Caribbean & Central America - October 2025

The International Monetary Fund (IMF) has praised the Guatemalan government for its “prudent economic management,” but called on President Bernardo Arévalo to do more to increase growth and reduce poverty.

In its report published 12 September following the conclusion of an Article IV mission to Guatemala, the IMF underlines the country’s resilient economy, low inflation, ample policy buffers, and a positive current account in recent years, which have improved market access. However, it also notes that informality is running at 70%, poverty was at 55% in 2023, and social indicators remain “lacklustre”, urging the government to do more to address this.

Since coming to power in January 2024, Arévalo has introduced a number of poverty reduction efforts, including two cash transfer programmes designed to alleviate the high cost of living. The economy ministry also moved to stabilise supplies of rice, maize, and beans and to reduce price speculation in June 2024, and Arévalo also extended electricity subsidies for poor households. His government upped the budget for the national council for food security and nutrition (Conasan) by 33% from 2024 to 2025, and the 2025 state budget included significant increases in social spending.

However, the IMF says that these efforts are insufficient, and “reforms are needed to shift the country into a high investment/high growth equilibrium and to meaningfully reduce poverty”. It highlights public spending that is “too low and unevenly distributed to meet its core development challenges,” resulting in “limited and uneven access to essential services”.

Poor social development outcomes demonstrate insufficient spending due to restricted public budgets but also inefficiencies in allocation and delivery, said the IMF, underlining fragmented, poorly targeted programmes that spend more on administration than frontline services. The Fund said that “maintaining growth momentum and achieving sustainable and inclusive growth in the medium term will require determined implementation of reforms including better-quality public spending and continued improvements in governance and the business climate,” recommending revenue and expenditure reforms.

One cited example is the continuing ongoing effort to increase the capacity of tax administration in order to broaden the tax base and thereby gain fiscal space: the IMF highlights the increase in tax revenues from 10% of GDP in 2020 to 11.8% in 2024, but it calls for further efforts to meet the government’s stated target of 12.5%. The Fund also highlights persistently low levels of public spending, which are among the lowest of any developing economy. Combined spending on education, health, and social assistance was below 6% of GDP in 2024, lower than regional peers and countries with a similar national income. Improvements could be made through better targeting of social programmes and spending efficiency, as well as better budget planning and execution.

According to the IMF, Arévalo has “demonstrated a strong will to improve spending quality”. However, the Fund recognises that the president faces a difficult situation in the shape of a standoff with Attorney General María Consuelo Porras, whose continued presence is one of the main obstacles holding back his efforts to enact change. “Domestically, the political opportunities for advancing necessary reforms remain constrained,” acknowledges the IMF, which also underlines uncertainty in trade and migration policy. 

For example, US President Donald Trump’s tariff policy is cause for concern, and could deepen dependence on remittances, according to Ricardo Barrientos, the executive director of regional thinktank Instituto Centroamericano de Estudios Fiscales (Icefi). At the same time, Trump’s hardline immigration policy could impact the value of remittances in the medium- and long-term, despite a recent spike as many migrants have increased the amount of money they send home.

• Remittances up

In September Guatemala’s central bank (Banguat) released new figures showing that remittances to the country totalled US$2.368bn in August, up from US$2.366bn in July and the highest monthly total so far this year. This brings remittance inflows so far this year to US$16.861bn, up from US$14.108bn in the same period in 2024. Guatemala closed 2024 with US$21.510bn in remittances, up 8.6% on the previous year and reaching nearly 20% of GDP according to a World Bank April 2025 update.

Taken together, these factors complicate the outlook for Arévalo’s poverty reduction efforts. Although the president does appear committed to improving the lives of Guatemala’s poor, with the General Government Policy (PGG) 2024-2028 setting out the expansion of coverage and quality in education and health, the reduction of chronic malnutrition, investments in rural infrastructure, and a more coherent approach to social protection as key objectives, his ability to do so is limited by fiscal and political constraints. 

Given downside risks resulting from US tariff and immigration policy, there is also a chance that more families fall below the poverty line as Guatemalan domestic industries suffer economic impacts and the value of remittances falls as a growing number of migrants are deported. This would likely leave many without sufficient income to afford basic essentials, with the added burden of deported migrants now living back at home, either looking for work or unemployed. As a result, it is unlikely that there will be any meaningful progress in reducing poverty in Guatemala in the coming years, contributing to a growing sense that Arévalo has failed to live up to his reformist promises.