Guatemala WT/TPR/S/210 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Guatemala is the largest economy in Central Am erica, representing about one third of the 
population and one quarter of the GDP of the Central American Common Market (CACM).  Its per 
capita GDP was USt$2,532 in 2007.  The real annual rate of growth of GDP was 3.4 per cent during 
the period 2001-2006, rising to 5.7 per cent in 2007.  However, a slowdown was expected in 2008 because of diminished growth in the United States, Guatemala's main trading partner and the source 
of the bulk of remittances entering the country.  In the long term, Guatemala still faces major 
challenges in achieving income growth  and sustainable poverty reduction. 
2. Inflation rose, driven in part by the increase in  prices for petroleum and food.  Guatemala is 
implementing an inflation-targeting scheme which cons titutes the nominal anchor of monetary policy.  
In principle Guatemala maintains a flexible exchange-rate system, although in practice the Central 
Bank intervenes in the exchange market.  Guatemal a maintains an operational surplus in its public 
accounts;  the central Government's overall fiscal defi cit is relatively low, and the country has been 
within reach of the goal of reducing the fiscal defi cit to 1 per cent of GDP.  The deficit reduction has 
been limited by the income allocation established in the Constitution and by the low taxation rate. 
3. The current account deficit of the balance of payments stood slightly above 5 per cent of GDP 
in 2007.  Between 2002 and 2007, in-bond processi ng (maquila) exports, which represent about one 
third of total merchandise exports, grew by about 40 per cent, while other exports grew by two thirds.  
Total imports grew approximately 70 per cent.  Th e main exports, in decreasing order of importance, 
are apparel, coffee, sugar and bananas.  Manufactur ed products dominate imports.  The United States 
continues to be Guatemala's main trading pa rtner, followed by Central America and the 
European Communities.  Trade in goods and ser vices represents approximately 57 per cent of 
Guatemalan GDP. 
(2) M
ACROECONOMIC DEVELOPMENTS  
(i) Structure, growth and employment 
4. In 2007, services contributed about 55.4 per cent of Guatemala's GDP;  among these, 
wholesale and retail commerce continues to play a leading role (Table I.1).1  In the same year, 
agriculture, forestry and fishing combined repr esented 10.3 per cent of GDP, while manufacturing 
industry accounted for 18.3 per cent.  While most ec onomic sectors grew during this period, they did 
so at different paces.  The highest growth rates were recorded in public services and transport. 
5. About two thirds of the active population were  employed in services in 2006, while 17.2 per 
cent worked in manufacturing industry, 13.7 per cent in  agriculture, 3 per cent in construction, 0.9 per 
cent in the electricity, gas, water and sanitation services industry, and 0.3 per cent in mining.2  
Between 2001 and 2006, employment gr ew more rapidly in the constr uction sector (45 per cent), 
followed by sales (30.8 per cent);  employment fell  in agriculture (7.5 per cent), in manufacturing 
                                                      
1 The analysis in this chapter is based on information available as at October 2008.  Although 
Guatemala's economic statistics have improved in recent  years, there are still some gaps and delays in the 
information available, especially as regards real-sector and balance-of-payments statistics. 
2 Information provided by the authorities, based on data from the National Institute of Statistics (INE). WT/TPR/S/210 Trade Policy Review 
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(8.5 per cent) and in public services (11 per cent).  It  is estimated that the informal sector represents 
about 30 per cent of GDP.3 
Table I.1 
Basic economic indicators, 2001-2008 
 2001 2002 2003 2004 2005 2006 2007 2008a 
I. GDP         
Current GDP (Q million) 146,978 162,507 174,044 190,440 207,729 229,548 257,584 288,666
Current GDP (US$ million) 18, 699 20,781 21,920 23,955 27,225 30,204 33,585 .. 
Per capita GDP (US$) 1,714 1,849 1,876 1,971 2,152 2,.327 2,532 .. 
GDP at 2001 constant prices (Q million) 146,97 8 152,661 156,525 161,458 166, 722 175,543 185,631 193,675
Real GDP, growth rate (%) 2.4 3.9 2.5 3.2 3.3 5.2 5.7 4.3
Structure of GDP (% of current GDP at factor costs) 
Agriculture, forestry, hunting and fishing 13.9 13.9 13.3 12.9 12.4 11.3 10.3 10.1
Mining and quarrying 0.7 0.9 1.1 1.0 1.2 1.4 1.6 1.9
Manufacturing industry 19.7 18.5 18.5 18.9 18.7 18.7 18.3 18.2
Electricity and water 3.9 4.7 4.8 4.7 4.7 5.2 5.5 5.3
Construction 2.6 2.6 2.6 2.8 2.6 2.5 2.5 2.5
Services 53.9 53.6 53.9 54.1 55.4 55.6 55.4 56.1
  Wholesale/retail commerce 12.9 12.7 12.9 13.3 14.8 14.7 14.4 14.3
  Transportation, storage and communi cations 5.3 5.1 5.2 5.7 6.1 6.6 7.4 8.5
  Banking, insurance and real estate 2.6 2.6 2.6 2.7 2.7 2.7 2.7 2.8
  Housing rental 10.2 10.1 10.1 10.0 9.9 9.7 9.5 9.4
  Private services 15.5 15.8 15.9 15.6 15.3 15.5 15.2 15.1
  Public administration and defen ce 7.4 7.3 7.2 6.8 6.6 6.4 6.2 6.0
  Taxes net of subsidies and financial in termediation 5.3 5.8 5.8 5.6 5.0 9.6 6.4 5.9
Total 100 100 100 100 100 100 100 100
Composition of GDP by type of expenditure (% of current GDP)  
  Total consumption 93.5 92.7 93.4 93.1 93.8 93.2 92.6 .. 
