Download 2012-288-IM-Guatemala-COMPLETO

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GUATEMALA
1. General trends
In 2011, real GDP grew by 3.9%, a percentage point more than in 2010 (2.9%). The expansion —driven
by soaring exports and domestic demand— consolidated the recovery from the sluggish economic growth
posted in 2009 (0.5%). Year-on-year inflation reached 6.2%, just above the upper limit of the target range
of 4% to 6%. The fiscal deficit stood at 2.8% of GDP, slightly lower than the 2010 figure (3.3%). The
balance-of-payments current account deficit widened to 3.1% of GDP, twice the deficit recorded in 2010.
In November 2011, Otto Pérez Molina of the Patriotic Party was elected President of Guatemala, although
he did not win a majority in Congress. He took office amid uncertainty surrounding the global economic
recovery but in a climate of domestic optimism.
2. Economic policy
In 2011, economic policy favoured macroeconomic stability. A restrictive monetary policy mitigated the
effects of the surge in current expenditure arising from the election period, social commitments and the
negative economic impact of tropical depression 12-E.
(a)
Fiscal policy
The central government deficit was equivalent to 2.8% of GDP, versus 3.3% in 2010. Total
central government revenue rose by 8.7% in real terms, which was more than the 5.8% increase seen in
2010. Tax receipts were up by 9.2%. Direct taxes grew by 15.9% in real terms (compared with 0.9% in
2010) on the strength of higher income tax revenues (22.4%). Indirect tax receipts went up by 6.3%
(compared with 5% in 2010), mainly as a result of higher revenue from value added tax on imports
(8.3%). The tax burden stood at 11.4% of GDP, half a percentage point higher than in 2010 (10.8% of
GDP). This was partly thanks to the robust economic performance and partly because of the passage of
tax evasion legislation in late 2010, although a second anti-evasion bill was held up in Congress in 2011.
Revenue was lower than the target stipulated in the Peace Accords (13.2% of GDP). Revenue needs have
climbed, particularly as a result of more frequent weather events such as tropical depression 12-E. Total
real public spending expanded by 4.1%, mainly owing to higher current spending (5.3%). Capital
spending increased by just 1%, which compares negatively with the growth posted in 2010 (5.1%).
Total central government public debt amounted to 24.3% of GDP, just below the figure for 2010
(24.5%), without taking account of unquantified central government floating debt, which could be around
1% of GDP. A large proportion of the total debt will mature between 2011 and 2020, entailing
disbursements that will put pressure on public finances in the coming years.
Moody’s, Fitch Ratings and Standard and Poor’s maintained Guatemala’s foreign-currency bond
ratings at below investment grade (Ba1, BB+ and BB respectively) with a stable outlook announced by
the first two but a downgrade by Standard and Poor’s from stable to negative amid the likelihood of the
country’s fiscal deficit holding steady at around 3% of GDP.
In November 2011, Congress approved the law establishing the overall State budget for the 2012
fiscal year. The budget amounts to 59.547 billion quetzales (equivalent to US$ 7.614 billion, or 16.3% of
GDP, in 2011), of which 70% will be financed by tax revenue and the issue of treasury bonds worth
7.5 billion quetzales (around US$ 960 million).
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(b)
Monetary, exchange-rate and financial policy
In March 2011, the Monetary Board decided to raise the main monetary policy interest rate by
25 basis points, from 4.5% to 4.75%. In July 2011, the rate went up to 5% and in September it was
raised by a further 50 basis points to 5.5% until the end of the year, in response to inflationary pressures.
The Bank of Guatemala set up an overnight deposit facility, thus changing its neutralization and liquidity
operations through auctions and permanent facilities as follows: seven-day deposits until 31 May 2011
and one-day deposits from 1 June 2011. The aim was to strengthen monetary policy instruments and
secondary market operations.
The bilateral nominal exchange rate of the quetzal against the United States dollar appreciated by
3.4% (6.2% in real terms) in 2011, based on the annual average. Net international reserves stood at
US$ 6.188 billion at the end of December, 3.9% more than in 2010.
