This chapter adopts a multi-dimensional approach to analyse key development challenges and opportunities for regional development in Guatemala, amidst a changing global context. The chapter first analyses several key trends and their implications for development, notably the reconfiguration of global trade; the evolving dynamics of international migration; the digital transformation; and the green transition. Second, the chapter focuses on some of the specific advantages of Guatemala to seize the opportunities of an evolving global context, specifically linked to macroeconomic stability, favourable geographic and demographic conditions, and relatively low levels of public debt. Finally, the chapter analyses to what extent Guatemala is already including a territorial approach to development in its institutional setup.
Rethinking Regional Attractiveness in Escuintla, Guatemala
Abstract
The global landscape is undergoing profound transformations, bringing both challenges and opportunities for development, with specific impacts on territories within countries. Several megatrends have gained pace in recent years, including climate change, demographic shifts, and technological advancements. In parallel, the effects of the COVID-19 crisis, the consequences of Russia’s war of aggression against Ukraine, and mounting geopolitical and trade uncertainties are having – and will most likely continue to have – important and unforeseeable impacts in sustainable development across the developing world (OECD, 2023[1]).
The fragmentation of the global economy is a key concern. Higher and broader increases in trade barriers can have an impact on global growth and add to inflation pressures, hence leading to more restrictive monetary policy. An illustrative exercise, where bilateral tariffs are raised further on all non-commodity imports into the United States with corresponding increases in tariffs applied to non-commodity imports from the United States in all other countries, shows that global output could fall by around 0.3% by the third year, and global inflation could rise by 0.4 percentage points per annum on average over the first three years (OECD, 2025[2]).
The profound transformations reshaping the global landscape, both contextual and structural, can have differential impacts across countries and territories in the region. Megatrends are triggering, for instance, structural changes in trade, production, and investment patterns. These shifts involve asymmetric impacts on different regions, exacerbating inequalities while also opening new possibilities for economic diversification and resilience.
Latin America and the Caribbean (LAC) countries need to navigate these transformations in order to seize emerging opportunities, while being ready to address evolving challenges. For instance, LAC is well positioned to benefit from the green transition. The LAC region is endowed with high potential renewable energy resources, which represent 33% of total energy supply compared to 13% worldwide. The LAC region also has a strategic position to supply key minerals for the energy transition, with around 61% of global lithium reserves, 39% of global copper, and 32% of global nickel and silver reserves (OECD et al., 2022[3]).
For Guatemala, this rapidly changing global environment underscores the need for a strategic reassessment of its national strategy for regional development. Strengthening the country’s attractiveness as an investment and production hub, while making the most of the potential for development in each territory, will require co-ordinated efforts between national and subnational authorities, the private sector, and civil society. Targeted policies that enhance human capital, modernise infrastructure, and foster innovation will be essential to ensuring Guatemala can capitalise on emerging opportunities and build a more sustainable and inclusive economic future across its territories.
Seizing the opportunities of nearshoring and strengthening regional value chains
The reconfiguration of global trade, driven by shifting supply chains, protectionist policies, and increasing geopolitical fragmentation, together with emergence of new essential raw materials, can have profound implications for regions within countries. In fact, these transformations can lead to production shifting to countries closer to or more geopolitically aligned with destination markets. These shifts have the potential to reshape global and regional value chains, and result in the reshoring, nearshoring or friendshoring of trade.
In the specific case of Guatemala, these transformations can redefine the opportunities for its insertion into the global economy. As global firms are reconfiguring their supply chains to reduce reliance on distant markets, near-shoring – the relocation of production closer to key markets – offers Guatemala the potential to attract investments from North American (pending trade agreements) and Central American countries, seeking less distant and more resilient and cost-effective production networks. Similarly, friend-shoring – prioritising trade with allied or politically stable countries – could further enhance trade and investment relations notably with the European Union and South American economies.
Guatemala is well placed to benefit from these emerging opportunities, due to its strategic geographical location and growing openness to foreign trade and investment. The country has 14 Free Trade Agreements (FTAs) in place, notably: DR-CAFTA with the United States, the Dominican Republic and Central America; the Association Agreement with the European Union; and other bilateral agreements with countries in LAC and beyond. The country's participation in trade agreements, such as the Central American Common Market (CACM) and the Association Agreement with the European Union, has facilitated its integration into regional and global value chains, particularly in agro-industrial and light manufacturing sectors. In fact, with 14 trade agreements in effect, the country provide access to more than 40 nations and 1.5 billion consumers, facilitating deeper integration into regional and global value chains (Invest Guatemala, n.d.[4]).
