{
  "title": "IMF Executive Board Concludes 2019 Article IV Consultation with Guatemala",
  "publication": "IMF News, June 17, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/06/17/pr19222-guatemala-imf-executive-board-concludes-2019-article-iv-consultation",
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  "summary": "Growth revived since mid-2018 after three years of weaker performance, supported by strong remittances and private consumption, a positive fiscal impulse, and a turnaround in credit and investment.",
  "publishDate": "2019-06-17",
  "sections": [
    {
      "heading": "Background and recent performance",
      "content": "- Growth revived since mid-2018 after three years of weaker performance, supported by strong remittances and private consumption, a positive fiscal impulse, and a turnaround in credit and investment.\n- 2018 macroeconomic outcomes:\n  - Inflation remained subdued at 3¾ percent.\n  - Overall fiscal deficit of around 1.8 percent of GDP.\n  - Public debt at around 25 percent of GDP.\n  - External position remained solid as continued strong remittances offset the worsening terms of trade and trade balance.\n  - Banking sector: liquid and well-capitalized; nonperforming loans remained at low levels and well-provisioned."
    },
    {
      "heading": "Near-term outlook and projections",
      "content": "- Growth:\n  - Growth is projected to peak at 3.7 in 2021, before converging to its potential rate of 3½ percent by 2024.\n  - Near-term growth prospects are positive aided by supportive fiscal and monetary policies.\n- Inflation:\n  - Projected to remain within the 4±1 percent target.\n- Fiscal:\n  - Fiscal deficit expected to widen to 2.4 percent next year, enabling a cumulative fiscal impulse of 0.6 percent of GDP over 2019−20.\n- Monetary:\n  - Monetary policy would remain accommodative over the near term and proceed with a gradual normalization thereafter.\n- External sector:\n  - Current account balance expected to deteriorate to -1½ percent of GDP by 2024.\n  - Foreign reserves would remain within comfortable ranges.\n- Risks:\n  - Tilted to the downside, primarily from a growth slowdown in the U.S. and other regional trade partners, and domestically from lagged implementation of business climate reforms and anticorruption efforts."
    },
    {
      "heading": "Executive Board assessment (endorsing staff appraisal)",
      "content": "- Overall assessment:\n  - The outlook is positive amidst strong fundamentals, but efforts to raise potential growth remain a priority to improve living standards.\n  - Building consensus to implement long-delayed business climate and public sector reforms is key to promote private sector growth and social and infrastructure spending conducive to the attainment of the SDGs.\n- Near-term:\n  - Growth projected to accelerate and peak in 2021, propelled by a further fiscal impulse, exports recovery and stronger investment momentum, before converging to 3½ percent by 2024.\n  - Inflation is set to reach the mid-point of the target band as spare capacity narrows.\n  - External position remains stronger than the level implied by medium-term fundamentals and desirable policies, but the gap is expected to narrow by 2024.\n- Policy stance:\n  - Fiscal and monetary policies’ support of demand should continue in the near term, considering prevailing spare capacity."
    },
    {
      "heading": "Fiscal policy recommendations",
      "content": "- Reverse the decline in revenues and keep up spending execution.\n- Raise tax collections and enhance spending efficiency to expand fiscal space; SAT should redouble efforts to fight tax evasion.\n- Spending efficiency reforms should:\n  - Increase the coverage and quality of public services provided.\n  - Bolster the cost-effectiveness of procurement.\n  - Increase budget flexibility.\n  - Rationalize tax incentives and exemptions.\n- As spending is scaled up, prioritize investments generating the strongest positive externalities and with highest potential for cost recovery and private sector participation.\n- Consider a comprehensive tax reform subsequently to finance well-planned spending, given the scale of existing infrastructure and social gaps."
