Guatemala

Slower but still robust economic growth in 2026

In 2025, Guatemala's economy posted a notably robust performance, with annual economic growth of 3.9%. This result reflected the resilience of domestic activity amid the challenging external environment marked by global trade tensions, shifts in U.S. immigration policy, and broader geopolitical uncertainties. The main driver was the inflow of remittances, which kept accelerating sharply through the year, at levels significantly above their historical average. Remittances account for approximately 19% of Guatemalan GDP, making them one of the main pillars of household consumption and aggregate demand. Their dynamism originated in potentially adverse factors: Guatemalan workers residing in the US ended up frontloading their remittance transfers in the face of the elevated risk of deportation and the imminent implementation of a remittance tax in early 2026.

The Guatemalan economy is expected to show a moderate slowdown in 2026. This pace reflects a natural adjustment after 2025’s accelerated expansion. The main factor behind this moderation is the expected weakening of remittance inflows, which have a direct influence on household consumption, particularly for low-income groups. Although the above mentioned frontloading effect will slowly dissipate, the beginning of 2026 still registered meaningful resilience in remittance flows. The relatively contained inflation due to the implementation of a fuel subsidy will contribute to a certain degree to protecting household purchasing power, partially mitigating the impact of slowing remittances. Additionally, the eventuality of a supplementary trade agreement with the US, on top of the one reached in January 2026 instating zero tariffs on 70% of exports, would particularly benefit the textile and garment industry. The tariff advantage over Southeast Asia could spur a nearshoring movement.

Fiscal policy in 2026 endorses budget expansion

Were it not for underspending, the government would have closed the year 2025 with an estimated fiscal deficit of 3.7% of GDP, with forecast spending at 16.3% of GDP — well above the historical average. Revenues remained around 12.6% of GDP, reflecting the continued expansion of the real economy but without significant tax increases. This performance already represented a departure from the traditionally austere profile of Guatemalan public finances, signaling new government priorities. This expansionary trend has been confirmed for 2026. The government managed to get the Congress to pass an expanded budget bill in January equivalent to about 17% of GDP. The vote represented a political victory as it overturned a decision by the Constitutional Court that had suspended the 2026 budget originally approved at the end of 2025. With the new budget in force, the projected fiscal deficit is higher. Revenues should rise modestly, supported by the continued expansion of the real economy. Although the government has set its goal to increase tax compliance and improve collection practices at the Superintendency of Tax Administration (SAT), institutional changes on this front have faced implementation difficulties — and the rise in revenues will not stem from tax hikes as a majority of the Congress, where businesspeople are well represented, is opposed to the move. The focus of spending in 2026 will be on strengthening the Ministries of Education and Health, in line with the central promises of Arévalo's campaign, and on expanding the social protection net — including subsidies for fuel and public services, as well as cash transfer programs for low-income families. One aspect that deserves attention is the growth of the so-called "State Obligations Charged to the Treasury." A significant portion of this - accounting for 10% of budget - is allocated to current and capital transfers to local governments, particularly to the Departmental Development Councils (Codedes). These funds, over which local politicians and mayors exercise greater direct control, have been the subject of recurring scrutiny due to cost overruns, project delays and lack of transparency in execution. In 2025, President Arévalo resisted expanding these transfers precisely due to these concerns. The fact that the 2026 budget expanded funding to the Codedes — albeit with additional oversight mechanisms — suggests that political concessions had to be made to enable the approval of the national budget.

Monetary policy conducted by the Bank of Guatemala (BanGuat) has maintained a path of gradual and moderate easing through 2025 and early 2026 (-100bps to 3.5%), in a setting of persistently low inflation below the 3.0%–5.0% target band and exchange rate stability. Due to rising inflation, the remaining months of 2026 could see a pause, in line with the US Federal Reserve’s policy. With international reserves representing more than 10 months of imports, the central bank has room to manage exchange rate pressures without resorting to adjustmentss in the interest rate, which reinforces the perceived stability of its monetary policy.

With imports consistently and vastly exceeding goods exports, the country relies on the substantial flow of expatriate remittances, which more than offset this imbalance. In 2025, remittances totalled approximately USD 25.53 billion, with the inflow establishing itself as the mainstay of the country’s external accounts. As a result, the current account ended the year again in positive territory. Tourism, which generated USD 1.34 billion in 2025, also helps to balance the external accounts.

Political challenges and public safety on the menu for the government

Bernardo Arévalo became president in January 2024 on a progressive, social, anti-corruption and organised crime prevention agenda. However, Movimiento Semilla, the party that brought him to power, only managed to score 23 seats out of 160. Moreover, the dissolution of the party by the judiciary in March 2026 due to irregularities during its creation, has made things even more difficult. The name, symbol and emblem of Semilla cannot be used by any political organisation for the next ten years. The formal dissolution, however, does not mean the end of the political project. The deputies originally elected under the Semilla banner split into two blocs: 14 founded the new party Raíces, led by Samuel Pérez, with a social-democratic orientation in direct continuity with Semilla’s original platform — with more than 20,700 membership signatures already filed with the Supreme Electoral Tribunal. The remaining deputies maintained their bet on vainly recovering the original registration through constitutional appeals. On the legislative front, the government can paradoxically use the political fragmentation to rally enough support from left-of-centre, centre and right-of-centre groups to support some of its social and security agenda. On the electoral front, Raíces offers a platform for 2027, but faces the challenge of consolidating its structure in just over a year and resisting possible new legal challenges from the same judiciary networks that led to Semilla’s dissolution.

Public security has emerged as one of the main challenges faced by the authorities, becoming a main source of institutional and political instability in the country. What began as a secondary issue amid the government’s anti-corruption agenda quickly evolved into an acute crisis, with the escape of gang leaders and riots from/in prisons involving the Barrio 18 and Mara Salvatrucha (MS-13) gangs. The Interior Minister and two of his deputies were dismissed following public pressure. However, the severity of these episodes put an end to the legislative paralysis as Congress passed a security law that classified Barrio 18 and MS-13 as terrorist organisations and increased sentences for membership in these groups. Externally, the Arévalo administration has found administration a willing partner in the Trump. Its focus on security and counter-narcotics paves the way for the extradition of gang leaders — replicating the model applied in Mexico — and for a possible expansion of bilateral security cooperation.

The fight against corruption and for the respect of the rule of law is the more prominent and less progressing item on the presidential agenda. The election of the new judges to the Constitutional Court (CC) in early 2026 highlighted the limits of the Arévalo administration in its institutional renewal agenda. The outcome consolidated its conservative majority which is aligned with the traditional political and business establishment. The Attorney-General and the Director of Public Prosecutions, who was a central figure in the aborted attempts to overturn Arevalo’s election, was finally replaced in May 2026. Other judicial and prosecutor positions are expected to be renewed throughout the year.

Last updated: May 2026