Press Release No. 14/432
September 18, 2014
On September 12, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guatemala.1
Key developments since the 2013 Article IV Consultation have been positive. Growth has returned to potential at around 3.5 percent and the output gap is closed. Inflation picked up in 2013, but stayed within the target range and has declined in early 2014. The current account deficit was virtually unchanged in 2013 at a relatively low level. Remittances have remained robust, and the deficit is comfortably financed by stable Foreign Direct Investment (FDI) and public sector borrowing. Net international reserves are at comfortable levels, and external competiveness is broadly adequate.
The results of the 2012 tax reform, which aimed to raise revenues by 1-1.5 percent of GDP, have been disappointing, yielding only 0.25 percent of GDP in extra collections. These, in turn, were outweighed by shortfalls not related to the reform. Notwithstanding the overall revenue shortfall, the fiscal deficit declined in 2013, amid delays in congressional approval of International Financial Institutions loans.
Monetary policy has been slightly relaxed. Since November 2013, the policy rate has been cut 75 basis points to 4.5 percent in the wake of falling inflation. The exchange rate has remained stable, with minimal central bank intervention under its rules-based framework. Credit has risen rapidly, slanted toward foreign currency loans, though it has recently slowed and Financial Sector Indicators are solid. Banks have turned to greater reliance on wholesale external funding but appear profitable, liquid, and well-capitalized.
Guatemala has made strides toward achieving the Millennium Development Goals, but poverty and crime are widespread. Extreme poverty has declined somewhat, primary enrollment has risen, and maternal mortality has fallen. However, malnutrition of children younger than 5 years is pervasive at about 50 percent. At the same time, the informal economy is very large, while security concerns are very serious.
The macroeconomic outlook remains benign. Growth is expected to hold to its trend rate of 3.5 percent into the medium term and inflation to converge toward the center of the central bank’s target range. The external current account deficit will stay stable and largely financed by FDI. The baseline scenario envisages a broadly neutral budget stance in 2014 and modest fiscal expansion through the 2015 election cycle, with measured consolidation thereafter.
However, downside risks are prevalent. In the near term, risks related to the normalization of monetary policy in the U.S. are balanced, with the prospect of higher interest rates likely more than offset by better export prospects as the U.S. economy expands. However, extreme bouts of volatility in financial markets could inflict serious damage. Deeper-than-expected slowdowns in emerging markets, less favorable-than anticipated-developments in Europe, and disruptions in commodity markets due to geopolitical tensions could also hamper Guatemalan growth. The continued lags in implementing the 2012 tax reform and the political impasse on the 2015 budget may endanger much needed government programs. On the other hand, if lower revenues are not met with spending cuts, fiscal consolidation could be derailed. For the longer term, insufficient government revenue mobilization could persist, deterring investment in physical and human capital. In turn, this could significantly weigh on the country’s long-run growth and social prospects.
Executive Board Assessment2
Executive Directors commended Guatemala’s sound macroeconomic policies and welcomed the broadly positive outlook. Directors noted, however, that poverty and social inequality remain high and that risks are tilted to the downside. They encouraged the authorities to accelerate efforts to improve social outcomes and foster higher, inclusive growth, while continuing to strengthen macroeconomic management and resilience. Increasing fiscal revenue will be particularly important.
With the output gap essentially closed, Directors viewed the current broadly neutral budget stance as appropriate. They stressed the need to safeguard critical social and investment spending in the event of financing shortfalls. In this context, implementation setbacks to the 2012 tax reform should be addressed through strengthened tax and customs compliance. Directors also called for congressional passage of a 2015 budget and the timely approval of multilateral loans. Improved budget execution and controls would help to stem the accumulation of domestic arrears.
Directors recommended that fiscal sustainability be progressively strengthened over the medium term in order to improve resilience and create space for increased priority spending. Achieving a modest permanent improvement in the primary balance would require both enhanced revenue mobilization and improvements to public expenditure management. Directors stressed the need for a significant effort to raise revenues from their currently low level in order to step up spending on health, education, security and infrastructure.
