Guatemala: Staff Concluding Statement of the 2023 Article IV Mission
IMF News, March 14, 2023
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- Published: March 14, 2023
Macro overview and recent performance
- The Guatemalan economy continued to show resilience in 2022, "with growth exceeding its potential."
- Macroeconomic and financial stability was preserved despite an unfavorable global context—trading partners’ growth slowing down, prices surging, and global monetary conditions tightening.
- Large remittance inflows and vibrant bank credit to the private sector supported solid private consumption.
- Large levels of international reserves persist.
- Stability attributed to prudent monetary and fiscal policies.
Inflation and monetary policy
- Inflationary pressures continued to add complexity to the policy mix; initially driven by external factors, but "second round-effects and demand and supply pressures have been gaining ground."
- The Bank of Guatemala policy rate increases have anchored medium-term expectations.
- Mission recommendations to support monetary policy effectiveness:
- Further strengthen operationalization of the inflation targeting framework and ensure swift action to accelerate the pro-growth structural agenda.
- Gradual transfer of market risk management to the private sector to support the foreign exchange rate’s role as a shock absorber.
- Recapitalization of the Bank of Guatemala and development of hedging tools for the private sector to manage foreign exchange volatility.
- Technical measures related to the monetary and operational framework to improve effectiveness of monetary policy.
Growth outlook and risks
- Projections (Annual percentage change, unless otherwise specified):
- Real GDP: 2020 -1.8; 2021 8.0; 2022 4.0; 2023 3.4; 2024 3.5; 2025 3.6; 2026 3.7; 2027 3.8; 2028 3.9.
- Consumer prices (average): 2020 3.2; 2021 4.3; 2022 6.9; 2023 7.4; 2024 5.5; 2025 4.4.
- Consumer prices (end of period): 2020 4.8; 2021 3.1; 2022 9.2; 2023 6.4; 2024 5.0.
- M2: 2021 18.9; 2022 11.6; 2023 11.3; 2024 8.5; 2025 7.6; 2026 7.3.
- Credit to the private sector: 2021 12.7; 2022 16.0; 2023 14.0; 2024 7.0; 2025 7.5.
- Outlook remains broadly positive but downside risks include:
- A sharper U.S. economic slowdown, particularly U.S. labor market weakness, which could reduce remittance inflows.
- De-anchoring of inflation expectations.
- Natural disasters.
- High commodity price volatility.
- Remittances have been a dominant component of external inflows and a critical buffer; a significant decline would materially affect the most vulnerable and require policy responses.
Public finances, revenue, and investment agenda
- Tax administration reforms in 2022 (customs, tax administration enforcement, and digitalization) produced an estimated tax collection outturn of 12.1 percent of GDP.
- Fiscal indicators and projections (Percent of GDP, unless otherwise specified):
- Gross domestic investment: 2020 12.8; 2021 17.9; 2022 14.1; 2023 13.8; 2024 14.2; 2025 14.4; 2026 14.7.
- Private sector investment: 2020 12.2; 2021 15.7; 2022 13.0; 2023 13.2; 2024 13.5.
- Public sector investment: 2020 1.3; 2021 1.0; 2022 1.1; 2023 1.2.
- Gross national saving: 2020 17.7; 2021 20.4; 2022 15.4; 2023 15.6; 2024 15.3; 2025 15.1.
- External saving: 2020 20.2; 2021 19.8; 2022 16.1; 2023 15.8; 2024 -2.4; 2025 0.6; 2026 -0.1; 2027 -0.2; 2028 -0.3.
- Current account balance: 2020 4.9; 2021 2.5; 2022 1.8; 2023 1.9; 2024 1.6; 2025 1.4; 2026 0.9; 2027 0.4.
- Trade balance (goods): 2020 -8.1; 2021 -12.6; 2022 -14.8; 2023 -13.8; 2024 -13.6; 2025 -13.1; 2026 -12.8; 2027 -12.5.
- Exports: 2020 14.3; 2021 13.3; 2022 12.3; 2023 11.8; 2024 11.4.
