Guatemala Overview

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). During the last three decades, Guatemala had the least volatile growth compared to peer and aspirational countries. Public debt and budget deficits have historically been among the lowest and most stable in the world.

However, upper-middle-income country status and economic stability have not translated into a significant reduction in poverty and inequality. Low central government revenue (11 percent of GDP on average in recent years and an estimated 11.7 percent in 2021) limits public investment capacity and restricts both the quality and coverage of basic public services, from education and health to access to water, which largely explains the lack of progress in development and the large social gaps, lagging 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 child 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. Even so, the country experienced one of the smallest GDP contractions in LAC (-1.5 percent in 2020 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 expansion of social safety nets from 5 to 80 percent of households, through temporary cash transfers. This increased the number of direct beneficiaries of the program 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 per cent of the population in 2019 to 52.4 per cent in 2020, recent World Bank estimates indicate that this increase would have been two or three times higher without a government response.

Guatemala posted a strong recovery, with GDP growth of 8 percent in 2021 and an expected 3.4 percent in 2022. Risks remain, particularly given the uncertainty of the rapidly changing global environment and local COVID developments. -19. As of early 2022, only 29 percent of the Guatemalan population was fully vaccinated. The slow progress of vaccination efforts increases the country's susceptibility to new outbreaks of COVID-19 and further development losses. It also undermines household and business confidence and increases economic uncertainty.

Guatemala has the opportunity for transformation by focusing on priority areas to accelerate inclusive, productive and sustainable growth, by building a more inclusive social contract through more and better investments in human capital, fostering a stronger business climate for accelerating job creation and increasing productivity, and improving sustainability with increased tax revenues and greater efficiency of public spending and resilience to shocks through climate adaptation.

Driving strong and inclusive growth and reducing poverty in Guatemala will require continued efforts to increase productivity and facilitate women's entry into the labor market; increase investments in human capital, innovation and resilient infrastructure; and address challenges in transparency, governance and citizen security, among others.