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IMF Country Report No. 21/111
GUATEMALA
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR GUATEMALA
June 2021
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2021 Article IV consultation with Guatemala, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its June 9, 2021 consideration of the staff report that concluded the Article IV consultation with Guatemala.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 9, 2021, following discussions that ended on May 4, 2021, with the officials of Guatemala on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on May 19, 2021.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Guatemala.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2021 International Monetary Fund
Press Release
PR21/170
IMF Executive Board Concludes 2021 Article IV Consultation with Guatemala
FOR IMMEDIATE RELEASE
Washington, DC –June 11, 2021: The Executive Board of the International Monetary Fund (IMF) concluded the 2021 Article IV consultation1 with Guatemala on June 9, 2021.
The pandemic hit Guatemala at a time of macroeconomic stability and firming growth, with robust remittances, soaring investor confidence, and accommodative macroeconomic policies. The economic impact of the COVID-19 shock has been relatively limited given an early reopening of the economy, unprecedented policy support, and resilient remittances and exports. Large-scale government support notwithstanding, already weak social indicators— including on poverty and malnutrition—have further deteriorated following COVID-19 and the two major hurricanes that hit Guatemala in November 2020.
Real GDP is estimated to have contracted by 1½ percent in 2020, showing Guatemala’s resilience in a regional comparison, amidst a favorable production and exports mix, resilient remittance inflows, and unprecedented monetary and fiscal policy support. Although temporary factors exercised upward pressures on headline inflation, inflation expectations have remained well-anchored throughout, reflecting soft demand conditions and core inflation. The current account balance increased significantly to 5½ percent of GDP in 2020 (from 2.4 percent in 2019), reflecting resilient remittances and a lower trade deficit due to stronger terms of trade, imports compression, and robust agriculture, food and chemical exports.
The authorities deployed an unprecedented set of macroeconomic policy measures to counter the impact of the pandemic. Fiscal policy promptly supported the economy and the most vulnerable, as the authorities drew on available fiscal space with an overall package of 2.3 percent of GDP to enhance healthcare capacity, secure lifelines, and sustain demand. The central bank lowered the policy rate by 100 basis points (to a historic low of 1¾ percent) and provided additional liquidity to support the payments systems and meet precautionary demand for cash. The monetary board temporarily eased credit risk regulations to facilitate the renegotiation of loans, and allowed banks to record interest from restructured loans on an accrual basis.
Economic activity is projected to expand by 4½ percent in 2021, with leading indicators showing a recovery in the key sectors of commerce, manufacturing, and construction, and a slower recovery in hospitality. The outlook will be supported by the U.S. recovery, powered by the vaccine and the American Rescue Plan, and improving prospects in remaining trade partners. Over the medium term, growth is projected to stabilize at its pre-COVID potential rate of 3½ percent by 2023. Near-term inflation is set to converge to the mid-point of the target band (4 +/-1 percent) as supply shocks wane, outweighing inflationary pressures from diminishing economic slack. As the pandemic recedes, the current account balance is expected to deteriorate to -0.6 percent of GDP over the medium term due to lower exports growth, improving imports, and an increase in the FDI payout.
Risks to the outlook are tilted to the downside. Slower vaccine rollout and/or new virus strains could prolong the global and domestic recovery. Protracted worsening in poverty and malnutrition could trigger social discontent, and further natural disasters could weigh on the recovery and livelihoods. A premature withdrawal of the financial sector support measures might curtail banks’ profitability and credit flow to the recovery. On the upside, a quick resolution to the pandemic, alongside faster-than-expected progress with business reforms, could further lift investment and growth.
Executive Board Assessment2
Directors commended the Guatemalan authorities for maintaining sound macroeconomic policies and for implementing a swift and unprecedented policy response to the COVID-19 pandemic, which allowed for an early reopening of the economy. Directors agreed that the near-term outlook is favorable although the recovery hinges on progress in vaccination. They recommended that macroeconomic policies remain supportive in the near term until the recovery takes hold, while guarding against any downside risks from the pandemic. Noting that the pandemic and recent hurricanes have exacerbated Guatemala’s long-standing challenges, Directors emphasized the importance of securing more inclusive, sustainable growth, building resilience to natural disasters, and ensuring debt sustainability.