Directors viewed the monetary policy stance as broadly appropriate given low headline and core inflation. They welcomed the authorities’ intention to remain vigilant and tighten monetary policy should inflationary pressures re-emerge. Directors advised strengthening the monetary transmission mechanism and policy framework by reinforcing the inflation target as the primary objective of monetary policy, including through a gradual enhancement of exchange rate flexibility. This could also weaken the incentive for dollarization and help safeguard foreign reserves. Directors encouraged efforts to develop domestic debt and securities markets.
Directors welcomed the significant regulatory and legislative reforms undertaken to strengthen banking supervision and promote overall financial stability in response to the previous FSAP. They encouraged the authorities to follow through on the recommendations of the 2014 FSAP update, highlighting the importance of a gradual introduction of Basel III standards, a further strengthening of consolidated supervision, improved regulation of off-shore banks, and a further enhancement of the Anti Money Laundering/Combating the Financing of Terrorism framework. Directors advised the authorities to consider the adoption of macroprudential measures to control risks associated with dollarization.
Directors called for deep structural reforms and greater regional and global integration to lift Guatemala’s growth potential and enhance social inclusion. Measures should aim to strengthen competitiveness and improve the business climate, including security; strengthen governance; and enhance the quality of education, so as to help reduce poverty and develop a skilled and productive labor force.
| Guatemala: Selected Economic and Social Indicators |
| |
| I. Social and Demographic Indicators |
|
Population 2010 (millions) |
15 |
|
Gini index (2006) |
|
|
54 |
|
Percentage of indigenous population (2006) |
38 |
|
Life expectancy at birth (2009) |
71 |
|
Population below the poverty line (Percent, 2006) |
51 |
|
Adult illiteracy rate (2009) |
|
26 |
|
Rank in UNDP development index (2011; of 187) |
131 |
|
GDP per capita (US$, 2011) |
3,234 |
| |
| II. Economic Indicators |
| |
|
|
|
|
Est. |
Proj. |
|
| |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
| |
|
Income and Prices |
(Annual percent change) |
|
Real GDP |
0.5 |
2.9 |
4.2 |
3.0 |
3.7 |
3.4 |
3.7 |
|
Consumer prices (end of period) |
-0.3 |
5.4 |
6.2 |
3.4 |
4.4 |
4.0 |
4.3 |
|
Monetary Sector |
|
|
|
|
|
|
|
|
M2 |
10.0 |
