IMF Staff Concludes Visit to Guatemala

IMF News, October 8, 2019

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Mission led by Esther Pérez Ruiz visited Guatemala from October 1 to 8, 2019.
Staff reviewed recent economic developments and discussed the macroeconomic outlook, policies, and reform agenda priorities.
Discussions held with the Bank of Guatemala, the Ministry of Finance, the Superintendence of Banks, and other public and private sector representatives.
During the presidential transition period, the mission engaged with President-elect Alejandro Giammattei and members of his economic team.
Press contact: IMF Communications Department, MEDIA RELATIONS, PRESS OFFICER: Maria Candia Romano, Phone: +1 202 623-7100Email: MEDIA@IMF.org

Economic growth is keeping its momentum so far.
The short-term outlook remains unchanged relative to the 2019 Article IV Consultation.
Growth projections:
- 2019: 3.4 percent
- 2020: 3½ percent (driven by exports recovery and a positive fiscal impulse)
Support to domestic demand noted from robust remittances and construction sector dynamism.

External risks:
- Further downgrade in global growth.
- An upscaled inflow of Central-American migrants to Guatemala.
Domestic risks:
- Lagged implementation of the economic agenda.
- Protracted judicial uncertainty weighing on investment.
- Possible undermining of anti-corruption efforts.
- A further decline in tax collections could compromise financing of social and infrastructure spending and impair growth potential.
Downside risks have increased due to the worsening external environment.

General stance:
- Monetary and fiscal policy support to demand is appropriate and should be safeguarded into the near term.
Monetary policy:
- Should remain accommodative amid well-anchored inflation expectations.
Fiscal policy:
- Should be geared towards macroeconomic stability and growth.
- Spending-side guidance: keep up execution momentum with a focus on capital over current expenditure.
- Revenue-side guidance: reversing the decline in tax collections is paramount to create fiscal space for social and infrastructure spending, consistent with the Sustainable Development Goals agenda.
- Strengthen tax controls and operationalize risk-based auditing to encourage tax compliance and allow for proper tax credit refunds.
- Avoid tax amnesties and special tax regimes (such as the Law of Fiscal Simplification, Decree No.7-2019) because they undermine tax morale.

Forge a national consensus to implement wide-ranging structural reforms to lift potential growth and living standards.
Infrastructure and public-private partnerships:
- Swift approval of the portfolio of public-private partnership projects to close infrastructure gaps.
- Budgetary programming for 2020 should be consistent with a strategy that mobilizes resources from the private sector efficiently.
Legislative and institutional priorities:
- Expedite the legislative agenda to bolster formal employment, transportation infrastructure, productivity, and exports.
- Priorities include adoption of a government-sponsored exports and investment promotion agency, swift alignment of national legislation with ILO Convention 169, and passage of the infrastructure, leasing and insolvency laws.
- Fiscal reforms in public procurement and civil service, and performance-based budgeting are key to more efficient use of public resources and to improve tax morale.
- Financial sector modernization requires approval of the bill on banks and financial groups, the AML/CFT bill, the securities market law, and the credit card law.

The mission welcomes the new administration’s commitment to anti-corruption efforts and looks forward to rollout of concrete policy initiatives.
Near-term focus should be on sustaining prior legal and institutional progress in anti-corruption efforts.

The mission notes that upon the inauguration of Mr. Alejandro Giammattei in January 2020, the new government should gather support for public sector and business climate reforms and meaningfully raise tax collections.
The next Article IV mission is scheduled to take place in the first half of 2020.

IMF staff statement issued at the end of the visit.