The Executive Board of the International Monetary Fund (IMF) on June 16 concluded the third review of Guatemala’s economic performance under a program supported by an 18-month Stand-By Arrangement (SBA). The Guatemalan authorities intend to continue treating the arrangement as precautionary.
The arrangement, in the amount equivalent to SDR 630.6 million (about US$927.2 million) was approved on April 22, 2009 (see Press Release No. 09/142). With completion of the review, a total equivalent to SDR 588.6 million (about US$865.4 million) is available for drawing.
Following the Executive Board’s discussion on Guatemala, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:
“Guatemala’s economic recovery is firming up. The authorities’ strong policy response to the global crisis, supported by a Stand-By Arrangement with the Fund, has provided a solid foundation for the recovery. With a more benign global outlook, real GDP growth is expected to exceed 2 percent in 2010, which is significantly higher than envisaged in the previous review. Downside risks to the outlook have declined further and stem mainly from a slower recovery in the United States and a sharper rise in oil prices.
“Performance under the program has been strong. All end-December 2009 and end-March 2010 quantitative performance criteria were met comfortably, and inflation stayed within the inner consultation band agreed in the program. The 18-month Stand-By Arrangement with the Fund is expected to remain precautionary.
“Fiscal policy in 2010 has begun withdrawing the stimulus of previous years, helping contain the public debt-to-GDP ratio. While revisions to the 2010 spending plan may be necessary once the assessment of the damage caused by the tropical storm Agatha is completed, the authorities remain firmly committed to maintaining medium-term fiscal sustainability. They are also aware that implementing a comprehensive revenue-enhancing reform remains critical to sustain social spending, increase investment, and keep public debt low.
“The monetary policy stance remains appropriate. It is important to remain vigilant and ready to tighten if evidence suggests the emergence of inflationary pressures. Exchange rate flexibility remains essential to absorb shocks and enhance the inflation targeting framework.
“Continued progress has been made in advancing the financial sector reform agenda, including implementation of the regulations on liquidity and foreign-currency credit risk management. Additional efforts are still needed to increase the resilience of the financial system, including passage by Congress of the amendments to the banking law,” Mr. Portugal said.