The IMF has indicated that Guatemala is showing signs of “strength” in its economic evolution, such as the recovery of the labor market above pre-pandemic levels or the attraction of new foreign direct investment projects, although it has encouraged the authorities to “intensify” the approval of reforms that look at the medium term to achieve the development goals of the Central American country.
In this sense, according to the preliminary conclusions of the technical staff of the IMF after their visit to Guatemala for the elaboration of ‘Article IV’, among the steps that the country must follow for a path of “greater growth” would be the adoption of measures to expand the labor market and strengthen productivity, as well as new efforts to improve legal certainty and prevent corruption.
“Addressing the gaps in infrastructure, education and health, improving governance and the fight against corruption continue to be essential issues of the first order to improve the business climate and attract more investment,” the Fund pointed out.
In addition, the agency has urged Guatemala to address the necessary increase in tax collection, which involves laying the foundations for a comprehensive tax reform and, consequently, closing the social and investment gaps. It has also focused on sustainable investments, as a way to make the economy more resistant to climate risks.
In the last year, the Guatemalan economy has shown “resilience,” with growth that has exceeded “its potential,” according to the IMF. However, a slowdown is expected in 2023, reaching a GDP expansion of 3.4%, in a scenario of uncertainty and high inflation that “add complexity” to the economic policies that must be applied.
Although the IMF expects that a downward trend in inflation will begin to be appreciated “soon”, this will continue to pose challenges on the horizon. Along these lines, the institution has considered that “quick” action is needed by the Guatemalan central bank to avoid the second-round effects of inflation that was initially due to external factors but has progressively embedded itself in the domestic economy.
In turn, Guatemala’s exposure to the US economy and dependence on large remittance flows make it vulnerable to an economic slowdown in the North American country. However, the Fund recalled, the country has a stable currency and large international reserves, which helps it “protect itself” from the challenging global economic environment.