A multi-cultural country, Guatemala has made significant progress in achieving macroeconomic and democratic stability after a 36-year civil war. Since the 1996 Peace Accords, the country has opened to international markets through several trade agreements.
Guatemala has maintained relatively stable economic growth during recent decades. A prudent macroeconomic management enabled an annual average growth of 4.2% between 2004 and 2007. After the 2008-209 global financial crisis, the economy has recovered at a modest but consistent pace, with economic growths of 3.0 percent in 2012, 3.7 percent in 2013 and an estimated 4.2 in 2014. A forecasted average growth of 3.6 percent during 2015-2016 will be driven by rising private consumption, and export and remittances growth.
Guatemala is the biggest economy in Central America but is among Latin American countries with the highest levels of inequality, with poverty indicators —especially in rural and indigenous areas— and chronic malnutrition rates among the highest in the region.
The World Bank study Poverty Assessment in Guatemala showed that the country was able to reduce poverty from 56 percent to 51 percent between 2000 and 2006. However, official estimates indicate that poverty rose again to 53.7 percent in 2011. The situation is particularly difficult in rural municipalities, which account for 44 percent of the country. There, almost eight out of 10 people are poor, according to the outcomes of the 2011 Rural Poverty Map.
Building upon Guatemala’s recent macroeconomic resilience, the coming years present an opportunity to reduce poverty through more rapid economic growth. While pro-poor policy reforms could yield marginal improvements, accelerating growth will be crucial to achieving its medium-term poverty and social objectives. According to World Bank estimates, if Guatemala grows at 5.0 percent over the next 3 years and the growth does not come at the expense of the poor, the marginal impact on poverty and equity will be significant. The poverty headcount rate would fall by an additional 1.0 percent by the end of 2016, allowing over 160,000 more people to escape poverty.
Public investment is essential to achieving Guatemala’s development goals, yet it remains tightly constrained by a lack of resources, and the government continues to collect the lowest share of public revenues in the world relative to the size of its economy. Boosting growth will depend upon continued reforms to mobilize greater private investment, while improving revenue mobilization to fund important growth-enhancing investments in infrastructure and human capital.
An increasingly important challenge for Guatemala is improving the levels of citizen security. The World Bank report Crime and Violence in Central America: A Development Challenge estimates that crime and violence represent staggering economic costs for the country, equivalent to 7.7 percent of its GDP.
The main challenges for a new government administration in 2016 include fostering transparency and inclusive growth, addressing social inequalities and ensuring revenues to finance public spending on education, health and infrastructure, among others.
Last Updated: Aug 18, 2015