, directors, and their respective related parties.
  - Enhance bank resolution procedures and the system’s safety net:
    - Increased scope for the Central Bank to act as a lender of last resort.
    - Increase in banks' contributions to the deposit insurance scheme (FOPA) and introduction of a risk related variable contribution.
    - Foreign banks allowed to participate in domestic banks' resolution.
- Draft regulations on banks’ liquidity management and foreign currency risk management: elaboration end-December 2009; implementation set to begin in the first quarter of 2010.

### Risks to the program and balance of payments
- Risks remain tilted to the downside.
- External financing requirements:
  - Now estimated at 12 percent of GDP in 2009 (compared to 16.2 percent of GDP at program approval) and 13.8 percent of GDP in 2010.
  - Potential financing gap under the program (2.5 percent of GDP) could materialize during 2009–10 if rollover rates of external nontrade-related private debt do not recover.
- Political risks:
  - Political uncertainties and delays in Congress’ approval of key legislation could present a risk.
  - Government withdrew a reform on indirect taxation from Congress in late August due to lack of political support.
  - Congress is yet to approve the draft banking law and authorize the disbursement of a US$350 million loan from the World Bank; delays could make fiscal policy procyclical and weaken growth and banking soundness indicators.
- Regional risk: potential deterioration in Honduras poses risks given close financial and trade links.
- Balance of payments table excerpts (selected figures):
  - Gross external financing requirement (in percent of GDP): 6.2 6.2 4.5 5.2 6.4 4.5 5.2
  - (in percent of GDP) 15.9 16.2 12.0 13.8 16.7 12.0 13.8
  - Current account deficit: 1.9 1.5 0.6 1.2 1.7 0.6 1.2
  - External debt amortizations: 4.3 4.7 3.9 4.0 4.7 3.9 4.0
    - Public sector: 0.3 0.2 0.2 0.3 0.2 0.2 0.3
    - Private sector: 4.1 4.4 3.7 3.7 4.4 3.7 3.7
  - Financing sources: 6.2 6.2 4.5 5.2 5.4 4.1 4.7
    - Public sector gross borrowing: 0.4 0.9 0.8 0.8 0.9 0.8 0.8
    - Private sector flows: 5.6 4.8 3.7 4.4 4.1 3.3 3.9
      - FDI: 0.8 0.6 0.7 0.7 0.5 0.7 0.7
      - Rollover of short-term debt: 4.7 4.3 3.1 3.7 3.6 2.6 3.2
    - Other capital flows (includes E&O): 0.6 0.5 0.3 0.2 0.5 0.3 0.2
    - Change in NIR: -0.3 0.0 -0.3 -0.2 0.0 -0.3 -0.2
  - Financing gap (in percent of GDP): 0.0 0.0 0.0 0.0 0.9 0.5 0.5
  - Rollover of private sector debt (in %): 141% 91% 64% 96% 65% 35% 65%
  - Sources: Authorities; and Fund staff estimates.
  - 1/ Assumes lower rollover of private sector debts (excluding commercial credit).
  - In US$ billion unless otherwise indicated.

### Program modalities and safeguards
- Program implementation has been strong; monitoring to continue through quarterly reviews.
- Program is fully financed for 2009–10.
- New set of quantitative performance criteria agreed through end-March 2010 and indicative targets up to end-2010.
- Staff supports:
  - Revising the 2009–10 fiscal targets upwards to avoid a procyclical stance; end-September quantitative performance criterion on the overall deficit revised upwards and new PCs set for end-December 2009 and end-March 2010.
  - Leaving net international reserves (NIR) targets unchanged; reserves at adequate levels and significantly above program targets; SDR allocation provides additional liquidity buffer.
  - Adjusting the inflation consultation bands for the remainder of the program to reflect the lower-than-anticipated inflation outlook for 2009–10.
- Structural benchmarks in the program:
  - Elaboration of draft regulations on banks' liquidity management — end-December 2009.
  - Elaboration of draft regulations on banks' foreign currency credit risk — end-December 2009.
- Update safeguards assessment findings:
  - Since 2002, Bank of Guatemala has strengthened safeguards in financial reporting transparency and management of foreign exchange reserves.
  - Additional measures needed: establish a nonexecutive audit committee; direct access of internal auditors to senior management and the Monetary Board; address remaining vulnerabilities in the bank’s legal structure and independence.
  - Bank has embarked on implementation of International Financial Reporting Standards.