Private 83.4 83.0 84.1 84.7 85.5 84.9 84.3 .. 
Public 10.1 9.7 9.3 8.4 8.3 8.3 8.3 .. 
  Gross fixed capital formation 18.3 19.2 18.2 17.6 17.7 19.4 19.8 .. 
Construction 7.7 8.8 8.2 6.9 7.1 7.9 8.3 .. 
Machinery and equipment 10.6 10.4 10.0 10.7 10.6 11.5 11.5 .. 
  Exports of goods and services 28.2 27.4 26.5 27.8 26.4 26.3 27.5 .. 
  Imports of goods and services 41.3 40.6 39.8 40.8 39.3 39.7 40.2 .. 
II. Memorandum item         
Population (million) 10.94 11.24 11.69 12.15 12.70 12.98 13.31 .. 
.. Not available. 
a Projected. 
Source : Central Bank of Guatemala and Ministry of the Economy. 
6. The composite real annual growth rate of Guatemala's GDP during the period 2001-2007 was 
3.7 per cent (Table I.1).  The development of economic activity accelerated in 2006 and 2007.  The 
Bank of Guatemala points to external factors, such  as the buoyancy of exports, a higher level of 
private investment and the positive effects of the Free Trade Agreement between the Dominican 
Republic, Central America and the United States (DR-CAFTA) as the main reasons behind the 
                                                      
3 National Economic Research Centre (CIEN) (2001). Guatemala WT/TPR/S/210 
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positive economic performance.  It is also important to  highlight the role of remittances from abroad;  
this explains the high share of private consump tion in total expenditure, which exceeds 80 per cent.  
Total consumption, including that of the Govern ment, exceeds 90 per cent of GDP, even though the 
share of public spending in GDP has contracted  during the period under review.  Thanks to 
macroeconomic stability, investment has rebounded a nd was particularly buoyant in 2006 and 2007. 
7. Although GDP as a whole grew more rapidly in  2007 than in 2006, domestic demand posted 
lower growth in 2007 - 5.3 per cent, compared with  5.9 per cent in 2006.  The lesser buoyancy of 
domestic demand in relative terms reflects a slowdown in the rate of growth of gross fixed capital 
formation.  External demand recorded an increase estimated at 10.8 per cent in 2007 over 4.6 per cent 
in 2006.  Imports of goods and services rose by 7.5 per cent in 2007, mainly because of an increase in 
imports of capital goods  and consumer goods. 
8. Per capita GDP was US$2,532 in 2007, nearly 50 per cent above the 2001 level.  
Nevertheless, the International Monetary Fund (IMF)  estimates that in real terms this level matches 
the one at the end of the 1970s.  Accordingly, steady growth will be needed in the next several years 
in order to achieve a substantial improvement in the population's real income.  In order to achieve 
higher growth, productivity will have to increase,  and this will mean implementing additional 
structural reforms.  This would contribute to the at tainment of the Government's stated objectives, in 
particular its goals for reducing p overty and improving social conditions.  A first step in this direction 
has been taken in the framework of the institutiona l and legal changes required for the implementation 
of DR-CAFTA. 
9. In the context of its Article IV consultation with Guatemala in May 2008, the IMF stressed 
the strong performance of the economy in 2007, subs tantial improvements in tax administration, and 
continued efforts to promote growth and regional integration.  While indicating that near-term 
prospects remained favourable overa ll, the IMF noted that they were  subject to risks from a sharper 
deceleration of the United States economy, given the strong economic linkages through trade, remittances and financial flows.
4  These risks have intensified since the autumn of 2008 owing to the 
international economic and financial crisis. 
(ii) Fiscal policy 
10. In general, during the period 2001-2007 govern ment accounts fluctuated within a fairly 
narrow band, with government revenues equivale nt to about 12 to 12.8 per cent of GDP and 
expenditures to 13.4 to 15.1 per cent.  This h as given rise to a central government deficit ranging 
between 1.1 and 2.6 per cent of GDP (Table I.2).  The tax burden has increased slightly during the 
period under review, from 10.8 per cent of GDP in 2001 to 12.3 per cent in 2007.5  The current 
account has been positive throughout the period under re view, with positive current saving rates.  The 
primary balance has posted a deficit since 2005, but this  deficit is smaller than the consolidated fiscal 
account deficit, which has increased because of exte rnal and internal debt payment disbursements. 
                                                      
