Guatemala has experienced continued economic stability that can be attributed to a combination of inflation targeting, prudent fiscal management and managed floating exchange rate. The country has been a solid economic performer in recent years, with a GDP growth rate of 2.8 percent in 2017, 3.1 percent in 2018 and 3.6 percent in 2019. Due to the impact of the COVID-19 (coronavirus) pandemic, Guatemala’s economy is expected to post a -1.8 percent decline in 2020 and to grow 4.4 percent in 2021.
Strategically located, with substantial natural resources and a young multi-ethnic population, Guatemala has enormous potential to generate growth and prosperity for its people.
But Guatemala’s stability has not translated into growth acceleration to close the income gap with rich countries. In fact, poverty and inequality in the country are persistently high, and high rates of childhood stunting threaten Guatemala’s ability to reach its full development potential.
Poverty, measured at the upper middle-income class line (US$5.5 per person per day in 2011), increased between 2006 and 2014 from 43.4 to 48.8 percent, adding almost 2 million people into poverty. Extreme poverty (having less than US$1.9 per person per day) affected 8.7 percent of the population in 2014, almost half a million more people than in 2000.
Inequalities persist across geographical areas and among ethnic groups, with Indigenous Peoples continuing to be particularly disadvantaged as the 2018 census re-confirms. In essence there are “two Guatemalas”, one with well-off, and one poor, one urban and one rural, one Ladino and one Indigenous with large gaps in both social and economic outcomes. These differences are aggravated by the country’s high vulnerability to climate change which affects malnutrition, health, food security, water resources and natural ecosystems.
Accelerating growth will be crucial to achieving the country’s medium- and long-term social objectives. While pro-poor policy reforms could yield marginal improvements, a change in growth is needed. Boosting growth will depend on continued reforms to mobilize increased private investment and revenue to fund important pro-growth investments in infrastructure and human capital.
Public investment is essential to achieving Guatemala’s development goals, yet it remains constrained by a lack of resources. With central government’s revenue averaging 11 percent of GDP in the recent years, and an estimated 9.7 percent in 2019, the main fiscal challenge of Guatemala is the need to raise additional revenues to finance key public investment projects.
Other increasingly important challenges for Guatemala are strengthening governance, increasing accountability and citizen participation and improving levels of public security. High levels of crime and violence represent staggering human and economic costs for the country.
Last Updated: Apr 12, 2020