Guatemala’s main export partner country is the United States, which is the destination of almost one-third of total exports from the country. However, its relevance in total exports from Guatemala has declined from representing 39% in 2013 to 32% in 2023. Central American countries, taken together as a trading bloc, represent 39% of total exports from Guatemala. These exports have risen from representing 31% of total exports from Guatemala in 2013, to 39% in 2023 (Figure 2.1, Panel A). This implies that more than two thirds of total exports are traded with neighbouring countries and underscores the potential to continue strengthening regional value chains.
The reconfiguration of global trade should also represent an opportunity for Guatemala to upgrade its export basket, leveraging opportunities to engage with main trade partners in higher value-added segments of the supply chain. Currently, almost two thirds of Guatemala’s exports are primary products (32.5% of total exports) and resource-based manufactures (26.8). Low technology manufactures represent 23.7% of total exports, while medium technology and high technology represent, respectively, 12.6% and 2.8% (Figure 2.1, Panel B). Sectors such as agro-industry and light manufacturing have the potential to grow and benefit from the reconfiguration of supply chains (IFC, 2023[5]).
Source: Based on WITS database.
Services exports have been increasingly relevant for Guatemala and represent another area of opportunity amidst the reconfiguration of global trade. Specifically, travel-related services represented around a third of total services exports in 2023, which indicates a recovery to pre-pandemic levels. Exports of business services have experienced a significant growth in the last decade, from around 5% in 2013 to more than 18% of total services exports in 2023 (Figure 2.2).
Source: Based on WITS (database).
Importantly, gains from trade and investment tend to have concentrated impacts in specific areas, such as Guatemala City and its surroundings, and in specific “economic corridors”, while other regions remain underserved. The ongoing reconfiguration of global value chains presents a unique opportunity for Guatemala to diversify its economy and ensure that the benefits of trade reach all parts of the country. A more balanced distribution of investment and trade-driven growth could help reduce regional disparities, foster inclusive development (OECD, 2023[1]), and mitigate challenges related to urban concentration, such as limited access to affordable housing, infrastructure, and public services (González Pandiella, 2024[6]).
The important role of remittances as a source of finance for many households
Migration patterns are also experiencing transformations as a result of ongoing global transformations, with potential implications for Guatemala and its territories.1 Specifically, remittances play a key role in Guatemala, representing 19.1% of GDP in 2023, which was one of the highest levels among LAC countries (Figure 2.3).
The significance of remittances for Guatemala underscores their role in supporting household incomes, reducing poverty, and sustaining economic stability. Around 60% of households depend on remittances for daily expenses, education, and investment. However, this dependence also poses risks, especially as 91% of remittances come from migrants in the United States, making these flows particularly vulnerable to any shifts in migration policies or labour market conditions in this country.
Remittances are unevenly distributed across departments in Guatemala, hence the potential impact of fluctuations on flows of remittances also has a territorial dimension. The Department of Guatemala hosts the largest share of the population that receives remittances (18.7% of total), and Escuintla is the fifth one (5.4%) (Figure 2.4) (OIM, 2023[7]).
Note: Personal remittances comprise personal transfers and compensation of employees. Personal transfers consist of all current transfers in cash or in kind made or received by resident households to or from non-resident households. Data are the sum of two items defined in the sixth edition of the IMF's Balance of Payments Manual: personal transfers and compensation of employees.
Source: Based on World Bank, World Development Indicators (accessed March 2025).
Source: Based on (OIM, 2023[7]).
Taking advantage of the digital transformation
The digital transformation is reshaping economies in multiple ways. Among others, digital technologies enable new business models, enhance supply chain efficiency, expand market access for small and medium-sized enterprises (SMEs), and support smart goods and services. Embracing knowledge-intensive sectors and using digital technologies to boost productivity, drive innovation, and diversify production can help Guatemala in advancing towards long-term economic convergence with advanced economies (OECD et al., 2020[8]).
These transformations also present opportunities – and challenges – for territorial development in Guatemala. On one hand, they offer a means to overcome physical divides and infrastructure deficits, enabling remote regions to integrate into national and global markets despite limitations in traditional transportation and logistics networks. Investments in digital infrastructure can enhance productivity, improve service delivery, and foster innovation, even though the expansion of such infrastructures remains costly and uneven, with significant gaps in access to broadband connectivity, digital skills, and technological adoption, particularly in rural areas.
