With a population of 17 million and a GDP of US$77.6 billion (2020), Guatemala is the largest economy in Central America and an upper middle-income country, measured by its GDP per capita (US$4,603 in 2020). Over the last three decades, Guatemala had the least volatile growth among its structural and aspirational peers. Public debt and the budget deficit have been historically among the lowest and most stable globally.
However, the country’s upper middle-income status and economic stability have not translated to a significant reduction in poverty and inequality. Low central government revenues (11 percent of GDP on average in recent years and an estimated 11.7 percent in 2021) limit capacity for public investment and restrict both the quality and coverage of basic public services, from education and health to access to water, largely explaining the lack of developmental progress and large social gaps, trailing behind the rest of Latin America and the Caribbean (LAC).
Guatemala 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 percent of all children under the age of five, 58 percent of indigenous children, and 66 percent of children in the lowest income quintile.
The COVID-19 pandemic ended three decades of economic growth in Guatemala. Still, the country experienced one of the smallest GDP contractions in 2020 in LAC (-1.5 percent compared to a regional average of -6.7 percent). The Government’s fiscal stimulus to respond to the pandemic (equivalent to 3.3 percent of GDP) was swift in 2020 and focused on protecting the poor and vulnerable. This unprecedented effort included the large scale-up of safety nets from 5 to 80 percent of households, through temporary cash transfers. This increased the number of program direct beneficiaries from 160,000 to 2.8 million.
While the impact of the COVID-19 pandemic is estimated to have increased the poverty rate from 47.8 percent of the population in 2019 to 52.4 percent in 2020, recent World Bank estimates indicate that this increase would have been two to three times greater had it not been for the government’s policy response.
Guatemala posted a strong recovery, with a GDP growth of 8 percent in 2021 and 3.4 percent expected in 2022. Risks remain, particularly given the uncertainty of the rapidly shifting global environment and local COVID-19 developments. As of early 2022, just 29 percent of Guatemalan population was fully vaccinated. The slow progress of vaccination efforts increases the country’s susceptibility to further COVID-19 outbreaks and greater developmental losses. It also undermines the confidence of households and firms and amplifies economic uncertainty.
Guatemala has an opportunity for transformation focusing on priority areas for accelerating inclusive, productive, and sustainable growth, including by building a more inclusive social contract through more and better Human Capital investment, fostering a stronger business climate to accelerate job creation and boost productivity, and enhancing sustainability with increased fiscal revenue and greater public expenditure efficiency and resilience to shocks through climate adaptation.
Boosting robust, inclusive growth and reducing poverty in Guatemala will require continued efforts to raise productivity growth and facilitate the entry of women into the labor market; increase investments in human capital, innovation and resilient infrastructure; and address challenges in transparency, governance, and citizen security, among others.
Last Updated: May 05, 2022