Caribbean & Central America - April 2023

The International Monetary Fund (IMF) has praised “the achievements made in economic policy” following a recent visit to Guatemala, and it has highlighted the “resilience” of the country’s economy in 2022.

In the statement, published on 14 March, the IMF hailed Guatemala’s economic performance. “Guatemala’s prudent macroeconomic policies - reflected in low fiscal deficits, low debt-to-GDP ratio, a stable currency, and large international reserves - have helped shelter the economy from the challenging global environment and the tightening of global financial conditions,” it said, underlining that economic growth had exceeded its potential.

The IMF predicted that growth would hit 3.4% of GDP in 2023, and it also highlighted the recovery of the labour market and new foreign direct investment (FDI) projects as “positive signs of strength”. The organisation also mentioned a recent credit rating upgrade; in February, international credit ratings agency Fitch Ratings upgraded Guatemala’s Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) to BB from BB- with a stable outlook. In addition, the IMF highlighted Guatemala’s low sovereign debt spreads and the positive effects of tax administration reform on collection rates.

Moving forward, the IMF recommends further tax administration reforms in order to continue improvements in collection rates and to pay for development programmes. Other recommendations to boost growth include expanding the formal labour market, investing in human capital, and reducing regulatory uncertainty, as well as improving governance and legal certainty. The IMF would also like to see independent anti-corruption institutions, as well as Anti-Money Laundering legislation that would bring the country up to international standards.

The IMF says that Guatemala has “strong fundamentals,” but it adds that the country is at a “critical juncture”. While it paints a broadly positive picture, the IMF also points out Guatemala’s exposure to the US economy and reliance on remittances from migrants living in the US. 

The country is preparing for general elections on 25 June, which may be one reason why the IMF presents the country as being at something of a crossroads. Under President Alejandro Giammattei the country has suffered democratic backsliding, and the electoral authority has moved to exclude candidates associated with the fight against corruption, such as Thelma Cabrera of the leftist Movimiento para la Liberación de los Pueblos. Concern over the direction of the country is mounting, with seven US senators recently criticising what they say is an “insufficient” response from the US government to the “continuing deterioration of democracy and the rule of law in Guatemala”.

According to the IMF, there is plenty of work needed to build on Guatemala’s solid economic fundamentals. “Addressing gaps in infrastructure, education, and health, improving governance, and the fight against corruption remain of the first order,” it writes. “Reforms are not only needed to attract foreign direct investment, but to secure a sustainable and inclusive growth.” Unfortunately, the country’s elites have long appeared more concerned with cementing their grip on power, even at the cost of democracy, and a continued descent into authoritarianism may make it harder to attract sorely needed investment at a time when Environmental, Social and Governance standards are an increasingly important consideration for investors.

Remittances

In March, Guatemala’s central bank (Banguat) released new figures which show the country received a total of US$1.38bn in family remittances in February 2023, up from US$1.26bn on the same month in 2022. This brings the total this year to US$2.77bn, up from US$2.44bn in the same period in 2022. Guatemala received a record US$18bn in remittances in 2022. The World Bank estimated that remittances accounted for 17.9% of Guatemala’s GDP in 2021.