4 IMF (2008a). 
5 The tax burden is defined as tax revenues net of tax credit refunds of VAT on exports and of social 
security contributions. WT/TPR/S/210 Trade Policy Review 
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Table I.2 
Public finance, 2001-2008 
 2001 2002 2003 2004 2005 2006 2007 2008a 
In millions of US$         
Government revenues 18,220 20,772 21,768 23,462 24,907 29,250 33,611 35,528 
  Current revenues 18,207 20,758 21,749 23,462 24,881 29,215 33,584 35,497 
  Tax revenues 15,928 19,295 20,281 21,974 23,310 27,238 31,543 33,083 
  Capital revenues 14 13 59 1 26 35 27 31 
Government expenditures 21,310 22,541 26,333 25,542 28,501 33,721 37,382 40,150 
  Current expenditures 15,196 15,688 17,529 17,429 18,927 21,622 24,781 28,437 
  Debt interest 2,290 2,269 2,266 2,601 2,923 3,182 3,892 4,239 
  Capital expenditures 6,131 6,853 8,804 8,113 9,573 12,100 12,601 11,713 
Fiscal deficit or surplus -3,090 -1,770 -4,566 -2,080 -3,594 -4,471 -3,772 -4,622 
Public debt 32,683 32,520 38,915 42,625 44,760 50,369 56,642 60,633 
  External (US$ million) 2,925 3,119 3,467 3,844 3,723 3,958 4,226 4,362 
  Internal 9,282 8,169 11,037 12,841 16,426 20,189 24,214 26,564 
As a percentage of GDP         
Government revenues 12.4 12.8 12.5 12.3 12.0 12.8 13.1 12.4 
  Current revenues 12.4 12.8 12.5 12.3 12.0 12.7 13.1 12.4 
  Tax revenues 10.8 11.9 11.7 11.5 11.2 11.9 12.3 11.6 
  Capital revenues 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 
Government expenditures 14.5 13.9 15.1 13.4 13.7 14.7 14.6 13.8 
  Current expenditures 10.3  9.7 10.1 9.2 9.1 9.4 9.7 9.8 
  Debt interest 1.6  1.4 1.3 1.4 1.4 1.4 1.5 1.5 
  Capital expenditures 4.2 4.2 5.1 4.3 4.6 5.3 4.9 4.0 
Fiscal deficit or surplus -2.1 -1.1 -2.6 -1.1 -1.7 -1.9 -1.5 -1.4 
  Current saving 3.4 2.6 2.1 2.8 2.0 3.3 2.0  2.4 
  Primary balance .. .. .. 0.3 -0.5 -0.6 -0.5 -0.1 
Memorandum items         
Overall balance of the public 
sector   -2.8 -1.2 -0.8 -0.9 -1.4 -0.9 
Public debt 22.2 20.0 22.4 22.4 21.5 22.0 22.1 21.3 
  External 15.6 15.0 15.8 16.0 13.7 13.1 12.6 12.0 
  Internal 6.3 5.0 6.3 6.7 7.9 8.8 9.4 9.3 
.. Not available. 
a Projected figures. 
Source : WTO calculations, based on data provided by the Banking Supervisory Authority and th e Ministry of Finance. 
11. Tax collection in Guatemala is structured in such a way that indirect taxes represent a 
significant share of total receipts.  About 40 per cent of government revenues derive from taxes on 
trade.  Of these, the most important in terms of volume of receipts is the value-added tax (VAT) on 
imports, which accounted for 31.2 per cent of total receipts in 2007 (Table I.3).  In 2007 tariffs 
represented 7.9 per cent of total receipts. 
12. External sources of debt financing are mainly disbursements and redemptions of treasury 
bonds and loans, chiefly those issued by the Central American Bank fo r Economic Integration 
(CABEI), the World Bank and the Inter-American Development Bank.  Internal sources are the 
trading of government securities and the write-down of the net shortfall of the Bank of Guatemala. Guatemala WT/TPR/S/210 
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Table I.3 
Sources of government revenue, 2001-2007 
(As a percentage of total government revenue) 
 2001 2002 2003 2004 2005 2006 2007 
Taxes on trade 41.0 40.1 41.2 41.7 47.3 40.4 39.8 
VAT on imports 28.5 28.2 29.2 30.5 31.7 30.7 31.2 
Tariffs 11.6 11.2 11.2 10.4 14.8 9.0 7.9 
Upon exit 0.9 0.8 0.8 0.8 0.8 0.7 0.7 
Other taxes 59.0 59.0 58.8 58.3 52.7 59.6 60.2 
On income 13.8 12.6 12.7 14.1 17.4 18.7 19.6 
VAT on sales 18.2 18.1 17.8 19.0 16.9 17.2 19.7 
Petroleum and petroleum products 9.5 7.9 7.1 7.6 1.9 6.7 6.1 
To support the Peace Agreements (IET AAP) 0.0 0.0 0.0 5.3 6.6 7.6 6.1 
Hydrocarbons royalties 1.7 1.9 2.4 2.1 2.4 2.3 2.4 
On alcoholic beverages 1.5 1.5 1.3 1.0 1.5 1.4 1.3 
Stamps 0.9 0.9 0.8 1.2 1.2 1.4 1.2 
Single Tax on Real Estate (IUSI)  1.1 1.1 1.2 1.3 1.4 1.3 1.1 
On tobacco 1.4 1.3 1.3 1.1 1. 2 1.1 1.1 
Vehicle tax 1.3 1.2 1.2 1.1 1.3 1.1 1.0 
Other taxes 0.6 0.5 0.5 0.4 0.4 0.4 0.4 
On cement 0.4 0.4 0.4 0.4 0.4 0.4 0.3 
On wealth 0.1 0.0 0.0 0.0 0.0 0.0 0.0 
Tax on Commercial and Agricultural 
Enterprises (IEMA) 8.7 12.4 12.1 3.7 0.1 0.1 0.0 
Source : Information provided by the authorities. 
13. Since 2001 the Government has implemented a Fi scal Plan (Fiscal Pact) aimed at reducing 
the public deficit and restraining spending.  The Pl an sets the goal of attaining a central government 
fiscal deficit equivalent to no more than 1 per cent of GDP and a tax burden eq uivalent to 12 per cent 
of GDP.  Although the fiscal outcomes have not met the Fiscal Plan targets, since 2005 the deficit has been approaching the goal of 1 per cent of GDP.  The IMF considers Guatemala's fiscal position to be 
solid, with the central government deficit contained and the public debt, estimated at about 22 per cent 
of GDP in 2007, among the lowest in the region.