- Imports: 2020 21.2; 2021 26.8; 2022 30.0; 2023 28.1; 2024 26.9; 2025 25.9; 2026 25.1; 2027 24.4; 2028 23.9.
- Remittances (Of which): 2020 17.6; 2021 19.2; 2022 18.4; 2023 17.4; 2024 16.8; 2025 15.2.
- Change in reserve assets (Increase (+)): 4.1; 0.5; 0.8; 0.7.
- Central government finances (Percent of GDP unless otherwise specified):
- Revenues: 10.7; 12.1; 12.0; 11.9.
- Expenditures (current): 13.9; 12.6; 11.0; 11.5; 11.2; 11.1.
- Capital: 3.0; 2.4; 2.6; 2.7.
- Primary balance: -3.2.
- Overall balance: -1.7; -2.0.
- Financing of the central government balance: 1.7; 2.0.
- Net external financing: 0.3.
- Net domestic financing: 1.5.
- Central government debt and composition (Percent of GDP):
- Total debt: 31.5; 30.4; 30.1; 28.6; 27.9; 27.7; 27.6; 27.5.
- External: 12.9; 12.4; 10.8.
- Domestic1: 18.0; 17.1; 15.9; 16.2; 16.4; 16.7.
- Memorandum: GDP (US$ billions): 77.6; 87.0; 93.7; 102.3; 111.0; 119.5; 128.2; 137.7; 148.0.
- Output gap (% of GDP): -3.1; 0.1.
- Note: 1 Does not include recapitalization of obligations to the central bank.
- Policy recommendations for public finances and investment:
- Build on tax administration gains to increase revenue-to-GDP, including understanding factors limiting VAT collection and streamlining tax exemptions.
- Develop the bases for a comprehensive fiscal reform within a medium-term, multi-year, pro-growth fiscal budget.
- Strengthen medium-term planning and link national, subnational, and sectoral planning.
- Make the budget flexible to allow a multi-year infrastructure investment agenda consistent with medium-term targets.
- Simplify project appraisal and procurement in line with project size; improve portfolio management with clear timelines and specific delivery targets to fast-track projects.
- Streamline procedures around PPP investments.
- Implement PIMA/C-PIMA (starting late May 2023) to identify gaps in investment governance and increase high-quality investments.
Financial sector resilience and reforms
- The banking sector has proven resilient; limiting factors include an underdeveloped inter-bank market and high levels of informality.
- The launch of a new digital bank is a positive development.
- Mission advice:
- Pass the 2002 Banking Law and Financial Groups reform to align regulatory and supervisory practices with international standards and equip authorities with updated monitoring tools.
- Publish the Financial Stability Report to communicate with market participants.
- Encourage banks to disclose balance sheets and financial statements using international accounting standards to lower borrowing costs abroad.
- Deepening financial sector recommended, with the insurance sector playing a role in managing climate-related risks and promoting sustainable, climate-resilient investments.
Structural reforms, governance, and investment climate
- Guatemala is at a critical juncture; strong fundamentals stem from a long record of prudent policies.
- Recent legal and regulatory advances cited: approval of leasing and insolvency laws, law to simplify requirements and administrative procedures, law encouraging foreign investment.
- Urgent approvals needed: draft laws on civil service reform and infrastructure.
- To reach a higher potential growth path the mission recommends:
- Continue measures to expand the formal labor market, strengthen productivity, and attract investment by widening access to technology and innovation, investing in human capital, and reducing regulatory uncertainty.
- Scale up efforts to improve governance and legal certainty and guarantee responsible and independent anti-corruption institutions to enhance the business climate and attract investment.
- Approve legislation on Anti-Money Laundering and combating the financing of terrorism to bring Guatemala in line with international standards and ensure effective implementation.
Final mission note
- The mission thanked the Guatemalan authorities for their cooperation and frank discussions throughout the visit.
Source: IMF staff concluding statement of the 2023 Article IV mission to Guatemala.