IMF Executive Board Concludes 2021 Article IV Consultation with Guatemala

IMF News, June 11, 2021

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Bibliographic details

• Published: June 11, 2021

Economic impact and recent performance

• Real GDP is estimated to have contracted by 1½ percent in 2020.
• The current account balance increased to 5½ percent of GDP in 2020 (from 2.4 percent in 2019).
• Near-term inflation and expectations:
  • Temporary factors pushed headline inflation upward in 2020, but inflation expectations have remained well-anchored, reflecting soft demand conditions and core inflation.
  • Near-term inflation is set to converge to the mid-point of the target band (4 +/-1 percent) as supply shocks wane.
• Remittances and external sector:
  • Resilient remittance inflows supported the economy in 2020.
  • Stronger terms of trade, imports compression, and robust agriculture, food and chemical exports contributed to the lower trade deficit in 2020.
• Growth outlook:
  • Economic activity is projected to expand by 4½ percent in 2021.
  • Over the medium term, growth is projected to stabilize at its pre-COVID potential rate of 3½ percent by 2023.
• Projections for the current account:
  • As the pandemic recedes, the current account balance is expected to deteriorate to -0.6 percent of GDP over the medium term due to lower exports growth, improving imports, and an increase in the FDI payout.

Policy response during the pandemic

• Fiscal policy:
  • Authorities implemented an overall package of 2.3 percent of GDP to enhance healthcare capacity, secure lifelines, and sustain demand.
  • Fiscal stimulus was promptly deployed to support the economy and the most vulnerable.
• Monetary policy and financial measures:
  • The central bank lowered the policy rate by 100 basis points to a historic low of 1¾ percent.
  • The central bank provided additional liquidity to support payment systems and meet precautionary demand for cash.
  • The monetary board temporarily eased credit risk regulations to facilitate renegotiation of loans and allowed banks to record interest from restructured loans on an accrual basis.
• Other measures:
  • Large-scale government support was deployed despite already weak social indicators; poverty and malnutrition further deteriorated following COVID-19 and two major hurricanes in November 2020.

Executive Board assessment and policy recommendations

• Overall assessment:
  • Directors commended authorities for maintaining sound macroeconomic policies and for implementing a swift, unprecedented policy response that allowed an early reopening.
  • Directors agreed the near-term outlook is favorable but hinges on vaccination progress.
  • Directors emphasized securing more inclusive, sustainable growth, building resilience to natural disasters, and ensuring debt sustainability.
• Fiscal policy recommendations:
  • Maintain supportive macroeconomic policies in the near term until the recovery takes hold, while guarding against downside risks from the pandemic.
  • As fiscal stimulus is gradually withdrawn, scale up social programs and infrastructure expenditure to reduce poverty and boost potential growth.
  • Enhance revenue mobilization and spending efficiency to expand fiscal space.
  • Strengthen tax controls, tackle contraband, and reduce red tape and corruption.
  • Enhance transparency, governance, quality of public services, and procurement cost-effectiveness.
• Monetary and financial sector recommendations:
  • Continue accommodative monetary conditions provided inflation expectations remain well-anchored.
  • Guard against unintended consequences from last year’s monetization of part of the fiscal deficit.
  • Monitor banks’ asset quality closely and remain vigilant to financial stability risks.
  • Prompt passage of the banking law and the revised AML/CFT law was encouraged to enhance financial stability and integrity.
• Structural and resilience recommendations:
  • Expedite implementation of the authorities’ reform agenda to lift potential growth, improve the business climate, foster employment, and facilitate external rebalancing.
  • Complement climate change mitigation and adaptation efforts with an enhanced disaster risk management strategy and effective implementation of emission reduction programs.

Risks to the outlook

• Downside risks:
  • Slower vaccine rollout and/or new virus strains could prolong the global and domestic recovery.
  • Protracted worsening in poverty and malnutrition could trigger social discontent.
  • Further natural disasters could weigh on the recovery and livelihoods.
  • Premature withdrawal of financial sector support measures might curtail banks’ profitability and credit flow to the recovery.
• Upside possibility:
  • A quick resolution to the pandemic, alongside faster-than-expected progress with business reforms, could further lift investment and growth.