11.3 |
10.7 |
9.8 |
9.0 |
10.0 |
10.5 |
|
Credit to the private sector |
1.1 |
5.7 |
14.1 |
17.7 |
12.0 |
13.0 |
14.0 |
| |
(In percent of GDP, unless otherwise indicated) |
|
Savings and Investment |
|
|
|
|
|
|
|
|
Gross domestic investment |
13.1 |
13.9 |
15.2 |
15.0 |
14.2 |
14.3 |
14.5 |
|
Private sector |
9.1 |
11.2 |
11.9 |
12.5 |
11.9 |
12.1 |
12.1 |
|
Public sector |
3.9 |
2.7 |
2.9 |
2.3 |
2.4 |
2.2 |
2.4 |
|
Gross national saving |
13.8 |
12.6 |
11.9 |
12.4 |
11.5 |
12.0 |
11.9 |
|
Private sector |
12.6 |
12.7 |
11.3 |
12.0 |
10.8 |
11.4 |
11.3 |
|
Public sector |
1.2 |
-0.1 |
0.5 |
0.3 |
0.7 |
0.6 |
0.6 |
|
External saving |
-0.7 |
1.4 |
3.4 |
2.6 |
2.7 |
2.3 |
2.5 |
|
External Sector |
|
|
|
|
|
|
|
|
Current account balance |
0.7 |
-1.4 |
-3.4 |
-2.6 |
-2.7 |
-2.3 |
-2.5 |
|
Trade balance (goods) |
-8.9 |
-10.3 |
-10.4 |
-11.4 |
-11.5 |
-10.9 |
-10.9 |
|
Exports |
19.3 |
20.6 |
22.1 |
20.0 |
18.9 |
19.2 |
18.9 |
|
Imports |
-28.2 |
-31.0 |
-32.5 |
-31.4 |
-30.4 |
-30.0 |
-29.8 |
|
Of which: oil & lubricants |
-5.5 |
-5.7 |
-6.5 |
-6.3 |
-5.9 |
-5.8 |
-5.5 |
|
Other (net) |
9.6 |
9.0 |
7.1 |
8.8 |
8.7 |
8.5 |
8.4 |
|
Of which: remittances |
10.5 |
10.0 |
9.2 |
9.8 |
9.8 |
9.5 |
9.4 |
|
Capital and financial account |
0.5 |
4.4 |
6.5 |
4.5 |
4.7 |
2.9 |
2.5 |
|
Public sector |
2.1 |
1.5 |
0.1 |
1.4 |
1.5 |
0.5 |
0.6 |
|
Private sector |
-1.6 |
2.9 |
6.5 |
3.1 |
3.2 |
2.4 |
2.0 |
|
Of which: FDI |
1.5 |
2.0 |
2.2 |
2.4 |
2.4 |
2.4 |
2.4 |
|
Errors and omissions |
0.0 |
-0.8 |
-0.5 |
-0.9 |
-0.6 |
-0.6 |
0.0 |
|
Overall balance |
1.3 |
2.2 |
2.7 |
1.0 |
1.3 |
0.0 |
0.0 |
|
Net International Reserves |
|
|
|
|
|
|
|
|
(Stock in months of next-year NFGS imports) |
3.8 |
3.7 |
3.8 |
3.9 |
3.9 |
3.6 |
3.4 |
|
(Stock over short-term debt on residual maturity) |
2.0 |
1.9 |
1.9 |
1.8 |
1.9 |
1.8 |
1.9 |
|
Public Finances |
|
|
|
|
|
|
|
|
Central Government |
|
|
|
|
|
|
|
|
Revenues |
11.1 |
11.2 |
11.6 |
11.6 |
11.7 |
11.2 |
11.2 |
|
Expenditures |
14.2 |
14.5 |
14.4 |
14.0 |
13.8 |
13.3 |
13.4 |
|
Current |
10.7 |
11.0 |
11.2 |
11.1 |
10.8 |
10.5 |
10.4 |
|
Capital |
3.5 |
3.6 |
3.2 |
2.9 |
3.0 |
2.8 |
3.0 |
|
Primary balance |
-1.7 |
-1.8 |
-1.3 |
-0.9 |
-0.6 |
-0.5 |
-0.7 |
|
Overall balance |
-3.1 |
-3.3 |
-2.8 |
-2.4 |
-2.1 |
-2.1 |
-2.2 |
|
Financing of the central government balance |
3.1 |
3.3 |
2.8 |
2.4 |
2.1 |
2.1 |
2.2 |
|
Net external financing |
1.3 |
1.5 |
0.1 |
1.5 |
1.5 |
0.5 |
0.6 |
|
Net domestic financing |
1.8 |
1.8 |
2.7 |
0.9 |
0.6 |
1.4 |
1.6 |
|
Rest of Nonfinancial Public Sector Balance |
