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Investing.com -- Fitch Ratings has updated the Rating Outlook for Guatemala’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable on February 7, 2025. The rating agency has also affirmed the IDR at ’BB’.
The revision to a Positive Outlook is due to Fitch’s expectations of sustained strong growth and stability, policy prudence, and current account surpluses that help in building external buffers. Guatemala’s government is aiming for increased fiscal spending, which could address infrastructure bottlenecks and social needs while maintaining low fiscal deficits and debt-to-GDP ratios relative to its peers.
Despite these positive factors, governance challenges remain a key rating constraint. The current administration has made progress in its legislative agenda and is focused on combating corruption and other governance issues. However, implementing reforms that could ensure lasting institutional improvements will be challenging.
Fitch estimates that Guatemala’s GDP grew by 3.7% in 2024, up from 3.5% in 2023, despite a major contraction in public investment. This growth was supported by dynamic private investment and consumption driven by higher real wages and remittances. Fitch projects growth of 3.8% in the coming years, in line with Guatemala’s potential.
In 2024, reserves increased by 14.6% to $24.4 billion, supported by the current account surplus, large net foreign exchange purchases by the Central Bank, and sovereign external borrowing. The sovereign net foreign asset position, estimated at 9.8% of GDP in 2024, is well above the peer group median of 0.5% and the strongest in Latin America.
The central government fiscal deficit fell to 1.0% of GDP from 1.3% in 2023, below the 2.6% projected in the modified budget passed in August 2024. Expenditures to GDP fell to 13.4% from 13.7% in 2023, as authorities operated with the smaller 2023 budget for most of 2024. The general government fiscal balance was 0.0% in 2024, well below the ’BB’ median of 3.2%.
Inflation has declined since mid-2023 to below the official target of 4% +/-1pp, reaching 1.7% yoy as of Dec. 2024, due to falling imported inflation and its secondary effects. BanGuat has cut the policy rate by 50bps to 4.5% since August 2024, roughly in line with the U.S. Federal Funds rate. Inflation expectations remain anchored.
Despite governance challenges in his first year, including the disqualification of his Semilla party to function as a political block and legislative fragmentation, President Arevalo advanced reforms and the 2025 budget in Congress. Further progress on Arevalo’s agenda will depend on his ability to continue navigating complex and fluid political dynamics in Congress.
The Country Ceiling for Guatemala is ’BBB-’, two notches above the LT FC IDR. This reflects strong constraints and incentives, relative to the IDR, against capital or exchange controls being imposed that would prevent or significantly impede the private sector from converting local currency into foreign currency and transferring the proceeds to non-resident creditors to service debt payments.
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