Caribbean & Central America - November 2020

After worrying forecasts earlier in the year due to the impact of the coronavirus (Covid-19) pandemic, several indicators provide grounds for optimism regarding the Guatemalan economy.

In mid-October Guatemala’s central bank (Banguat) released a report which forecasts that the country’s GDP will contract by 1.5% in 2020, an improvement on the bank’s June forecast of a 2.5% contraction. Banguat attributed the improved forecasts to “fiscal and monetary stimulus measures”, as well as the government’s efforts to contain the virus “without affecting economic recovery too much”. These fiscal measures included providing support to different sectors through cash transfers, salary subsidies and financing to small and medium-sized firms (which totalled around 3.4% of GDP).

In June Banguat’s monetary board cut its benchmark interest rate by an additional 25 basis points to 1.75%, having lowered its policy interest rate by 75 basis points to 2% in March. Guatemala is known for running small fiscal deficits, and Banguat forecasts this will come in at 5.3% of GDP in 2020, up from 2.2% in 2019. It also expects remittances (which totalled US$10.5bn in 2019) to rise 3.5% in 2020, compared with a 13.1% rise in 2019 (see sidebar). Remittances slumped in spring as the pandemic took hold in the US, the source of most remittances to Guatemala, but they have since picked up again. Total remittances for the first eight months of 2020 were US$7bn, up from US$6.85bn in the same period last year.

Rates of formal employment have also shown signs of recovery. Guatemala’s deputy economy minister, Lisardo Bolaños, told reporters on 17 October that the number of workers registered with the social security institute (IGSS) in August was 1.26m, up from 1.24m in July and 1.23m in June but lower than the pre-pandemic figure of 1.35m observed in January. The recovery of formal employment is expected to continue given the reopening of the economy on 1 October.

Banguat also forecast a 3% contraction in exports (worth a total US$11.16bn in 2019) and a 9% contraction in imports (US$19.88bn in 2019), reducing the country’s trade deficit. The resilience of Guatemala’s export market was also highlighted in a United Nations Economic Commission for Latin America and the Caribbean (Eclac) report published in August [EB-20-09]. Goods exports increased in value by 3.2% in the first five months of 2020 compared with the same period in 2019, making Guatemala one of four Central American countries which bucked a Latin America-wide decline in the value of goods exports year-on-year in the period. 

While these numbers are fairly encouraging, the economy ministry identified a number of priorities to support an economic recovery in a report published September. The first is to ensure that people can get back to work, and businesses can generate new jobs, while following biosecurity protocols to avoid a second wave of Covid-19 infections; another is to make sure that businesses and entrepreneurs can access loans and financial instruments so they don’t go bankrupt. The ministry also says it will work on long-term changes such as promoting reforms designed to attract more strategic investments to the country, with a particular focus on nearshoring efforts among North American and Central American companies, as well as pushing for infrastructure projects such as a cargo airport at Puerto San José, Escuintla department. Other aims mentioned in the document are more nebulous, such as “improving the business environment”, “creating a legal framework that is favourable to investment”, and “stimulating demand for goods and services”.

• Remittances

According to a report by the US-based Pew Research Centre released on 31 August, remittances to Guatemala accounted for 14% of the country’s GDP last year.