### Staff appraisal (summary conclusions)
- The Guatemalan economy is negatively affected by the global crisis: growth slowing due to falling domestic demand and declines in exports, remittances, tourism receipts, and capital inflows.
- Authorities’ macroeconomic response is appropriate: balancing demand support and fiscal sustainability while avoiding disorderly exchange rate adjustments.
- Financial system measures taken: continuous on-site supervision, temporary and enhanced liquidity provision mechanisms, tighter provisioning requirements; stress tests to boost crisis preparedness.
- Fiscal policy outlook:
  - With revenues falling, maintaining spending increases fiscal deficits in 2009 and 2010.
  - Scope for a positive fiscal impulse is limited because of financing constraints and need to maintain sustainable public debt dynamics.
  - Prioritizing spending should continue to protect social programs.
- Rekindling fiscal reform agenda is necessary to signal commitment to medium-term fiscal sustainability and to reverse the increase in fiscal deficits by 2011.
- Monetary policy:
  - Gradual easing appropriate; ensure real policy rate remains positive.
  - Staff welcomes shift toward an overnight policy rate and deepening of secondary markets.
- Exchange rate: flexible regime facilitated adjustment; interventions should smooth volatility while safeguarding reserves.
- Financial sector: system has weathered slowdown well; vigilance and swift approval and implementation of banking law amendments would strengthen system resilience.

*Source: IMF staff report (excerpts).*

### 30.      Staff recommends the completion of the first review of the SBA. While risks

### _cr09305 - 30.      Staff recommends the completion of the first review of the SBA. While risks

### Staff recommendation and program support
- Staff recommends the completion of the first review of the SBA.
- While risks remain tilted to the downside given large private sector debt rollover needs and/or a deeper recession, the authorities remain committed to contain those risks by implementing the policies envisaged under the program.
- Staff supports the authorities’ request for:
  - lowering the inflation consultation bands,
  - modifying the performance criterion on the central government overall balance through end-September,
  - establishing new quantitative performance criteria through end-March 2010.

### Key social and demographic indicators
- Population 2006 (millions): 13.0
- Gini index (2002): 55.1
- Percentage of indigenous population (2006): 38.4
- Life expectancy at birth (2005): 69.7
- Percentage of population below the poverty line (2006): 51.0
- Adult illiteracy rate (2005): 28.2
- Rank in UNDP development index (2008): 121 of 179
- GDP per capita (US$, 2007): 2,550

### Real economy and prices (selected annual percent change)
- Real GDP (2006–2010, EBS/09/49 rev. proj.): 
  - 2006: 5.4
  - 2007: 6.3
  - 2008: 4.0
  - 2009: 1.0
  - 2010: 0.4 / 1.8 / 1.3 (table shows multiple series; preserved as presented)
- Consumer prices (end of period):
  - 2006: 5.8
  - 2007: 8.7
  - 2008: 9.4
  - 2009: 5.5 / 1.5 / 4.7 / 3.8 (table shows multiple series; preserved as presented)

### External sector and balance of payments (selected)
- Current account balance (percent of GDP):
  - 2006: -5.0
  - 2007: -5.2
  - 2008: -4.8
  - 2009: -4.0
  - 2010: -1.7 / -4.9 / -3.3 (multiple projection lines preserved)
- Exports (percent of GDP, f.o.b.):
  - 2006: 20.1
  - 2007: 20.5
  - 2008: 20.1
  - 2009: 18.2
  - 2010: 18.8 / 18.5 / 19.9 (multiple projection lines preserved)
- Imports (percent of GDP, f.o.b.):
  - 2006: -36.2
  - 2007: -36.6
  - 2008: -34.4
  - 2009: -30.1
  - 2010: -28.5 / -31.4 / -31.9 (multiple projection lines preserved)
- Net international reserves (in millions of U.S. dollars):
  - 2006: 3,878
  - 2007: 4,098
  - 2008: 4,421
  - 2009: 4,416
  - 2010: 4,687 / 4,416 / 4,864 (multiple series preserved)
- NIR (stock in months of next-year NFGS imports):
  - 2006: 3.2
  - 2007: 3.2
  - 2008: 4.3
  - 2009: 3.9
  - 2010: 4.1 / 3.5 / 3.8 (multiple series preserved)