On the other hand, the impact of digitalisation depends on key enabling conditions. Infrastructure, business dynamism, competition in digital markets, and the availability of skilled labour all play a critical role in determining the extent to which digital technologies translate into higher productivity and economic growth (OECD et al., 2020[8]). Digital transformation can be a driver of greater and more equal territorial development if investments in infrastructure and connectivity are complemented by efforts for workforce upskilling and policies to promote inclusive innovation ecosystems. Institutional and policy frameworks also matter. Without strong institutions, targeted policies, and investments that promote digital inclusion, the digital transition risks reinforcing rather than reducing territorial inequalities. To harness its full potential, Guatemala must ensure that digitalisation is integrated into a broader strategy of inclusive development, prioritising institutional strengthening, capacity-building, and spatially equitable infrastructure deployment.
Despite progress in recent years, Guatemala still lags behind LAC peers in terms of its advancement to a digital economy and society. Internet users saw a significant increase from 34.5% in 2016 to 54.4% in 2023. However, this is significantly lower than the LAC average (54.5% in 2016, 75.4% in 2023) and the OECD average (81.8% in 2016, 90.7% in 2023). Regarding broadband subscriptions, Guatemala's fixed broadband subscriptions per 100 inhabitants grew modestly from 3.1 in 2016 to 5.1 in 2023. This is notably lower than the LAC average (11.2 in 2016, 17 in 2023) and the OECD average (30.6 in 2016, 36 in 2023) (Figure 2.5).
Note: (1) Share of internet users: measures individuals who have used the Internet (from any location) in the last 3 months. The Internet can be used via a computer, mobile phone, personal digital assistant, games machine, digital TV etc. (2) Fixed broadband subscriptions: measures fixed subscriptions to high-speed access to the public Internet (a TCP/IP connection), at downstream speeds equal to, or greater than, 256 kbit/s.
Source: Based on data from (Word Bank, 2024[9]).
While evidence on digital transformation at the territorial level in Guatemala is very limited, available data shows important disparities across Departments. Around 46% of households in rural areas and 42% in urban areas do not have fixed broadband access to internet, while 34% and 27% respectively do not have access to mobile internet. The departments most lagging behind are Alta Verapaz, Quiché, Huehuetenango, and San Marcos (Orozco Granillo, 2023[10]).
Advancing a green and just transition
The green transition brings both challenges and opportunities to Guatemala, with potentially varied effects across territories in the country (OECD et al., 2022[3]). Guatemala is particularly exposed to the adverse effects of climate change, including extreme weather events, biodiversity loss, and water scarcity, which disproportionately affect rural and indigenous communities. Despite contributing a small share to global greenhouse gas (GHG) emissions – lower than both the LAC region and the OECD countries' averages – the country faces significant climate risks that threaten economic stability and social cohesion (OECD et al., 2022[3]). Specifically, Guatemala was the fourth country with a higher frequency of extreme weather events, only behind Mexico, Colombia and Brazil – all with significantly larger surface areas, with an average of 1.6 such events per year in the period 2000-2022. Likewise, Guatemala was one of the countries experiencing a larger increase in the frequency of such events between the period 1980-2000 and 2000-2022 (Figure 2.6).
Note: The following natural disasters were considered: landslides, storms, droughts and floods.
Source: (OECD et al., 2022[3]).
The green transition can bring significant opportunities for formal job creation in Guatemala. Broadly speaking, the green transition is expected to transform labour markets in LAC countries, involving both the creation and destruction of jobs. The net effect of these dynamics will be largely dependent on the economic structure and institutional setup of each country, as well as on policies and investments put forward to support a just, green transition. Specifically, net job creation in green sectors in Guatemala could increase by as much as 14.7% by 2030, in a scenario where investments increase the value added of green sectors by 3 percentage points per year (Figure 2.7).
The green transition is reshaping labour markets in ways that are deeply local, as its effects are not evenly distributed across territories. Areas that depend on high-emission industries face higher risks of job losses as environmental policies take effect (OECD, 2023[11]). At the same time, the emergence of green jobs and new economic opportunities is concentrated in certain regions, leaving others at risk of being left behind. A region’s ability to benefit from the green transition depends heavily on its industrial composition and the skills available in the local labour market. Evidence suggests that regions with a higher concentration of scientific, technical, and information-based activities tend to have a greater share of green-task jobs (OECD, upcoming 2025[12]). Similarly, regions with a highly educated workforce – particularly those with higher rates of tertiary education – are more likely to attract and generate green employment (OECD, 2023[11]). For these reasons, it is fundamental to take a localised approach, recognising that some regions will require greater support to adapt their workforce, attract new investments and talent, and develop the skills necessary for green industries. In fact, local communities are on the frontlines of climate change and the impacts of the green transition, and they are often best placed to identify solutions.
