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Press Release: IMF Approves Nine-Month US$120 Million Stand-By Arrangement for Guatemala
June 19, 2003
The Executive Board of the International Monetary Fund (IMF) has approved a nine-month SDR 84 million (about US$120 million) Stand-By Arrangement for Guatemala to support the country's economic program through March 15, 2004. The approval opens the way for the immediate release of SDR 52.5 million (about US$75 million). The authorities intend to treat the arrangement as precautionary.
Following the Executive Board discussion on June 18, 2003, Eduardo Aninat, Deputy Managing Director and Acting Chair, said:
"The government's strategy for improving Guatemala's growth prospects and social conditions remains appropriate, focused on macroeconomic stability, financial sector reform, improved governance and transparency, and mobilization of additional resources for social spending. Faster progress in implementing the 1996 Peace Accords will be crucial to building the political impetus needed to achieve the objectives of the strategy and lay the basis for sustainable growth and prosperity.
"The authorities' program for 2003 is designed to preserve macroeconomic stability and advance key structural reforms in this election year. The fiscal program aims to consolidate the gains that were achieved under the 2002 program, while accommodating additional spending related to the Peace Accords, including a notable increase in social outlays. The authorities are committed to raising the tax ratio to 12 percent of GDP in 2004, in line with a key objective established under the Peace Accords. The government's external financing plan for 2003 remains to be fulfilled, but the authorities are prepared to adjust the program in case of a shortfall in external financing.
"Inflationary pressures have abated, and this trend is expected to continue in 2003 under the central bank's monetary program. As the offshore banks are incorporated into the regulated financial system, the central bank will monitor monetary conditions and developments closely and be ready to adjust monetary policy if necessary.
"A comprehensive effort to strengthen the prudential and regulatory framework of the financial sector, started last year, will continue under the authorities' program. Key goals in this area include bringing the offshore banks within the perimeter of the regulated financial system, improving the resolution framework for distressed banks, and strengthening the balance sheet of the central bank. The progress made on fiscal transparency and governance is encouraging and should continue to be pursued vigorously.
"In approving the authorities' request for a Stand-By Arrangement in support of their program for 2003, the Executive Board considered that the authorities have shown a firm commitment to implementing strong policies, evidenced by performance under the 2002 program and the success so far in keeping the program on track in this election year," Mr. Aninat said.
Recent economic developments
The economic performance during 2002 was positive, despite a weak external environment. Real GDP growth exceeded 2 percent, and end-year inflation fell to 6.3 percent from 9 percent in 2001. The external current account deficit narrowed to 5.1 percent of GDP, as higher workers' remittances more than offset a wider trade gap. The deficit of the combined public sector was reduced from 2 percent of GDP in 2001 to 0.8 percent in 2002.
In early 2002 the Guatemalan authorities presented their medium-term poverty reduction strategy (PRS), which incorporated the agenda of the 1996 Peace Accords and aimed at promoting faster economic growth and improving social conditions. The strategy sets specific goals to be reached by 2005, such as raising economic growth to above 4 percent a year, reducing the index of extreme poverty by 3 percent, and improving the quality of education, health, and rural development. The authorities' program for 2002 sought to initiate implementation of this strategy.
Program summary
The economic program for 2003 seeks to ensure macroeconomic stability and further progress on key structural reforms. It assumes real GDP growth of 2½ percent, and aims to further reduce inflation and raise official reserves.
The fiscal deficit will be limited to 1.7 percent of GDP, slightly higher than the target under the 2002 program due to additional outlays envisaged under the 1996 Peace Accords and higher social spending. Tax revenue will remain constant in terms of GDP, but the authorities remain committed to the 12 percent of GDP revenue target established under the Peace Accords.
Monetary policy will continue to aim at controlling inflation and strengthening Guatemala's external position. The central bank's monetary program seeks to limit the growth of the currency issue to help reduce inflation to 4-6 percent in 2003.
The authorities are working toward putting fully in place the new legal framework for the financial sector. In particular, they will focus on strengthening the onshore banking system and bringing the offshore banks into the regulated financial system.
The government also is strengthening governance and transparency by improving the dissemination of key fiscal data, seeking approval of a new budget law, and strengthening legislation on public procurement and fiscal transparency. Also, a recently created anticorruption commission will propose actions to improve governance.
