2019 Index of Economic Freedom

Guatemala

overall score62.6
world rank77
Rule of Law

Property Rights40.3

Government Integrity26.4

Judicial Effectiveness32.3

Government Size

Government Spending95.6

Tax Burden79.2

Fiscal Health96.2

Regulatory Efficiency

Business Freedom53.6

Labor Freedom48.7

Monetary Freedom77.0

Open Markets

Trade Freedom82.2

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 16.9 million
  • GDP (PPP):
    • $137.8 billion
    • 2.8% growth
    • 3.6% 5-year compound annual growth
    • $8,145 per capita
  • Unemployment:
    • 2.7%
  • Inflation (CPI):
    • 4.4%
  • FDI Inflow:
    • $1.1 billion

Guatemala’s economic freedom score is 62.6, making its economy the 77th freest in the 2019 Index. Its overall score has decreased by 0.8 point, with declines in trade freedom and business freedom outweighing slight improvements in fiscal health and government spending. Guatemala is ranked 16th among 32 countries in the Americas region, and its overall score is just above the regional and world averages.

Although the government has pursued orthodox economic policies to support growth while preserving macroeconomic stability, economic development is hindered by a low-skilled workforce, widespread corruption, a weak institutional framework, poor energy infrastructure, and fiscal constraints. These major challenges continue to dampen economic performance and competitiveness, making it even harder to tackle the fiscal deficit or improve public-sector efficiency. Protection of property rights is hampered by weak rule of law. Lack of access to long-term financing is a significant impediment to business development and job growth.

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Background

After a multidecade guerrilla war that killed more than 200,000 ended in 1996, macroeconomic and political reforms attracted foreign investment in Guatemala. Instability spiked anew in 2015, however, when rightist President Otto Pérez Molina became embroiled in a corruption scandal. He was removed from office and later imprisoned. Political neophyte Jimmy Morales began a five-year term as president in 2016 but has made little progress on promised improvements in health care, education, and security. In 2018, Congress extended immunity to Morales to shield him from investigation by the U.N.-backed International Commission Against Impunity in Guatemala (CICIG). More than half of Guatemala’s population lives below the national poverty line. Corruption and narco-related violence continue to impede economic development.

Rule of LawView Methodology

Property Rights 40.3 Create a Graph using this measurement

Government Integrity 26.4 Create a Graph using this measurement

Judicial Effectiveness 32.3 Create a Graph using this measurement

Property rights are defined in statutes, but protecting them is difficult. When rightful ownership is in dispute, it can be almost impossible to obtain and subsequently enforce eviction notices. The judiciary is hobbled by corruption, inefficiency, capacity shortages, and the intimidation of judges and prosecutors. Widespread corruption and mismanagement persist, especially in the customs and tax agencies.

Government SizeView Methodology

The top individual income and corporate tax rates are 31 percent. Other taxes include value-added and real estate taxes. The overall tax burden equals 12.6 percent of total domestic income. Over the past three years, government spending has amounted to 12.1 percent of the country’s output (GDP), and budget deficits have averaged 1.3 percent of GDP. Public debt is equivalent to 24.4 percent of GDP.

Regulatory EfficiencyView Methodology

Bureaucratic hurdles, including lengthy processes for launching a business and obtaining necessary permits, continue to undermine overall business freedom. High-level corruption remains a problem. Outmoded labor regulations are rigid. A large portion of the workforce is employed in the informal sector. The state maintains few price controls, but poorly targeted subsidies (for example, for electricity) continue.

Open MarketsView Methodology

The combined value of exports and imports is equal to 45.7 percent of GDP. The average applied tariff rate is 1.4 percent. As of June 30, 2018, according to the WTO, Guatemala had 30 nontariff measures in force. The inefficient judicial and regulatory systems discourage investment. The foreign bank presence is small. About 45 percent of adult Guatemalans have access to an account with a formal banking institution.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Canada77.70.0
2United States76.81.1
3Chile75.40.2
4Saint Lucia68.71.1
5Jamaica 68.6-0.5
6Uruguay 68.6-0.6
7Peru67.8-0.9
8Colombia67.3-1.6
9Panama 67.20.2
10Saint Vincent and the Grenadines65.8-1.9
11Costa Rica 65.3-0.3
12Mexico64.7-0.1
13Barbados64.77.7
14Dominica63.6-0.9
15The Bahamas62.9-0.4
16Guatemala 62.6-0.8
17El Salvador 61.8-1.4
18Paraguay 61.8-0.3
19Dominican Republic61-0.6
20Honduras 60.2-0.4
21Nicaragua 57.7-1.2
22Trinidad and Tobago57-0.7
23Guyana56.8-1.9
24Belize55.4-1.7
25Haiti52.7-3.1
26Argentina52.2-0.1
27Brazil51.90.5
28Suriname48.10.0
29Ecuador46.9-1.6
30Bolivia42.3-1.8
31Cuba27.8-4.1
32Venezuela 25.90.7
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