Change in employment in green sectors under various impacts of green policies scenarios in selected LAC countries, compared to the business-as-usual, as percentage of 2020 baseline employment in green industries
Note: Green sectors are defined in each country by first identifying the number of green tasks that workers perform in their occupations and then by looking at the top ten industries in which those jobs are distributed. The baseline scenario assumes that, in each green sector, value added and employment will follow the same dynamic as in the past ten years. The counterfactual scenarios are defined according to the impact of a green policy that aims to boost investment in fixed and human capital, with a positive impact on value added growth in each green sector. The high-impact scenario assumes that the value added in each sector will increase by 3 percentage points each year, adjusting to the new equilibrium. The medium-impact scenario assumes that the value added will increase by 2 percentage points, while the low-impact scenario assumes that it will decrease by 1 percentage point each year. In all forecasts, Total factor productivity will increase by 1 percentage point due to lower climate damages and new technology-induced change. Employment change is forecasted using the estimated short-term elasticity to the value added, using a panel dynamic model, defined by each sector and country, in the last ten years.
Source: (OECD et al., 2022[3]).
Global transformations are bringing about new opportunities for regional development, yet they can also be a driver of increasing territorial disparities. In Guatemala, the Local Competitiveness Index (ICL for its acronym in Spanish) reveals significant gaps in terms of the competitiveness of Guatemalan departments, particularly among those in the western highlands and rural areas (Figure 2.8). Departments such as Quiché, Huehuetenango, Totonicapán, and Sololá rank lower in both the ICL and the Human Development Index (HDI), as well as in GDP per capita. By contrast, the department of Guatemala – home to the country’s capital – consistently posts the highest values across all three measures. This disparity underscores a familiar pattern in Guatemala: departments closer to the capital or those with better infrastructure, diversified economies, and higher levels of urbanisation perform significantly better on competitiveness and development indicators. Meanwhile, more remote or predominantly agricultural departments tend to lag behind, often due to a combination of limited market access, lower levels of human capital, and fewer economic opportunities.
Although there is a general correlation between HDI and GDP per capita, the ICL scores highlight more nuanced dimensions – such as governance, innovation, and business environment – that can differ even among departments with similar income levels. For policymakers, the data imply that addressing these structural gaps requires a multifaceted approach, targeting both the economic fundamentals (e.g. improving infrastructure, expanding market access) and the institutional factors (e.g. local governance, education quality) that drive long-term competitiveness.
Note: For normalisation, a min-max transformation was used, assigning a value between 0 and 100. Indicator = ((department value – minimum indicator value) / (maximum indicator value – minimum indicator value)) * 100.
Source: Based on Fundesa (2024[13]) and UNDP (2023[14]).
A stable and predictable institutional environment is crucial for attracting long-term investment and fostering inclusive development. To thrive in an evolving global economy, Guatemala must adopt a proactive approach to regional development. By leveraging its geographic location, natural resources, and growing industrial base, the country can enhance its attractiveness to investors, talent (including the diaspora), and visitors. Strengthening institutions, improving infrastructure, and investing in human capital will be key to ensuring that all regions benefit from new economic opportunities. With strategic action, Guatemala can position itself as a key player in regional and global value chains, fostering inclusive and sustainable development while enhancing its global competitiveness.
Favourable geographic and demographic conditions
Guatemala is strategically positioned to capitalise on key economic opportunities. Its geographical advantages include proximity to the United States (pending stabilisation of tariff approach from the US)2 as well as strong trade and investment ties with neighbouring Central American economies. With access to both the Pacific and Atlantic Oceans, the country is well placed to serve as a regional logistics and export hub. Additionally, its time zone alignment with North America enhances its attractiveness for nearshoring and outsourcing industries.
Guatemala also benefits from demographic strengths, with a young and growing workforce that can support sectors requiring skilled and adaptable labour. In the case of Guatemala, population projections indicate that the total dependency ratio is on a downward trend between 1995 and 2050 (Figure 2.9). The demographic dividend is most pronounced, particularly between 2034 and 2057, when the dependency ratio remains below 50 reaching its historical low in 2045, when the total dependency ratio will be 46.2 (INE, 2024[15]). This suggests that the country is currently experiencing a demographic dividend, which is expected to extend beyond 2050. This demographic dividend presents opportunities for long-term economic growth if accompanied by investments in education, skills development, and job creation.
Estimation and projection of the dependency ratio ((<15 + 65 and over) / (15–64)) per 100.
Note: Dependency ratio measures the population in theoretically inactive age groups relative to the population in theoretically active age groups.
