Mixed prospects
Guatemala posted solid economic growth in 2024, with GDP rising 3.7%, supported by strong remittances, resilient domestic demand and improving investor confidence under the new administration. Inflation fell to 1.7%, reserves hit a record high and the fiscal deficit narrowed to 1% of GDP. While macro fundamentals remain solid, rising underemployment, a widening trade deficit and signs of currency overvaluation point to growing structural risks heading into 2025 and 2026. Guatemala is expected to maintain one of the most stable economies in Latin America over the next 24 months, underpinned by the region’s lowest level of public debt. As noted in previous reports, the new administration may open the door to fresh opportunities, particularly if policy continuity and institutional credibility is maintained. Stability remains a necessary foundation for unlocking higher growth, and Guatemala stands out as a clear example of regional macroeconomic and fiscal resilience.
Concerns are rising in one of Costa Rica´s main growth drivers. Despite a near-complete global recovery in travel, Costa Rica’s tourist arrivals remain below pre-pandemic levels, lagging regional competitors like El Salvador and the Dominican Republic. Underperformance is driven by currency overvaluation, growing safety concerns and infrastructure bottlenecks that are also affecting foreign exchange inflows, employment and services exports. The Central Bank’s strong colón policy is inadvertently undermining the country’s main growth drivers. A prolonged slowdown in tourism and services exports poses real risks to foreign exchange inflows, employment and overall growth trends, particularly since services exports are central to Costa Rica’s development model.
El Salvador has risen in investor confidence with the recent EFF agreement with the IMF, where a fiscal adjustment program will address severe public sector finance imbalances, including in the pension system. The agreement will enhance earlier actions to welcome modern ventures in high-tech sectors, that the government expects to dynamize tourism and FDI inflows. The IMF agreement will also address private and public risks from the 2021 legislation on bitcoin, reducing substantially its role in public finances. Those risks have been minimal to private sector so far, because the response and usage have been minimal. Increasing requirements of transparency in several aspects like bitcoin operations of the government, and public affairs including private pensions, as well as increasing strengthening of liquidity buffers and improved financial sector supervision are also expected to reflect in investors’ confidence. An important step on transparency already occurred with the publication of the IMF’s extensive report on the EFF agreement.
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