### Public finances (central government, selected percent of GDP and levels)
- Central government (percent of GDP):
  - Revenues: 2006: 12.7; 2007: 12.9; 2008: 12.1; 2009: 11.3; 2010: 10.6 / 11.4 / 10.9 (multiple series preserved)
  - Expenditures: 2006: 14.7; 2007: 14.3; 2008: 13.7; 2009: 14.1; 2010: 14.0 / 14.0 / 14.0
  - Primary balance: 2006: -0.6; 2007: 0.0; 2008: -0.3; 2009: -1.2; 2010: -1.9 / -1.0 / -1.4
  - Overall balance: 2006: -1.9; 2007: -1.4; 2008: -1.6; 2009: -2.8; 2010: -3.4 / -2.6 / -3.0
- Central government (in millions of quetzales, selected 2006–2010):
  - Total revenues: 29,250 (2006); 33,611 (2007); 35,578 (2008); 35,504 (2009); 32,966 (2010)
  - Total expenditures: 33,721 (2006); 37,382 (2007); 40,355 (2008); 44,221 (2009); 43,537 (2010)
  - Primary balance (millions): -1,289 (2006); 120 (2007); -752 (2008); -3,868 (2009); -5,889 (2010)
  - Overall balance (millions): -4,471 (2006); -3,772 (2007); -4,777 (2008); -8,718 (2009); -10,571 (2010)
- Combined nonfinancial public sector:
  - Overall balance (percent of GDP): 2006: -1.2; 2007: -0.3; 2008: -0.7; 2009: -2.4; 2010: -3.0 / -2.1 / -2.6
  - Nonfinancial public sector debt (percent of GDP): 2006: 21.8; 2007: 21.8; 2008: 20.2; 2009: 22.8; 2010: 23.2 / 24.4 / 25.6
  - Memorandum: GDP (US$ billions): 30.2 (2006); 34.0 (2007); 39.0 (2008); 38.0 (2009); 37.7 / 39.0 / 37.2 (multiple series preserved)

### Monetary sector and banking (selected)
- M2 (percent change): 2006: 18.8; 2007: 14.4; 2008: 7.7; 2009: 6.4; 2010: 5.5 / 6.6 / 6.6 (multiple series preserved)
- Credit to the private sector (percent change): 2006: 37.5; 2007: 24.7; 2008: 11.0; 2009: 6.8; 2010: 4.3 / 7.2 / 4.8 (multiple series preserved)
- Bank of Guatemala (BOG) net international reserves (in millions of U.S. dollars, program-definition):
  - 29,459; 31,271; 34,405; 37,451; 39,837; 38,914; 43,050 (series as presented)
- Monetary survey (net foreign assets, in millions of U.S. dollars): 21,260; 20,045; 23,535; 28,137; 30,428; 29,759; 32,497 (series as presented)

### Financial soundness indicators (selected 2006–2009)
- On-shore banks:
  - Statutory capital to risk-weighted assets: 12.8 (2006); 12.3 (2007); 13.5 (2008); n.a. (2009 June)
  - Nonperforming loans to total gross loans: 3.4 (2006); 2.6 (2007); 2.3 (2008); 3.0 (2009 March)
  - Return on assets: 1.2 (2006); 1.5 (2007); 1.7 (2008); 2.0 (2009 March)
  - Return on equity: 15.0 (2006); 16.8 (2007); 16.3 (2008); 20.3 (2009 March)
- Off-shore banks:
  - Statutory capital to risk-weighted assets: 14.2 (2006); 15.0 (2007); 14.7 (2008); n.a. (2009 March)
  - Nonperforming loans to total gross loans: 2.9 (2006); 2.9 (2007); 2.2 (2008); 2.0 (2009 March)