0.4 |
0.5 |
0.4 |
0.4 |
0.4 |
0.4 |
0.4 |
|
Combined Nonfinancial Public Sector |
|
|
|
|
|
|
|
|
Primary balance |
-1.3 |
-1.3 |
-0.9 |
-0.5 |
-0.2 |
-0.1 |
-0.3 |
|
Overall balance |
-2.8 |
-2.8 |
-2.4 |
-2.0 |
-1.7 |
-1.7 |
-1.8 |
|
Central Government Debt |
22.9 |
24.1 |
23.7 |
24.3 |
24.6 |
24.9 |
25.3 |
|
External |
13.0 |
13.1 |
11.5 |
12.4 |
12.9 |
12.9 |
12.7 |
|
Domestic 1/ |
9.9 |
11.0 |
12.1 |
11.9 |
11.7 |
11.9 |
12.7 |
|
Memorandum Items: |
|
|
|
|
|
|
|
|
GDP (US$ billions) |
37.7 |
41.3 |
47.7 |
50.4 |
53.8 |
58.1 |
62.3 |
|
Output gap (% of GDP) |
-0.7 |
-0.9 |
0.0 |
-0.3 |
0.0 |
-0.1 |
0.1 |
| |
|
Sources: Bank of Guatemala; Ministry of Finance; and IMF staff estimates and projections. |
|
1/ Does not include recapitalization obligations to the central bank. |
| Guatemala: Selected Economic and Social Indicators |
| |
| I. Social and Demographic Indicators |
|
Population 2010 (millions) |
15 |
|
Gini index (2006) |
|
|
54 |
|
Percentage of indigenous population (2006) |
38 |
|
Life expectancy at birth (2009) |
71 |
|
Population below the poverty line (Percent, 2006) |
51 |
|
Adult illiteracy rate (2009) |
|
26 |
|
Rank in UNDP development index (2011; of 187) |
131 |
|
GDP per capita (US$, 2011) |
3,234 |
| |
| II. Economic Indicators |
| |
|
|
|
|
Est. |
Proj. |
|
| |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
| |
|
Income and Prices |
(Annual percent change) |
|
Real GDP |
0.5 |
2.9 |
4.2 |
3.0 |
3.7 |
3.4 |
3.7 |
|
Consumer prices (end of period) |
-0.3 |
5.4 |
6.2 |
3.4 |
4.4 |
4.0 |
4.3 |
|
Monetary Sector |
|
|
|
|
|
|
|
|
M2 |
10.0 |
11.3 |
10.7 |
9.8 |
9.0 |
10.0 |
10.5 |
|
Credit to the private sector |
1.1 |
5.7 |
14.1 |
17.7 |
12.0 |
13.0 |
14.0 |
| |
(In percent of GDP, unless otherwise indicated) |
|
Savings and Investment |
|
|
|
|
|
|
|
|
Gross domestic investment |
13.1 |
13.9 |
15.2 |
15.0 |
14.2 |
14.3 |
14.5 |
|
Private sector |
9.1 |
11.2 |
11.9 |
12.5 |
11.9 |
12.1 |
12.1 |
|
Public sector |
3.9 |
2.7 |
2.9 |
2.3 |
2.4 |
2.2 |
2.4 |
|
Gross national saving |
13.8 |
12.6 |
11.9 |
12.4 |
11.5 |
12.0 |
11.9 |
|
Private sector |
12.6 |
12.7 |
11.3 |
12.0 |
10.8 |
11.4 |
11.3 |
|
Public sector |
1.2 |
-0.1 |
0.5 |
0.3 |
0.7 |
0.6 |
0.6 |
|
External saving |
-0.7 |
1.4 |
3.4 |
2.6 |
2.7 |
2.3 |
2.5 |
|
External Sector |
|
|
|
|
|
|
|
|
Current account balance |
0.7 |
-1.4 |
-3.4 |
-2.6 |
-2.7 |
-2.3 |
-2.5 |
|
Trade balance (goods) |
-8.9 |
-10.3 |
-10.4 |
-11.4 |
-11.5 |
-10.9 |
-10.9 |
|
Exports |
19.3 |
20.6 |
22.1 |
20.0 |
18.9 |
