A $250 million policy-based loan by the Inter-American Development Bank (IDB) will help Guatemala improve its tax management and financial sector transparency, raise tax revenues and strengthen its money-laundering prevention procedures.
The loan, approved by the IDB’s Executive Directors today, seeks to raise net tax revenues from 10.2 percent of GDP in 2015 to at least 11 percent of GDP by 2018, and to attain a 5 percent improvement in the Guatemala Money Laundering Index (produced by the Basel Institute on Governance), also by 2018. Additionally, it aims to enhance the efficiency of the Tax Administration Superintendence (SAT), which is expected to achieve a Value Added Tax (VAT) evasion rate reduction from 34.2 percent in 2015 to not more than 25 percent by 2018.
Guatemala’s per capita tax revenue lags behind others in the region—a key factor behind a raise in poverty from 51 percent in 2006 to 59.3 percent in 2014, whereas inequality is one of the highest in the area. In the period 2007-2015, total public revenues dropped 2.1 percentage points of GDP, hitting the lowest point in Latin America due mostly to tax collection inefficiency caused by rampant tax dodging and low SAT efficacy. In addition, tax collection problems is exacerbated by lack of transparency in the financial sector and an increased risk of money laundering and other financial crimes associated with it.
The program seeks to implement a series of normative instruments and public policies in order to close the fiscal gap and boost tax and customs revenues. It also aims to bring in better and broader regulation and supervision of the financial sector, increasing its transparency and protecting it from potential money laundering activities.
The project will strengthen SAT’s ability to increase tax and customs revenues and support the Banks Superintendence efforts to prevent money laundering through regulations, outreach campaigns, information exchange, and alignment with international standards.
The IDB’s $250 million policy reform loan is for a 20-year term, with 5.5 years of grace, at a LIBOR-based interest rate.
The Inter-American Development Bank is a leading source of long-term financing for economic, social and institutional projects in Latin America and the Caribbean. Besides loans, grants and guarantees, the IDB conducts cutting-edge research to offer innovative and sustainable solutions to our region’s most pressing challenges. Founded in 1959 to help accelerate progress in its developing member countries, the IDB continues to work every day to improve lives.