### Indicators of external vulnerability (selected)
- Net international reserves:
  - In millions of U.S. dollars: 3,878 (2006); 4,098 (2007); 4,421 (2008); 4,416 (2009); 4,687 (2010)
  - In percent of M2: 36.4; 33.3; 33.5; 34.4; 37.1 (series as presented)
  - In months of next-year's imports of goods and nonfactor services: 3.2; 3.2; 4.3; 3.9; 4.1
- External indebtedness indicators:
  - Total external debt (percent of GDP): 34.3; 35.1; 32.5; 35.3; 33.6
  - External private sector debt (percent of GDP): 21.2; 22.6; 21.2; 24.0; 20.4
  - External public sector debt (percent of GDP): 13.1; 12.5; 11.3; 13.1; 13.3
  - Public sector external interest payments in percent of exports of goods and nonfactor services: 3.6; 3.9; 3.0; 3.4; 3.3

### Stand-By Arrangement: purchase schedule and terms (selected)
- Board approval of the SBA (April 22, 2009): 420.40 Million SDR / 655.0 Million US$ / 1200.00 Percent of Quota / 66.67 Percent of Total Access
- First review (September 15, 2009, based on end-June 2009 performance criteria): 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access
- Second review (December 15, 2009): 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access
- Third review (March 15, 2010): 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access
- Fourth review (June 15, 2010): 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access
- Fifth review (September 15, 2010): 42.04 Million SDR / 65.5 Million US$ / 20.00 Percent of Quota / 6.67 Percent of Total Access
- Total under arrangement: 630.60 Million SDR / 982.5 Million US$ / 2300.00 Percent of Quota / 100.00 Percent of Total Access
- Note: US$/SDR exchange rate of 0.64182 as of August 13, 2009 (table footnote).

### Indicators of Fund credit (2006–2015, selected)
- Stocks from prospective drawings (Fund credit in millions SDR, end of period): 0.0; 0.0; 0.0; 504.56; 30.66; 30.65; 72.82; 89.03; 31.5; 0.0 (series as presented)
- Flows from prospective drawings — Principal (Millions SDR, projection): 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 57.82; 83.82; 57.53; 31.5 (series as presented)
- Flows from prospective drawings — Interest and charges (Millions SDR): 0.0; 0.0; 0.0; 3.3; 7.8; 8.2; 8.2; 6.6; 2.7; 0.3 (series as presented)
- Total (Millions SDR, flows): 0.0; 0.0; 0.0; 3.3; 7.8; 8.2; 66.0; 290.3; 260.2; 31.8 (series as presented)
- Assumes a US$/SDR exchange rate of 0.64182 as of August 13, 2009 (table footnote).

*Source: Excerpts from the IMF Country Report (document content supplied).*

### 1.      The Stand-By Arrangement agreed in April 2009 is being implemented successfully.

### The Stand-By Arrangement agreed in April 2009 is being implemented successfully.

### Program implementation and performance (April–July 2009)
- All end-June quantitative performance criteria have been met (Table 1).
- Net international reserves and the overall deficit of the central government were met by a wide margin.
- Central government deposits at the central bank were below the indicative target for end-June due to:
  - lower than expected tax revenues,
  - lower than expected loan disbursements, and
  - a later-than-anticipated bond issuance approval by Congress.
- Consumer prices fell by 0.3 percent year-over-year as of end-July 2009, below the outer inflation band agreed under the program.
- Inflation fell faster than expected because of the sharp drop in global commodity prices and weak domestic demand.
- The amendments to the Banking Law (structural benchmark, end-June 2009) were submitted to Congress on June 25, 2009.

