Guatemala highlights

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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.