6  However, in the context of the Article IV 
consultation in May 2008, the IMF noted that  spending had remained  above budget ceilings, 
highlighting deficiencies in control of budget execution.7 
14. As part of the Fiscal Plan, measures were adopted as from 2001 to step up tax inspection and 
to contain and streamline public spending in accordance with specific goals included in an 
IMF-supported economic programme.  In addition,  as from 2001, measures were implemented to 
strengthen the penal framework in order to punish  tax avoidance and evasion and to enlarge the tax 
base.  For the same purpose, in 2004, mechanisms were introduced to simplify tax collection, the 
Income Tax Law was amended, the Temporary and Extraordinary Tax to Support the Peace 
Agreements (IETAAP) was established,  and tariffs on the distribution of distilled alcoho lic beverages, 
beer and other fermented beverages were increased.  In order to improve tax collection, Legislative 
Decree No. 20-2006 on Legal Provisions for Strengt hening the Tax Administration, better known as 
the Anti-Tax Evasion Law, was promulgated in June 2006.  The Decree is aimed at expanding the tax 
base of the VAT and the income tax and is part of th e strategy for reducing avoidance of those taxes.  
                                                      
6 IMF (2008a). 
7 IMF (2008b). WT/TPR/S/210 Trade Policy Review 
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Among the measures envisaged by the Anti-Tax Evasion Law are the introduction of a system of 
VAT withholdings at an authorized general withholdi ng rate of 15 per cent of the VAT applied to the 
transaction, the implementation of a Printed Matte r Tax Record to reduce false invoicing, and the 
requirement that all transactions that are to be incl uded as costs or tax credits in transactions related to 
tax payments be documented by banking means.  La stly, a number of amendments were included in 
the Tax Code and in customs legislation to strengthen the tax collection powers of the Tax 
Administration Supervisory Authority (SAT).  The authorities have indicated that they estimate the effects of the Anti-Tax Evasion Law on VAT and in come tax receipts to be about 0.8 per cent of 
GDP, which they consider equivalent to the VAT rate having been raised by 1.75 per cent.  The 
authorities also believe that the improvement in recei pts as a result of the Law has helped to offset the 
effects of the tariff reduction resulting from the fu ll entry into force of DR-CAFTA and the decrease 
in the IETAAP.  The authorities have also indicated that they plan to implement a further reform of 
the tax system, which was under discussion in September 2008. 
15. Public spending is characterized by a high degree of inflexibility due to the allocation of 
revenues by law.  The General Budget of Govern ment Revenues and Expenditures for the respective 
fiscal year contains an estimate of the revenues that the Government expects to obtain and the 
spending commitments derived from tax provisions, constitutional contributions established by the 
Political Constitution of the Republic of Guatemala, and other ordinary laws in force.  On the basis of 
the above, the tax revenues that are collected are earmarked for a specific purpose or to finance a 
predetermined spending obligation;  therefore, th e public budget is programmed and executed rigidly.  
In this connection, the Constitution provides that at least 10 per cent of the projected ordinary 
revenues in the budget must be allocated to the muni cipalities for specific expenditures, at least 5 per 
cent to the University of San Carlos, at least 2 per cent to the judiciary, and no fewer than 3 per cent 
to sports. 
16. Article 171 of the Constitution grants authority to the Congress of the Republic of Guatemala 
with regard to the issuance, negotiation and placeme nt of public debt.  Moreover, the Organic Budget 
Law contains provisions on public debt manageme nt in the framework of the Constitution that are 
approved by the Congress annually in the Budget of  Government Revenues and Expenditures for the 
respective fiscal year.  These provisions establish an overall debt ceiling.  The overall public debt 
ceiling for 2008 is Q 3,420.8 million.  The public ex ternal debt balance as a percentage of GDP has 
shown a tendency to decline, falling from more th an 15 per cent prior to 2004 to 12.6 per cent in 
2007. 
(iii) Monetary and exchange policy 
17. In April 2002 Congress approved the Organizational Law of Bank of Guatemala 
(Decree No. 16-2002), which increases the degree of  independence of that institution;  it also 
approved the Monetary Law, the Law on Financial Supervision and the Law on Banks and Financial 
Groups (the last two are discussed in Chapter IV(6 )(iii)).  These laws introduced significant changes 
in the conduct of monetary policy in Guatemala. 
18. The Organizational Law of the Bank of Guatemala assigns to the Central Bank the 
fundamental objective of promoting general price stability, replacing the previous law's focus on 
multiple objectives.  The Law strengthens the Central Bank's operating authority by giving it a certain 
degree of discretion in achieving its fundamental  objective, without creating distortions in non-
monetary sectors.  One fundamental change in th e operating autonomy of the Central Bank was the 
establishment of an Execution Committee through  which the Bank of Guatemala executes the 
monetary, exchange and credit policy established by  the Monetary Board, which is the highest 
authority with regard to the conduct of monetary policy.  The authorities have indicated that they Guatemala WT/TPR/S/210 
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consider that this change strengthens the institu tional identity and autonomy of the Central Bank, in 
that the existence of a systematic and transpar ent mechanism for executing monetary policy allows 
the latter to be implemented exclusively in co mpliance with the guidelines established by the 
Monetary Board, free of any political or sectoral pressures that might affect the credibility and 
effectiveness of that policy at any given moment. 
