{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Guatemala",
  "publication": "IMF News, August 2, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/08/02/pr24301-imf-concludes-2024-article-iv-consultation-with-guatemala",
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  "summary": "Guatemala has continued to maintain its solid track record of macroeconomic policies, with economic growth moderating to an estimated 3.5 percent in 2023 (4.2 percent in 2022) and CPI inflation and inflationary pressures decelerating from a 9.9 percent peak year-on-year in February 2023 to 3.",
  "publishDate": "2024-08-02",
  "sections": [
    {
      "heading": "Recent developments and baseline projections",
      "content": "- Economic growth moderated to an estimated 3.5 percent in 2023 (4.2 percent in 2022).\n- CPI inflation decelerated from a 9.9 percent peak year-on-year in February 2023 to 3.6 percent in June 2024, within the monetary policy target (4 percent +/- 1 percentage point).\n- Central government's primary fiscal balance closed in surplus in 2023; overall deficit was at 1.3 percent of GDP, below the three percent deficit approved under the amended 2023 budget.\n- Current account surplus widened to 3.1 percent of GDP in 2023, driven by large remittances and an improved trade balance, despite lower exports and imports.\n- Baseline scenario (assuming higher capital spending is approved):\n  - Projected growth of 3.5 percent in 2024 and gradually attaining 3.8 percent in the medium term.\n  - Inflation expected to remain within the target.\n  - Budget to close with a primary fiscal surplus in 2024, but with an overall deficit of two percent from 2025 onwards.\n  - Current account surplus expected to narrow gradually over time due to higher government spending, large—although decelerating—remittance inflows and strong imports.\n  - International reserves expected to remain solid in the near term."
    },
    {
      "heading": "Executive Board assessment and macroeconomic stability",
      "content": "- The Guatemalan economy shows stability and soundness: inflation on target, ample international reserves, contained fiscal deficits, and a low public debt-to-GDP ratio.\n- Implementation of urgent reforms in infrastructure, human capital investment, and governance is necessary to support productive sectors and secure higher sustained and inclusive growth.\n- Slowing exports and limited foreign investment underscore the urgency of reforms.\n- The administration’s structural reform agenda, if successfully executed, could boost potential growth well above the staff’s baseline scenario."
    },
    {
      "heading": "Key risks",
      "content": "- Risks to outlook remain with a downside skew.\n- Dependence on remittances conditions robustness of private consumption to the U.S. Hispanic labor market; greater impact on the most vulnerable population.\n- Other risks: lack of progress on the economic agenda (growth below potential and possible resurgence of social unrest), increased volatility in commodity prices, natural disasters, and major cyber-attacks.\n- Under a reform fiscal policy scenario, consistency in monetary, exchange rate, and fiscal policies will be particularly important."
    },
    {
      "heading": "Fiscal policy, public finances, and debt",
      "content": "- Guatemala needs to boost revenue while bolstering the quantity and quality of spending to meet hefty investment needs (infrastructure, education, health, malnutrition).\n- Tax revenues remain among the lowest in the world; a structural increase in tax collection requires a comprehensive tax reform and better spending.\n- Recommended fiscal stance:\n  - Support temporary up-to three percent fiscal deficits, anchored in a two percent deficit over the medium-term.\n  - Higher spending and temporarily larger fiscal deficits should be accompanied by a medium-term multi-year agenda of strategic transformation projects with clear timelines, greater transparency, efficiency, and quality of spending.\n- With domestic financing costs rising, mission recommended developing the domestic capital market (developing the secondary debt market and yield curve and communicating with investors).\n- Public finances (selected figures from table):\n  - Revenues: 10.7, 12.3, 12.6, 12.8 (percent of GDP across years shown).\n  - Expenditures: 15.6, 13.7, 13.8, 14.5, 14.8 (percent of GDP across years shown).\n  - Primary balance: -3.2, 0.4 (percent of GDP across years shown).\n  - Overall balance: -4.9, -1.2, -2.0 (percent of GDP across years shown).\n  - Central Government Debt: 31.5, 30.6, 29.0, 27.2, 26.8, 27.0, 27.3, 27.4 (percent of GDP across years shown).\n  - GDP (US$ billions): 77.7, 86.5, 95.6, 104.4, 111.8, 120.0, 128.7, 138.3, 148.5, 159.5 (across years shown)."
