IMF Staff Concludes Visit to Guatemala

November 9, 2018

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.

A staff team from the International Monetary Fund (IMF) led by Esther Perez Ruiz visited Guatemala from November 5 to 9, 2018. The visit took place as part of a regular dialogue with the authorities to assess the performance of the Guatemalan economy. Staff reviewed recent economic developments and discussed the outlook, medium-term development strategy and the policy agenda. The staff team met with members of the economic cabinet, central bank officials, the Ministry of Finance, the Superintendence of Banks, and other representatives of public and private sector entities.

Ms. Perez Ruiz issued the following statement upon conclusion of the visit.

“Underpinned by a solid macroeconomic framework, the economy continues to navigate domestic political tensions and challenging external conditions well. Growth in 2018 is expected to remain subdued at 3.0 percent, due to terms of trade losses for key export products, sub-par investment performance, and failure to re-open a large mining company due to a judicial injunction. Growth will pick up moderately to 3.3 percent next year, as the deterioration in terms of trade starts reversing and ongoing positive signals, namely building momentum in key sectors of the economy, credit, and budgetary execution, firm up. Core inflation has remained below the lower bound of the 4±1 target range throughout 2018, and headline inflation is expected to close below 4 percent by year-end.

“Downside risks remain. On the external front they are mostly linked to waning growth momentum in the region’s main trading partners from an escalation of ongoing trade disputes or implementation of unsustainable macroeconomic policies in some advanced economies, and scaled-up deportations of non-documented migrants from the U.S. On the domestic front, risks stem from the uncertainty and political fragmentation associated with the electoral process, and the implementation of the anti-corruption agenda. In addition, the 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 the concurrent FX depreciation are broadly aligned with expectations at the time of the Article IV Consultation of 2018, as 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. Nonetheless, international reserves remain at comfortable levels.

“Guatemala’s short-term challenge is to secure growth acceleration in 2019, amidst general elections and greater global uncertainty. In this context, policies should be oriented to support demand in the short term. Supported by the recovery in the budget execution, the fiscal stimulus as embedded in the 2019 budget proposal currently in Congress, would underpin the recovery and represent a first step towards the attainment of key Sustainable Development Goals (SDGs). Over the medium term, to secure the desired development outcomes out of scaled-up spending it is essential to expand the healthcare and education workforce, tie their remuneration to improvements in the coverage and quality of the services provided, reform the Laws of Procurement and of Civil Service, and foster results-based budgeting. Subdued demand inflationary pressures provide room for continued monetary accommodation.

“Over the medium term, economic development and poverty reduction should be placed at the center of policymaking, with the aim of fostering greater economic growth, productivity and competitiveness, as well as improved social cohesion. The additional investments in health, education, roads, water and sanitation infrastructure consistent with attaining key SDGs reach about 8½ percent of GDP by 2030. While substantial, these higher spending needs are commensurate with a well-defined financing strategy encompassing broad-based tax reform aligned with tax parameters in the region, greater spending efficiency, the promotion of public-private partnerships for the development of economic infrastructure and stepped up efforts to improve tax administration. In this context, 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, in order to deliver these public goods to all Guatemalans, irrespective of their place of residence, ethnic group, or ability to pay.

“Guatemala’s healthy financial system would benefit from further modernization and its contribution to growth should be enhanced. The mission encourages the authorities to promote the approval of the reforms to the law of banks and financial groups, the adoption of a risk-based AML/CFT framework, and the achievement of tangible results within the framework of the national financial inclusion plan.

“The IMF team wishes to thank the authorities for their cooperation and candor. The next Article IV mission is scheduled to take place in April 2019.”

IMF Communications Department

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