19. Although the reforms were initiate d in 2002, it was only in 2005 that an inflation-targeting 
monetary scheme was adopted.  This scheme is ba sed on the choice of an inflation target as the 
nominal anchor of monetary policy and is st rengthened by the maintenance of a flexible 
exchange-rate system and the use of indirect m onetary control instruments, chiefly monetary 
stabilization operations.  Also in 2005, the Execu tion Committee introduced changes to monetary 
stabilization operations for the purpose of increasing the efficiency of monetary policy.  Among these were:  (i) the setting of a policy interest rate for short-term monetary stabilization operations (seven-
day time deposit certificates (CDPs));  (ii) a reduction in the number of invitations to bid on CDPs;  
and (iii) the setting of quotas for attracting CDPs  that are placed through invitations to bid. 
20. In the context of this Review, the authorities ha ve stated that the execution of monetary policy 
between 2006 and 2008 has been focused on achieving full implementation of the inflation-targeting 
scheme.  For 2006, the Monetary Board decided, as a goal of monetary policy, that inflation (measured by the increase in the consumer price inde x (CPI)) should be 6 per cent, with a margin of 
tolerance of plus or minus 1 percentage point.
8  The target for 2007 was 5 per cent with a margin of 
tolerance of plus or minus 1 percentage point.  The inflation target for 2008 is 5.5 per cent with a 
margin of tolerance of  plus or minus 1.5 per centage points, and for December 2009, a target of 
5.5 per cent with a margin of tolerance of pl us or minus 1 percentage point has been set.9  T h e  
authorities have indicated that the rise of one half of a percentage point in the ad hoc inflation target is 
due to acceptance that, on the one hand, the behavi our of the international price of petroleum and 
petroleum products would continue to exert an influence on inflation in 2008 and 2009 and, on the 
other hand, that monetary policy cannot change that  effect, which is a direct effect, but can only 
change the second-round effects due to the rise in petr oleum prices.  They have also indicated that the 
increase in the margin of tolerance reflects greater  uncertainty with regard to the behaviour of 
international prices of raw materials and inputs, wh ich have a substantial impact on the behaviour of 
the CPI. 
21. In the Article IV consultation with Guatemala in May 2008, the IMF noted that the objective 
of anchoring inflation and inflationary expectatio ns at a low level has not been fully achieved, 
because the high rate of credit growth and the maintenance of exchange-rate objectives have 
prevented the full implementation of the inflation-targeting framework.10 
22. Within the inflation-targeting scheme, the Mone tary Board agreed to several increases in the 
policy interest rate between March and November 2007 in order to mitigate the inflationary pressures 
arising from the volatility and increase in the price of  petroleum.  As a result, between January and 
                                                      
8 Bank of Guatemala (2007b). 
9 Monetary Board, Decision JM-211-2007.  Consu lted online at:  http://www.banguat.gob.gt/publica/ 
comunica/Res_211_2007.pdf. 
10 IMF (2008b). WT/TPR/S/210 Trade Policy Review 
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December 2007, the policy rate increased from 5 per cent to 6.5 per cent.11  The policy rate was 
increased again in March 2008 to 6.75 pe r cent and in July to 7.25 per cent.12 
23. The pace of growth in price levels decreased dur ing the first part of the period under review 
(2001-2003), then increased in 2004 and fell in the fo llowing two years to reach 5.8 per cent at the 
end of 2006.  Inflation rebounded in 2007 owing to internal and external factors, especially the 
increase in the international prices of petroleum and basic foodstuffs, such as maize (corn), wheat and 
vegetable oils.  Primary excess liquidity in the economy and the growth of  banking credit to the 
private sector above the ceiling programmed by the Bank of Guatemala in its monetary programme 
also had an impact.  As a result of these factors, the inflation rate in 2007 stood at 8.8 per cent, higher 
than the target proposed by the Bank of Guatemal a.  Inflation continued to accelerate in 2008, 
reflecting mainly higher prices for petroleum and food.  The CPI increased by about 12.8 per cent in the 12 months up to September 2008, significantly above the inflation target that had been set.  In the context of the Article IV consultation with Guatemala in May 2008, the IMF recommended the 
adoption of a tighter monetary policy to avoid second -round effects of external inflation and to anchor 
inflation expectations at a low level.
13 
24. The indicators of financial deepening have grown steadily as the decade has progressed:  the 
share of means of payment (M2) in the econom y, which in December 2000 represented 29.6 per cent 
of GDP, came to 37.6 per cent of GDP by the same date  in 2007 (Table I.4).  Market interest rates in 
local currency fell during the period under review, but with the weighted average lending rate at 
12.9 per cent in 2007, remain high, especially cons idering that foreign currency rates are still low 
despite the real appreciation of the quetzal.  In  addition, while the difference between lending and 
borrowing rates in local currency has decreased sli ghtly during the period under review, it remains 
substantial, indicating high costs or flaws in the credit market.  In this regard, the authorities have 
indicated that they believe that the decline in this indicator in recent years, while slight, is associated 
with higher levels of efficiency in the compe titiveness of the banking industry, due mainly to the 
financial modernization and liberalization process a nd to the consolidation and strengthening of the 
financial system. 
