Guatemala: More Investment and Social Spending Needed

IMF News, June 8, 2018

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Growth expected to rise to 3.2 percent this year.
Economy has been losing steam since 2016 due to weakening business confidence, constrained government spending, and court-mandated suspensions of mining activities.
Strong remittances have helped sustain private consumption.
Sound monetary and fiscal policy and a stable macroeconomic environment have supported resilience amid political volatility.
Fast Facts:
- Population (2018 est.): 17 million
- Currency: Quetzal
- Life Expectancy (2016): 72 years
- Adult literacy rate (2017 est.): 79%
- Real GDP Growth (2015): 2.8%
- GDP per capita (2016): $4,155

Aim to raise government expenditure to at least 15 percent of GDP to finance social and infrastructure spending.
Near-term focus: support domestic demand, including passing a supplementary budget with a focus on capital spending.
Strengthen execution of government spending on social protection and infrastructure by:
- Developing preventive capacities and concurrent auditing of the General Comptroller to speed up execution without diluting governance.
- Clarifying application of administrative versus criminal procedures in procurement.
- Enhancing coordination by the Vice Ministry of Transparency to improve procurement efficacy.
Revenue measures to support higher social and infrastructure spending:
- Strengthening tax administration: reinforce VAT controls; strengthen large-taxpayer office management; enhance use of tax information and tax collection enforcement.
- Implementing tax reform: increase personal income tax (PIT) rates; integrate corporate income tax; implement higher indirect taxes and fewer exemptions.
- Supplement revenue mobilization with measures to raise spending efficiency: better align pay with performance; reform regulations for Civil Service and Salaries in Public Administration; complete the public-sector personnel census.

Poverty currently at about 60 percent of the population.
Priority programs and high-impact projects aligned with the UN’s Sustainable Development Goals include:
- Expanding preventive and primary health care.
- Increasing access to nutrition, water, and sanitation services.
- Broadening the coverage of the main social assistance program Mi Bono Seguro.
- Expanding pre-primary education programs.
- Maintaining and expanding the roads network.
These measures are presented as critical to lifting more Guatemalans out of poverty.

About 70 percent of total employment is outside the formal workforce.
Recommended actions to create more formal jobs and reduce informality:
- Improve productivity of informal workers through investments in education, rural roads, and irrigation.
- Foster apprenticeship schemes, such as Mi Primer Empleo, and other vocational training programs.
- Set the minimum wage and part-time work remuneration to achieve higher employment outcomes.
- Extend health and pension systems to the self-employed.

Ongoing efforts: The General Prosecutor’s Office and the International Commission Against Impunity in Guatemala are dismantling networks involved in tax fraud, illicit campaign financing, irregular procurement practices, and influence peddling in the judiciary.
Since 2014, the prosecutor’s office has dismantled 178 criminal organizations operating at the national level and confiscated assets worth more than $28.5 million.
Further steps to scale up convictions and improve governance:
- Strengthen judicial effectiveness.
- Reinforce the asset disclosure regime for public officials.
- Ensure transparency of beneficial ownership of corporate vehicles to avoid conflicts of interest and tackle illicit monetary flows.

Source: "Guatemala: More Investment and Social Spending Needed" — IMF, June 8, 2018.