IMF Staff Concludes Virtual Visit to Guatemala
November 4, 2020
End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
- Guatemala’s expected contraction of about 2 percent in 2020 fares well in global and regional comparison.
- Resilient remittances and exports, and unprecedented policy support, have mitigated the negative impact of the COVID-19 pandemic.
- The COVID-19 crisis could have durable economic and social effects. To secure the recovery, protect the most vulnerable, and safeguard financial stability, the authorities should continue fiscal, monetary and financial support measures in the near term and only withdraw them gradually.
An International Monetary Fund (IMF) team, led by Esther Pérez Ruiz,
conducted a virtual staff visit to Guatemala during October 26-30, 2020. At
the end of this mission, Ms. Pérez Ruiz issued the following statement:
“Guatemala’s expected contraction of about 2 percent in 2020, and
recovery to 4 percent next year, fares well in global and regional
comparison. Resilient remittances and exports, and lower oil prices, have given rise to
a current account surplus and allow significant accumulation of
international reserves. A number of COVID-19 programs (family bonus, employment protection plan, working capital credit fund), alongside
temporary loans restructuring, are helping to support households’ income
and firms’ liquidity. The central bank’s policy rate cuts, the activation
of liquidity facilities and flexible reserve requirements have also secured
the provision of liquidity with no detriment to the inflation objectives.
To enable these policy responses, the authorities have promptly mobilized
market funding and loans from international financial institutions,
including US$ 594 million under the IMF Rapid Financing Instrument (pending
“Despite this resilience, the COVID-19 crisis is likely to have a durable
economic and social impact. After falling markedly, the recovery in formal
employment and tax collections is lagging activity, while chronic
malnutrition and food insecurity keep rising, and significant downside
risks remain. These risks include a rise in COVID-19 infections, which
might lead to partial lockdowns, and a possible worsening of the global
outlook and external financial conditions. Against this backdrop, policies
should continue to sustain the recovery and safeguard downside risks.
“The draft 2021 Budget presented to the Congress of Guatemala duly
maintains fiscal support in the short term and proposes a withdrawal in a
gradual and sustainable manner. In order to maximize the impact of fiscal
support, staff encourages: (i) better targeting of the social assistance
leveraging on the family bonus’ digitalization; (ii) expanded
provision of healthcare and virtual education to the most vulnerable to
tackle inequality; and (iii) the prompt and transparent execution of
infrastructure programs. To maintain fiscal sustainability, staff calls for
consistent efforts at revenue mobilization over the medium term. Monetary
policy should remain accommodative and neutralize, as planned, any effects
of monetization on inflation. Further monetization of the budget deficit by
the Central Bank should be avoided.
“The authorities’ Economic Recovery Plan aims to improve
Guatemala’s business environment and foster greater labor market
flexibility. In that regard, staff recommends the swift adoption of the new
infrastructure, leasing, insolvency laws, and the ILO Convention 175.
Increased legal certainty is key to enhance the business environment.
“Entering the crisis with relatively high capital and liquidity buffers, the
banking sector has by now restructured about one-third of its loan
portfolio under regulatory forbearance. Non-performing loans remain low at
just over 2 percent (reflecting the lack of penalty in the debtors’ rating
upon restructuring) but loan-loss provisions have increased steadily,
indicating a possible deterioration of loan quality. To ensure financial
stability, the financial supervisor should assess any build-up of risks in
banks’ loan portfolios, strengthen provisioning and capital buffers as
warranted, and consider a gradual withdrawal of temporary relief measures.
The reform of the Law of Banks and Financial Groups, pending in Congress,
would be important to strengthen the banks’ resolution framework; as well
as the approval of the new Law on the Prevention and Suppression of Money
Laundering and Terrorism Financing (AML/CFT), which would modernize the
tools to fight those offences.
“During the virtual staff visit, the team met with Mr. Sergio Recinos, the
President of the Central Bank of Guatemala, Mr. Alvaro Gonzalez Ricci, the
Minister of Finance, Mr. Erick Vargas, the Superintendent of Banks, Mr.
Marco Livio Diaz, Superintendent of SAT, other senior officials and
representatives of the private sector. Mr. Edgar Cartagena (OED)
participated in the discussions. The mission would like to thank the
authorities for their close cooperation and candid discussions.”
IMF Communications Department
PRESS OFFICER: Maria Candia
Phone: +1 202 623-7100Email: MEDIA@IMF.org