25. Guatemala follows a flexible exchange-rate policy with market interventions by the 
Central Bank.  The nominal exchange rate has s hown little volatility, and the re al effective exchange 
rate appreciated by nearly 14 per cent between 2004 a nd 2006, but by barely 0.1 per cent in 2007.  On 
31 December 2007, the exchange rate stood at 7.63 quetzales to the United States dollar;  on 
30 September 2008, it was 7.47 quetzales to the Un ited States dollar.  Acco rding to the IMF, the 
appreciation of the real effective exchange ra te has been broadly consistent with economic 
fundamentals.14  If it continues, however, the exchange-rate appreciation could cause problems for the 
real economy by eroding the competitiveness of export s.  The authorities have recognized that a real 
exchange-rate appreciation has occurred, but they believe that this indicator is an approximate 
measure of the direction of change in the country 's international competitiveness, mainly because of 
methodological problems in calculation, the lack of reliable and uniform econom ic statistics, and the 
fact that calculation of the exchange rate does not take into consideration the continuing changes in 
international trade. 
                                                      
11 Bank of Guatemala (2008). 
12 Bank of Guatemala, press releases of 18 June 2008 and 23 July 2008, respectively.  Consulted online 
at:  http://www.banguat.gob.gt/Publica/prensa/boletin_t asa_int180608.pdf and http://www.banguat.gob.gt/ 
Publica/prensa/boletin_tasa_int230708.pdf. 
13 IMF (2008a). 
14 Idem . Guatemala WT/TPR/S/210 
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Table I.4 
Monetary and financial indicators, 2001-2008 
(Per cent and US$ million) 
 2001 2002 2003 2004 2005 2006 2007 2008a 
Narrow money (M1) (as a percentage of GDP) 13.7 13.3 15.0 14.6 15.8 16.9 17.3 16.3 
Means of payment (total M2, end of period) (as a 
percentage of GDP) 32.1 31.7 33.5 34.0 35.7 37.9 37.6 35.4 
Banking credit to the private sector (as a percentage of 
GDP) 20.6 20.0 20.4 20.9 23.3 27.2 30.6 29.1 
Ratio of Q to US$ 7.86 7.82 7.94 7.95 7.63 7.60 7.67 7.47 
Interest rate in local currency (%)         
Lending 17.9 16.2 14.1 13.5 12.7 12.9 12.9 13.7 
Borrowing 7.7 6.9 4.5 4.5 4.6 4.8 4.9 5.3 
Interest rate in foreign currency (%)         
Lending 8.8 7.4 6.8 6.9 7.2 7.6 7.6 7.9 
Borrowing 4.0 3.6 3.0 3.1 3.4 3.8 3.6 3.7 
Per cent change in the real effective exchange rate 
(IMF) 3.2 8.3 -1.5 2.1 7.9 3.2 0.1 .. 
Inflation (increase in the consumer price index, end of 
period) 8.9 6.3 5.9 9.2 8.6 5.8 8.8 12.8b 
.. Not available. 
a Figures to September. 
b September to September. 
Note: An increase in the real effectiv e exchange rate equals appreciation. 
Source : Bank of Guatemala. 
26. In the context of the May 2008 Article IV cons ultation, the IMF noted that, despite limited 
intervention in the market, the low volatility of the ex change rate has fostered the perception that the 
Monetary Board is more inclined to defend the st ability of the exchange rate than the inflation 
target.15  In this connection, the IMF Executive Dir ectors recommended that, in order to increase 
monetary policy effectiveness and strengthen the cr edibility of the inflation-targeting framework, the 
authorities should allow greater exchange-rate flexib ility, which would also lo wer sterilization costs, 
reduce incentives for dollarization, and help the ec onomy adjust more smoothly to changes in global 
and domestic conditions.16  The authorities have indicated that th e Central Bank's participation in the 
exchange market has been solely  for the purpose of reducing the observed volatility in the nominal 
exchange rate and not in order to change its  trend.  To strengthe n this position and reduce 
interventions in the exchange market, the Monetary Board adopted Decision JM-60-2008 of 
11 June 2008, amending the Rule on Participation by the Bank of Guatemala in the Institutional 
Exchange Market.  The Decision sets more a flexible  exchange intervention rule, given that greater 
exchange-rate flexibility is desirable in an infla tion-targeting scheme, while holding to the principle 
that such intervention should be limited to mode rating the volatility of the nominal exchange rate 
without affecting its trend, a move that would c ontribute to improving the effectiveness of monetary 
policy.  The new rule stipulates that the Central Ba nk will intervene in the exchange market when the 
exchange rate fluctuates by more than 0.5 per cen t with regard to the moving average of the last 
five working days, and that the amount of the intervention, by auction, will be limited to 
US$8 million, with a maximum of three auctions per day. 
                                                      
15 IMF (2008b). 
16 IMF (2008a). WT/TPR/S/210 Trade Policy Review 
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27. Decree No. 94-2000, the Law on Currency Use, allows foreign currency to be used in 
domestic transactions, and allows fi nancial institutions to accept depos its and make loans in foreign 
currency.  The dollarization of certain operations has increased during the period under review.  While 
the means of payment in foreign currency represente d 4.4 per cent of the M2 monetary aggregate in 
2001, this proportion had increased to 12.8 per cent in 2007.  Likewise, the proportion of banking 
credit to the private sector in foreign currency we nt from 19.3 per cent in 2001 to 29.7 per cent in 
2007.  There are no exchange restrictions for current  payments, current transfers or capital transfers. 
(iv) Balance of payments 
28. Guatemala's current balance of payments is tr aditionally in deficit, mainly because of the 
sharp trade imbalance.  Preliminary figures indi cate that the current balance-of-payments account 
posted a deficit equivalent to 5.1 per cent of GDP in 2007 (Table I.5).  There is no partial information 
for 2008. 
