Guatemala from the Perspective of the IMF

In the critical context of this year, the resilience of remittances and exports, added to the decline in oil prices, would have somewhat shielded the Guatemalan economy, whose GDP would fall only 2% by the end of 2020.

Wednesday, November 4, 2020

The programs in response to Covid-19 (Bono Familia, Fondo de Protección al Empleo, Fondo de Crédito para Capital de Trabajo), along with the temporary restructuring of loans by the banking system, are helping to sustain household income and business liquidity, the multilateral agency reported after making its last visit.

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From the statement of the IMF:

Washington, DC: 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 Congress approval).

“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.”



More on this topic

Economy: Recovery in sight?

February 2020

After production in Nicaragua fell 3.8% in 2018, the IMF estimates that during 2019 the GDP will contract by 5.7%, however, the agency predicts that by 2020 the variation could be only -1.2%.

Real GDP is estimated to have contracted by another 5.7% in 2019 due to the deterioration in aggregate demand, fiscal consolidation and sanctions, the IMF reported after its visit to the country.

Nicaragua as Seen by the IMF in February 2018

February 2018

Economic growth in 2017 exceeded expectations, and although the outlook for 2018 is optimistic, the entity points out that there is a need to reduce tax expenditure and rationalize subsidies.

From a statement issued by the IMF:

Economic performance in 2017 was above expectations and the 2018 outlook is favorable.

Nicaragua as Seen by the IMF in December 2016

December 2016

"Nicaragua's main challenge is to maintain strong, sustainable and inclusive growth in the context of increased uncertainty regarding global trade and economic activity."

From a press release by the IMF:

  • Despite challenging external conditions, economic activity remains buoyant
  • The financial system appears to be robust, notwithstanding strong credit growth
  • Nicaragua needs to continue strengthening its public finances by creating fiscal buffers

Panama As Seen by the IMF in March 2015

March 2015

The organization is urging the Panamanian government to accelerate the measures needed to get off the gray list in order to avoid counterproductive medium-term effects on the economy.

From a press release by the International Monetary Fund (IMF):

An International Monetary Fund (IMF) mission, headed by Luca Antonio Ricci, visited Panama City during March 3-13 to conduct the country’s annual Article IV consultation, part of the IMF’s regular surveillance of all member countries. At the end of the discussions, Mr. Ricci issued the following statement:

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