Source: Based on INE (n.d.[16]).
Macroeconomic stability
From a macroeconomic perspective, Guatemala has demonstrated stability, maintaining relatively low inflation and prudent fiscal policies. Over the past decade, Guatemala has maintained a stable macroeconomic environment, with economic growth consistently outpacing the Latin American and Caribbean average (Figure 2.10). A closer look at Guatemala’s economy reveals moderate yet steady annual GDP expansion, whereas the region as a whole has experienced greater fluctuations, especially during periods of weaker performance among commodity-exporting countries. Notably, Guatemala’s growth hovers around 3% to 4%, outstripping the LAC average, which varies more widely and even dips close to zero or into negative territory at certain points.
This relatively robust performance can partly be attributed to the diversification of Guatemala’s economy and the stabilising effect of remittance inflows on domestic demand. In addition, the country’s lesser reliance on raw materials – compared with many other LAC countries – has helped cushion the impact of international commodity price swings. Consequently, despite structural challenges, Guatemala’s economy has maintained higher levels of dynamism than the LAC average over the last fifteen years. This resilience was particularly evident during the COVID-19 pandemic when Guatemala experienced only a 1% contraction in GDP – one of the smallest declines in the region – highlighting the economy’s ability to withstand external shocks and recover swiftly. This stable macroeconomic environment provides a foundation for sustained investment and business confidence.
Note: Annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based on constant 2015 prices, expressed in U.S. dollars. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources.
Source: Based on World Development Indicators, World Bank (2025[17]).
Additionally, the Guatemalan quetzal has remained stable and even strengthened against the US dollar, reflecting confidence in the national economy. Over the past 15 years, Guatemala’s average annual inflation rate has been oscillating in the region of 3% to 5% (Word Bank, 2025[18]). This relatively moderate range reflects the country’s stable monetary policy and limited exposure to extreme price shocks compared with some of its neighbours. In contrast, LAC has experienced a slightly higher and more volatile average inflation rate – typically around 5% to 6% per year – although there is significant variation among countries3. Notably, although Guatemala has maintained lower inflation on average over the past 15 years, in 2023 inflation in Guatemala reached 6.6%, compared with 4.5% in the Latin American and Caribbean region overall (World Bank, 2025[17]).
Fiscal space and improved financing conditions
The country has demonstrated strong fiscal discipline, keeping public debt at the lowest level in the region. Guatemala’s gross public debt, as a share of GDP, is noticeably lower than that of most of its peers. The country’s gross public debt stands at 29.3% of GDP, compared to a 51.5% regional average, indicating a relatively moderate debt burden. This conservative borrowing profile reflects Guatemala’s cautious fiscal stance, contributing to stable macroeconomic conditions and lower vulnerability to debt-related pressures. This suggests that there is room for expanding public investment in Guatemala without jeopardising medium-term fiscal sustainability (IMF, 2024[19]).
Source: Based on (CEPAL, 2025[20]).
However, tax revenues are relatively low in Guatemala compared to Latin America and the OECD. Guatemala lags behind most regional peers, underscoring a key structural challenge in mobilising domestic resources for development. Limited fiscal revenues restrict the government's ability to invest in critical areas such as infrastructure, education, and social protection, which are essential for inclusive and sustainable growth. Strengthening tax collection mechanisms and broadening the tax base, especially reducing informality could help Guatemala enhance its public finances and improve long-term economic resilience.
Source: Based on (OECD et al., 2025[21]).
References
[20] CEPAL (2025), CEPALSTAT - Public debt stock as a percentage of GDP, http://www.cepal.org.
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← 1. The "One Big Beautiful Bill Act," a legislative package enacted by the Trump Administration, includes among its many provisions a new tax on remittances. This tax, signed into law on 4 July 2025, sets a 1% rate on funds sent by individuals from the United States to recipients in foreign countries. While the tax is intended to generate revenue for the U.S. government, critics argue it amounts to a form of double taxation on migrant earnings and could have significant adverse effects on the economies of developing nations that are heavily reliant on these financial transfers for household income and economic stability. According to The Centre for Global Development, Guatemala indicates an estimated reduction in annual remittances of approximately 0.69% of its GNI.
← 2. As of 9 April 2025, publicly announced U.S. trade policy indicated a baseline tariff rate of 10% on imports from Guatemala. However, the application of tariffs can vary by product and is subject to frequent adjustments based on evolving trade agreements and political developments.
← 3. For instance, while countries such as Argentina or Venezuela have recorded very high inflation rates, others like Chile, Peru or Colombia have maintained lower levels that are more comparable to Guatemala’s.