IMF Executive Board concludes 2021 Article IV consultation with Guatemala

0

Washington, DC: International Monetary Fund (IMF) Executive Board Concludes 2021 Article IV Consultation [1] with Guatemala on June 9, 2021.

The pandemic has hit Guatemala at a time of macroeconomic stability and firming growth, with strong remittances, growing investor confidence and accommodating macroeconomic policies. The economic impact of the COVID-19 shock has been relatively small given a rapid reopening of the economy, unprecedented political support, and resilient remittances and exports. Despite large-scale government support, already low social indicators, including on poverty and malnutrition, deteriorated further in the wake of COVID-19 and the two major hurricanes that hit Guatemala in November 2020.

Real GDP is estimated to contract by 1½% in 2020, showing Guatemala’s resilience in a regional comparison, amid a favorable production and export mix, resilient remittances and support. unprecedented monetary and fiscal policy. Although temporary factors put upward pressure on headline inflation, inflation expectations have remained well anchored throughout, reflecting weak demand and core inflation. The current account balance increased significantly to reach 5½% of GDP in 2020 (from 2.4% in 2019), reflecting the resilience of remittances and a lower trade deficit due to stronger terms of trade, compression of imports and strong exports of agriculture, food and chemicals.

The authorities have deployed an unprecedented set of macroeconomic policy measures to counter the impact of the pandemic. Fiscal policy quickly supported the economy and the most vulnerable, as authorities tapped into available fiscal space with an overall program of 2.3% of GDP to improve health care capacity, secure lifelines and support demand. The central bank lowered the policy rate by 100 basis points (to a historic low of 1 de per cent) and provided additional liquidity to support payment systems and meet prudent demand for liquidity. The monetary council temporarily relaxed credit risk regulations to facilitate loan renegotiations and allowed banks to record interest on restructured loans on an accrual basis.

Economic activity is expected to increase 4.5% in 2021, with leading indicators showing a recovery in key sectors of trade, manufacturing and construction, and a slower recovery in hospitality. The outlook will be supported by the recovery in the United States, fueled by the vaccine and the US bailout, and by improving prospects among the remaining trading partners. In the medium term, growth is expected to stabilize at its potential pre-COVID rate of 3½% by 2023. Short-term inflation is expected to converge towards the midpoint of the target range (4 +/- 1%), as supply shocks fade, offsetting inflationary pressures due to the decline in the economic slowdown. As the pandemic recedes, the current account balance is expected to deteriorate to -0.6% of GDP over the medium term due to weaker export growth, improved imports and increased disbursements. ‘IDE.

The risks to the outlook are on the downside. Slower vaccine deployment and / or new viral strains could prolong the global and national recovery. A prolonged worsening of poverty and malnutrition could trigger social discontent, and further natural disasters could strain recovery and livelihoods. A premature withdrawal of financial sector support measures could reduce bank profitability and credit flows for the recovery. On the positive side, a swift resolution of the pandemic, along with faster than expected progress with business reforms, could further boost investment and growth.

Board assessment [2]

Directors commended the Guatemalan authorities for maintaining sound macroeconomic policies and for implementing a swift and unprecedented political response to the COVID-19 pandemic, which has allowed the economy to reopen quickly. Directors agreed that the short-term outlook is favorable although recovery depends on progress in immunization. They recommended that macroeconomic policies remain favorable in the short term until the recovery takes hold, while guarding against any downside risk of the pandemic. Noting that the pandemic and recent hurricanes have exacerbated Guatemala’s longstanding challenges, Directors stressed the importance of ensuring more inclusive and sustainable growth, building resilience to natural disasters and ensuring the sustainability of the country. debt.

Directors recommended that as fiscal stimulus measures are phased out, the authorities step up much-needed social programs and infrastructure spending aimed at reducing poverty and boosting potential growth. To this end, there is a need to strengthen revenue mobilization and expenditure efficiency to expand fiscal space. Specifically, directors encouraged continued efforts to strengthen tax controls, combat smuggling, and reduce red tape and corruption. They also stressed the importance of improving transparency, governance, the quality of public services and the profitability of purchases.

Directors agreed that accommodative monetary conditions should continue, provided inflation expectations remain firmly anchored. They stressed the need to guard against any unintended consequences of last year’s monetization of part of the budget deficit. Directors also encouraged authorities to closely monitor the quality of banks’ assets and to remain vigilant against financial stability risks. They looked forward to the early adoption of the Banking Law and the revised AML / CFT Law, which would strengthen financial stability and integrity.

Directors commended the authorities’ reform agenda to boost potential growth and build resilience, noting that its swift implementation would help improve the business climate, foster employment opportunities and facilitate external rebalancing. . Given the high risk of natural disasters in Guatemala, they recommended complementing past efforts in climate change mitigation and adaptation with an improved disaster risk management strategy and effective implementation of disaster risk management programs. reduction of emissions.

Guatemala: Selected economic and social indicators

I. Social and demographic indicators

Population 2020 (millions)

17

Gini index (2014)

48

Percent of Aboriginal population (2018)

44

Life expectancy at birth (2018)

74

Population below the poverty line (Percentage, 2014)

59

Adult illiteracy rate (2014)

19

Rank in the UNDP Development Index (2019; out of 189)

127

GDP per capita (US $, 2020)

4,603

II. Economic indicators

Projections

2017

2018

2019

2020

2021

2022

(Annual percentage 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

(As a percentage of GDP, unless otherwise indicated)

Savings 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 savings

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 backup

-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 loan (+))

0.6

0.4

1.3

4.4

2.3

1.7

Of which: IDE, 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 asset reserves (Increase (+))

3.6

1.3

2.3

4.1

0.0

0.0

Guatemala: Selected economic and social indicators (End)

Net international reserves

(Stock in months of NFGS imports for next year)

6.0

6.5

8.6

9.2

8.8

8.5

(Stock on short-term debt, residual maturity)

1.8

1.9

2.3

3.2

2.5

2.5

Public finances

Central government

Income

11.4

11.3

11.2

10.7

10.6

11.0

Expenses

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 city

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

Global 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

National 1 /

13.7

15.0

14.7

18.0

17.9

19.0

Memorandum Articles:

GDP (billions of US dollars)

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

Sources: Bank of Guatemala; Ministry of Finance; and IMF staff estimates and projections.

1 / Does not include recapitalization of central bank obligations.


[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with its members, usually annually. A team of employees visits the country, collects economic and financial information and discusses with those responsible for the development and economic policies of the country. Back at headquarters, the staff prepare a report which forms the basis for the Board of Directors’ discussion.

[2] At the end of the discussion, the Managing Director, in his capacity as Chairman of the Board, summarizes the points of view of the Executive Directors, and this summary is sent to the country’s authorities. An explanation of all the qualifiers used in the summaries can be found here: https://www.IMF.org/external/np/sec/misc/qualifiers.htm .

/ Public distribution. This material is from the original organization and may be ad hoc in nature, edited for clarity, style and length. View full here.
Share.

About Author

Comments are closed.