### Economic impact of the global crisis and growth outlook
- Exports, tourism receipts, and remittances are declining; net private capital inflows have fallen; a large contraction in imports has hit fiscal revenues hard.
- Exchange rate has remained broadly stable and net international reserves have increased.
- Growth projections:
  - 2009: range between 0.4 and 1.2 percent
  - 2010: range between 1.3 and 2.1 percent

### Fiscal policy stance and targets
- Authorities intend to continue countercyclical policies to mitigate the global crisis.
- Revised fiscal deficit targets (central government):
  - 2009: 3.4 percent of GDP
  - 2010: 3.0 percent of GDP
- Consolidated public sector deficit could reach:
  - 2009: 3.0 percent of GDP
  - 2010: 2.6 percent of GDP
- Policy intent:
  - Broaden the tax base and work with Congress to enact revenue reform to ensure gradual recovery of tax collections from 2010 onwards.
  - Adhere to spending targets to ensure sustainable debt dynamics.
- Financing strategy:
  - Revised fiscal deficits for 2009 and 2010 expected to be partly financed from external sources, mostly multilaterals.
  - Net domestic debt placements and use of government deposits at the central bank envisaged to be higher than earlier anticipated.
  - Commitment to protect social spending if tax collections decline further and/or domestic borrowing difficulties arise.

### Monetary policy, inflation projections, and exchange rate regime
- Monetary Board reduced the policy interest rate by 250 basis points since end-2008, to 4.75 percent.
- Inflation projections:
  - About 1.5 percent by end-2009
  - About 4.0 percent by end-2010
- Revised quarterly consultation bands for CPI inflation under the program are consistent with these projections.
- Central bank policy:
  - Continue managing the policy rate as needed to meet the inflation target.
  - Remain committed to a flexible exchange rate regime.
  - Foreign exchange intervention geared to smoothing out excessive volatility.
- Expectation that international reserves will remain at comfortable levels.

### Financial system resilience and regulatory actions
- Financial system resilience reflects:
  - absence of “toxic” asset holdings,
  - low reliance on external credit,
  - higher capital cushions built since late 2005,
  - crisis-time measures: liquidity support, stepped-up banking supervision, revamped provisioning requirements.
- Regulatory commitments:
  - Finalize elaboration of regulations on banks’ liquidity management and foreign currency credit risk by end-December 2009, with implementation beginning in the first quarter of 2010.
  - Continue working with Congress for prompt approval of amendments to the banking legislation to strengthen regulation, supervision, and bank resolution framework.

### Requests to the Fund and program monitoring
- Request completion of the First Review Under the Stand-By Arrangement; arrangement to be treated as precautionary.
- Request lowering of the inflation consultation bands for end-September and end-December given the sharp fall in inflation.
- Request revising the performance criterion on the overall balance of the central government for end-September.
- Program implementation to be monitored through quarterly reviews.
- Revised quantitative performance criteria for September, new performance criteria for December 2009 and March 2010, the inflation consultation clause, and indicative targets are set out in Table 1.

### Key quantitative items and program figures (as presented)
- Stand-By Arrangement approved on April 22, 2009: Amount (SDR): 630.60; Drawn: 0.00.
- Consumer prices: fell by 0.3 percent year-over-year as of end-July 2009.
- Policy interest rate: 4.75 percent (after a 250 basis point reduction since end-2008).
- Inflation projections:
  - end-2009: about 1.5 percent
  - end-2010: about 4.0 percent
- Growth projections:
  - 2009: between 0.4 and 1.2 percent
  - 2010: between 1.3 and 2.1 percent
- Fiscal deficit targets (central government):
  - 2009: 3.4 percent of GDP
  - 2010: 3.0 percent of GDP
- Consolidated public sector deficit could reach:
  - 2009: 3.0 percent of GDP
  - 2010: 2.6 percent of GDP
- Exchange rate reference: Q8.26 per U.S. dollar (as of August 19, 2009) [Appendix information].
- Quota: 210.20 (100.00 percent); Fund holdings of currency: 210.21 (100.00 percent) [Appendix I figures].
- SDR net cumulative allocation: 27.68 (100.00 percent); SDR holdings: 1.16 (4.19 percent) [Appendix I figures].

