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International Monetary Fund. Western Hemisphere Dept.

KEY ISSUESContext. Guatemala’s economy has performed solidly since the 2008–09 crisis. Output has converged to potential, inflation is under control, and macroeconomic policies remain prudent. However, risks to the outlook are tilted downwards, while buffers are modest and space for counter-cyclical policies is thin. Long-term inclusive growth is constrained by low investment in physical and human capital, institutional weaknesses, and lack of security.Near-term policies are broadly appropriate. With the output gap closed, the broadly neutral fiscal stance is adequate. The monetary stance is slightly expansionary, but inflation is at the bottom of the target range. The authorities should stand ready to tighten monetary policy if inflationary pressures re-emerge.Fiscal sustainability should be enhanced over the medium term. Though the debt-to- GDP ratio remains moderate, the ability to implement counter-cyclical fiscal policies is limited, not least by Guatemala’s high government debt-to-revenue ratio. Debt stabilization requires moderate tightening of the budgetary stance over the medium term. The emphasis should be on revenue mobilization, given the overall low level of spending. Consolidating gains from the 2012 tax reform, which has so far proved disappointing, will be critical.Efforts to upgrade the monetary and exchange policy framework should continue. Anchoring low and stable inflation will require measures to bolster monetary policy transmission, including by expanding exchange rate flexibility. This should provide an additional shock absorber and reduce incentives for dollarization. It would also establish the inflation target as the undisputed primary objective of the central bank.Further strengthening of the financial system is necessary. The 2014 FSAP update found that Guatemala has made significant progress in financial regulation and that the banking system appears to be generally sound. However, efforts are still needed to improve consolidated supervision and the regulation of off-shore banks. The time is also ripe for a phased move to Basel III standards.Structural reforms are vital to achieving long-term inclusive growth. Paving the way towards high, inclusive growth will depend upon raising the low tax-to-GDP ratio to supportpriority public spending, thereby addressing critical social and developmental needs.

International Monetary Fund

This 2008 Article IV Consultation highlights that Djibouti’s macroeconomic performance improved significantly, but inflation pressures are intensifying. Real GDP growth accelerated to 5.3 percent in 2007, driven mainly by foreign direct investment concentrated in the construction and port services. Executive Directors have welcomed Djibouti’s strong economic growth driven by large foreign direct investments in the port and other key sectors of the economy. Directors have also emphasized the importance of maintaining the fiscal consolidation objective, with a view to controlling inflation and creating fiscal space to finance the poverty reduction strategy.

International Monetary Fund

The staff report for Belize’s use of Fund Resources and Request for Emergency Assistance is examined. Economic growth has been sustained largely by rising oil production, while inflation has remained under control. Despite rising oil production, economic growth has been low in 2007, in part because of the impact of Hurricane Dean. The authorities are confident that the banking system is stable and adequately capitalized, and largely insulated from international market turmoil.

International Monetary Fund

This paper discusses the Union of Comoros’ 2008 Article IV Consultation and request for Emergency Post-Conflict Assistance and disbursement under the Rapid-Access Component of the Exogenous Shocks Facility. Real GDP growth has been well below the regional average, and per-capita income has steadily declined. Rising food and energy costs have worsened the external position, and the external debt burden is far above the Heavily Indebted Poor Countries threshold. To reverse the deteriorating trend, the authorities have initiated measures in 2008 to contain the fiscal deficit and begin to address macroeconomic and structural impediments to growth.

Holger Fabig and Bruno de Schaetzen

Côte d’Ivoire is set for a comeback. GDP growth should double to 3 percent in 2008 and return to a 5-6 percent path in a few years. Private sector confidence is returning as the country emerges from years of political instability that culminated in civil war in late 2002.

International Monetary Fund

This 2007 Article IV Consultation highlights that economic developments in Lebanon in 2006 were significantly affected by the July–August conflict with Israel. Real GDP is estimated to have been flat, with strong growth in the first half of the year offset by the disruptions during and after the conflict. Inflation increased, mainly reflecting supply shortages during the conflict and the ensuing blockade. Executive Directors have welcomed the authorities’ success in containing the primary fiscal deficit in the first half of 2007.


Under what conditions should grants be preferred to loans? To answer this question, we present a simple model à la Krugman (1988) and show that, for any given level of development assistance, higher concessionality is good for growth if countries are poor, have bad policies, and have high debt obligations. We then test our model by estimating a modified growth model for a panel of developing countries, and find evidence supporting most of our predictions. IMF Staff Papers (2007) 54, 139–162. doi:10.1057/palgrave.imfsp.9450002

International Monetary Fund. External Relations Dept.

In July 2005, world leaders meeting in Scotland announced a $50 billion increase in official development assistance to poor countries to help them achieve the Millennium Development Goals (MDGs) by 2015. This prospective surge in aid is focusing policymakers’ and researchers’ attention on the macroeconomic challenges associated with absorbing large aid inflows. How can aid (both official and private flows) be used as efficiently as possible so that it boosts countries’ growth and helps them achieve the MDGs?

International Monetary Fund. External Relations Dept.

With the expected doubling of aid to Africa by 2010, the continent’s policymakers will face a host of macroeconomic challenges. How recipients and their development partners can address these challenges was the focus of a workshop hosted by the IMF and the U.K. Department for International Development (DfID) in Washington April 19-20. African finance ministers, central bank governors and other officials, donors, academics, and representatives from multilateral development institutions took up seven issues that recipients of sharply increased aid are likely to deal with.