2014 Index of Economic Freedom

Guatemala

overall score61.2
world rank83
Rule of Law

Property Rights25.0

Freedom From Corruption28.7

Limited Government

Government Spending93.6

Fiscal Freedom79.6

Regulatory Efficiency

Business Freedom58.4

Labor Freedom49.3

Monetary Freedom76.7

Open Markets

Trade Freedom85.4

Investment Freedom65.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 15.1 million
  • GDP (PPP):
    • $78.7 billion
    • 3.0% growth
    • 2.8% 5-year compound annual growth
    • $5,209 per capita
  • Unemployment:
    • 4.1%
  • Inflation (CPI):
    • 3.8%
  • FDI Inflow:
    • $1.2 billion
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Guatemala’s economic freedom score is 61.2, making its economy the 83rd freest in the 2014 Index. Its score has increased by 1.2 points, reflecting improvements in six of the 10 economic freedoms including business freedom, investment freedom, and freedom from corruption. Guatemala is ranked 17th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the regional and world averages.

Over the 20-year history of the Index, Guatemala’s economic freedom has largely stagnated. Improvements in trade freedom, investment freedom, and business freedom have been undermined by an expansion of government spending and taxation and double-digit declines in property rights and freedom from corruption. Reflecting the lack of a consistent governmental commitment to structural reform, the Guatemalan economy has fluctuated in the ranks of the “moderately free” and the “mostly unfree” throughout the history of the Index.

Guatemala enjoys a relatively high degree of market openness but continues to lag in promoting the effective rule of law. The judicial system remains vulnerable to political interference, and lingering serious corruption further undermines the emergence of a more vibrant 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, skyrocketing corruption, and mounting insecurity. Guatemala is the administrative hub for the Central American Integration System, which aims to improve regional economic cooperation. Agriculture accounts for 13 percent of Guatemala’s GDP. Exports include coffee, bananas, sugar, and apparel. The economy was seriously damaged during the global recession but rebounded slightly in 2012. More than half of the population lives below the poverty line. Guatemala works closely with the U.S. on security issues, but drug trafficking persists, and Mexican cartels continue to expand their influence in the country.

Rule of LawView Methodology

Property Rights 25.0 Create a Graph using this measurement

Freedom From Corruption 28.7 Create a Graph using this measurement

Despite anti-corruption efforts, serious problems remain. In May 2013, former President Alfonso Portillo was extradited to the United States to face charges of using U.S. banks to launder millions of dollars allegedly embezzled while he was in office. Drug-trafficking and related violence are increasing. The judiciary is troubled by corruption, inefficiency, capacity shortages, and intimidation of judges, prosecutors, and witnesses.

Limited GovernmentView Methodology

The top individual 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 11 percent of gross domestic income. Public expenditures are around 15 percent of the domestic economy. In 2006, the U.S. forgave 20 percent of Guatemala’s debt in exchange for protection of rain forests. Public debt now rests at around 25 percent of GDP.

Regulatory EfficiencyView Methodology

Launching a business has become more streamlined and takes about 20 days and less than 10 procedures. The cost of obtaining necessary licenses remains about four times the level of average annual income. The labor market is inefficient, and much of the labor force is employed in the informal sector. Inflation has abated slightly. The state maintains few price controls but subsidizes numerous key economic activities and products.

Open MarketsView Methodology

Guatemala’s average tariff rate is 2.3 percent. The regulatory and legal systems may be challenging for foreign investors to navigate. The small financial system, which has been reorganized in recent years, is dominated by banks. The banking sector remains relatively stable and well capitalized, and the number of non-performing loans is declining. A 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
1Chile78.7-0.3
2Saint Lucia70.70.3
3Colombia70.71.1
4The Bahamas69.8-0.3
5Uruguay 69.3-0.4
6Barbados68.3-1.0
7Peru67.4-0.8
8Saint Vincent and the Grenadines670.3
9Costa Rica 66.9-0.1
10Jamaica 66.7-0.1
11El Salvador 66.2-0.5
12Dominica65.21.3
13Panama 63.40.9
14Trinidad and Tobago62.70.4
15Paraguay 620.9
16Dominican Republic61.31.6
17Guatemala 61.21.2
18Nicaragua 58.41.8
19Honduras 57.1-1.3
20Brazil56.9-0.8
21Belize56.7-0.6
22Guyana55.71.9
23Suriname54.22.2
24Haiti48.90.8
25Bolivia48.40.5
26Ecuador481.1
27Argentina44.6-2.1
28Venezuela 36.30.2
29Cuba28.70.2
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