### Fund relations, technical assistance, and multilateral cooperation (summary)
- Guatemala has no outstanding purchases or loans with the Fund.
- Resident Representative office in Guatemala opened in 2003; Mr. Fernando Delgado appointed Regional Resident Representative for Central America, based in Guatemala, in August 2009.
- CAPTAC-DR regional Technical Assistance Center opened in June 2009 in Guatemala City; TA provided on revenue administration and customs-union-related issues.
- STA provided TA on quarterly national accounts in July 2009.
- MCM advisory missions (March 2008–May 2009) assisted in designing an action plan for development of secondary markets for private securities and improving monetary policy effectiveness.
- World Bank: Second Programmatic Fiscal and Institutional Development Policy Loan approved on July 28, 2009 for $350 million.
- IDB: IDB portfolio of approved sovereign guaranteed investment and policy-based loans under execution amounted to US$1,466 million, with an undisbursed balance of US$888.5 million (as of August 7, 2009).

*Source: Informational Annex for Guatemala: First Review Under the Stand-By Arrangement and Requests for Modification of Performance Criterion and Consultation Clause (September 8, 2009).*

### Appendix III. Guatemala—Relations w

### Appendix III. Guatemala—Relations with the Inter-American Development Bank (As of August 2009)

### A. Recent Projects and Objectives
- IDB country strategy for Guatemala for 2008–2011 approved on June 30, 2009; focuses on supporting government goals:
  - (i) reducing chronic malnutrition;
  - (ii) reducing the intergenerational transmission of poverty;
  - (iii) upgrading and maintaining production infrastructure;
  - (iv) achieving the revenue collection targets established in the Peace Accords.
- IDB portfolio (sovereign guaranteed investment and policy-based loans) under execution as of August 7, 2009:
  - Total approved amount: US$1,466 million
  - Undisbursed balance: US$888.5 million
- Existing portfolio priorities:
  - (i) supporting reform and modernization of the State (including a policy-based loan for fiscal system modernization);
  - (ii) strengthening social programs (including a policy-based loan to support the Conditional Cash Transfer program);
  - (iii) improving productive infrastructure (especially rural areas and water and sanitation sector).
- Private sector approvals over the last two years:
  - One lending facility for the financial sector: US$45 million
  - Two credit line operations for trade financing: US$75 million
- Pipeline and nonfinancial support:
  - Projects in health and nutrition and water and sanitation.
  - Continued nonfinancial assistance in fiscal reform, health and nutrition, education, water and sanitation, and public sector strengthening.

### B. IDB Loan Disbursements 2005–2009 (In millions of U.S. dollars)
- Disbursements:
  - 2005: 33.0
  - 2006: 130.3
  - 2007: 213.7
  - 2008: 139.0
  - 2009*: 377.8
- Amortization:
  - 2005: 56.0
  - 2006: 63.2
  - 2007: 56.4
  - 2008: 85.2
  - 2009*: 84.2
- Net Disbursements:
  - 2005: -23.0
  - 2006: 67.1
  - 2007: 157.3
  - 2008: 53.8
  - 2009*: 293.6
- Interest and Charges:
  - 2005: 45.8
  - 2006: 55.0
  - 2007: 59.1
  - 2008: 71.6
  - 2009*: 66.9
- Subscriptions and Contributions:
  - 2005: 0.7
  - 2006: 2.6
  - 2007: 3.5
  - 2008: 3.9
- Net Cash Flows:
  - 2005: -69.5
  - 2006: 9.5
  - 2007: 94.7
  - 2008: -21.7
  - 2009*: 226.7
- Source: IDB Financial Department
- Note: 2009 figures marked with an asterisk are projections.

### C. IDB Portfolio in Guatemala as of August 2009 (In millions of U.S. dollars)
- Sector — Approved / Undisbursed
  - Rural development and agriculture — 30.1 / 3.1
  - Trade — 85.0 / 78.2
  - Financial and capital markets development — 45.0 / 45.0
  - Science and technology — 6.2 / 0.0
  - Urban development and housing — 62.9 / 21.8
  - Education — 150.0 / 120.0
  - Energy — 92.5 / 60.1
  - Social investment — 248.0 / 209.0
  - Sanitation — 49.8 / 44.1
  - Environment and natural disasters — 89.2 / 67.7
  - Reform and modernization of the State — 458.5 / 308.5
  - Health — 105.4 / 50.9
  - Transportation — 140.0 / 0.7
- Total — 1,562.6 / 1,009.1
- Note: Sovereign guaranteed and nonsovereign guaranteed programs. Excluding regional programs.

