Guatemala: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, June 23, 2025
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- Published: June 23, 2025
Mission summary
- An IMF mission led by Mr. Alexander Culiuc visited Guatemala City during June 10-20, 2025 for the 2025 Article IV consultation.
- Key assessment: prudent macroeconomic management has supported Guatemala’s resilience, delivering low inflation, robust policy buffers and a sustained current account surplus.
- Policy thrust: accelerate reform implementation and enhance policy coordination to achieve stronger, more inclusive growth and poverty reduction.
Recent economic developments, outlook, and risks
- Growth and inflation
- Real GDP grew by 3.7 percent in 2024.
- Headline inflation fell to 1.7 percent in May 2025; core inflation remains near 4 percent.
- Growth projected at 3¾ percent in 2025; beyond 2025 growth projected to slightly exceed 3½ percent.
- External sector and buffers
- Current account surplus narrowed to 2.9 percent of GDP in 2024.
- Remittances stabilized at 19 percent of GDP.
- International reserves reached US$27.1 billion.
- Public debt remains low—under 27 percent of GDP—and Guatemala is now only one notch below investment grade.
- Monetary policy setting
- Banguat kept its policy rate unchanged at 4.5 percent since the 25bps cut in November 2024.
- Fiscal developments
- August 2024 supplementary budget prioritized infrastructure and social spending; targeted deficit of 2.7 percent of GDP; realized deficit was 1 percent of GDP.
- The 2025 budget is expansionary; original deficit target 3.2 percent of GDP; a supplementary budget raised the deficit to 3.8 percent of GDP.
- Risks
- Balance of risks tilted to the downside: domestic political tensions could impede legislative progress; intensified/protracted global trade disputes could dampen investment.
- Specific external risk: proposed 3.5 percent excise tax on remittances in U.S. policy discussions could disrupt remittance-supported consumption.
- Upside: lower net emigration could boost domestic employment if matched by efforts to expand formal private-sector jobs.
Fiscal policy (findings and recommendations)
- Short-term assessment
- The 2025 expansionary fiscal stance is appropriate to cushion expected softening in private demand.
- Execution constraints may limit capital spending; projected deficit around 2½ percent of GDP, below the revised budget of 3.8 percent.
- Transfers to Departmental Development Councils (CODEDEs) are historically high at 1.3 percent of GDP and require close oversight.
- Medium-term strategy
- Revert deficits toward historical levels (around 2 percent of GDP) while preserving infrastructure and social spending.
- Strengthen revenue mobilization (continue efforts from the Tax Administration (SAT): mandatory electronic invoicing, enhanced border enforcement, robust audits).
- Complement compliance measures with comprehensive tax policy reforms in the medium term.
- Improve expenditure quality: systematic expenditure reviews, embed the National Development Plan into annual and multi-year budgets, and a new Public Procurement law to ease capital spending bottlenecks.
- Improve targeting in social programs; strengthen the Medium-Term Fiscal Framework and multiannual budget planning with realistic, sector-informed projections.
- Financing strategy
- Emphasize greater reliance on domestic financing under a sound medium term debt management strategy (MTDS) to:
- (i) reduce real appreciation pressures,
- (ii) help develop the domestic financial market,
- (iii) reduce currency risks,
- (iv) lower costs of monetary policy operations incurred by Banguat.
- Recommendations: consolidate domestic issuances, introduce shorter-maturity instruments, regularly publish the MTDS and annual borrowing plans.
Monetary and exchange policies
- Current stance and transmission
- The ex-ante real policy rate is at 1 percent, within the estimated neutral real rate range (1–2 percent).
- Given uncertainty from U.S. tariff measures and supply chain risks, maintain current policy stance while waiting for clarity.
- Passthrough of policy rate to deposit rates has recently increased; scope to further strengthen monetary transmission by developing financial markets, increasing competition, and reducing reliance on reserve requirements.
- FX and remittances
- Banguat’s FX participation rule balances higher consumption and external competitiveness; the external position is stronger than fundamentals and desirable policies imply, and the current account gap should be closed by raising investment.
- Banguat’s sterilization to manage remittance inflows incurs costs; closer coordination with MinFin and greater use of domestic debt to finance the budget could reduce these costs.
- Long-term financial strength of Banguat requires consistent enforcement of legal provisions mandating the budget to cover central bank losses.
Financial sector
- System soundness
- Banking system remains sound with solid capital and liquidity buffers and strong profitability.
- Regulatory and supervisory progress
- Enhanced credit risk regulations, more robust stress testing, broader regulatory coverage, and voluntary inclusion of savings and credit cooperatives in the Credit Risk Information System.
- Priorities and reforms
- Reinforce efforts by expanding risk-based supervision and strengthening oversight of fintech and digital financial services.