Guatemala joined the IMF on December 28, 1945, and its current quota is SDR 210.2 million (about US$299 million); it has no outstanding use of IMF credit.
|
2002 |
||||||
|
|
1999 |
2000 |
2001 |
Prog. |
Prel. |
2003 |
|
(Annual percent change, unless otherwise indicated) | ||||||
|
Income prices |
||||||
|
Real GDP |
3.8 |
3.6 |
2.2 |
2.3 |
2.2 |
2.4 |
|
Consumer prices (end of period) |
4.9 |
5.1 |
8.9 |
5.0 |
6.3 |
5.0 |
|
Consumer prices (average) |
5.2 |
6.0 |
7.3 |
6.5 |
8.2 |
5.1 |
|
Monetary sector |
||||||
|
Credit to private sector 1/ |
11.4 |
8.2 |
8.7 |
6.2 |
4.6 |
6.6 |
|
Liabilities to private sector |
9.8 |
23.2 |
8.1 |
7.9 |
14.0 |
11.7 |
|
Interest rate (annual rate, time deposits) 2/ |
17.9 |
15.3 |
11.3 |
... |
9.7 |
... |
|
External sector |
||||||
|
Exports |
-2.3 |
10.9 |
-7.1 |
4.8 |
-8.5 |
5.7 |
|
Imports |
-2.0 |
13.4 |
8.4 |
0.3 |
8.4 |
7.2 |
|
Terms of trade |
-8.7 |
-0.4 |
-8.4 |
... |
... |
... |
|
Real effective exchange rate 3/ |
-6.0 |
6.2 |
1.2 |
... |
6.0 |
... |
|
(In percent of GDP, unless otherwise indicated) | ||||||
|
Current account |
-5.5 |
-5.4 |
-5.9 |
-4.5 |
-5.1 |
-5.5 |
|
Trade balance |
-9.7 |
-10.8 |
-13.0 |
-9.4 |
-14.9 |
-15.0 |
|
Exports |
15.2 |
16.0 |
13.6 |
14.7 |
11.3 |
11.1 |
|
Imports |
24.9 |
26.8 |
26.6 |
24.1 |
26.1 |
26.0 |
|
Other (net) |
4.2 |
5.4 |
7.1 |
4.9 |
9.8 |
9.5 |
|
Capital account |
4.9 |
9.2 |
8.3 |
3.5 |
5.0 |
6.5 |
|
Public sector (including official transfers) |
2.0 |
1.6 |
1.7 |
0.4 |
0.9 |
2.9 |
|
Private sector |
2.8 |
7.6 |
6.6 |
3.1 |
4.1 |
3.6 |
|
Net official reserves (in U.S. dollars) (increase -) 4/ |
126 |
-728 |
-500 |
210 |
12 |
-250 |
|
Net reserves in months of next year imports of goods and services |
2.2 |
3.4 |
4.0 |
4.0 |
3.7 |
3.8 |
|
|
||||||
|
Gross domestic investment |
17.4 |
17.8 |
17.7 |
16.2 |
17.6 |
17.4 |
|
Public sector |
5.5 |
4.2 |
4.3 |
4.0 |
3.4 |
3.4 |
|
Private sector |
11.9 |
13.6 |
13.4 |
12.2 |
14.2 |
14.0 |
|
Gross domestic saving |
11.9 |
12.4 |
11.8 |
11.7 |
12.5 |
11.9 |
|
Public sector |
2.3 |
2.0 |
1.7 |
2.4 |
2.5 |
2.4 |
|
Private sector |
9.6 |
10.4 |
10.1 |
9.3 |
10.0 |
9.5 |
|
Combined public sector balance |
||||||
|
(including central bank losses) |
-3.0 |
-2.2 |
-2.3 |
-1.5 |
-0.8 |
-1.7 |
|
Overall balance of the nonfinancial public sector (deficit -) |
-2.8 |
-1.8 |
-1.5 |
-0.8 |
-0.2 |
-1.1 |
|
Financing |
3.0 |
2.2 |
2.3 |
1.5 |
0.8 |
1.7 |
|
External financing |
1.7 |
0.8 |
1.1 |
0.3 |
0.1 |
2.3 |
|
Domestic financing |
0.7 |
0.7 |
-0.6 |
0.9 |
0.7 |
-0.6 |
|
Privatization proceeds |
0.6 |
0.7 |
1.8 |
0.3 |
0.0 |
0.0 |
|
Memorandum items: |
||||||
|
Tax revenue |
9.3 |
9.4 |
9.7 |
10.7 |
10.6 |
10.7 |
|
Central government social spending |
6.3 |
5.9 |
5.5 |
5.3 |
5.1 |
5.3 |
|
Other spending |
7.0 |
6.7 |
7.8 |
7.3 |
7.2 |
7.8 |
|
Nominal GDP (in billions of quetzales) |
135,287 |
149,743 |
164,737 |
175,460 |
181,867 |
195,871 |
|
Sources: Bank of Guatemala; Ministry of Finance; and IMF staff estimates and projections. | ||||||
|
1/ In relation to the stock of liabilities to the private sector at the beginning of the period. | ||||||
|
2/ End-period. | ||||||
|
3/ End-period; a positive change indicates an appreciation. In 2002 refers to the 12-month change through end-June. | ||||||
|
4/ The change in net international reserves in 2001 includes US$180 million of a temporary deposit of the government at the central bank, which is part of proceeds from a Eurobond floated at end 2001 earmarked to pay short-term debt. Consequently, in 2002 the change in net international reserves includes the use of these US$180 million. Net of this temporary deposit, the net international reserves increased by US$320 million in 2001 and by US$168 million in 2002. | ||||||
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