The monetary aggregates M1, M2 and M3 grew at slightly slower rates in real terms compared
with 2010, expanding by 1.7%, 9.9% and 10.7% respectively (compared with 3.9%, 9.9% and 11.3% in
2010). Bank interest rates fell slightly in response to monetary authority intervention. Real lending rates
fell from 9.2% in 2010 to 7.2% in 2011; real rates on deposits slipped from 1.6% to -0.9%. As a result,
bank lending shot up in real terms by 24.8%, far more than the 5.4% growth recorded in 2010. The five
branches accounting for the largest proportions of lending were consumption (25.8% of the total),
commerce (25.6% of the total), manufacturing (16.1% of the total), services (13.1% of the total) and
construction (7.7% of the total). In these branches, lending went up by 31.8%, 20.9%, 46.4%, 5.7% and
3.2% respectively.
In this context, the Government of Guatemala did not apply for a new stand-by arrangement with
the International Monetary Fund (IMF) in 2011 following the expiry, in October 2010, of the agreement
in force since April 2009. During its fourth review, the IMF Executive Board found that the targets set
under the precautionary arrangement had been met.
(c)
Trade policy
During the Summit of the Tuxtla Mechanism for Dialogue and Coordination held in November
2011, the governments of Central America and Mexico signed a free trade agreement which resulted in
the convergence of the various trade agreements in force between these countries.
3. The main variables
(a)
Economic activity
In 2011, real GDP grew by 3.9%, driven by the expansion in mining, basic services and other
services. Agriculture, manufacturing and construction recorded more modest growth. Imports of goods
and services rose by 5.2%. On the demand side, gross fixed investment increased by 3.5%, which
compares positively with the decline in 2008-2010. Private investment increased by 6.9%, but public
investment shrank by 9.3%, continuing the negative trend of 2010, when it was down by 15.9%. This was
partly due to the limited room for manoeuvre in the budget. Consumption rallied, with public
consumption up by 4.7% and private consumption up by 4.2%. Exports of goods and services rose by
5.4%. In October 2011, tropical depression 12-E had a negative impact on economic growth for the year,
shaving around 0.14 percentage points off real GDP growth for 2011.
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Measured in terms of gross output value at 2001 prices, mining was the most dynamic economic
activity, expanding by 20.5% in 2011 thanks to growth in metallic minerals (37.2%) following depressed
demand in the last five years. However, oil and natural gas production contracted by 8.2% because of
field depletion.
The agricultural sector grew by 3.6%, three percentage points more than the previous year.
Traditional crops saw the most growth (7.1%) followed by non-traditional crops (2.9%) and livestock,
forestry and fishing production (2.5%). Among the main export crops (coffee, cotton, bananas, sugar cane
and cardamom), cardamom expanded by 6.5% while cotton declined by 2.4%.
The gross value of manufacturing production grew by 3.1%, slightly less than in 2010,
accounting for 18.1% of GDP. The slower growth was partly caused by a slump in external demand for
textiles and garments in the United States, the main market for these products. The two segments showing
the most growth in this sector were the wood and cork industry (7.6%) and non-metallic minerals (7.2%).
At 2001 prices, basic services (electricity, gas and water, and transport, storage and
communications) expanded by 4.5% in 2011, just over one percentage point more than in 2010. Other
services such as commerce, restaurants, finance and community and social services were up by an
average of 3.9%.
(b)
Prices, wages and employment
Higher prices for imported goods, especially oil and food, pushed consumer prices up by 6.2% to
December 2011 (compared with 5.4% in 2010). Core inflation reached 5.27% at the close of 2011.
Inflation in the food and non-alcoholic beverage sector soared by 10.9%, far outstripping the 3.4% posted
in 2010. Wholesale prices edged up by 6.9% in 2011 (compared with 6.6% in 2010).
In 2011, the minimum wage for both agricultural and non-agricultural activities was raised from
56 quetzales per day to 63.7 quetzales per day, representing an annual real increase of 7.1%. Wages in the
maquila sector rose from 51.8 quetzales per day to 59.5 quetzales per day (a real increase of 8.2%).
Average wages across all economic sectors rose by an average of 1.6% in real terms. The National
Institute of Statistics of Guatemala reported that open unemployment had crept up from 3.5% in 2010 to
4.1% in 2011, largely due to job losses in the maquila sector.