Directors recommended that, as the fiscal stimulus is gradually withdrawn, the authorities scale up much needed social programs and infrastructure expenditure, aimed at reducing poverty and boosting potential growth. To this end, enhancing revenue mobilization and spending efficiency is necessary to expand fiscal space. More specifically, Directors encouraged continued efforts to strengthen tax controls, tackle contraband, and reduce red tape and corruption. They also emphasized the importance of enhancing transparency, governance, the quality of public services, and procurement cost-effectiveness.
Directors agreed that accommodative monetary conditions should continue, provided inflation expectations remain well-anchored. They stressed the need to guard against any unintended consequences from last year’s monetization of part of the fiscal deficit. Directors also encouraged the authorities to monitor banks’ asset quality closely and remain vigilant to financial stability risks. They looked forward to the prompt passage of the banking law and the revised AML/CFT law, which would enhance financial stability and integrity.
Directors welcomed the authorities’ reform agenda to lift potential growth and build resilience, noting that its expeditious implementation would help improve the business climate, foster employment opportunities, and facilitate external rebalancing. Given Guatemala’s high risk to natural disasters, they recommended complementing past efforts on climate change mitigation and adaptation with an enhanced disaster risk management strategy and an effective implementation of the emission reduction programs.
Guatemala: Selected Economic and Social Indicators
Does not include recapitalization of obligations to the central bank.
Guatemala: Selected Economic and Social Indicators
| Population 2020 (millions) | 17 | Gini index (2014) | 48 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Percentage of indigenous population (2018) | 44 | Life expectancy at birth (2018) | 74 | ||||||||
| Population below the poverty line (Percent, 2014) | 59 | Adult illiteracy rate (2014) | 19 | ||||||||
| Rank in UNDP development index (2019; of 189) | 127 | GDP per capita (US$, 2020) | 4,603 | ||||||||
| Projections | |||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | ||||||
| (Annual percent change, unless otherwise indicated) | |||||||||||
| Income and Prices | |||||||||||
| Real GDP | 3.1 | 3.3 | 3.9 | -1.5 | 4.5 | 4.0 | |||||
| Consumer prices (end of period) | 5.7 | 2.3 | 3.4 | 4.8 | 4.5 | 3.6 | |||||
| Monetary Sector | |||||||||||
| M2 | 8.4 | 9.4 | 9.6 | 18.9 | 7.8 | 6.3 | |||||
| Credit to the private sector | 3.8 | 7.0 | 4.9 | 6.4 | 6.8 | 7.3 | |||||
| (In percent of GDP, unless otherwise indicated) | |||||||||||
| Saving and Investment | |||||||||||
| Gross domestic investment | 13.6 | 13.8 | 14.3 | 12.9 | 14.1 | 14.5 | |||||
| Private sector | 12.5 | 12.2 | 12.4 | 12.2 | 13.4 | 13.9 | |||||
| Public sector | 1.1 | 1.5 | 1.9 | 1.3 | 1.2 | 1.1 | |||||
| Gross national saving | 14.7 | 14.6 | 16.6 | 18.4 | 16.5 | 16.2 | |||||
| Private sector | 14.8 | 14.8 | 16.8 | 21.8 | 18.4 | 17.7 | |||||
