IMF Staff Concludes Visit to Guatemala

IMF News, November 9, 2018

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A staff team from the International Monetary Fund (IMF) led by Esther Perez Ruiz visited Guatemala from November 5 to 9, 2018.
Purpose: regular dialogue to assess performance of the Guatemalan economy; review recent economic developments; discuss the outlook, medium-term development strategy and the policy agenda.
Meetings: members of the economic cabinet, central bank officials, the Ministry of Finance, the Superintendence of Banks, and other public and private sector representatives.
The mission will not result in a Board discussion; the views are those of IMF staff.

Growth in 2018 is expected to remain subdued at 3.0 percent.
Growth is projected to pick up moderately to 3.3 percent in 2019.
Core inflation has remained below the lower bound of the 4±1 target range throughout 2018.
Headline inflation is expected to close below 4 percent by year-end.
Subdued demand inflationary pressures provide room for continued monetary accommodation.

External risks:
- Waning growth momentum in the region’s main trading partners from an escalation of ongoing trade disputes.
- Implementation of unsustainable macroeconomic policies in some advanced economies.
- Scaled-up deportations of non-documented migrants from the U.S.
Domestic risks:
- Uncertainty and political fragmentation associated with the electoral process.
- Implementation of the anti-corruption agenda.
- Permanent suspension of the lifting of bank secrecy could undermine Guatemala's compliance with respect to international transparency treaties.

The gradual decline in the current account surplus and concurrent FX depreciation are broadly aligned with expectations at the time of the Article IV Consultation of 2018.
The higher trade deficit has been offset by somewhat stronger remittances.
As the quetzal came under pressure, the central bank, in line with its rules-based FX policy, started selling dollars.
International reserves remain at comfortable levels.

Short-term challenge: secure growth acceleration in 2019 amidst general elections and greater global uncertainty.
Policies should be oriented to support demand in the short term.
The fiscal stimulus embedded in the 2019 budget proposal currently in Congress, supported by recovery in budget execution, would underpin the recovery and represent a first step towards the attainment of key Sustainable Development Goals (SDGs).

Over the medium term, economic development and poverty reduction should be placed at the center of policymaking to foster greater economic growth, productivity, competitiveness, and improved social cohesion.
Additional investments in health, education, roads, water and sanitation infrastructure consistent with attaining key SDGs reach about 8½ percent of GDP by 2030.
To finance scaled-up spending, a well-defined financing strategy is essential and should encompass:
- Broad-based tax reform aligned with tax parameters in the region.
- Greater spending efficiency.
- Promotion of public-private partnerships for development of economic infrastructure.
- Stepped up efforts to improve tax administration.
The authorities’ decision to formally endorse the SDGs through the K’atun 2032 national development plan is welcome, but additional efforts are needed to improve execution and provision modalities to deliver public goods to all Guatemalans irrespective of place of residence, ethnic group, or ability to pay.
To secure desired development outcomes from scaled-up spending, it is essential to:
- Expand the healthcare and education workforce.
- Tie remuneration to improvements in coverage and quality of services.
- Reform the Laws of Procurement and of Civil Service.
- Foster results-based budgeting.

Guatemala’s healthy financial system would benefit from further modernization and increased contribution to growth.
The mission encourages the authorities to:
- Promote the approval of reforms to the law of banks and financial groups.
- Adopt a risk-based AML/CFT framework.
- Achieve tangible results within the framework of the national financial inclusion plan.

IMF Staff Concludes Visit to Guatemala — Press Release No. 18/416 (November 9, 2018).