Selected economic and social indicators

• I. Social and Demographic Indicators
  • Population 2020 (millions): 17
  • Gini index (2014): 48
  • Percentage of indigenous population (2018): 44
  • Life expectancy at birth (2018): 74
  • Population below the poverty line (Percent, 2014): 59
  • Adult illiteracy rate (2014): 19
  • Rank in UNDP development index (2019; of 189): 127
  • GDP per capita (US$, 2020): 4,603

• II. Economic Indicators — Selected annual percent changes and levels (2017–2022, as presented)
  • Real GDP: 2017: 3.1; 2018: 3.3; 2019: 3.9; 2020: -1.5; 2021: 4.5; 2022: 4.0
  • Consumer prices (end of period): 2017: 5.7; 2018: 2.3; 2019: 3.4; 2020: 4.8; 2021: 3.6
  • M2: 2017: 8.4; 2018: 9.4; 2019: 9.6; 2020: 18.9; 2021: 7.8; 2022: 6.3
  • Credit to the private sector: 2017: 3.8; 2018: 7.0; 2019: 4.9; 2020: 6.4; 2021: 6.8; 2022: 7.3
  • Gross domestic investment (percent of GDP): 2017: 13.6; 2018: 13.8; 2019: 14.3; 2020: 12.9; 2021: 14.1; 2022: 14.5
  • Gross national saving (percent of GDP): 2017: 14.7; 2018: 14.6; 2019: 16.6; 2020: 18.4; 2021: 16.5; 2022: 16.2
  • Current account balance (percent of GDP): 2017: 0.9; 2018: 5.5; 2019: 1.7; 2020: (table shows 5.5 earlier in text)
  • Trade balance (goods, percent of GDP): 2017: -9.5; 2018: -10.9; 2019: -10.3; 2020: -7.6; 2021: -9.9; 2022: -10.4
  • Exports (percent of GDP): 2017: 13.5; 2018: 13.2; 2019: 13.3; 2020: 12.7
  • Imports (percent of GDP): 2017: 23.0; 2018: 24.1; 2019: 23.2; 2020: 21.2; 2021: 23.1
  • Other (net) (percent of GDP): 2017: 10.2; 2018: 11.5; 2019: 12.6; 2020: 13.0; 2021: 13.1
  • Of which: remittances (percent of GDP): 11.4 (year not explicitly labeled in table)
  • Net International Reserves (Stock in months of next-year NFGS imports): 2017: 6.0; 2018: 6.5; 2019: 8.6; 2020: 9.2; 2021: 8.8; 2022: 8.5
  • Central Government Revenues (percent of GDP): 2017: 11.3; 2018: 11.2; 2019: 10.7; 2020: 10.6; 2021: 11.0
  • Central Government Expenditures (percent of GDP): 2017: 12.8; 2018: 15.6; 2019: 14.0
  • Central Government Current expenditure (percent of GDP): 2017: 10.5
  • Central Government Capital expenditure (percent of GDP): 2017: 2.6; 2018: 2.7; 2019: 3.0; 2020: 2.8
  • Primary balance (percent of GDP): 2017: -3.2
  • Overall balance (percent of GDP): 2017: -1.9; 2018: -2.2; 2019: -4.9; 2020: -2.8
  • Central Government Debt (percent of GDP): 2017: 25.1; 2018: 26.5; 2019: 31.5; 2020: 32.4; 2021: 33.4
  • Of which external (percent of GDP): 2017: 11.8; 2018: 14.4
  • Of which domestic 1/ (percent of GDP): 2017: 13.7; 2018: 15.0; 2019: 18.0; 2020: 17.9; 2021: 19.0
  • Memorandum: GDP (US$ billions): 2017: 71.6; 2018: 73.2; 2019: 77.0; 2020: 77.6; 2021: 82.1; 2022: 86.0
  • Output gap (% of GDP): 2017: -2.1; 2018: -0.4
  • Net international reserves — Stock over short-term debt, residual maturity: 1.8 (year not explicitly labeled)
  • Financial account balance (Net lending (+)): 0.6; 4.4 (years not explicitly labeled)
  • Change in reserves assets (Increase (+)): 4.1 (year not explicitly labeled)

• Notes:
  • Sources listed: Bank of Guatemala; Ministry of Finance; and Fund staff estimates and projections.
  • Footnote 1/ Does not include recapitalization of obligations to the central bank.

IMF Executive Board Concludes 2021 Article IV Consultation with Guatemala — Press Release No. 21/170, June 11, 2021.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• IMF COVID-19 Hub
• Policy Tracker
• Financial Assistance
• Questions & Answers
• Guatemala and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home