    },
    {
      "heading": "Monetary, exchange rate, and financial sector recommendations",
      "content": "- Monetary policy:\n  - Changes in the leading interest policy rate should continue to be data-driven.\n  - Banguat should move forward with reforms to strengthen monetary policy transmission mechanisms and the interbank market to improve the effectiveness of the policy rate and liquidity management.\n  - Continued development of FX and hedging, debt, and financial markets to allow private sector market-risk and climate-risk management.\n  - Advocate for a solvent Central Bank capable of conducting monetary liquidity management, maintaining price stability, and confronting future challenges.\n- Financial sector:\n  - Banking sector remains liquid and profitable and shows resilience to shocks, but close monitoring of vulnerability build-up is warranted.\n  - Support for approval and implementation of credit regulations of the Superintendency of Banks.\n  - Urgent need for approval of a new banking law (updating the 2002 Law on Banks and Financial Groups) aligned with international standards for regulatory, supervisory, and crisis management practices.\n  - Improve communication with markets through publication of risk assessments and bank balance sheets using international accounting standards."
    },
    {
      "heading": "Structural reform priorities (actions recommended)",
      "content": "- Pass sound legislation:\n  - A good competition law that includes investment aspects.\n  - Infrastructure and ports laws.\n  - Revision of the Public Private Partnerships (PPP) and Free Trade Zone laws.\n  - Civil servants and procurement reforms.\n  - Improve internal practices and structures in the legislation process (e.g., review of draft legal texts by specialized teams and unification of criteria in application of legislation in court).\n- Improve competitiveness:\n  - Active policy in favor of the formal labor market, greater digitalization and innovation, and a clear gender strategy.\n  - Implementation of the goals established in the 2024-27 financial inclusion strategy to help reduce social gaps.\n- Strengthen governance:\n  - Publication of a national anti-corruption plan and medium-term strategy to combat impunity with a timetable and measurement indicators.\n  - Approval of legislation aligning Guatemala's anti-money laundering law with Financial Action Task Force (GAFI/FATF) standards is urgent given the evaluation based on effective compliance of the Law by 2027."
    },
    {
      "heading": "Selected economic and social indicators (exact values as reported)",
      "content": "- Population 2023 (millions): 17.6\n- Gini index (2014): 48.3\n- Percentage of indigenous population (2018): 43.8\n- Life expectancy at birth (2021): 68.7\n- Population below the poverty line (Percent, 2023): 55.1\n- Adult illiteracy rate (2022): 16.0\n- Rank in UNDP development index (2022; of 189): 136\n- GDP per capita (US$, 2023): 5,933\n\n- Income and prices (annual percent change, selected):\n  - Real GDP: -1.8 (2020), 8.0 (2021), 4.2 (2022), 3.5 (2023), 3.6 (2024), 3.7 (2025), 3.8 (2026)\n  - Consumer prices (average): 3.2 (2020), 4.3 (2021), 6.9 (2022), 6.2 (2023), 4.0 (2024)\n  - Consumer prices (end of period): 4.8 (2020), 3.1 (2021), 9.2 (2022)\n\n- Monetary sector:\n  - M2: 18.9 (2020), 11.6 (2021), 11.1 (2022), 6.8 (2023), 8.9 (2024), 8.1 (2025), 8.2 (2026)\n  - Credit to the private sector: 6.4 (2020), 12.7 (2021), 15.8 (2022), 14.9 (2023), 12.0 (2024), 10.0 (2025), 8.5 (2026)\n\n- Saving and investment (percent of GDP, selected):\n  - Gross domestic investment: 13.5 (2020), 16.8 (2021), 16.5 (2022), 16.4 (2023), 16.3 (2024), 16.6 (2025), 16.7 (2026), 16.9 (2027), 17.0 (2028)\n  - Private sector investment: 12.4 (2020), 14.6 (2021), 15.1 (2022), 14.7 (2023), 15.0 (2024), 15.2 (2025)\n  - Public sector investment: 1.3 (2020), 1.5 (2021), 1.7 (2022), 1.8 (2023)\n\n- External sector (selected):\n  - Current account balance: 5.0 (2020), 2.2 (2021), 2.8 (2022), 2.3 (2023), 1.9 (2024), 0.9 (2025), 0.5 (2026), 0.0 (2027)\n  - Trade balance (goods): -8.1 (2020), -12.6 (2021), -14.9 (2022), -13.7 (2023), -14.1 (2024), -14.3 (2025), -14.4 (2026), -14.7 (2027), -14.6 (2028)\n  - Exports: 13.0 (2020), 14.3 (2021), 12.5 (2022), 11.2 (2023), 10.8 (2024), 10.5 (2025), 10.2 (2026)\n  - Imports: 21.2 (2020), 26.9 (2021), 29.8 (2022), 26.2 (2023), 26.1 (2024), 25.8 (2025), 25.5 (2026), 25.2 (2027), 24.8 (2028)\n  - Other (net) / of which: remittances: 16.2, 18.2, 18.3, 18.0 / 17.7, 19.4, 19.2, 19.2 (values as presented)\n  - Financial and capital accounts balance (Net lending (+)): 1.6, 0.8, 2.5 (selected)\n  - of which: FDI (net): -1.0, -3.5, -0.7, -0.8, -1.1\n\n- Net International Reserves (Stock in months of next-year NFGS imports): 7.6 (value shown)\n- Public finances (central government, percent of GDP, selected):\n  - Current: 11.8, 11.9 (values shown)\n  - Capital: 3.0, 2.4, 2.6, 2.9 (values shown)\n- Memorandum items:\n  - Volume of exports and services (annual percentage change): -7.5, 7.5, 3.4 (selected)\n  - Volume of imports and services (annual percentage change): -5.8, 19.5, 5.9, 6.0, 5.4, 5.3, 4.7 (values shown)\n  - Output gap (% of GDP): -3.3, 0.1 (values shown)"
