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Macroeconomic policy, external shocks and social protection

Guatemala highlights

Guatemala must be ready to react to external conditions


Simulations show that, following a 50% drop in the international prices for Guatemala’s main exports, the economy suffers a large drop in GDP that affects the sectors that use lower skilled labor, which comprises a majority of the population. This is the group most economically vulnerable and nearer the poverty line. As such, the simulated shock resulted in a higher unemployment rate and lower average wage income, resulting in higher poverty rates and income inequality.

A fall in exports prices has a large effect on poverty rates since it impacts lower skilled workers

Poverty is measured as a share of total population. The vertical axis measures the yearly changes, in percentage points from the baseline model results. Please see the full country study for a definition of the simulated scenarios.


Social policies are effective, but carry a large cost


Social policy simulations show that they are effective in reducing the impact of external shocks, albeit with a significant fiscal cost. Education-related transfer programs would lower poverty rates by 3.1 percentage points, while pension-related policies lower poverty rates by 1.8 percentage points. The most effective policies are those that directly transfer to families. As a response to the simulated external shocks, the policies with the largest mitigating effect are education-related transfers and transfers to senior citizens. Both can have a large mitigating effect on poverty rates against a hypothetical drop in export prices.

Some policies are very effective in lowering poverty rates and can be quickly enacted in the event of a large external shock

Poverty is measured as a share of total population. Fiscal balance is measured as a share of total GDP. The vertical axis measures the yearly changes, in percentage points from the baseline model results. Please see the full country study for a definition of the simulated scenarios.

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The book "Financing Human Development in Africa, Asia and the Middle East" is forthcoming in the fourthquarter of 2012.

The book's quantitative assessments, conclusions drawn, and policy recommendation are prepared based on the country studies of the project "Realizing the Millennium Development Goals through socially inclusive macroeconomic policies".

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