19.2 |
18.9 |
|
Imports |
-28.2 |
-31.0 |
-32.5 |
-31.4 |
-30.4 |
-30.0 |
-29.8 |
|
Of which: oil & lubricants |
-5.5 |
-5.7 |
-6.5 |
-6.3 |
-5.9 |
-5.8 |
-5.5 |
|
Other (net) |
9.6 |
9.0 |
7.1 |
8.8 |
8.7 |
8.5 |
8.4 |
|
Of which: remittances |
10.5 |
10.0 |
9.2 |
9.8 |
9.8 |
9.5 |
9.4 |
|
Capital and financial account |
0.5 |
4.4 |
6.5 |
4.5 |
4.7 |
2.9 |
2.5 |
|
Public sector |
2.1 |
1.5 |
0.1 |
1.4 |
1.5 |
0.5 |
0.6 |
|
Private sector |
-1.6 |
2.9 |
6.5 |
3.1 |
3.2 |
2.4 |
2.0 |
|
Of which: FDI |
1.5 |
2.0 |
2.2 |
2.4 |
2.4 |
2.4 |
2.4 |
|
Errors and omissions |
0.0 |
-0.8 |
-0.5 |
-0.9 |
-0.6 |
-0.6 |
0.0 |
|
Overall balance |
1.3 |
2.2 |
2.7 |
1.0 |
1.3 |
0.0 |
0.0 |
|
Net International Reserves |
|
|
|
|
|
|
|
|
(Stock in months of next-year NFGS imports) |
3.8 |
3.7 |
3.8 |
3.9 |
3.9 |
3.6 |
3.4 |
|
(Stock over short-term debt on residual maturity) |
2.0 |
1.9 |
1.9 |
1.8 |
1.9 |
1.8 |
1.9 |
|
Public Finances |
|
|
|
|
|
|
|
|
Central Government |
|
|
|
|
|
|
|
|
Revenues |
11.1 |
11.2 |
11.6 |
11.6 |
11.7 |
11.2 |
11.2 |
|
Expenditures |
14.2 |
14.5 |
14.4 |
14.0 |
13.8 |
13.3 |
13.4 |
|
Current |
10.7 |
11.0 |
11.2 |
11.1 |
10.8 |
10.5 |
10.4 |
|
Capital |
3.5 |
3.6 |
3.2 |
2.9 |
3.0 |
2.8 |
3.0 |
|
Primary balance |
-1.7 |
-1.8 |
-1.3 |
-0.9 |
-0.6 |
-0.5 |
-0.7 |
|
Overall balance |
-3.1 |
-3.3 |
-2.8 |
-2.4 |
-2.1 |
-2.1 |
-2.2 |
|
Financing of the central government balance |
3.1 |
3.3 |
2.8 |
2.4 |
2.1 |
2.1 |
2.2 |
|
Net external financing |
1.3 |
1.5 |
0.1 |
1.5 |
1.5 |
0.5 |
0.6 |
|
Net domestic financing |
1.8 |
1.8 |
2.7 |
0.9 |
0.6 |
1.4 |
1.6 |
|
Rest of Nonfinancial Public Sector Balance |
0.4 |
0.5 |
0.4 |
0.4 |
0.4 |
0.4 |
0.4 |
|
Combined Nonfinancial Public Sector |
|
|
|
|
|
|
|
|
Primary balance |
-1.3 |
-1.3 |
-0.9 |
-0.5 |
-0.2 |
-0.1 |
-0.3 |
|
Overall balance |
-2.8 |
-2.8 |
-2.4 |
-2.0 |
-1.7 |
-1.7 |
-1.8 |
|
Central Government Debt |
22.9 |
24.1 |
23.7 |
24.3 |
24.6 |
24.9 |
25.3 |
|
External |
13.0 |
13.1 |
11.5 |
12.4 |
12.9 |
12.9 |
12.7 |
|
Domestic 1/ |
9.9 |
11.0 |
12.1 |
11.9 |
11.7 |
11.9 |
12.7 |
|
Memorandum Items: |
|
|
|
|
|
|
|
|
GDP (US$ billions) |
37.7 |
41.3 |
47.7 |
50.4 |
53.8 |
58.1 |
62.3 |
|
Output gap (% of GDP) |
-0.7 |
-0.9 |
0.0 |
-0.3 |
0.0 |
-0.1 |
0.1 |
| |
|
Sources: Bank of Guatemala; Ministry of Finance; and IMF staff estimates and projections. |
|
1/ Does not include recapitalization obligations to the central bank. |
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing ups can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
|
