2013 Index of Economic Freedom

Guatemala

overall score60.0
world rank85
Rule of Law

Property Rights30.0

Freedom From Corruption27.0

Limited Government

Government Spending93.6

Fiscal Freedom79.6

Regulatory Efficiency

Business Freedom50.8

Labor Freedom48.7

Monetary Freedom75.5

Open Markets

Trade Freedom85.2

Investment Freedom60.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 14.7 million
  • GDP (PPP):
    • $74.7 billion
    • 3.8% growth
    • 3.3% 5-year compound annual growth
    • $5,070 per capita
  • Unemployment:
    • 4.1%
  • Inflation (CPI):
    • 6.2%
  • FDI Inflow:
    • $984.6 million
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Guatemala’s economic freedom score is 60.0, making its economy the 85th freest in the 2013 Index. Its score has decreased by 0.9 point, mainly because of declines in freedom from corruption and labor freedom. Guatemala is ranked 16th out of 29 countries in the South and Central America/Caribbean region, and its overall score is just above the world average.

Reflecting the lack of consistent commitment to structural reform, Guatemala has registered marginal and uneven progress in advancing economic freedom. The economy enjoys a relatively high degree of openness to global trade, as tariff rates are quite low, but the dynamic gains from trade are largely undercut by the lack of progress in improving the investment regime and regulatory efficiency. However, implementation of several recent free trade agreements is having a positive impact, and foreign direct investment has recovered from recessionary levels.

Guatemala has lagged notably in promoting the effective rule of law. The judicial system remains vulnerable to political interference, and property rights are not strongly protected. Lingering corruption further undermines overall economic freedom and hampers the emergence of more vibrant economic activity in the private sector.

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Background

Former General Otto Perez Molina won the presidency in 2011, replacing social democrat Alvaro Colom, whose four-year term was marked by internal political feuding and mounting insecurity. Tax increases passed in March 2012 were part of a modest tax reform designed to raise government revenues. Guatemala is the administrative hub for the Central American Integration System, which aims to improve economic cooperation in the region, and works closely with the U.S. on security issues. The most advanced sector, telecommunications, is fully deregulated. The Central America–Dominican Republic–United States Free Trade Agreement has encouraged trade flows and opportunities to develop niche markets in the U.S.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 27.0 Create a Graph using this measurement

Judicial resolution of disputes is time-consuming and often unreliable. Inadequate documentation can lead to conflicting claims of land ownership, undercutting protection of property rights. Pervasive corruption, a lack of transparency, and a weak civil service hinder the effective implementation of policy. Government action is also hampered by legal and illegal special-interest groups entrenched in the state.

Limited GovernmentView Methodology

The top income and corporate tax rates are 31 percent. Other taxes include a value-added tax (VAT) and a tax on real estate. The overall tax burden amounts to 10.8 percent of total domestic income. Government spending corresponds to 14.7 percent of total domestic output. The budget balance remains in deficit, although public debt continues to be less than 25 percent of GDP.

Regulatory EfficiencyView Methodology

The regulatory environment lacks efficiency. Starting a business takes 40 days and over 10 procedures, and the cost of obtaining necessary licenses remains about five times the level of average annual income. The labor market is inefficient, and a large part of the labor force is employed in the informal sector. Inflation has abated slightly. The state maintains few price controls but subsidizes numerous economic activities and products.

Open MarketsView Methodology

The trade-weighted average tariff rate is quite low at 2.4 percent, but non-tariff barriers add slightly to the cost of trade. Foreign investors technically receive national treatment, but regulatory hurdles can impede investment. The highly concentrated banking sector remains relatively stable and well capitalized, and the number of non-performing loans is declining. The recently enacted insurance law opened the insurance market to foreign firms.

Country's Score Over Time

Bar Graph of Guatemala  Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Guatemala  to other economic country groups

Regional Ranking

rank country overall change
1Chile790.7
2Saint Lucia70.4-0.9
3The Bahamas70.12.1
4Uruguay 69.7-0.2
5Colombia69.61.6
6Barbados69.30.3
7Peru68.2-0.5
8Costa Rica 67-1.0
9Jamaica 66.81.7
10El Salvador 66.7-2.0
11Saint Vincent and the Grenadines66.70.2
12Dominica63.92.3
13Panama 62.5-2.7
14Trinidad and Tobago62.3-2.1
15Paraguay 61.1-0.7
16Guatemala 60-0.9
17Dominican Republic59.7-0.5
18Honduras 58.4-0.4
19Brazil57.7-0.2
20Belize57.3-4.6
21Nicaragua 56.6-1.3
22Guyana53.82.5
23Suriname52-0.6
24Haiti48.1-2.6
25Bolivia47.9-2.3
26Ecuador46.9-1.4
27Argentina46.7-1.3
28Venezuela 36.1-2.0
29Cuba28.50.2
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