CURRENT DEVELOPMENT CHALLENGES AND OPPORTUNITIES

Ten years after the signing of the Peace Accords that ended a debilitating 36-year civil war, Guatemala is striving to create a more inclusive society and strengthen public institutions. Key challenges include improving the business climate to attract more private investment, and securing revenues to finance public expenditure for basic education, health and rural infrastructure.

Poverty and Inequality. About 56 percent of all Guatemalans (and 76 percent of indigenous groups) lived in poverty in 2000, and about 16 percent lived in extreme poverty. Guatemala's social indicators often fall below those of countries with lower per-capita incomes. For instance, the average schooling of the adult population is 5.4 years and just 1.9 years for the indigenous population. Health outcomes such as life expectancy and infant and maternal mortality rates are also weak compared to those of other middle-income countries, and malnutrition rates among children are particularly worrisome.

For more information on other key indicators for Guatemala, click here.

Economic Growth. Following a four-year period of negative per-capita growth, real GDP growth recovered to 2.7 percent in 2004 and 3.2 percent in 2005, despite high international oil prices and the damage from tropical storm Stan. The economy is projected to grow around 4.5 percent per year in 2006 and 2007, reflecting improvements in the domestic business climate, higher global economic growth, low interest rates and a rebound in coffee prices.

The Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) with the United States is a critically important trade deal for Guatemala. If accompanied by complementary investments and reforms, DR-CAFTA has the potential to increase trade and foreign direct investment in Guatemala (see DR-CAFTA: Challenges and Opportunities for Central America.).

Guatemala has a long track record of responsible fiscal and monetary management, and its ratio of public debt to GDP is one of the lowest in the Latin America and the Caribbean region. Moreover, the government is focusing on strengthening tax administration. Still, a key issue for Guatemala remains the relatively low level of tax revenues (around 10 percent of GDP). This constrains public investment in social services and basic infrastructure, both of which are critical to poverty reduction and sustained growth.

Governance and Institutions. The government has emphasized improving governance and credibility of public sector institutions. It has taken important steps to improve transparency through implementation of a public procurement portal and expansion of the public financial management system, at both the national and municipal levels. The efforts to reduce crime and violence, fight corruption, improve the regulatory environment and modernize the judicial system need to continue in order to build public confidence in government institutions and improve the business climate.