(c)
The external sector
The value of goods exports shot up by 22.9% in 2011, against 17.3% in 2010. Traditional exports
surged by 24.8% on the back of high prices for coffee, banana and other exports. Non-traditional exports
increased by 22.2%. Goods imports expanded by 20%, matching the growth the previous year. Demand
for intermediate goods was up by 23.1%, although it was driven by higher prices for hydrocarbons and
other industrial inputs. The value of exported services rose by 2.9%. The value of imports of capital and
consumer goods increased by 17.9% and 13.6% respectively. Services imports expanded by 5.2%. The
goods and services deficit therefore widened to 10.9% of GDP, almost half a percentage point more than
in 2010. Foreign currency inflows from tourism amounted to US$ 937.2 million, representing a drop of
4.9% (14.5% decline in 2010). The income balance widened from 2.9% of GDP in 2010 to 3.3% of GDP
in 2011. The current transfers balance narrowed from 11.9% of GDP in 2010 to 11.1% of GDP in 2011,
even though family remittances (US$ 4.378 billion) rose by 6.1% in 2011. As a result, the current account
deficit stood at 3.1% of GDP in 2011, double the percentage recorded in 2010.
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Inflows of foreign direct investment (FDI) went up by 22.2% and were equivalent to 1.9% of
GDP. The capital and financial account posted a surplus of US$ 2.002 billion. Net capital inflows
(including errors and omissions) exceeded the current account deficit, such that the balance of payments
showed a surplus of US$ 205.9 million (about 0.44% of GDP), 69.6% less than the previous year.
4. General trends for the first quarter of 2012 and outlook for the year
Economic activity —measured by the trend-cycle series of the monthly index of economic activity—
picked up in March 2012, giving an annualized increase of 3.5% (compared with 3.9% in March 2011). In
March 2012, year-on-year inflation stood at 4.6%, below the 5% reported in March 2011.
Although significant seasonal variations need to be taken into account, in March 2012 the central
government recorded a surplus of 892.1 million quetzales (equivalent to 0.24% of 2011 GDP). Total
spending amounted to 10.480 billion quetzales, 4.9% less than in March 2011, owing to a 30% drop in
capital spending. Current spending expanded by 1.6% between March 2011 and March 2012. Total
revenue in the first quarter increased by 6% in nominal terms compared with the same period in 2011,
mainly as a result of the increase in tax receipts (6.1%).
In March 2012, the main monetary policy interest rate held steady at 5.5%. Weighted average
nominal bank lending and borrowing rates showed slight variations, standing at 13.39% and 5.21%
respectively, compared with 13.37% and 5.30% in March 2011. In March 2012, nominal appreciation was
1.3% compared with December 2011. Net international monetary reserves totalled US$ 6.141 billion
(0.8% less than in December 2011).
According to the Bank of Guatemala, the total value of general commerce exports between
January and March 2012 stood at US$ 2.734 billion, 0.6% higher than the figure recorded in the first
quarter of 2011. The highest rates of growth were seen in the exports of coffee (11.3%), sugar (11.1%),
garments (9.8%), bananas (6.1%) and precious and semi-precious metals and stones (6%), which together
accounted for 44.3% of the total value exported. The value of imports rose to US$ 4.124 billion, 7%
higher than the figure recorded in the same quarter of 2011. In imports the following sectors saw the
sharpest growth: fuels and lubricants (15.5%), semi-durable consumer goods (15.3%), capital goods for
industry, telecommunications and construction (8.1%) and non-durable consumer goods (3.7%), which
together accounted for 81.2% of the total variation. In March 2012, the trade balance showed a deficit of
US$ 1.389 billion, 22.2% more than in the same period of 2011. As a result, the trade gap is expected to
widen in 2012. To March 2012, remittances totalling US$ 1.058 billion had been received, representing
8.8% more than in the same period of 2011.
The economy is expected to grow by 3.5% in 2012 because exports are forecast to put in a
modest performance as a result of lower prices for coffee and sugar exports, more sluggish demand in
Central America and the United States and a slight slowdown in domestic credit. The Bank of Guatemala
forecasts inflation ranging between 3.5% and 5.5%.
At the start of 2012, Congress approved a fiscal reform and a second law against tax evasion,
which will bring in extraordinary income worth around 1.5 percentage points of GDP an average for the
period 2012-2015 (0.30 in 2012, 1.30 in 2013, 1.47 in 2014 and 1.4 in 2015). At year-end 2012, the
government expects a fiscal deficit of 2.4% of GDP. In addition, it forecasts a current account deficit of
3.7% of GDP and FDI worth US$ 1.003 billion (2.1% of GDP), headed mainly for telecommunications
and hydroelectric power.