Table I.5 
Balance of payments, 2001-2007 
(US$ thousand) 
Item 2001 2002 2003 2004 2005 2006 2007a 
Current account -1,159.5 -1,110.7 -905.4 -1,075.4 -1,318.9 -1,332.8 -1,696.9 
Balance of trade in goods -2,678.4 -3,317.9 -3,543.9 -4,246.9 -4,693.3 -5,506.6 -6,322.8 
Exports of goods f.o.b.b 2,463.6 2,473.2 2,631.7 2,928.4 3,377.6 3,715.9 4,543.4 
Imports of goods f.o.b.b -5,142.0 -5,791.0 -6,175.7 -7,175.3 -8,071.0 -9,222.5 -10,866.2 
Balance of services and investment  478.78 106.7 42.9 -8.4 -261.3 -202.6 .. 
Exports of servicesb 1,758.5 1,652.2 1,666.0 1,790.7 1,801.8 2,212.9 2,258.6 
Imports of servicesb -1,329.8 -1,545.5 -1,623.1 -1,799.2 -2,063.1 -2,415.5 -921.6 
Transfers 1,090.2 2,100.4 2,595.6 3,179.9 3,635.7 4,376.4 4,611.3 
Unrequited private (net) 996.8 1,976.3 2,461.9 3,044.6 3,522.6 4,117.1 .. 
Unrequited public (net) 93.4 124.2 133.8 135.3 113.1 259.3 ..  
Long-term capital 1,263.0 740.3 984.2 1,079.5 840.9 1,312.4 ..  
Direct investment 455.5 110.6 131.0 154.7 226.7 353.8 ..  
Official and banking 208.9 53.8 285.4 249.3 -83.9 189.6 ..  
Other 598.6 575.9 567.8 675.5 698.0 769.0 ..  
Short-term capital 278.4 455.2 532.3 518.6 646.0 386.9 ..  
Commercial bonds 1,277.6 1,580.4 1,058.3 1,295.1 761.2 815.1 ..  
Other -999.2 -1,125.2 -526.0 -776.6 -115.2 -428.2 ..  
Errors and omissions 91.9 -63.0 -61.5 86.1 86.4 -87.7 ..  
Overall balance 473.8 21.8 549.6 608.7 254.4 278.8 ..  
Reserves (- increase) -473.8 -21.8 -549.6 -608.7 -254.4 -278.7 ..  
Memorandum items        
Current account (% of GDP) -6.7 -5.9 -4.7 -5.0 -5.3 -4.6 -5.1 
Net family remittances from abroad 
(% of GDP) 3.1 7.2 9.2 10.5 10.9 11.8 12.3 
Net international reserves 
(US$ million)  2,348 2,370 2,919 3,528 3,782 4,061 4,320 
Reserves, months of imports of goods 
and services 4.5 4.2 4.5 4.8 4.5 4.1 3.8 
.. Not available. 
a Preliminary figures. 
b Includes return on investment, except in 2007. 
Note: Exports and imports exclude in-bond processing ( maquila ) activities. 
Source : Bank of Guatemala. Guatemala WT/TPR/S/210 
 Page 11 
 
 
29. The strong deficit in the trade balan ce has been offset in large part by high levels of transfers.  
Transfers consist mainly of family remittanc es, which reached a total of US$4.112 billion, 
representing 12.3 per cent of national GDP in 2007.  Remittances are an important source of income 
for the country as a whole and for many of its poorer citizens.  A World Bank study showed that 50 to 
60 per cent of total household income in the lower income distribution decile comes from 
remittances.17 
30. The level of net monetary reserves stood at US$4. 320 billion at end-2007, which is equivalent 
to 3.8 months of goods and services imports.  Extern al debt as a percentage of GDP has fallen in the 
period under review, from 15.6 per cent of GDP in 2001 to 12.6 per cent in 2007, although it has 
increased in nominal terms, from US$2.925 billion in 2001 to US$4.226 billion in 2007. 
(3) TRADE AND INVESTMENT FLOWS  
(i) Developments in merchandise trade 
31. Guatemala's total merchandise trade (imports and exports) has increased substantially during 
the period under review.  Exports  (including maquila and free zone  exports) totalled US$6.898 billion 
in 2007, growing by two thirds between 2003 and 2007, or at an 11.5 per cent annual composite 
nominal rate of growth.  During that same period im ports grew by about 67 per cent, or at a 13.7 per 
cent annual composite rate of growth, amounting to  US$13.576 billion in 2007.  The net result has 
been a deficit in merchandise trade (Table I.5). 
32. Free zone and maquila exports totalled US$2.695 billion in 2007, after reaching 
US$2.589 billion in 2006.18  Free zone and maquila exports grew  at a 7.1 per cent annual composite 
rate between 2003 and 2007, lower than the rate of growth of exports from Guatemala's customs 
territory. 
(ii) Composition of merchandise trade 
33. Primary products are the main export items from Guatemalan customs territory, representing 
50.2 per cent of total exports in 2007.  Exports of food products, particularly coffee, sugar and 
bananas, deserve mention.  Manufactured goods re presented 49.7 per cent of exports in 2007, mainly 
chemical products, articles of apparel and clothing  accessories, and semi-manufactures (Table AI.1).  
Exports of manufactured goods are particularly importa nt in the free zone and maquila industries, in 
which they represented about 98 per cent of the total in 2006 and 2007, the main export item being 
articles of apparel, with 53 per cent of the total in 2007, lower than the percentage in 2006 (62 per 
cent). 
