Guatemala: Selected Issues and Analytical Notes
Author: International Monetary Fund. Middle East and Central Asia Dept.
Publication Date:
02 Aug 2013
eISBN:
9781475578256
ISBN:
9781475578256
Language:
English
Keywords:
ISCR; CR; Guatemala; output gap help; debtor position; net; fund staff estimate; foreign currency position; net external; STFC position; nonfinancial private sector; foreign currency assets; Public sector; Financial sector; Government liabilities; Currencies
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This Selected Issues paper estimates both Guatemala’s potential output and output gap using a wide range of econometric techniques. The analysis suggests that Guatemala’s potential output growth is about 3.5 percent for the whole sample period and that the output gap is almost closed. Results are highly robust among different methodologies. Among the methods used, several well-known time series filters and two different estimations of a state-space model are included. Additionally, a test for structural breaks in the series of potential GDP is presented. All methodologies conclude that the output gap at the end of 2012 is almost closed at -0.2 percent of potential GDP.

Abstract

This Selected Issues paper estimates both Guatemala’s potential output and output gap using a wide range of econometric techniques. The analysis suggests that Guatemala’s potential output growth is about 3.5 percent for the whole sample period and that the output gap is almost closed. Results are highly robust among different methodologies. Among the methods used, several well-known time series filters and two different estimations of a state-space model are included. Additionally, a test for structural breaks in the series of potential GDP is presented. All methodologies conclude that the output gap at the end of 2012 is almost closed at -0.2 percent of potential GDP.

Analytical Note IV. Balance Sheets1

This note presents a balance sheet analysis of the Guatemalan economy with a focus on external positions, and currency and maturity mismatches. The study finds that financial sector is significantly vulnerable to foreign currency and liquidity risks, while the nonfinancial private sector faces substantial currency mismatches that have grown moderately in recent years. Risks to the public sector are more muted.

A. The Analytical Framework and Data Sources

1. The Balance Sheet Analysis (BSA) was developed as a useful framework to help better understand the financial crises of the late 1990s and early 2000s. It was proposed by Allen et al. (2002) and has been applied to many emerging-market countries. The BSA studies the stocks of financial assets and liabilities and analyses the maturity and currency mismatches at the aggregate economy level and at each economic sector. It can highlight a country’s vulnerabilities to liquidity or solvency problems and reveal potential spillovers across sectors that can transmit the impact of economic shocks.

2. The main instrument for this analysis is the balance sheet matrix. It typically depicts five sectors: (i) the central bank; (ii) the non-financial public sector which includes the central government, state and local governments, and public non-financial firms; (iii) the financial sector including other depository corporations and other financial firms (nonbanks); (iv) the non-financial private sector which includes non financial corporations and other domestic resident sector (largely households); and (v) the rest of the world or nonresidents. Within each sector, assets and liabilities are decomposed into foreign currency or domestic currency and some estimates can be made of maturity structure. The matrix shows the inter-sectoral claims and liabilities between each domestic sector and versus nonresidents (see Appendix for the basic structure of the matrix).

3. There has been progress with data compilation that facilitates the application of the BSA for surveillance purposes to Guatemala, though some data gaps persist. The Statistics Department of the IMF compiles balance sheet matrices for many countries, including Guatemala, using the Standardized Report forms (SRFs) that cover financial sector balance sheets. The other data sources used to fill in the rest of the matrix were public debt data, external debt data, and the International Investment Position (IIP) which covers external assets and liabilities of all sectors of the economy. Nonetheless, data gaps remain, particularly for the nonfinancial private sector. In addition, for Guatemala, coverage of the nonfinancial public sector is limited by a lack of fiscal data on state and local governments. Coverage of the financial sector has improved as the SRFs cover most other depository corporations, including the onshore and offshore banking systems and cooperatives, but other financial corporations are not yet covered by the SRFs.

4. Gross central government liabilities in the BSA matrix for 2012 exceed those reported by the Ministry of Finance by about [6.5] percent of GDP. This is mostly due the inclusion of accumulated losses of the central bank (treated as an asset on its balance sheet and a claim on the government) which have not been recognized by the government and are not treated as official public sector debt.

B. Balance Sheet Analysis

5. The overall balance sheet positions of economic sectors have changed only moderately since 2007 (Figure 1). 2 The central bank remains an overall net creditor, though its creditor position has declined somewhat. The non-financial public sector’s net debtor position has declined due to a modest fall in liabilities. The financial sector’s net creditor position has shrunk moderately to near balance. However, the private sector has turned from being a small net creditor to a modest net debtor.

Figure 1.
Figure 1.

Guatemala: Gross Assets and Liabilities of Economic Sectors

(Percent of GDP)

Citation: IMF Staff Country Reports 2013, 248; 10.5089/9781475578256.002.A004

Sources: Central Bank of Guatemala and Fund staff estimates.

6. The aggregate economy is vulnerable to currency risk. Guatemala has a net external debtor position of about 18 percent of GDP in 2012, largely reflecting the net external debtor positions of the nonfinancial public and nonfinancial private sectors (Table 1). This gap has widened by about 6 percentage points of GDP since 2007 largely due to the nonfinancial private sector. Guatemala also has a net foreign currency debtor position of about the same magnitude in 2012.

