Population 15.105 million
GDP 50.296 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
2.9 |
3.9 |
3.2 |
3.5 |
|
Inflation (yearly average) (%)
|
5.4 |
6.2 |
4 |
4.9 |
|
Budget balance (% GDP)
|
-3.3 |
-2.8 |
-2.1 |
-2 |
|
Current account balance (% GDP)
|
-1.5 |
-3.1 |
-4.3 |
-3.8 |
|
Public debt (% GDP)
|
24.1 |
24.1 |
24.8 |
25.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Support from the USA and multilateral lenders
- Prudent economic policies: steady low public debt
- Trade relations strengthened by the Central American free-trade agreement with the USA (DR/CAFTA)
- Strong tourism and agricultural potential
WEAKNESSES
- Long-term growth weakness
- Vulnerability to external shocks (natural disasters, American economic situation and prices of exported agricultural and mineral products – coffee, sugar, bananas, edible oil, gold, silver
- Weakness of the State
- Deficient infrastructures
- High level of drug-related crime
- Social tensions (poverty, low school attendance, under-employment, ethnic divisions)
Risk assessment
An economy dependent on the United States
As in 2012, growth will be close to its potential. The economy will continue to benefit from the strength of its main economic partner, the United States, through its exports of agricultural products (40% of total exports go to the US) and remittances from Guatemalan emigrant workers, mainly in the USA. Household consumption, which contributes 85% of GDP, will remain dynamic. Spending on reconstruction following the November 2012 earthquake will also support the economy. However, this growth seems modest and in any case insufficient to make up for the serious structural deficiencies, educational shortcomings limiting labour productivity, the poverty affecting half the population and insecurity. Private sector credit is expected to grow but it remains costly and curbs development. Economic policy remains prudent and neutral.
External accounts in balance thanks to workers’ remittances, foreign investment and borrowing
The current account deficit resulting from the trade deficit (11% of GDP) is expected to lessen in 2013 due to lower prices for fuel imports from the United States and the healthy state of textile, agricultural and mineral exports, mainly to the United States and neighbouring countries. The services deficit will remain small, in line with a fall in freight costs. The revenue deficit is likely to grow with the increase of profit repatriations by foreign companies. Remittances from emigrant workers in the United States will remain considerable and will largely offset the trade deficit. Foreign direct investments and the issuance of bonds on the international market should again enable coverage of the balance and maintenance of a comfortable level of foreign currency reserves, on the assumption that the political and social situation does not worsen. The local currency, the quetzal, is expected to fluctuate little under the control of the Central Bank, which has a managed floating exchange rate policy.
Ineffective government action
Despite an expected improvement in 2013 following the 2012 fiscal reform, government revenues will remain very limited (11% of GDP). This level remains much below that of countries with comparable wealth levels. Public investment accounts for only 4% of GDP. When added to private investment, the percentage remains below 20%. Besides the low level of resources, public finances suffer from poor management, resulting in a poor allocation of expenditure and consequent arrears of payments to local suppliers. An overhaul of the mining law is planned, which will make it possible to increase the royalties paid by the operator to the State from 1% to 3% (5% for precious substances) of production. Moreover, the country is set to benefit from an IADB loan of $237mn spread over 3 years for modernising the tax system. The serious structural deficiencies are nowhere near being overcome. The strong agricultural potential is greatly under-exploited because of the lack of support for the rural population, mainly of Mayan origin, where poverty is concentrated. Finally, the weakness of the security forces and corruption leave the field free for violent gangs which thrive on drug trafficking.
The conservative right confronted with poverty and insecurity
President Otto Pérez Molina, a retired general from the conservative Partido Patriota, came into office in January 2012 with the support of the urban electorate and business circles, won over by his crime-fighting programme. He has to deal with the great poverty of the rural Mayan population, which makes up 40% of total population. Commitments made at the end of the civil war in 1996 are far from having been kept. Conflicts concerning land distribution and the siting of mines continue, occasionally resulting in deaths. The proposed new mining law provides for 55% of royalties to be allocated to rural populations. The war against crime and the 4 local gangs (the Maras) involved in drug trafficking is difficult. The action of local armed forces is coordinated with that of the United States as part of the “Martillo” operation aimed at preventing South American cocaine trafficking along the coasts. President Molina seems to favour legalisation of drugs in order to put an end to trafficking. Government action is laborious because the coalition’s majority in the congress is weak, the governing class reluctant and the administration not immune to corruption.