| Public sector | -0.1 | -0.2 | -0.1 | -3.4 | -2.0 | -1.5 | |||||
| External saving | -1.1 | -0.9 | -2.3 | -5.5 | -2.3 | -1.7 | |||||
| External Sector | |||||||||||
| Current account balance | 1.1 | 0.9 | 2.3 | 5.5 | 2.3 | 1.7 | |||||
| Trade balance (goods) | -9.5 | -10.9 | -10.3 | -7.6 | -9.9 | -10.4 | |||||
| Exports | 13.5 | 13.2 | 12.9 | 13.5 | 13.3 | 12.7 | |||||
| Imports | 23.0 | 24.1 | 23.2 | 21.2 | 23.2 | 23.1 | |||||
| Of which: oil & lubricants | 3.5 | 4.0 | 3.8 | 2.5 | 3.4 | 3.2 | |||||
| Trade balance (services) | 0.4 | 0.2 | 0.1 | -0.3 | -0.8 | -1.0 | |||||
| Other (net) | 10.2 | 11.5 | 12.6 | 13.4 | 13.0 | 13.1 | |||||
| Of which: remittances | 11.4 | 12.7 | 13.6 | 14.6 | 14.6 | 14.8 | |||||
| Capital account balance | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||
| Financial account balance (Net lending (+)) | 0.6 | 0.4 | 1.3 | 4.4 | 2.3 | 1.7 | |||||
| Of which: FDI, net | -1.3 | -1.1 | -1.0 | -0.9 | -1.4 | -1.4 | |||||
| Errors and omissions | -0.6 | -0.5 | -1.0 | -1.0 | 0.0 | 0.0 | |||||
| Change in reserves assets (Increase (+)) | 3.6 | 1.3 | 2.3 | 4.1 | 0.0 | 0.0 | |||||
| Net International Reserves | |||||||||||
| (Stock in months of next-year NFGS imports) | 6.0 | 6.5 | 8.6 | 9.2 | 8.8 | 8.5 | |||||
| (Stock over short-term debt, residual maturity) | 1.8 | 1.9 | 2.3 | 3.2 | 2.5 | 2.5 | |||||
| Public Finances | |||||||||||
| Central Government | |||||||||||
| Revenues | 11.4 | 11.3 | 11.2 | 10.7 | 10.6 | 11.0 | |||||
| Expenditures | 12.8 | 13.2 | 13.5 | 15.6 | 14.0 | 13.8 | |||||
| Current | 10.5 | 10.6 | 10.7 | 12.6 | 11.2 | 11.2 | |||||
| Capital | 2.3 | 2.6 | 2.7 | 3.0 | 2.8 | 2.6 | |||||
| Primary balance | 0.1 | -0.3 | -0.6 | -3.2 | -1.5 | -0.9 | |||||
| Overall balance | -1.4 | -1.9 | -2.2 | -4.9 | -3.4 | -2.8 | |||||
| Financing of the central government balance | 1.4 | 1.9 | 2.2 | 4.9 | 3.4 | 2.8 | |||||
| Net external financing | 0.2 | 0.1 | 1.2 | 1.7 | 1.7 | 0.6 | |||||
| Net domestic financing | 1.2 | 1.8 | 1.1 | 3.2 | 1.7 | 2.2 | |||||
| Central Government Debt | 25.1 | 26.5 | 26.5 | 31.5 | 32.4 | 33.4 | |||||
| External | 11.4 | 11.5 | 11.8 | 13.5 | 14.5 | 14.4 | |||||
| Domestic 1/ | 13.7 | 15.0 | 14.7 | 18.0 | 17.9 | 19.0 | |||||
| Memorandum Items: | |||||||||||
| GDP (US$ billions) | 71.6 | 73.2 | 77.0 | 77.6 | 82.1 | 86.0 | |||||
| Output gap (% of GDP) | -0.1 | -0.2 | 0.2 | -2.1 | -0.9 | -0.4 | |||||
Does not include recapitalization of obligations to the central bank.
Guatemala: Selected Economic and Social Indicators
| Population 2020 (millions) | 17 | Gini index (2014) | 48 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Percentage of indigenous population (2018) | 44 | Life expectancy at birth (2018) | 74 | ||||||||
| Population below the poverty line (Percent, 2014) | 59 | Adult illiteracy rate (2014) | 19 | ||||||||
| Rank in UNDP development index (2019; of 189) | 127 | GDP per capita (US$, 2020) | 4,603 | ||||||||
| Projections | |||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | ||||||
| (Annual percent change, unless otherwise indicated) | |||||||||||
| Income and Prices | |||||||||||
| Real GDP | 3.1 | 3.3 | 3.9 | -1.5 | 4.5 | 4.0 | |||||