    },
    {
      "heading": "Monetary policy and financial markets",
      "content": "- Maintain accommodative monetary conditions as the output gap closes amid well-anchored inflation expectations.\n- Over the medium term, normalization should be gradual and data-dependent as the economy reaches potential (2021 by staff estimates).\n- Enhancements to inflation targeting could be considered to strengthen monetary transmission:\n  - (i) enhancing FX flexibility;\n  - (ii) expanding the use of the treasury and/or central bank bills, while fostering the adoption of the securities market law and the dematerialization of securities;\n  - (iii) further refining the forward-looking communication strategy."
    },
    {
      "heading": "Structural reforms, governance, and anticorruption",
      "content": "- Expedite agenda to promote a thriving business environment:\n  - Restore legal certainty for large-scale investment projects.\n  - Spearhead the PPP framework, pass the road infrastructure bill, and further ease issuance of construction licenses to bolster investment.\n  - Create an export promotion agency and expedite customs procedures with El Salvador and Mexico to enhance exports potential.\n- Anticorruption:\n  - Government should reaffirm commitment to the anti-corruption agenda.\n  - Strengthen the Attorney General’s Office and judicial capacities; preserve legal and institutional progress and existing capabilities; fortify investigative and prosecutorial competences and reduce judicial backlog.\n  - Staff welcomes authorities’ plans to extend coverage of the public prosecutor’s office and to consolidate its financial independence.\n  - A preventive anticorruption strategy should strengthen procurement and the AML/CFT frameworks, reduce red tape, improve contract enforcement, and increase transparency of tax exemptions."
    },
    {
      "heading": "Financial inclusion and FinTech",
      "content": "- Build on a sound financial system by promoting financial inclusion:\n  - Operationalize the 2016 microfinance law.\n  - Set in motion simplified bank accounts and credit bureaus.\n  - Create an interinstitutional Commission to coordinate implementation of a National Strategy for Financial Inclusion to promote FinTech solutions.\n  - Authorities’ intention to explore regulatory responses via a sandbox approach that balances technological innovation with financial stability is welcome."
    },
    {
      "heading": "Selected Economic and Social Indicators (as presented)",
      "content": "- I. Social and Demographic Indicators\n  - Population 2018 (millions): 17\n  - Gini index (2014): 49\n  - Percentage of indigenous population (2016): 41\n  - Life expectancy at birth (2017): 74\n  - Population below the poverty line (Percent, 2014): 59\n  - Adult illiteracy rate (2017): 19\n  - Rank in UNDP development index (2017; of 189): 127\n  - GDP per capita (US$, 2017): 4,470\n- II. Economic Indicators — Key table excerpts (annual percent change, unless otherwise indicated)\n  - Real GDP: 2015: 4.1; 2016: 3.1; 2017: 2.8; 2018: 3.4; 2019 (proj): 3.5\n  - Consumer prices (end of period): 2015: 4.2; 2016: 5.7; 2017: 2.3; 2018: 3.8\n  - M2: 2015: 9.4; 2016: 6.6; 2017: 8.4; 2018: 6.9; 2019 (proj): 7.7\n  - Credit to the private sector: 2015: 12.8; 2016: 5.9; 2017: 7.0\n- Saving and Investment (percent of GDP)\n  - Gross domestic investment: 2015: 14.0; 2016: 13.3; 2017: 11.8; 2018: 12.0\n  - Private sector investment: 2015: 12.3; 2016: 11.7; 2017: 11.0; 2018: 10.9; 2019 (proj): 10.8\n  - Public sector investment: 2015: 1.3; 2016: 1.2; 2017: 1.1; 2018: 1.0\n  - Gross national saving: 2015: 13.8; 2016: 14.8; 2017: 13.4; 2018: 12.6; 2019 (proj): 13.7; 2020 (proj): 14.5; 2021 (proj): 13.6\n  - External saving: 2015: 0.1; 2016: 0.3; 2017: 0.0; 2018: -0.5; 2019 (proj): -0.9; 2020 (proj): -1.1\n- External sector (percent of GDP)\n  - Current account balance: 2015: -0.2; 2016: 1.5; 2017: 1.6; 2018: 0.8; 2019 (proj): 0.6; 2020 (proj): 0.1\n  - Trade balance (goods): 2015: -8.7; 2016: -7.6; 2017: -7.9; 2018: -9.3; 2019 (proj): -10.0; 2020 (proj): -10.2\n  - Exports (percent of GDP): 2015: 17.0; 2016: 15.4; 2017: 14.7; 2018: 14.1; 2019 (proj): 13.9\n  - Imports (percent of GDP): 2015: 25.7; 2016: 23.0; 2017: 22.6; 2018: 23.4; 2019 (proj): 23.8\n  - Of which: remittances (percent of GDP): 2015: 10.7; 2016: 13.2\n- Net International Reserves\n  - Stock in months of next-year NFGS imports: 4.5; 4.9; 5.8; 6.1; 5.4\n  - Stock over short-term debt on residual maturity: 1.8; 2.1; 2.4; 2.2; 2019 (proj): 2.?\n- Public finances (central government; percent of GDP)\n  - Revenues: 10.4; 10.5\n  - Expenditures: 12.1; 12.9\n  - Current: 10.0; 9.9\n  - Capital: 2.5; 2.7\n  - Primary balance: 0.4\n  - Overall balance: -1.4; -1.8; -2.2; -2.4\n  - Financing of the central government balance: 1.4\n  - Net domestic financing: 1.7\n  - Of which: use of government deposits: -0.1\n  - Central Government Debt: 24.2; 24.0; 24.7; 25.4; 26.0\n  - External: 11.6; 11.5\n  - Domestic 1/: 12.5; 13.0; 15.9\n- Memorandum items:\n  - GDP (US$ billions): 63.8; 68.7; 75.6; 78.4; 80.7; 85.6\n\nSource: IMF Executive Board Concludes 2019 Article IV Consultation with Guatemala (Press Release No. 19/222), June 17, 2019.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Guatemala and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/06/17/pr19222-guatemala-imf-executive-board-concludes-2019-article-iv-consultation"
    }
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    "Published: June 17, 2019",
    "Growth revived since mid-2018 after three years of weaker performance, supported by strong remittances and private consumption, a positive fiscal impulse, and a turnaround in credit and investment.",
    "2018 macroeconomic outcomes:",
    "Growth:",
    "Inflation:",
    "Fiscal:",
    "Monetary:",
    "External sector:",
    "Risks:",
    "Overall assessment:",
    "Near-term:",
    "Policy stance:",
    "Reverse the decline in revenues and keep up spending execution.",
    "Raise tax collections and enhance spending efficiency to expand fiscal space; SAT should redouble efforts to fight tax evasion.",
    "Spending efficiency reforms should:",
    "As spending is scaled up, prioritize investments generating the strongest positive externalities and with highest potential for cost recovery and private sector participation.",
    "Consider a comprehensive tax reform subsequently to finance well-planned spending, given the scale of existing infrastructure and social gaps.",
    "Maintain accommodative monetary conditions as the output gap closes amid well-anchored inflation expectations.",
    "Over the medium term, normalization should be gradual and data-dependent as the economy reaches potential (2021 by staff estimates).",
    "Enhancements to inflation targeting could be considered to strengthen monetary transmission:",
    "Expedite agenda to promote a thriving business environment:",
    "Anticorruption:",
    "Build on a sound financial system by promoting financial inclusion:",
    "I. Social and Demographic Indicators",
    "II. Economic Indicators — Key table excerpts (annual percent change, unless otherwise indicated)",
    "Saving and Investment (percent of GDP)",
    "External sector (percent of GDP)",
    "Net International Reserves",
    "Public finances (central government; percent of GDP)",
    "Memorandum items:",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[Guatemala and the IMF](http://www.imf.org/external/country/GTM/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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