Guatemala: Staff Report for the 2014 Article IV Consultation

IMF Staff Country Reports, September 18, 2014

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Guatemala: Staff Report for the 2014 Article IV Consultation

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Bibliographic details

• Published: September 18, 2014
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781498338127.002

Key issues and context

• Guatemala’s economy has performed solidly since the 2008–09 crisis.
• Output has converged to potential, inflation is under control, and macroeconomic policies remain prudent.
• Risks to the outlook are tilted downwards, while buffers are modest and space for counter-cyclical policies is thin.
• Long-term inclusive growth is constrained by low investment in physical and human capital, institutional weaknesses, and lack of security.

Near-term macroeconomic policy assessment

• Near-term policies are broadly appropriate.
• With the output gap closed, the broadly neutral fiscal stance is adequate.
• The monetary stance is slightly expansionary, but inflation is at the bottom of the target range.
• Recommendation: The authorities should stand ready to tighten monetary policy if inflationary pressures re-emerge.

Fiscal sustainability and public finances

• Though the debt-to- GDP ratio remains moderate, the ability to implement counter-cyclical fiscal policies is limited, not least by Guatemala’s high government debt-to-revenue ratio.
• Debt stabilization requires moderate tightening of the budgetary stance over the medium term.
• Emphasis should be on revenue mobilization, given the overall low level of spending.
• Consolidating gains from the 2012 tax reform, which has so far proved disappointing, will be critical.

Monetary and exchange rate framework

• Efforts to upgrade the monetary and exchange policy framework should continue.
• Anchoring low and stable inflation will require measures to bolster monetary policy transmission, including by expanding exchange rate flexibility.
• Expected benefits from expanded exchange rate flexibility:
  • Provide an additional shock absorber.
  • Reduce incentives for dollarization.
  • Establish the inflation target as the undisputed primary objective of the central bank.

Financial system and regulation

• The 2014 FSAP update found that Guatemala has made significant progress in financial regulation and that the banking system appears to be generally sound.
• Remaining priorities:
  • Improve consolidated supervision.
  • Improve the regulation of off-shore banks.
  • Undertake a phased move to Basel III standards.

Structural reforms for inclusive growth

• Structural reforms are vital to achieving long-term inclusive growth.
• Paving the way towards high, inclusive growth will depend upon raising the low tax-to-GDP ratio to support priority public spending, thereby addressing critical social and developmental needs.

Source: Guatemala: Staff Report for the 2014 Article IV Consultation (IMF staff summary as presented on the publication landing page).

Content in this bundle

• 1. Guatemala: External Stability Assessment
  • 1. Guatemala: External Stability Assessment (Markdown version)
  • 1. Guatemala: External Stability Assessment (PDF)