Why Is Guatemala So Poor - T-Tees - Your Answers Await, Life's Questions Unraveled

Guatemala is the largest economy in Central America in terms of population (estimated at 17 million in 2021) and economic activity (gross domestic product -GDP- of US$ 95 billion in 2022). The country has experienced stable growth (3.5 percent on average in 2010-19), supported by prudent fiscal and monetary management and an open economy.

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The country had one of the smallest economic declines (-1.8 percent) in the Latin America and Caribbean (LAC) region in 2020 during the COVID-19 pandemic, and the economy rebounded strongly to grow 8 percent in 2021 and 4.1 percent in 2022, supported by record high remittances that boosted private consumption. The country’s economy is expected to grow 3.4 percent in 2023.

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However, Guatemala’s economic stability has not translated into robust poverty reduction: the country’s poverty and inequality rates are among the highest in LAC, with a large and underserved population, mostly rural and indigenous and employed in the informal sector. Poverty is estimated at 55.2 percent of the population in 2023 and the size of Guatemala’s informal economy is estimated at 49 percent of GDP.

A small and ineffective state, persistent gaps in access to basic services, limited employment and productive opportunities, and frequent disasters are some of the key factors that have contributed to poverty in Guatemala. All of these factors explain the high rates of emigration and the significant dependence of the economy and its households on remittances. In 2021, migrants sent back remittances equivalent to 17.7 percent of the country’s GDP.

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Guatemala’s Human Capital Index score of 0.46 (2020) remains far below the LAC average. Human capital indicators are low among Indigenous peoples and Afro descendants. Guatemala’s child malnutrition rate (at 47 percent) is among the ten highest in the world. In several of the poorest municipalities, the share of households with stunted children under five is often close to 90 percent.

Extreme weather events and other disasters have also reversed hard-won gains in human capital, destroyed infrastructure, reduced agricultural output, intensified food insecurity, spread diseases, and disrupted essential services. Recent estimates suggests that the Eta and Iota hurricanes in 2020 caused infrastructure-related losses of close to 0.56 percent of GDP, as well as agriculture-related losses of close to 0.20 percent of GDP.