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Guatemala to strengthen fiscal management with IDB financing

The program will support reforms to generate more tax revenues and regulate national and municipal debt

Guatemala will receive $237.2 million in financing from the Inter-American Development Bank (IDB) to consolidate fiscal management and sustainability by supporting reforms that will help increase tax revenues, strengthen tax administration, and regulate national and municipal debt.

The financing consists of a loan for $234 million to support policy reforms and US$3.2 million in reimbursable technical cooperation. The loan will boost the implementation and consolidation of reforms such as Tax Modernization Act, which includes new income tax and anti-tax evasion laws approved at the start of 2012.

Guatemala's public finances are characterized by low tax revenues of around 10 percent of GDP. One expected result of the program is to increase tax revenue by at least 1 percent of GDP by strengthening income tax collection and combating tax evasion and smuggling. This estimated increase of nearly 25 percent in income taxes will partially reduce dependence on indirect taxation, improving the progressivity of the system as a whole.

The program will create the International Taxation Department in the Ministry of Public Finance (MINFIN), which will coordinate with the Tax Administration Superintendency on negotiating tax agreements and treaties for exchanging tax information with other countries. 

The Bank financing will also strengthen the capacity of the MINFIN to regulate and guide municipal finances and to improve budget policy and regulation of public expenditures, among other actions. 

The technical cooperation component will strengthen the institutions involved in fiscal and financial decentralization process, such as MINFIN and the Municipal Development Institute. 

The hybrid loan consists of the following: $129.6 million from the Single Currency Facility of the Ordinary Capital; $72 million from the Flexible Financing Facility of the Ordinary Capital; and $32.4 million from the Fund for Special Operations. The resources of the loan will be disbursed in two tranches over an estimated three-year period. MINFIN will be the executing agency for the operation.

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