This paper examines Guatemala’s Request for a Stand-By Arrangement (SBA). The authorities are requesting a 12-month SBA in an amount equivalent to SDR 84 million (40 percent of quota) to support an economic program aimed at reducing the fiscal deficit and restructuring the financial system, while sustaining higher outlays on social and basic infrastructure as called for by the Peace Accords. The program assumes an acceleration of real GDP growth to 2.25 percent and a reduction in inflation to a 4–6 percent range.
April 1, 2002
1. Guatemala has complied with all the prior actions under the program. Also, the following information has become available since the staff report (EBS/02/49) was circulated to Executive Directors. It does not change the thrust of the staff appraisal.
2. The central government position was in balance during January-February 2002 as compared with a deficit of 3 percent of GDP on an annual basis a year earlier. Central government revenue rose to 10% percent of GDP (9 percent of GDP during the similar period of 2001) reflecting the tax and tax enforcement measures introduced in August 2001. Government’s expenditure fell to 10¾ percent of GDP (12¼ percent of GDP during the similar period of 2001) mostly reflecting a cut by half of defense expenditure while social spending rose slightly.
3. Net international reserves fell slightly to US$2.2 billion during the first quarter of 2002 reflecting amortization of short-term debt as envisaged in the program. Preliminary data for end-March suggest that Guatemala complied with the indicative targets on both the stock of net international reserves and net domestic assets of the central bank.
4. In early March 2002 the government reached a political agreement with the main opposition parties on a congressional agenda, which includes approval of the remaining financial sector laws and laws on probity, the role of the comptroller general and government procurement by mid-May 2002. In addition, the minister of finance had informed the staff that the commission in charge of following up the Peace Accords has endorsed the postponement of the deadline to achieve the tax ratio of 12 percent of GDP from 2002 to 2004.