| Consumer prices (end of period) | 5.7 | 2.3 | 3.4 | 4.8 | 4.5 | 3.6 | |||||
| Monetary Sector | |||||||||||
| M2 | 8.4 | 9.4 | 9.6 | 18.9 | 7.8 | 6.3 | |||||
| Credit to the private sector | 3.8 | 7.0 | 4.9 | 6.4 | 6.8 | 7.3 | |||||
| (In percent of GDP, unless otherwise indicated) | |||||||||||
| Saving and Investment | |||||||||||
| Gross domestic investment | 13.6 | 13.8 | 14.3 | 12.9 | 14.1 | 14.5 | |||||
| Private sector | 12.5 | 12.2 | 12.4 | 12.2 | 13.4 | 13.9 | |||||
| Public sector | 1.1 | 1.5 | 1.9 | 1.3 | 1.2 | 1.1 | |||||
| Gross national saving | 14.7 | 14.6 | 16.6 | 18.4 | 16.5 | 16.2 | |||||
| Private sector | 14.8 | 14.8 | 16.8 | 21.8 | 18.4 | 17.7 | |||||
| Public sector | -0.1 | -0.2 | -0.1 | -3.4 | -2.0 | -1.5 | |||||
| External saving | -1.1 | -0.9 | -2.3 | -5.5 | -2.3 | -1.7 | |||||
| External Sector | |||||||||||
| Current account balance | 1.1 | 0.9 | 2.3 | 5.5 | 2.3 | 1.7 | |||||
| Trade balance (goods) | -9.5 | -10.9 | -10.3 | -7.6 | -9.9 | -10.4 | |||||
| Exports | 13.5 | 13.2 | 12.9 | 13.5 | 13.3 | 12.7 | |||||
| Imports | 23.0 | 24.1 | 23.2 | 21.2 | 23.2 | 23.1 | |||||
| Of which: oil & lubricants | 3.5 | 4.0 | 3.8 | 2.5 | 3.4 | 3.2 | |||||
| Trade balance (services) | 0.4 | 0.2 | 0.1 | -0.3 | -0.8 | -1.0 | |||||
| Other (net) | 10.2 | 11.5 | 12.6 | 13.4 | 13.0 | 13.1 | |||||
| Of which: remittances | 11.4 | 12.7 | 13.6 | 14.6 | 14.6 | 14.8 | |||||
| Capital account balance | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||
| Financial account balance (Net lending (+)) | 0.6 | 0.4 | 1.3 | 4.4 | 2.3 | 1.7 | |||||
| Of which: FDI, net | -1.3 | -1.1 | -1.0 | -0.9 | -1.4 | -1.4 | |||||
| Errors and omissions | -0.6 | -0.5 | -1.0 | -1.0 | 0.0 | 0.0 | |||||
| Change in reserves assets (Increase (+)) | 3.6 | 1.3 | 2.3 | 4.1 | 0.0 | 0.0 | |||||
| Net International Reserves | |||||||||||
| (Stock in months of next-year NFGS imports) | 6.0 | 6.5 | 8.6 | 9.2 | 8.8 | 8.5 | |||||
| (Stock over short-term debt, residual maturity) | 1.8 | 1.9 | 2.3 | 3.2 | 2.5 | 2.5 | |||||
| Public Finances | |||||||||||
| Central Government | |||||||||||
| Revenues | 11.4 | 11.3 | 11.2 | 10.7 | 10.6 | 11.0 | |||||
| Expenditures | 12.8 | 13.2 | 13.5 | 15.6 | 14.0 | 13.8 | |||||
| Current | 10.5 | 10.6 | 10.7 | 12.6 | 11.2 | 11.2 | |||||
| Capital | 2.3 | 2.6 | 2.7 | 3.0 | 2.8 | 2.6 | |||||
| Primary balance | 0.1 | -0.3 | -0.6 | -3.2 | -1.5 | -0.9 | |||||
| Overall balance | -1.4 | -1.9 | -2.2 | -4.9 | -3.4 | -2.8 | |||||
| Financing of the central government balance | 1.4 | 1.9 | 2.2 | 4.9 | 3.4 | 2.8 | |||||
| Net external financing | 0.2 | 0.1 | 1.2 | 1.7 | 1.7 | 0.6 | |||||
| Net domestic financing | 1.2 | 1.8 | 1.1 | 3.2 | 1.7 | 2.2 | |||||
| Central Government Debt | 25.1 | 26.5 | 26.5 | 31.5 | 32.4 | 33.4 | |||||
| External | 11.4 | 11.5 | 11.8 | 13.5 | 14.5 | 14.4 | |||||
| Domestic 1/ | 13.7 | 15.0 | 14.7 | 18.0 | 17.9 | 19.0 | |||||
| Memorandum Items: | |||||||||||
| GDP (US$ billions) | 71.6 | 73.2 | 77.0 | 77.6 | 82.1 | 86.0 | |||||
| Output gap (% of GDP) | -0.1 | -0.2 | 0.2 | -2.1 | -0.9 | -0.4 | |||||
Does not include recapitalization of obligations to the central bank.
