Since of the end of 36 years of the civil war in 1996, Guatemala has pursued several economic reforms aimed at ensuring greater macroeconomic stabilization. Although significant progress has been made on several fronts, various challenges remain. The enforcement of the Central American Free Trade Agreement (CAFTA) in 1996 has ensured greater foreign investment and diversification of exports. One of the top ten poor nations in the world, Guatemala faces the problem of unequal distribution of income and high level of malnutrition. The country’s trade deficit has continued to grow and its GDP growth rate has declined in the last couple of years.
Guatemala Economic Structure: Major Contributors
The decline in Guatemala’s real GDP growth rate from 6.3% in 2007 to 4% in 2008 and -0.5% in 2009 is largely attributable to the declining export demand from the United States and the other Central American nations. Nearly 90% of Guatemala’s GDP is contributed by the private sector, with the government’s involvement limited to some public utilities and development oriented financial institutions.
Like all developing nations, the services segment plays a significant role in Guatemala’s economy and contributes nearly 65% of its GDP, while employing 50% of the country’s population. Although the country’s abundant and unique ecosystem allows it to have a diversity of crops, inequitable distribution of land and scarcity of resources act as constraints and restrict the agriculture sector’s contribution to the GDP to around 10%. Guatemala’s agriculture segment employs nearly 50% of the country’s population and the major products grown are sugarcane, corn, bananas, coffee, beans, cardamom, cattle, sheep, pigs and chickens. In recent years products like fruits, vegetables, flowers and ornamental plants are being grown for export purposes.
The country’s manufacturing industry largely comprises of food processing or light assembly units and employs nearly 15% of the country’s population. Major items being manufactured are sugar, textiles, clothing, furniture, chemicals, petroleum, metals and rubber. Poor infrastructure and lack of skilled workers, however, hinder the performance of the industrial segment, which contributes nearly 25% of the country’s GDP. A major source of foreign exchange inflows is the remittances from Guatemala’s large expatriate community in the United States.
Guatemala Economic Structure: Problems
Guatemala economy faces several challenges in the form of unequal distribution of income, negotiation of international assistance, curtailing crime and drug trafficking and narrowing the country’s trade deficit, overhauling the country’s public finances and improving the food situation and nutrition levels.