Table 1.

Guatemala: External and Foreign Currency Positions

article image
Sources: Bank of Guatemala and Fund staff estimates.

7. The total public sector is subject to limited foreign currency and rollover risk. It has a net foreign currency debtor position of just under 3 percent of GDP in 2012, little changed since 2007, as the nonfinancial public sector’s net foreign currency liabilities are moderately higher than the central bank’s net foreign currency assets. The central bank is a net external and foreign currency creditor of around 12 percent of GDP in 2007 and 2012 due to its holding of foreign currency reserve assets. These liquid reserves are also short-term assets, giving the central bank and the total public sector a positive net short-term foreign currency position. The nonfinancial public sector is a net external debtor of about 14 percent of GDP in 2007 and 2012, and its net foreign currency debtor position is a bit worse due to domestic debt in foreign currency. Its short-term foreign currency liabilities are largely amortizing public external debt.

8. The financial sector is exposed to a significant amount of exchange rate and liquidity risk. Though the financial system has a modest net foreign currency creditor position of 0.6 percent of GDP in 2012, it has a significant amount of short-term foreign currency liabilities consisting mostly of foreign currency deposits of residents. This implies it has a net short-term foreign currency debtor position of almost 9 percent of GDP in 2012, though this has been fairly stable since 2007. The financial sector also has a net external debtor position of nearly 2 percent of GDP in 2012. Most of these financial external liabilities comprise foreign currency loans owed to nonresidents.

9. The non-financial private sector is vulnerable to significant currency risk. It displays a net external debtor position of about 15 percent of GDP in 2012, about 4 percentage points of GDP wider than in 2007. Nonetheless, about two-thirds of external liabilities are foreign direct investment, considered less risky than debt, while the rest are largely loans owed to nonresidents. The private sector has foreign currency liabilities composed of loans owed to resident banks giving it a net foreign currency debtor position of almost 16 percent of GDP in 2012. A significant amount of short-term foreign currency assets in the form of bank deposits, and a low amount of short-term foreign currency loans implies the private sector has a short-term foreign currency creditor position of almost 20 percent of GDP in 2012. However, this maturity breakdown is based on an original maturity and does not reflect amortizing loans.3

uA04fig01

Maturity Breakdown

(Percent of GDP, 2012)

Citation: IMF Staff Country Reports 2013, 248; 10.5089/9781475578256.002.A004

Sources: Central Bank of Guatemala and Fund staff estimates.

Appendix 1. Net Intersectoral Asset and Liability Positions

Table A1.

Net Intersectoral Asset and Liability Positions Guatemala 2007

(In percent of GDP)

article image
Sources: Standardized Report Forms for Monetary and Financial Data, International Investment Position, External Debt and Domestic Debt data from Bank of Guatemala, and IMF staff estimates.
Table A2.

Net Intersectoral Asset and Liability Positions Guatemala 2012

(In percent of GDP)

article image
Sources: Standardized Report Forms for Monetary and Financial Data, International Investment Position, External Debt and Domestic Debt data from Bank of Guatemala, and IMF staff estimates.

References

  • Allen, Mark, Christoph Rosenberg, Christian Keller, Brad Setser and Nouriel Roubini, 2002, “A Balance Sheet Approach to Financial Crisis,” IMF Working Paper 02/210 (Washington: International Monetary Fund).

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  • Amo-Yartey, Charles, 2012, “Barbados: Sectoral Balance Sheet Mismatches and Macroeconomic Vulnerabilities,” IMF Working Paper 12/31 (Washington: International Monetary Fund).

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  • Imam, Patrick, and Rainer Kohler, 2010, “Balance Sheet Vulnerabilities of Mauritius During a Decade of Shocks,” IMF Working Paper 10/148 (Washington: International Monetary Fund).

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  • Mathisen, Johan, and Anthony Pellechio, 2006, “Using the Balance Sheet Approach in Surveillance: Framework, Data Sources, and Data Availability,” IMF Working Paper 06/100 (Washington: International Monetary Fund).

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  • VladkovaHollar, Ivanna, 2007, “Guatemala: Balance Sheet Vulnerabilities” (unpublished; Washington: International Monetary Fund).

1

Prepared by Stephanie Medina Cas.

2

A comparison is made with 2007 since this predates the global financial crisis.

3

This information is based on external debt data and the IIP which assess maturity only on an original maturity basis, and not on a residual basis.

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Cover IMF Staff Country Reports
Guatemala: Selected Issues and Analytical Notes
Author: International Monetary Fund. Middle East and Central Asia Dept.
Volume/Issue:
Volume 2013: Issue 248
Publisher:
International Monetary Fund
ISBN:
9781475578256
ISSN:
1934-7685
Pages:
39
DOI:
https://doi.org/10.5089/9781475578256.002

Guatemala: Gross Assets and Liabilities of Economic Sectors

(Percent of GDP)

Maturity Breakdown

(Percent of GDP, 2012)