    },
    {
      "heading": "Procedural note",
      "content": "- The Executive Board concluded the Article IV consultation and endorsed the staff appraisal without a meeting on a lapse-of-time basis, meeting the Executive Board criteria for lapse-of-time consideration.\n\nPress Release No. 24/301 — August 2, 2024, IMF Communications Department.\n\n---\n\n\n References\n\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/2024/08/02/pr24301-imf-concludes-2024-article-iv-consultation-with-guatemala"
    }
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    "Published: August 2, 2024",
    "Economic growth moderated to an estimated 3.5 percent in 2023 (4.2 percent in 2022).",
    "CPI inflation decelerated from a 9.9 percent peak year-on-year in February 2023 to 3.6 percent in June 2024, within the monetary policy target (4 percent +/- 1 percentage point).",
    "Central government's primary fiscal balance closed in surplus in 2023; overall deficit was at 1.3 percent of GDP, below the three percent deficit approved under the amended 2023 budget.",
    "Current account surplus widened to 3.1 percent of GDP in 2023, driven by large remittances and an improved trade balance, despite lower exports and imports.",
    "Baseline scenario (assuming higher capital spending is approved):",
    "The Guatemalan economy shows stability and soundness: inflation on target, ample international reserves, contained fiscal deficits, and a low public debt-to-GDP ratio.",
    "Implementation of urgent reforms in infrastructure, human capital investment, and governance is necessary to support productive sectors and secure higher sustained and inclusive growth.",
    "Slowing exports and limited foreign investment underscore the urgency of reforms.",
    "The administration’s structural reform agenda, if successfully executed, could boost potential growth well above the staff’s baseline scenario.",
    "Risks to outlook remain with a downside skew.",
    "Dependence on remittances conditions robustness of private consumption to the U.S. Hispanic labor market; greater impact on the most vulnerable population.",
    "Other risks: lack of progress on the economic agenda (growth below potential and possible resurgence of social unrest), increased volatility in commodity prices, natural disasters, and major cyber-attacks.",
    "Under a reform fiscal policy scenario, consistency in monetary, exchange rate, and fiscal policies will be particularly important.",
    "Guatemala needs to boost revenue while bolstering the quantity and quality of spending to meet hefty investment needs (infrastructure, education, health, malnutrition).",
    "Tax revenues remain among the lowest in the world; a structural increase in tax collection requires a comprehensive tax reform and better spending.",
    "Recommended fiscal stance:",
    "With domestic financing costs rising, mission recommended developing the domestic capital market (developing the secondary debt market and yield curve and communicating with investors).",
    "Public finances (selected figures from table):",
    "Monetary policy:",
    "Financial sector:",
    "Pass sound legislation:",
    "Improve competitiveness:",
    "Strengthen governance:",
    "Population 2023 (millions): 17.6",
    "Gini index (2014): 48.3",
    "Percentage of indigenous population (2018): 43.8",
    "Life expectancy at birth (2021): 68.7",
    "Population below the poverty line (Percent, 2023): 55.1",
    "Adult illiteracy rate (2022): 16.0",
    "Rank in UNDP development index (2022; of 189): 136",
    "GDP per capita (US$, 2023): 5,933",
    "Income and prices (annual percent change, selected):",
    "Monetary sector:",
    "Saving and investment (percent of GDP, selected):",
    "External sector (selected):",
    "Net International Reserves (Stock in months of next-year NFGS imports): 7.6 (value shown)",
    "Public finances (central government, percent of GDP, selected):",
    "Memorandum items:",
    "The Executive Board concluded the Article IV consultation and endorsed the staff appraisal without a meeting on a lapse-of-time basis, meeting the Executive Board criteria for lapse-of-time consideration.",
    "[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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