In 1995, government receipts rose by more than 30 percent, largely from increased collections of customs duties and the value added tax. Nevertheless, the tax base remains extremely narrow, severely constraining needed public sector spending. Over the long term, improved tax collection, in the face of widespread evasion, is needed if the government is to be able to invest in education and infrastructure. In January 1996, the value added tax increased from 7 to 10 percent, with the additional income earmarked for peace accord-related programs. The Government continues to seek a solution that would enable it to raise rates.
Sugar is virtually the only product on which Guatemala maintains price controls.
Direct government control of production is almost nonexistent. At the end of 1995, Guatemala's official foreign debt was equivalent to about 15 percent of GDP and the debt service ratio about 12 percent. The country's most significant foreign arrearage remains with Spain, for the construction of a pulp mill which has never operated. The inability to resolve the status of this debt has blocked full compliance with Paris Club rescheduling agreements. In November staff recommend to the Executive Board of the World Bank a waiver of the few remaining conditions for release of the third and final tranche of an Economic Modernization Loan.