2020 Index of Economic Freedom

Guatemala

OVERALL SCORE64.0
WORLD RANK73
Rule of Law

Property Rights45.5

Judicial Effectiveness32.2

Government Integrity29.6

Government Size

Tax Burden79.2

Government Spending95.6

Fiscal Health95.7

Regulatory Efficiency

Business Freedom62.6

Labor Freedom48.4

Monetary Freedom77.4

Open Markets

Trade Freedom82.2

Investment Freedom70.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 17.3 million
  • GDP (PPP):
    • $145.6 billion
    • 3.1% growth
    • 3.5% 5-year compound annual growth
    • $8,436 per capita
  • Unemployment:
    • 2.7%
  • Inflation (CPI):
    • 3.8%
  • FDI Inflow:
    • $1.1 billion

Guatemala’s economic freedom score is 64.0, making its economy the 73rd freest in the 2020 Index. Its overall score has increased by 1.4 points, primarily because of a higher business freedom score. Guatemala is ranked 14th among 32 countries in the Americas region, and its overall score is above the regional and world averages.

The Guatemalan economy has slowly been climbing the ranks of the moderately free for the past decade, and that improvement has been matched by healthy GDP growth.

The challenge now is to expand economic freedom more rapidly in order to improve the prospects for more substantial and broad-based growth. To achieve those goals, the new government will need to liberalize the financial system and prioritize reforms in such institutions as the courts, the prosecutors, and other law enforcement agencies. Improvements in the property registration system are also needed to avoid conflicts over land ownership.

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Background

After a multidecade guerrilla war that killed more than 200,000 people ended in 1996, macroeconomic and political reforms attracted foreign investment in Guatemala. Political neophyte Jimmy Morales began a four-year term as president in 2016, but his administration was plagued by serious allegations of corruption. Alejandro Giammattei of the center-right Vamos party was elected to succeed him in an August 2019 election that was marked by low turnout and focused on public corruption, inclusive economic growth, and job creation to forestall emigration pressures. More than half of the population lives in poverty, and 50 percent of children under five years of age are chronically malnourished. Rampant insecurity related to drug trafficking and gang violence continues to impede economic development.

Rule of LawView Methodology

Property Rights 45.5 Create a Graph using this measurement

Judicial Effectiveness 32.2 Create a Graph using this measurement

Government Integrity 29.6 Create a Graph using this measurement

Although the government maintains a registry system for real property, defects in titles and ownership gaps in the public record can lead to conflicting claims of land ownership, especially in rural areas. The judiciary is hobbled by corruption, inefficiency, capacity shortages, and the 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 12.4 percent of total domestic income. Government spending has amounted to 12.1 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 1.4 percent of GDP. Public debt is equivalent to 24.5 percent of GDP.

Regulatory EfficiencyView Methodology

The fees and minimum capital requirements for starting a business have been lowered, but bureaucratic hurdles and confusing regulations can still impede private businesses. There is an education mismatch, with secondary and tertiary education focused on social science careers at a time when technical and managerial workers are in short supply. There are few price controls, but poorly targeted subsidies (for example, for electricity) continue.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 45.8 percent of GDP. The average applied tariff rate is 1.4 percent, and 30 nontariff measures are in force. Foreign investors technically receive national treatment, but regulatory hurdles can serve as barriers to investment. The financial sector is dominated by bank-centered financial conglomerates, and the five largest banks account for over 60 percent of total assets.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Canada78.20.5
2Chile76.81.4
3United States76.6-0.2
4Colombia69.21.9
5Uruguay 69.10.5
6Jamaica 68.5-0.1
7Saint Lucia68.2-0.5
8Peru67.90.1
9Panama 67.20.0
10Saint Vincent and the Grenadines66.81.0
11Mexico661.3
12Costa Rica 65.80.5
13The Bahamas64.51.6
14Guatemala 641.4
15Paraguay 631.2
16El Salvador 61.6-0.2
17Barbados61.4-3.3
18Honduras 61.10.9
19Dominican Republic60.9-0.1
20Dominica60.8-2.8
21Trinidad and Tobago58.31.3
22Belize57.42.0
23Nicaragua 57.2-0.5
24Guyana56.2-0.6
25Brazil53.71.8
26Argentina53.10.9
27Haiti52.3-0.4
28Ecuador51.34.4
29Suriname49.51.4
30Bolivia42.80.5
31Cuba26.9-0.9
32Venezuela 25.2-0.7
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