Title page
GUATEMALA
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
May 19, 2021
KEY ISSUES
Context. Guatemala has managed to keep infections and deaths moderate during the pandemic. The economic impact of COVID-19 has been mild given an early reopening of the economy, unprecedented policy support, and resilient remittances and exports. However, despite large-scale government interventions to support households, poverty and malnutrition have deteriorated following COVID-19 and the two major hurricanes battering Guatemala last November.
Outlook and Risks. Real GDP is projected to have contracted by 1½ percent in 2020, followed by a strong recovery in 2021 to 4½ percent, and a stabilization at its pre-COVID potential rate of 3½ percent by 2023. However, the pandemic and recent natural disasters have accentuated Guatemala’s social vulnerabilities. Inadequate health coverage, social protection, and employment opportunities have for long led to high poverty and migration rates.
Policy Recommendations. The authorities appropriately provided essential support to households and firms. Facilitating the recovery while fostering inclusive growth will require that:
Fiscal policy scales up in the near-term cash transfers for health, education, and nutrition interventions commensurate with the deterioration in social indicators. Over the medium term, the authorities should create fiscal space to address sizable social and infrastructure needs through improved tax collections, spending efficiency, and disaster risks and debt management.
Monetary policy stays accommodative provided inflation expectations remain anchored. Banguat should sterilize as warranted any excess liquidity from last year’s partial monetization of the fiscal deficit.
Financial policy remains supportive while closely monitoring financial stability risks and expediting the passing of the new banking law and AML/CFT bills.
Structural reforms foster legal certainty to attract domestic and foreign investment, and support the recovery through e-commerce and digital services, part-time employment, and efficient insolvency procedures to facilitate firms’ reorganization.
Disaster risk policies continue to reduce vulnerability to natural disasters, with a focus on fiscal and infrastructure resilience.
Approved by:
Patricia Alonso-Gamo (WHD) and Anna Ilyina (SPR)
Discussions took place via conference calls during April 19 – May 4, 2021. The staff team comprised Esther Pérez Ruiz (Head), Aleksandra Babii, Jean François Clevy, Carlos Janada and Gonzalo Salinas (all WHD). Metodij Hadzi-Vaskov (Regional Resident Representative), Luis Carlos Ibanez Thomae (Resident Representative Office), Pablo Moreno and Edgar Cartagena (both OED) participated in the discussions. Cristhian Vera and Anaysa Delsid (both WHD) provided research assistance and document management, respectively. The mission held discussions with the President of Guatemala, the Central Bank Governor, the Minister of Finance, the Minister of Health, regulatory and supervisory bodies, other senior officials, private-sector representatives, representatives of diplomatic missions and international organizations, and academics.
Contents
RECENT DEVELOPMENTS AND OUTLOOK
A. The Pre-COVID-19 Landscape
B. The COVID-19 Shock
C. Outlook and Risks to the Recovery
POLICY PRIORITIES
A. Fiscal Policy
B. Monetary Policy
C. Financial Sector Policy
D. Unlocking Potential Growth and Building Resilience
STAFF APPRAISAL
BOXES
1. Remittances as a Stabilizing Source of Income During the Pandemic
2. Financing the Recovery: Enhancing the Local Currency Bond Market (LCBM)
3. Strengthening Public Finance Transparency and Governance
4. Managing Climate Change Risks to Support Resilience and Sustainable Growth
FIGURES
1. Recent Economic Developments
2. Fiscal Sector Developments
3. External Developments
4. Monetary Sector Developments
5. Financial Sector Developments
TABLES
1. Selected Economic and Social Indicators
2. Statement of the Central Government Operations and Financial Balance, GFSM 2001 Classification
3. Summary Balance of Payments
4. Monetary Sector Survey
5. Financial Soundness Indicators
6. Financial Soundness Indicators Heat Map
ANNEXES
I. External Sector Assessment
II. Risk Assessment Matrix
III. Public Debt Sustainability Analysis
IV. External Debt Sustainability
V. Banking System Vulnerabilities and Stress Tests
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
