IMF Executive Board Concludes 2022 Article IV Consultation with Guatemala
IMF News, June 7, 2022
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- Published: June 7, 2022
Key findings on 2020–2021 performance and structural gaps
- The Executive Board concluded the Article IV consultation on June 6, 2022 and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- The Guatemalan economy showed "remarkable resilience" during the pandemic and nearly returned GDP to its pre-pandemic projected trend driven by unprecedented policy support, early reopening, and a favorable external environment including strong remittances.
- Real GDP growth:
- 2021: 8 percent rebound.
- 2022 projection (page text): 4 percent.
- 2023 projection (page text): converge to 3½ percent.
- Inflation and external sector in 2021:
- Inflationary pressures were contained in 2021 as temporary pandemic and climate-related factors faded.
- Current account surplus declined to 2.5 percent of GDP in 2021 due to a substantial increase in imports and weaker terms of trade despite strong remittances.
- Fiscal developments:
- The primary fiscal balance moved into surplus in 2021 largely due to better-than-expected tax revenues and significant tax administration gains.
- Financial sector:
- The banking sector remains solid overall; pandemic-related measures were appropriately phased out in 2021.
- Persistent gaps:
- Social indicators likely deteriorated during the pandemic.
- Longstanding infrastructure and social gaps remain.
Outlook, projections, and risks
- Near-term outlook:
- Growth projected at 4 percent in 2022 supported by a favorable policy mix, recovery of lagging sectors, favorable credit conditions, and resilient U.S. economy sustaining remittances.
- Growth projected to stabilize at its pre-COVID potential rate of 3½ percent by 2023.
- Inflation:
- Driven by external price pressures, inflation is projected to increase but remain within the target band (4 ± 1 percent), averaging 4.4 percent in 2022.
- Current account:
- Projected to move into deficit (around ½ percent of GDP) in response to higher import prices and slower growth in remittances.
- Downside risks highlighted:
- Highly uncertain external outlook including from the war in Ukraine.
- De-anchoring of inflation expectations in advanced economies.
- Continued global supply chain disruptions.
- Potential abrupt tightening of global financial conditions from changes in investor risk sentiment.
- Elevated and volatile commodity prices accelerating global inflation and slowing external demand.
- Social discontent from rising food and energy prices affecting the most vulnerable.
Executive Board assessment and policy guidance
- Overall assessment:
- The economy was remarkably resilient during the pandemic; near-term outlook is favorable, but long-standing social and infrastructure gaps remain.
- Fiscal policy:
- The fiscal stance in 2022—including temporary measures to mitigate higher import prices and an increase in the infrastructure budget—are appropriate.
- If economic conditions worsen, authorities should consider temporarily redeploying some targeted 2020 social measures.
- Accelerating efforts to address social gaps is crucial while maintaining fiscal sustainability.
- Recommendations to create fiscal space: increase tax revenues further and improve spending efficiency; SAT should build upon recent tax administration improvements.
- Spending reforms recommended: increase budget flexibility, bolster procurement cost-effectiveness, improve coverage and quality of public services, and rationalize tax incentives and exemptions.
- Consider exploring additional upgrades to the medium-term fiscal framework such as multi-annual budget planning and formalization of an explicit fiscal anchor.
- Monetary and exchange rate policy:
- Monetary policy normalization must be carefully calibrated amid tighter global financial conditions and remain data driven to maintain inflation expectations anchored.
- A clear and consistent communication strategy is recommended to guide market expectations.
- Greater exchange rate flexibility can help absorb external shocks.
- Financial supervision and regulatory framework:
- The SIB should continue to closely monitor nonperforming loans and potential financial stability risks, including those from tighter global financial conditions.
- Reforms to improve the supervisory and regulatory framework should be expedited.
- Pending legislation: Banking and Financial Groups and AML/CFT laws (align with Basel III and FATF standards) are pending Congress approval.
- Support for speedy implementation of legal framework for Fintech and e-money; welcome adoption of the new Securities Market Law to support market development and strengthen supervision.
- Structural reforms to boost investment and inclusion:
- Passage of law to facilitate insolvency procedures should promote firm creation.
