The IMF has published its concluding statement following consultations with Guatemala under Article IV of the IMF’s articles of agreement.

The IMF notes that the new administration and legislature in Guatemala are focused on increasing governance, transparency and accountability. Important legislation recently adopted includes an electoral and political parties law. Legislative reforms currently in progress include the Tax and Customs Administration (SAT) law and constitutional changes to strengthen the judiciary. Technical assistance from the IMF on tax administration and fiscal transparency is helping to design the next steps in the reform.

Economic growth remained at 4.1% in 2015 despite a slowdown in consumption and investment. However only one quarter of the quantitative targets of the Millennium Development Goals for 2015 were met and none of the goals for the rural and indigenous population have been reached. Low fiscal revenues are a hurdle to progress towards the new Sustainable Development Goals.

Growth is expected to return to 3.75% in 2016 and then gradually rise to 4% in the medium term. There are downside risks from reductions in the provision of financial services by global banks and from failure to address the crisis in the SAT and other institutional weaknesses.

Reform of the SAT is a priority to raise revenue and contribute to combating corruption. Measures to address governance, management and operational difficulties in line with IMF recommendations include adopting the new SAT law; strengthening customs by ensuring more effective control of goods, more accurate valuation of imports and stricter control of special trade regimes; more effective control of large and medium-size taxpayers’ compliance; measures to improve value added tax (VAT) administration including enforcement of issuance of VAT invoices; and improving taxpayer services, including broader availability of e-services.

The IMF considers that raising fiscal revenues to at least 15% of GDP is essential in the longer term. Continued strengthening of the SAT is necessary to reverse the trend of falling tax compliance levels and collect more revenue. Measures should include strengthening the SAT’s legal framework; strengthening the staff performance evaluation system; and broadening and improving the quality of the SAT’s digital service.

The government should consider a comprehensive review of the tax policy framework aimed at broadening the tax base and possibly raising tax rates while taking distributional and macro-economic considerations into account. Personal income tax rates for example are particularly low compared to other countries. Lowering the amount of revenue earmarking could also make the use of resources more flexible.

The IMF has recommended measures on fiscal transparency including improving fiscal accounting and reporting; protecting tax administration from political interference; improving control and audit of fiscal spending; and making government direct purchases more transparent.