Guatemala - Economy
Guatemala has the largest economy in Central America, with a USD 63.9 billion gross domestic product (GDP) in 2015, and an estimated 4.1 percent growth rate in 2015. Remittances, mostly from the United States, increased by 13.4 percent in 2015 and were equivalent to 9.8 percent of GDP. The United States is Guatemala’s most important economic partner. The Guatemalan government (GoG) continues to enhance competitiveness, promote investment opportunities, and work on legislative reforms aimed at supporting economic growth. Guatemala's minimal industrial base is located primarily in Guatemala City and consists largely of textiles.
After the signing of the final peace accord in December 1996, Guatemala was well-positioned for rapid economic growth over the next several years, until a financial crisis in 1998 disrupted the course of improvement. The subsequent collapse of coffee prices left what was once the country's leading export sector in depression and had a severe impact on rural income. On a more positive note, Guatemala's macroeconomic management is sound, preserving stability and mitigating the slowdown in growth brought on by the global economic crisis in late 2008. While Guatemala’s foreign debt levels are modest, recent deficit spending and low tax collection have limited the space for further accumulation of debt.
President Colom continued programs initiated by prior governments to promote foreign investment, enhance competitiveness, and expand investment in the export and tourist sectors. These programs and the implementation of the U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) led to increases in foreign direct investment (FDI) inflows from $592 million in 2006 to $753 million in 2008. According to official projections, FDI inflows declined 25.8% in 2009 to $559 million as a result of the global economic crisis.
Guatemala's economy is dominated by the private sector, which generates about 90% of GDP. Agriculture contributes 13.4% of GDP and accounts for 26% of exports. Most manufacturing is light assembly and food processing, geared to the domestic, U.S., and Central American markets. Over the past several years, tourism and exports of textiles, apparel, and nontraditional agricultural products such as winter vegetables, fruit, and cut flowers have boomed, while more traditional exports such as sugar, bananas, and coffee continue to represent a large share of the export market.
The United States is the country's largest trading partner, providing 36.5% of Guatemala's imports and receiving 40.7% of its exports. The government's involvement is small, with its business activities limited to public utilities--some of which have been privatized--ports and airports, and several development-oriented financial institutions.
Guatemala ratified the U.S.-Central America Free Trade Agreement (CAFTA-DR) on March 10, 2005, and the agreement entered into force between Guatemala and the U.S. on July 1, 2006. CAFTA-DR eliminates customs tariffs on as many categories of goods as possible; opens services sectors; and creates clear and readily enforceable rules in areas such as investment, government procurement, intellectual property protection, customs procedures, electronic commerce, the use of sanitary and phyto-sanitary measures to protect public health, and resolution of business disputes. It also provides for protection of internationally recognized labor rights and environmental standards.
At only 10.4% of GDP in 2009, Guatemala’s tax collection is low compared to the Latin American average of 14.5%. In addition to raising overall tax revenues, continuing priorities include increasing transparency and accountability in public finances, broadening the tax base, strengthening the enforcement of tax laws, and completing implementation of financial sector reforms.
The United States, along with other donor countries--especially France, Italy, Spain, Germany, and Japan--and the international financial institutions, have increased development project financing since the signing of the peace accords. However, donor support remains contingent upon Guatemalan Government reforms and counterpart financing.
According to the World Bank, Guatemala has one of the most unequal income distributions in the hemisphere. The wealthiest 20% of the population consumes 51% of Guatemala’s GDP. As a result, about 51% of the population lives on less than $2 a day and 15% on less than $1 a day. Guatemala's social development indicators, such as infant mortality, chronic child malnutrition, and illiteracy, are among the worst in the hemisphere. The United States has provided disaster assistance and food aid in response to natural disasters including Hurricane Stan, which caused extensive mudslides in Guatemala in October 2005, and in response to El Niño-related drought in 2009 and 2010.
Land invasions attract a great deal of attention in the Guatemalan media. Individuals who conduct land invasions usually view land as either an ancestral right, essential for survival, or as a business, and invade land based on those justifications. Most land invaders, the majority of whom are indigenous, view themselves as the legitimate owners of land stolen from them by Spanish conquerors. For others, land cultivation is the only means of economic survival in a country where educational opportunities and the possibility of non-agricultural employment are scarce for indigenous farmers.
As part of the Peace Accords, the GOG, armed opposition, and civil society negotiated a solution to the country's land conflict that resulted in the creation of the Land Fund (Fondo de Tierras). The Land Fund promised to address the country's unequal land distribution and to give small, mostly indigenous, farmers greater access to land.
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