34. The overall composition of imports remained rela tively stable during the period under review.  
In 2007, the manufacturing sector represented 67.8 per cent of total imports, the main items being transport machinery and equipment and chemical products.  Primary products represented nearly 
32 per cent of total imports in 2007;  of these, imports  of food products (11.4 pe r cent of the total) and 
fuel (18 per cent of the total) are deserving of mention (Table AI.2).  Among primary products, 
however, foodstuffs slipped back during the peri od under review, while fuel imports increased, 
reflecting mainly higher petroleum prices. 
                                                     
 
17 Adams, Richard H. Jr (2004). 
18 Statistics from the Bank of Guatemala.  Consu lted online at:  http://ww w.banguat.go b.gt/estaeco/ 
envolver.asp?kanio=2007 &kdir=ceie%5Cdc&karchivo=ceie01&ktomadir=1. WT/TPR/S/210 Trade Policy Review 
Page 12 
 
 
(iii) Direction of merchandise trade 
35. The United States is still the main market for Guatemala, absorbing 42.5 per cent of exports 
in 2007 (Table AI.3).  Excluding exports from the fre e zones, the United States' share of local exports 
is lower, amounting to 31 per cent in 2006;  this  reflects the dominance of the United States market 
for free zone and maquila products.  The secondary market is Central America, which as a whole 
represented 28.4 per cent of total exports in 20 07.  Among Central American countries, the key 
market is El Salvador (12.2 per cent of the total).  Exports from Guatemala to the 
European Communities represented 6.1 per cent of total exports in 2007. 
36. The United States continues to be Guatemala's leading supplier, having contributed about 
34.8 per cent of its total imports in 2007, followed by Mexico (8.7 per cent) and the 
European Communities (7.8 per cent) (Table AI.4). 
(iv) Trade in services 
37. Guatemala recorded a significan t surplus in the balance of trade in services in the period 
2001-2007 (Table I.6).  Statistics for other services in clude the net effect of maquila activity, which 
averages about US$440 million annually.  Even discounting the maquila activity, however, the 
surplus in services is considerable, exceeding US$500 million per year.19  The largest category is 
tourism and travel. 
Table I.6 
Trade in services, 2001-2007 
(US$ million) 
 2001 2002 2003 2004 2005 2006 2007a 
Exports 1,482.5 1,512.0 1,527.4 1,657.9 1,588.8 1,861.5 2,258.6 
Tourism and travel 561.6 619.5 620.7 776.4 845.8 968.9 1.135.4 
Transport and insurance 129.9 140.5 143.6 145.2 159.6 201.0 210.9 
Other services 791.0 751.9 763.1 736.3  583.4 691.6 912.3 
Imports 475.0 559.4 586.3 674.2 735.0 831.6 921.6 
Tourism and travel 225.5 275.6 312.0 390.6 444.0 494.4 562.4 
Transport and insurance 79.0 114.5 143.0 147.9 137.9 174.9 186.7 
Other services 170.5 169.3 131.3 135.8 153.1 162.3 172.5 
Balance 1,007.5 952.6 941.1 983.7 853.8 1,029.9 1,337.0 
a Preliminary figures. 
Note: The heading "Other services" include s government and miscellaneous services. 
Source : Bank of Guatemala. 
(v) Foreign investment 
38. Guatemala is a net receiver of foreign direct investment (FDI).  According to the Bank of 
Guatemala, FDI flows during the period 2003-2008 ar e as follows (in millions of US$):  2003 (263.3), 
2004 (296.0), 2005 (508.3), 2006 (591.6), 2007 (723.5 (preliminary figure)) and 2008 
(837.7 (projection)).  The FDI flow between 2003 a nd 2007 is estimated at US$2.383 billion.  The 
main investor countries are the United States, Me xico, Canada and Chinese Taipei.  In order to 
measure investment flows, the Bank of Guatemala has been using the methodology contained in the 
                                                      
19 These figures differ sign ificantly from those of the balance of  payments, which include return on 
investments in the category of services. Guatemala WT/TPR/S/210 
 Page 13 
 
 
fifth edition of the IMF Balance of Payments Manual (BPM5), which is based on business surveys 
and includes reinvestment of earnings.20 
(4) OUTLOOK  
39. The Bank of Guatemala forecasts GDP growth of 5.3 per cent in 2008 and 5.4 per cent in 
2009.  The inflation target is 5.5 per cent for each of these years, with a dispersion band of 
1.5 percentage points for 2008 and 1 percentage poi nt for 2009.  The Central Bank of Guatemala also 
foresees an increase in th e current account deficit of the balan ce of payments, which should approach 
US$2 billion in 2009 (about 5 per cent of GDP).  On the other hand, a fiscal deficit of 1.4 per cent of 
GDP is expected in 2009.21  Partial indicators for 2008 point, however, to lower growth, between 
4 and 5 per cent. 
40. The IMF anticipates a slight reduction in the rate of GDP growth in 2008, to 4.8 per cent, 
stabilizing at 4.5 per cent in 2009 and succeeding years.   The IMF also foresees a gradual decrease in 
the inflation rate and a gradual increase in per cap ita GDP.  According to IMF estimates, the current 
account deficit of the balance of payments will c ontinue to increase in monetary terms, although it 
will stabilize as a percentage of GDP.  The IMF be lieves that the main risks to the Guatemalan 
economy stem from a deceleration of the United States economy, as the United States is the source of 
the bulk of remittances entering Guatemala and has largely sustained the growth of domestic demand 
there in recent years. 
                                                      
20 Online information from the Bank of Guatemala.  See:  http://www.banguat.gob.gt/Publica/ 
comunica/balanza_pagos_Vmanual.pdf. 
21 Bank of Guat emala (2007c).