Guatemala: Staff Concluding Statement of the 2024 Article IV Mission
IMF News, May 24, 2024
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- Published: May 24, 2024
Mission overview
- An International Monetary Fund (IMF) mission, led by Ms. Maria A. Oliva, visited Guatemala City during May 13-23 for the 2024 Article IV consultation.
- The mission assessed macroeconomic stability, policy frameworks, and structural reform priorities, and issued the concluding statement at the end of the visit.
Macroeconomic outlook and performance
- The Guatemalan economy "continues to show remarkable stability and soundness" with inflation on target, ample international reserves, contained fiscal deficits, and a low public debt/GDP ratio that continues to fall.
- Growth moderated in 2023 to 3.5 percent and is expected to remain at that level in 2024.
- Inflation is expected to remain within the bands at the end of this and next year despite some inflationary pressures in the coming months.
- The exchange rate remained relatively stable.
- The current account is expected to remain in surplus, but to gradually decline with higher imports as the administration's fiscal agenda is being implemented.
- Double-digit growth in bank credit to the private sector is explained by credit market development opportunities and ample liquidity.
- Slowing exports and limited foreign investment underscore the urgent need for reforms.
Risks and downside scenarios
- The country's outlook remains favorable, with risks skewed to the downside.
- Key risks identified:
- Dependence on remittances, which conditions private consumption to the U.S. Hispanic labor market and affects the most vulnerable population.
- Greater complexity and cost for Guatemala’s monetary and exchange rate policies due to remittance dependence.
- Lack of progress in the economic agenda leading to growth below potential and possible social unrest.
- Increased volatility in commodity prices.
- Natural disasters or major cyber-attacks.
- Successful execution of the administration's structural reform agenda could lead to higher inclusive and sustainable growth potential.
Fiscal policy, taxation, and public spending
- Guatemala needs more tax collection to advance development goals.
- Revenues are "among the lowest in the world"; tax revenue collection was 11.7 percent of GDP in 2023 and is described as "below 13 percent of GDP".
- With tax revenue collection below 13 percent of GDP (11.7 percent in 2023), it will be difficult to address urgent needs (infrastructure, education, health, and malnutrition) without increasing debt.
- The mission advocates:
- Ensuring continuity in tax management.
- Approving legal protections for public servants fulfilling their mandate.
- Improving communication with taxpayers.
- Public outreach to strengthen the importance of tax compliance and support for future comprehensive tax reform.
- The mission supports temporary fiscal deficits that exceed two percent, if linked to an action plan of well-designed and clear investments in infrastructure, education, health, and social programs to address child malnutrition and poverty.
- Guatemala's debt-to-GDP ratio is low and projected to be sustainable under the administration's expansionary fiscal policy.
- With financing costs on the rise, the mission recommends developing the domestic capital market, including the secondary debt market and yield curve, and communicating with investors to ensure more competitive market conditions over time.
Public investment execution and governance of spending
- The mission stressed the importance of improving execution of capital spending based on quality, efficiency, and transparency criteria.
- Spending execution will require a multi-year agenda of strategic transformation projects with clear timelines and realistic tax revenue projections.
- The mission emphasized sharing concrete and detailed action plans of various ministries (e.g., Ministry of Communication, Infrastructure and Housing, Ministries of Education and Health) to guide expectations and sustain support.
- Institutional strengthening, greater transparency, efficiency, and quality of spending are areas where the IMF is assisting with technical assistance.
Monetary and exchange rate policy
- Changes in the leading interest policy rate should continue to be data driven.
- Anticipated downward adjustments to the leading interest rate, which could require subsequent upward corrections, could de-anchor inflation expectations and jeopardize the credibility of the monetary authority.
- The Central Bank should move forward with reforms to strengthen the effectiveness of the policy rate by strengthening monetary policy transmission mechanisms.
- With improvements in liquidity provision, the interbank market should manage liquidity asymmetries.
- Under an expansive fiscal policy scenario, consistency in monetary, exchange rate, and fiscal policies will be particularly important.
- The mission advocates for a solvent Central Bank able to conduct monetary liquidity management and maintain price stability.
Financial sector and market development
- The Guatemalan banking sector remains liquid and profitable and shows resilience to shocks.
- Approval of the credit regulations of the Superintendency of Banks and follow-up on their implementation is a step forward.
- The mission reiterates the need to approve a new Banking Law updating the 2002 Law on Banks and Financial Groups, aligned with international standards of regulatory, supervisory, and crisis management practices.
- The law should provide supervisory authorities with tools to monitor risks and respond if necessary.
