Guatemala has experienced economic stability due to a combination of prudent fiscal management, inflation targeting, and a managed floating exchange rate. The Guatemalan economy -the largest in Central America- has also had a solid performance, although with moderate growth rates of 3.5 % on average in the last five years.
This economic stability, however, has not translated to a significant reduction in poverty and inequality. Measured by its GDP per capita (US$ 4,549 in 2018), Guatemala is the fifth poorest economy in Latin America and the Caribbean (LAC), with persistently high rates of poverty and inequality.
Guatemala also has the sixth highest rate of chronic malnutrition in the world and the highest in LAC. Chronic childhood malnutrition (and stunting) affects 47 % of all children under the age of five, 58 % of indigenous children, and 66 % of children in the lowest income quintile. In 2019, Guatemala ranked 68th in food security out of 113 countries, with only 40 % of Guatemalan families enjoying food security.
Low central government revenues (11 % of GDP on average in recent years and an estimated 9.7 % in 2019) limit capacities for public investments and restrict both the quality and coverage of basic public services, from education and health to access to water. This, in turn, perpetuates a lack of incentive in the economy for formality and tax paying.
Disrupting billions of lives and livelihoods in the world, the COVID-19 pandemic threatens decades of hard-won development gains. In a more moderate scenario, the global economy could shrink by 5.2 % in 2020 before rebounding in 2021; in a more negative scenario of prolonged shutdowns, world output could contract by almost 8 % in 2020.
The pandemic has affected the Guatemalan economy considerably —it is expected to contract by 3 % in 2020—, leading to substantial adverse social effects and worsened existing vulnerabilities.
- Firms, particularly MSMEs, providing more than 90 % of private jobs, have been affected significantly due to lockdown measures, falling demand, bottlenecks in supply chains and drying liquidity as revenues collapse.
- Jobs losses are expected to be highest in construction, services, transport and commerce, where most of the vulnerable workforce is concentrated, and where female employment is also most prominent.
- The incomes of the self-employed (around 40 % of the labor force), temporary workers and workers in affected sectors (e.g., tourism and entertainment) will slump.
- The recession in the U.S. could affect exports and remittance inflows, the largest two sources of foreign exchange earnings, and exacerbate the private consumption slowdown.
Approximately one million people are expected to fall into poverty, raising the country’s poverty rate by as much as 6 percentage points, depending on the depth and duration of the crisis as well as the speed of the economic recovery.
Additionally, Guatemala is extremely affected by climate and weather events and its poorer populations are particularly vulnerable. Guatemala ranks ninth in the world for level of risk to the effects of climate change.
Last Updated: Sep 04, 2020