- Adopt revisions to the 2002 Law on Banks and Financial Groups, transition to International Financial Reporting Standards, advance the draft Secondary Market Law, approve the e-money law, and continue implementation of financial inclusion strategy elements.
Governance and structural agenda
- Legislative priorities
- Revise AML/CFT Law to align with international standards; adopt Beneficial Ownership Law; adopt Public Procurement Law; adopt Law for the Protection of Whistleblowers.
- GAFILAT mutual evaluation expected in 2027; delays in the AML/CFT law could complicate progress to investment grade.
- Institutional and anticorruption measures
- Consolidate institutional progress: creation of the National Commission Against Corruption and rollout of probity offices across executive institutions; develop a medium-term anti-corruption strategy.
- Investment and competitiveness
- Accelerate infrastructure investment via amendments to the law on Partnerships for Development of Economic Infrastructure and a new law on ports to close gaps and crowd in private investment.
- Continue efforts to formalize the economy and improve the business environment to prepare for lower net emigration impacts on the labor market.
Key statistics and projections (selected)
- Recent levels and balances
- Headline inflation: 1.7 percent in May 2025.
- Core inflation: near 4 percent.
- Remittances: 19 percent of GDP (stabilized).
- International reserves: US$27.1 billion.
- Public debt: under 27 percent of GDP.
- Banguat policy rate: 4.5 percent (unchanged since 25bps cut in November 2024).
- Fiscal outcomes and budgets
- August 2024 supplementary budget targeted deficit: 2.7 percent of GDP; realized deficit: 1 percent of GDP.
- 2025 original budget deficit target: 3.2 percent of GDP; supplementary budget raised deficit to 3.8 percent of GDP.
- Selected items from "Guatemala: Selected Economic Indicators" (as presented)
- Real GDP: 3.5 (2023), 3.7 (2024), 3.8 (2025), 3.6 (2026)
- Inflation (average): 6.2 (2023), 2.9 (2024), 2.4 (2025), 4.0 (2026)
- Current Account Balance (percent of GDP): 3.1 (2023), 2.5 (2024), 1.7 (2025), 1.3 (2026), 0.7 (2027), 0.2 (2028)
- Trade Balance (goods and services, percent of GDP): -15.1 (2023), -15.5 (2024), -15.9 (2025), -15.8 (2026), -15.4 (2027), -15.0 (2028), -14.7 (2029)
- Remittances (percent of GDP): 19.0 (2023), 18.8 (2024), 18.0 (2025), 17.1 (2026), 16.3 (2027), 15.5 (2028)
- Financial Account ("+" = net lending): 2.7
- Total Revenues (percent of GDP): 12.5 (2023), 12.4 (2024)
- Tax Revenues (percent of GDP): 11.7 (2023), 11.8 (2024)
- Total Expenditure (percent of GDP): 13.7 (2023), 13.4 (2024), 15.0 (2025), 15.1 (2026), 15.3 (2027), 15.2 (2028)
- Current Expenditure (percent of GDP): 11.2 (2023), 11.0 (2024), 11.9 (2025), 12.0 (2026)
- Capital Expenditure (percent of GDP): 3.2 (2023), 3.4 (2024), 3.3 (2025)
- Primary Balance (percent of GDP): 0.4 (2023), -1.0 (2024), -1.1 (2025), -1.2 (2026)
- Overall Balance (percent of GDP): -1.3 (2023), -2.6 (2024), -2.8 (2025), -2.9 (2026)
- Gross Central Government Debt (percent of GDP): 27.2 (2023), 26.3 (2024), 27.1 (2025), 28.0 (2026), 28.9 (2027), 29.6 (2028), 30.2 (2029)
Policy priorities (summary recommendations)
- Sustain prudent macroeconomic management while accelerating reform implementation and enhancing policy coordination.
- Use existing fiscal space in the short term to finance priority infrastructure and social spending, with strong oversight of CODEDEs transfers.
- Implement medium-term revenue reforms, including comprehensive tax policy reform, and strengthen expenditure efficiency and multi-year budgeting.
- Adopt a well-calibrated financing strategy emphasizing domestic market development and regular MTDS publication.
- Maintain current monetary policy stance for now, strengthen monetary transmission, and coordinate with MinFin to manage sterilization costs.
- Advance financial sector reforms: risk-based supervision, fintech oversight, legal and accounting standards updates, and laws to deepen markets.
- Prioritize governance and structural reforms: AML/CFT, Beneficial Ownership, Public Procurement, Whistleblower protection, anti-corruption strategy, and laws to accelerate infrastructure investment.
Source: IMF staff concluding statement of the 2025 Article IV mission to Guatemala.