Via IMF (Den Internationale Valutafond)

IMF Staff Concludes Visit to Guatemala

October 8, 2019

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.

An International Monetary Fund (IMF) mission, led by Esther Pérez Ruiz,
visited Guatemala from October 1 to 8, 2019. The staff team reviewed recent
economic developments and discussed with the authorities the macroeconomic
outlook and policies, and reform agenda priorities. The staff team had
fruitful discussions with the Bank of Guatemala, the Ministry of Finance,
the Superintendence of Banks, and other representatives of public and
private sectors. Amid the presidential transition period, the mission also
engaged with the President-elect Alejandro Giammattei and members of his
economic team.

At the end of the staff visit, Ms. Pérez Ruiz issued the following

“The authorities’ efforts to maintain macroeconomic stability and to
facilitate a smooth political handover after the elections are welcome.
The immediate challenge is for the incumbent and the incoming
administrations to agree on a set of policy priorities. Upon the
inauguration of Mr. Alejandro Giammattei in January 2020, the new
government’s efforts would be oriented towards gathering support for
public sector and business climate reforms, and meaningfully raise tax
collections, that would improve growth and living standards.

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“Economic growth is keeping its momentum so far. The short-term outlook
remains unchanged relative to the 2019 Article IV Consultation, but the
worsening external environment has accentuated risks. Robust remittances
and construction sector dynamism are expected to support domestic demand
and maintain growth at 3.4 percent in 2019. For next year, exports recovery
and a positive fiscal impulse would propel growth to 3½ percent.

“Downside risks have increased. Major external risks include a further
downgrade in global growth and an upscaled inflow of Central-American
migrants to Guatemala. Domestic risks stem from lagged implementation of
the economic agenda, protracted judicial uncertainty weighing on
investment, and the possible undermining of anti-corruption efforts. A
further decline in tax collections could compromise the financing of social
and infrastructure spending and impair growth potential.

“In this context, monetary and fiscal policy support to demand is
appropriate and should be safeguarded into the near term. Monetary policy
should remain accommodative amid well-anchored inflation expectations.
Fiscal policy should be geared towards macroeconomic stability and growth.
This entails, on the spending side, keeping up the execution momentum with
a focus on capital over current expenditure. On the revenue side, reversing
the decline in tax collections is paramount to create fiscal space for
social and infrastructure spending, consistent with the Sustainable
Development Goals agenda. Strengthening tax controls and operationalizing
risk-based auditing is important to encourage tax compliance, and to allow
for proper tax credit refunds. Tax amnesties and special tax regimes (such
as the Law of Fiscal Simplification, Decree No.7-2019) undermine tax morale
and should be averted.

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Lifting potential growth and living standards requires forging a national
consensus to take forward wide-ranging structural reforms. The swift
approval of the portfolio of public-private partnership projects, with
their high economic impact, is appropriate for closing the infrastructure
gaps. The budgetary programming for 2020 needs to be consistent with a
strategy that mobilizes efficiently resources from the private sector. The
legislative agenda for a favorable business environment merits support and
should be expedited to bolster formal employment, transportation
infrastructure, productivity, and exports. The adoption of a
government-sponsored exports and investment promotion agency, the swift
alignment of the national legislation with ILO Convention 169, and the
passage of the infrastructure, leasing and insolvency laws are priorities
to this end. Fiscal reforms in public procurement and civil service, and
performance-based budgeting, are key to more efficient and agile use of
public resources, and to improve tax morale. Further modernization of the
financial system needs the approval of the bill on banks and financial
groups, the AML/CFT bill, the securities market law, and the credit card

“The mission welcomes the new administration’s commitment to the
anti-corruption efforts and looks forward to the roll out of concrete
policy initiatives. In the near term, the authorities’ anti-corruption
efforts should focus on sustaining prior legal and institutional progress.

“The IMF team is grateful for the authorities’ hospitality and franc
dialogue. The next Article IV mission is scheduled to take place in the
first half of 2020.”