- Construction Single Window to ease issuance of construction licenses, efforts to boost affordable housing, and streamlining the PPP framework should bolster private investment.
- Formalizing part-time work could help lift formalization.
- Staff encourage expedited implementation of the 2020-2024 General Policy of the Government and the Guatemala No Se Detiene Plan to improve business climate and security.
- Governance and anti-corruption: reforms improving judiciary and legislative environment, including strengthening the Attorney General’s Office, remain important.
- Broad-based transparency and digitalization efforts across public administration are welcomed; a results-based approach is recommended to translate efforts into sustainable outcomes.
Selected economic and social indicators (Table 1: selected series)
- Income and Prices (annual percent change, unless otherwise indicated):
- Real GDP: 2018: 3.4; 2019: 4.0; 2020: -1.8; 2021: 8.0; 2022 (projection column in table): 3.6.
- Consumer prices (average): 2018: 3.8; 2019: 3.7; 2020: 3.2; 2021: 4.3; 2022 (table): 4.4.
- Consumer prices (end of period): 2018: 2.3; 2019: 4.8; 2020: 3.1; 2021: 4.5.
- Monetary Sector:
- M2: 2018: 9.4; 2019: 9.6; 2020: 18.9; 2021: 11.6; 2022 (table): 7.1; 2023 (table): 7.5.
- Credit to the private sector: 2018: 7.0; 2019: 4.9; 2020: 6.4; 2021: 12.7; 2022 (table): 6.9; 2023 (table): 7.2.
- Saving and Investment (in percent of GDP, unless otherwise indicated):
- Gross domestic investment: 2018: 13.8; 2019: 14.3; 2020: 13.3; 2021: 17.0; 2022 (table): 16.2; 2023 (table): 15.1.
- Private sector investment: 2018: 12.2; 2019: 12.4; 2020: 14.7; 2021: 15.0; 2022 (table): 14.0.
- Public sector investment: 2018: 1.5; 2019: 1.9; 2020: 1.3; 2021: 1.0; 2022 (table): 1.2; 2023 (table): 1.1.
- Gross national saving: 2018: 16.7; 2019: 18.2; 2020: 19.5; 2021: 15.8; 2022 (table): 15.7; 2023 (table): 14.9.
- External Sector:
- Current account balance (in percent of GDP): 2018: 0.9; 2019: 2.4; 2020: 2.5; 2021: 0.6; 2022 (table): -0.6.
- Trade balance (goods) (in percent of GDP): 2018: -10.9; 2019: -10.3; 2020: -8.1; 2021: -12.7; 2022 (table): -14.8; 2023 (table): -13.9.
- Exports (in percent of GDP): 2018: 13.2; 2019: 12.9; 2020: 13.0; 2021: 14.4; 2022 (table): 15.4; 2023 (table): 15.4.
- Imports (in percent of GDP): 2018: 24.0; 2019: 23.2; 2020: 21.2; 2021: 27.1; 2022 (table): 30.1; 2023 (table): 28.6.
- Remittances (part of "Other (net)" / listed series): 2018: 13.6; 2019: 14.6; 2020: 17.8; 2021: 16.9.
- Public Finances (Central Government, in percent of GDP unless otherwise indicated):
- Revenues: 2018: 11.3; 2019: 11.2; 2020: 10.7; 2021: 12.3; 2022 (table): 12.0.
- Expenditures (current and capital split noted in table): Current (2018 itemization present) and Capital: capital: 2018: 2.6; 2019: 2.7; 2020: 3.0.
- Primary balance: 2018: -3.2.
- Overall balance (central government): 2018: -1.9; 2019: -2.2; 2020: -1.2; 2021: -2.3; 2022 (table): -2.0.
- Central Government Debt: 2018: 26.4; 2019: 31.5; 2020: 30.8; 2021: 30.5.
- Memorandum items:
- GDP (US$ billions): 2018: 73.3; 2019: 77.2; 2020: 77.6; 2021: 86.0; 2022 (table): 91.3; 2023 (table): 96.3.
IMF Press Release No. 22/186 — IMF Executive Board Concludes 2022 Article IV Consultation with Guatemala (June 7, 2022).