- The mission emphasized the importance of communicating with markets through risk assessment publications and the publication of bank balance sheets using international accounting standards.
- The mission recommends advancing development of foreign exchange and hedging, debt, and financial markets to allow private sector risk management and instruments for climate risk management.
Structural reforms, competitiveness, and governance
- Steady progress in reforms would improve the investment climate.
- Priorities highlighted:
- A good competition law that includes investment aspects.
- Infrastructure and ports laws.
- Revision of the Public Private Partnerships (PPP) and Free Trade Zone laws.
- Civil servants and procurement reforms.
- Approval of internal practices in the legislation process such as review of draft legal texts by specialized teams and unification of criteria in the application of legislation in court.
- Greater competitiveness requires active policy for the formal labor market, greater digitalization and innovation, and a clear gender strategy.
- Implementation of the goals in the 2024-2027 financial inclusion strategy will help reduce social gaps.
- Governance measures include publication of a national anti-corruption plan and a medium-term strategy to combat impunity with a timetable for implementation and measurement indicators.
- The approval of legislation aligning Guatemala's anti-money laundering law with Financial Action Task Force (GAFI/FATF) standards "cannot wait longer," given the evaluation based on effective compliance of the Law by 2027.
Policy recommendations (summary)
- Advance structural reforms in infrastructure, human capital investment, and governance to support productive sectors and secure higher sustained and inclusive growth.
- Increase tax collection and plan comprehensive tax reform to finance quality public spending and reduce reliance on debt.
- Strengthen execution, transparency, and quality of capital spending via multi-year strategic transformation projects and public action plans by ministries.
- Maintain data-driven monetary policy and strengthen monetary policy transmission and interbank market liquidity management.
- Develop domestic capital markets, secondary debt market, and yield curve; enhance investor communication.
- Approve a modern Banking Law aligned with international standards and improve supervisory tools and market transparency.
- Pursue legal and institutional reforms to improve the investment climate and governance, including anti-corruption, anti-impunity, and anti-money laundering legislation.
Key statistics (Table 1: Selected Economic Indicators — projections and historical values)
- Real GDP: 8.0 (2021); 4.2 (2022); 3.5 (2023); 3.6 (2024); 3.7 (2025); 3.8 (2026); (2027 and beyond columns present but values not listed in source excerpt).
- Inflation (average): 4.3 (2021); 6.9 (2022); 6.2 (2023); 4.0 (2024).
- Current Account Balance: 2.2 (2021); 1.3 (2022); 3.1 (2023); 2.8 (2024); 2.3 (2025); 1.9 (2026); 1.5 (2027); 0.9 (2028); 0.5 (2029).
- Trade Balance (goods and services): -14.0 (2021); -16.5 (2022); -15.1 (2023); -15.5 (2024); -15.8 (2025); -16.0 (2026); -16.4 (2027); -16.6 (2028).
- Remittances: 17.7 (2021); 18.8 (2022); 18.9 (2023); 19.4 (2024); 19.2 (2025); 19.0 (2026); 18.7 (2027); 18.4 (2028); 18.0 (2029).
- Financial Account ("+" = net lending): 1.6 (2021); 0.8 (2022); 2.5 (2023).
- Central Government Finances:
- Total Revenues: 12.3 (2021); 12.6 (2022); 12.5 (2023); 12.4 (2024); 12.7 (2025); 12.9 (2026); 13.0 (2027).
- Tax Revenues: 11.7 (2021); 12.0 (2022); 11.8 (2023); 11.9 (2024); 12.1 (2025); 12.2 (2026).
- Total Expenditure: 13.5 (2021); 14.3 (2022); 13.7 (2023); 13.8 (2024); 14.5 (2025); 14.7 (2026); 14.8 (2027); 14.9 (2028); 15.0 (2029).
- Current: 11.1 (2021); 11.2 (2022); 11.6 (2023).
- Capital: 2.4 (2021); 2.6 (2022); 2.9 (2023); 3.0 (2024).
- Primary Balance: 0.6 (2021); 0.0 (2022); 0.4 (2023); 0.3 (2024); -0.3 (2025).
- Overall Balance: -1.2 (2021); -1.7 (2022); -1.3 (2023); -1.4 (2024); -2.0 (2025).
- Central Government Debt:
- Gross Central Government Debt: 30.6 (2021); 29.0 (2022); 27.2 (2023); 26.8 (2024); 27.0 (2025); 27.3 (2026); 27.4 (2027).
Source: Bank of Guatemala; Ministry of Finance; and Fund staff estimates and projections.