經濟研究
Guatemala

Guatemala

Population 18.3 million
GDP 4,688 US$
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Synthesis

major macro economic indicators

  2020 2021 2022 (e) 2023 (f)
GDP growth (%) -1.5 8.0 4.0 3.4
Inflation (yearly average, %) 4.8 4.3 6.9 7.4
Budget balance (% GDP) -4.9 -1.9 -1.3 -1.8
Current account balance (% GDP) 5.5 2.5 0.5 1.1
Public debt (% GDP) 31.5 30.8 30.1 30.0

(e): Estimate (f): Forecast

STRENGTHS

  • Financial support from the United States
  • Free trade agreements with the United States (the country's leading trading partner in 2022) and the European Union
  • Agricultural (banana, coffee, sugar, palm oil, cardamom), tourism, hydroelectric and geothermal resources
  • Mining potential (gold, silver, nickel, alkaline earths)
  • High foreign exchange reserves (about 7 months of imports) and strong quetzal
  • Low level of public and external debt, especially in comparison with its regional peers

WEAKNESSES

  • Low skilled labour force
  • Political and social instability, corruption and insecurity (drug trafficking) affecting the business environment
  • Social divide fuelled by rural poverty, inequality, public underinvestment, the ethnic divide and external shocks
  • Low tax revenues (12% of GDP in 2023(e))
  • High dependence on remittance flows from expatriates in the US

Risk assessment

Resilient growth despite US slowdown

While the Guatemalan economy has weathered the inflationary shock better than its neighbours in 2022, high energy prices have eroded domestic consumption (85% of GDP in 2022). Activity is expected to show continued resilience in 2023 despite a weaker US economic climate. First, the decrease in expatriate remittances from the United States (30% of household disposable income and 16% of GDP in 2022) and imported inflation (slightly above the central bank's target of 4%) will not reduce domestic consumption. The extension of fuel, food and electricity subsidies to households (0.8% of GDP in 2022) will, in fact, sustain it (expected spending increase of 2.6% in 2023 against 2.4% in 2022). Second, investment is expected to only slightly soften. Public investment under the National Long Term Development Strategy Plan for 2022-2024 is focused on developing infrastructure to address climatic hazards to the benefit of the construction sector. As regards telecommunications infrastructure, public-private partnerships are expected to take shape by the end of 2023. Nevertheless, social instability and insecurity will weigh on the FDI flow, as in 2022. Third, exports are not expected to decline significantly despite weaker US activity. Only the activity of the maquiladoras will trace the decline in US demand for processed products (22% of exports to the US in 2021, including 12% for garments, and 7% for plastics and paper). Agri-food exports (30% of total exports in 2021, of which bananas, coffee, palm oil and cardamom) will resist. Mining sales (10%) would benefit from the recovery of Chinese demand for iron.

 

Strong external position and low debt

The rising energy import bill eroded the current account surplus in 2022. The energy import bill is likely to increase in 2023. The drop in imports, particularly hydrocarbons (17% of total imports in 2022 and estimated at 4.9% at least of GDP in 2023), will narrow the trade deficit. The continued recovery of tourism (10% of GDP in 2019) will reduce the deficit on the services balance. The massive remittance surplus is expected to persist despite shrinking remittances (97% of expatriate remittances came from the US in 2021). Moreover, while FDI will remain modest, portfolio investments will feed the financial account, and consequently the foreign exchange reserves, which covered at least 7 months of imports at the end of 2022.

Revenues from taxes on hydrocarbons have increased in the wake of the Russian-Ukrainian conflict, which reduced the public deficit in 2022. However, the public deficit is expected to increase moderately in 2023. First, tax revenues will decline slightly as less tax revenue (food and oil taxes) will only be partially offset by improved tax collection. Second, public spending will increase to support household purchasing power in the run-up to the June general election. In addition, debt service has remained stable (less than 1.7% of GDP expected in 2023). Debt issues on the domestic and international markets will finance the public deficit on relatively comfortable terms (short rates were around 4.5% and long rates stood at around 5.0% in early January 2023). Third and last, Guatemala’s debt is mainly domestic (61% of the public debt stock at the beginning of 2023) and is expected to remain on a stable and sustainable path.

 

Fragmented political landscape undermined by corruption and the lack of a majority in Congress

Elected in October 2019 amid a 55.0% abstention rate, President Alejandro Giammattei of the centre-right Vamos party has had to cobble together in order to govern ad hoc majorities in Congress where his party holds 16 out of 158 seats. These factional coalitions have made it possible to toughen criminal sentences applied to gangs (the maras) and drug trafficking. However, holding them together is becoming increasingly difficult as the June 2023 elections approach. At the same time, the country has experienced bouts of major social unrest since the Covid-19 pandemic. The ousting in the summer of 2021 of the anti-corruption prosecutor Juan Francisco Sandoval, who was investigating the president's entourage, continues to deepen the executive’s unpopularity. The Supreme Court’s disqualification of opposition candidates in the presidential elections is also reportedly intensifying the protest movement. Public revenues are in a weak state and the only way of maintaining budgetary balance is by cutting social spending and public equipment. The theme of discontent is accelerating the significant migratory flight towards the United States, which is financing development programmes to contain it. In October 2022, the World Bank also granted a USD 250 million loan to be allocated to education needs and climate risk prevention from 2023 to 2024. 

 

Last updated: April 2023

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