2018 Index of Economic Freedom

Guatemala

overall score63.4
world rank73
Rule of Law

Property Rights40.4

Government Integrity27.3

Judicial Effectiveness33.1

Government Size

Government Spending95.3

Tax Burden79.2

Fiscal Health95.3

Regulatory Efficiency

Business Freedom57.3

Labor Freedom48.3

Monetary Freedom77.6

Open Markets

Trade Freedom87.2

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 16.7 million
  • GDP (PPP):
    • $131.7 billion
    • 4.0% growth
    • 3.6% 5-year compound annual growth
    • $7,899 per capita
  • Unemployment:
    • 2.4%
  • Inflation (CPI):
    • 4.5%
  • FDI Inflow:
    • $1.2 billion
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Guatemala’s economic freedom score is 63.4, making its economy the 73rd freest in the 2018 Index. Its overall score has increased by 0.4 point, with significant improvements in judicial effectiveness and investment freedom offsetting declines in property rights, monetary freedom, and business freedom. Guatemala is ranked 14th among 32 countries in the Americas region, and its overall score is above the regional and world averages.

The government would like to pursue reforms to encourage increased merchandise exports and stimulate economic growth, but it is on the defensive politically and therefore unlikely to move rapidly to tackle the fiscal deficit or improve public-sector efficiency. Long-standing constraints on economic freedom include widespread government corruption and fragile protection of property rights due to the 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

Guatemala won its independence from Spain in 1821. A long guerrilla war that left more than 200,000 dead ended with a peace agreement in 1996. Since then, Guatemala has pursued macroeconomic stabilization with reforms that have attracted foreign investment. Instability spiked anew when the rightist Patriotic Party government collapsed in late 2015. Political neophyte Jimmy Morales, who began his five-year term as president in early 2016, has made little progress on promised improvements in health care, education, and security, and his reputation has been tarnished by allegations of corruption. More than half of the population lives below the national poverty line. Guatemala remains a major drug trafficking transit country, and gang violence continues to impede economic development.

Rule of LawView Methodology

Property Rights 40.4 Create a Graph using this measurement

Government Integrity 27.3 Create a Graph using this measurement

Judicial Effectiveness 33.1 Create a Graph using this measurement

Guatemala has a system for registration of real property, but defects in titles and ownership gaps in the public record can lead to conflicting claims of land ownership. The judiciary is hobbled by corruption, inefficiency, capacity shortages, and intimidation of judges and prosecutors. Corruption and mismanagement remain widespread, 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 12.7 percent of total domestic income. Over the past three years, government spending has amounted to 12.5 percent of total output (GDP), and budget deficits have average 1.5 percent of GDP. Public debt is equivalent to 25.3 percent of GDP.

Regulatory EfficiencyView Methodology

Complex and confusing laws and regulations, inconsistent judicial decisions, and bureaucratic inefficiencies continue to undermine business development. Outmoded labor regulations are rigid. More than twice as many individuals work in the informal sector as in the formal sector. The state maintains few price controls but subsidizes electricity for low-income families, public transport in Guatemala City, and diesel fuel for trucks and buses.

Open MarketsView Methodology

Trade is moderately important to Guatemala’s economy; the combined value of exports and imports equals 47 percent of GDP. The average applied tariff rate is 1.4 percent. Nontariff barriers impede some trade. Government openness to foreign investment is below average. Banking is highly concentrated, relatively stable, and well capitalized, and the number of nonperforming loans is declining. The insurance market is now open to foreign firms.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Canada77.7-0.8
2United States75.70.6
3Chile75.2-1.3
4Uruguay 69.2-0.5
5Jamaica 69.1-0.4
6Colombia68.9-0.8
7Peru68.7-0.2
8Saint Vincent and the Grenadines67.72.5
9Saint Lucia67.62.6
10Panama 670.7
11Costa Rica 65.60.6
12Mexico64.81.2
13Dominica64.50.8
14Guatemala 63.40.4
15The Bahamas63.32.2
16El Salvador 63.2-0.9
17Paraguay 62.1-0.3
18Dominican Republic61.6-1.3
19Honduras 60.61.8
20Nicaragua 58.9-0.3
21Guyana58.70.2
22Trinidad and Tobago57.7-3.5
23Belize57.1-1.5
24Barbados572.5
25Haiti55.86.2
26Argentina52.31.9
27Brazil51.4-1.5
28Ecuador48.5-0.8
29Suriname48.10.1
30Bolivia44.1-3.6
31Cuba31.9-2.0
32Venezuela 25.2-1.8
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