---

### Appendix IV. Guatemala—Statistical Issues (As of August 2009)

### I. Assessment of Data Adequacy for Surveillance
- General: Data provision is adequate for surveillance.
- National Accounts:
  - Quarterly national accounts data are not available.
  - Bank of Guatemala expects to publish quarterly GDP statistics at end-2009.
  - STA has provided technical assistance and is working closely with the Bank of Guatemala in development of quarterly GDP estimates.
- Price statistics:
  - A producer price index (PPI) is not compiled.
  - National Institute of Statistics plans to develop a PPI in the medium term, subject to resource availability.
- Public sector data:
  - Fiscal statistics do not include social security agencies, local governments, and nonfinancial public enterprises, hindering calculation of a consolidated public sector balance.
- Financial sector data:
  - Sectorization of some instruments on the balance sheet of other depositary corporations is pending; for loans there is no classification available between nonresidents and residents.

### II. Data Standards and Quality
- Guatemala became a participant in the General Data Dissemination System (GDDS) in 2004 and is interested in subscribing to the Special Data Dissemination Standard (SDDS).
- Several data categories do not yet meet SDDS periodicity or timeliness requirements.
- An SDDS assessment mission is scheduled in 2010.
- A data ROSC was completed on October 28, 2004.

### Table of Common Indicators Required for Surveillance (As of August 20, 2009) — selected entries and data quality assessments
- Exchange Rates:
  - Date of latest observation: 19/08/09
  - Date received: 20/08/09
  - Frequency of Data/Reporting/Publication: D / D / D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities:
  - Date of latest observation: 19/08/09
  - Date received: 20/08/09
  - Frequency: D / D / D
- Reserve/Base Money:
  - Date of latest observation: 13/08/09
  - Date received: 20/08/09
  - Frequency: W / W / W
- Broad Money:
  - Date of latest observation: 13/08/09
  - Date received: 20/08/09
  - Frequency: W / W / W
- Central Bank Balance Sheet:
  - Date of latest observation: 19/08/09
  - Date received: 20/08/09
  - Frequency: D / D / D
- Interest Rates:
  - Date of latest observation: 13/08/09
  - Date received: 20/08/09
  - Frequency: W / W / W
- Consumer Price Index:
  - Date of latest observation: 31/07/09
  - Date received: 07/08/09
  - Frequency: M / M / M
  - Data Quality – Methodological soundness: O, LO, LO, LO
  - Data Quality – Accuracy and reliability: LO, LO, LO, LO
- Central Government revenue/expenditure/balance:
  - Date of latest observation: 30/06/09
  - Date received: 24/07/09
  - Frequency: M / M / M
  - Data Quality – Methodological soundness: LO, LNO, LO, LO
  - Data Quality – Accuracy and reliability: LO, O, LO, LO, LNO
- GDP/GNP:
  - Date of latest observation: 31/12/08
  - Date received: 31/03/09
  - Frequency: A / A / A
  - Data Quality – Methodological soundness: LNO, LNO, LNO, LO
  - Data Quality – Accuracy and reliability: LNO, LNO, LNO, LNO, LNO
- Gross External Debt:
  - Date of latest observation: 31/12/08
  - Date received: 29/06/09
  - Frequency: A / A / A
- International Investment Position:
  - Date of latest observation: 31/12/08
  - Date received: 29/06/09
  - Frequency: A / A / A

