Guatemala has traditionally 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- grew 3.3 percent on average from 2015 to 2018.
This economic stability, however, has not translated to a significant reduction in poverty and inequality. Measured by its GDP per capita (US$ 4,620 in 2019), 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 fourth highest rate of chronic malnutrition in the world and the highest in LAC, with Indigenous and rural populations disproportionately affected. 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 negatively affected decades of hard-won development gains. The global economy shrunk by 4.3 percent in 2020 and is expected to expand 4 percent in 2021, assuming the COVID-19 vaccine rollout becomes widespread throughout the year.
The pandemic has affected the Guatemalan economy considerably —contracting its GDP by 1.8 percent in 2020—, leading to substantial adverse social effects and worsened existing vulnerabilities.
In 2019, it was estimated that 49.3 percent of the total population of 17 million lived under the poverty line, up from 45 percent in 2000. One-fifth of the population lived with incomes between US$5.5 and US$13 per day, meaning that 85 percent of the population is poor or vulnerable to falling into poverty in the event of a shock. Approximately one million people are expected to fall into poverty due to the COVID-19 crisis, 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. Already dealing with the negative impacts of the pandemic and related containment measures, Guatemala was affected in November 2020 by hurricanes Eta and Iota, which caused severe floods and landslides affecting more than 1.5 million people.
The country’s swift and comprehensive response to the pandemic appears to have cushioned the impact on the poor, while setting foundations for a more inclusive social policy. Guatemala’s economy is expected to grow again in 2021 by 4.5 percent, according to the IMF.
Last Updated: May 31, 2021