---

### IMF Press Release & Statements (September 2009)

### IMF Executive Board completion of first review under Guatemala’s Stand-By Arrangement (Press Release No. 09/326, September 24, 2009)
- Arrangement:
  - 18-month Stand-By Arrangement in the amount of SDR 630.6 million (about US$1 billion) approved April 22, 2009 (Press Release No. 09/142).
- With completion of the review:
  - SDR 462.4 million (about US$734 million) will be available for drawing.
  - Guatemalan authorities intend to continue treating the arrangement as precautionary.
- Program aims for 2009–10 centered on four pillars:
  - a moderate fiscal stimulus to support domestic demand;
  - a monetary policy focused on meeting the inflation target and a flexible exchange rate to facilitate economic adjustment;
  - strengthening financial sector policies to increase banking sector resilience and enhance safety net and resolution procedures;
  - refocusing public expenditures toward social spending and public investment.
- Deputy Managing Director Murilo Portugal statement highlights:
  - Guatemala’s economic growth slowing due to lower domestic and external demand—reflected in lower exports, remittances, tourism receipts and capital inflows.
  - Fiscal policy balancing support to demand and fiscal sustainability; fiscal deficit target revised upward in 2009 and 2010 to protect social spending.
  - Need to rekindle fiscal reform agenda to preserve sustainable debt dynamics; revenue-enhancing reforms are core to addressing social and infrastructure needs.
  - Curtailing tax exemptions, including those associated with the law on free trade zones, is key.
  - Monetary policy easing has balanced supporting demand and avoiding disorderly exchange rate movements; exchange rate flexibility should be preserved while safeguarding international reserves.
  - Banking sector reforms (amendments to banking law) are important to reduce risks from offshore operations and connected lending, enhance enforcement powers of the superintendency of banks, and improve bank resolution procedures.

### Statement by Ramon Guzmán, Executive Director for Guatemala and Johnny Gramajo-Marroquin, Senior Advisor (September 22, 2009)
- Authorities’ view:
  - All end-June quantitative performance criteria under the Stand-By Arrangement were met.
  - The arrangement is being treated as precautionary; authorities strongly committed to the economic program.
- Impact channels of the global crisis on Guatemala:
  - i) lower exports;
  - ii) reduction in tourism receipts;
  - iii) decline in remittances;
  - iv) slowdown in private capital flows;
  - v) large contraction in imports affecting fiscal revenues.
- Projections and program priorities:
  - Economic growth projected to be around 0.4 percent in 2009.
  - Inflation expected to decline sharply.
  - Program aims to maintain price stability and give a countercyclical role to fiscal policy.
  - Priority to offset effects on the most vulnerable and continue mid-term poverty reduction efforts.
  - Conditional cash transfer program "Mi familia progresa":
    - Expected coverage in 2009: around 500,000 families
    - Total budget in 2009: US$150 million
- Fiscal targets and financing:
  - Revised fiscal deficit target for consolidated public sector:
    - 2009: 3.0 percent of GDP
    - 2010: 2.6 percent of GDP
  - Revised deficits to be partly financed from external sources, mostly multilateral institutions.
  - Financing strategy foresees higher net domestic debt placements and use of government deposits at the central bank than anticipated.
- Monetary policy and inflation:
  - Monetary policy interest rate reduced by 275 basis points since end-2008, to 4.50 percent.
  - Inflation expectations:
    - about 1.5 percent by end-2009
    - about 4.0 percent by end-2010
  - Monetary Board intends to manage the policy rate to meet the inflation target; central bank committed to flexible exchange rate regime.
  - FX market intervention to smooth excessive volatility.
- Financial system resilience and regulatory actions:
  - Reasons for resilience: no “toxic” asset holdings; low reliance of banks on external credit; higher capital cushions since late 2005; measures taken during crisis including liquidity support, intensified supervision, restored provisioning requirements.
  - Authorities committed to strengthen regulatory framework:
    - Conclude design of regulations on banks’ liquidity management and foreign currency credit risk by end-December 2009, with implementation beginning in the first quarter of 2010.
    - Continue work with Congress for prompt approval of amendments to banking legislation to strengthen regulation, supervision, and bank resolution framework.
- Additional authority clarifications:
  - They do not agree that deterioration in one specific neighboring country is the primary risk; risks could stem from many sources.
  - Withdrawal of the tax reform from Congress was due to concerns that loopholes were being introduced, not lack of political support.
  - Ministry of Finance expects to work closely with Congress on a new revenue reform initiative to help recovery of tax collections from 2010 onwards.
- Authorities conclude that ongoing policies are adequate to meet program objectives.

*Source: _cr09305 - Appendix III. Guatemala—Relations w*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09305.pdf_