Guatemala confronts a less dynamic year.
Guatemala´s economy faced several challenges in 2022, such as high domestic inflation, less favorable external conditions and high interest rates. The economy nonetheless recorded strong growth, good external accounts and stability in fiscal figures and in the financial sector. Guatemala´s economy will be less dynamic in 2023, but is far from showings signs of stagnation. Economic growth will return to its pre-pandemic pace of 3.4%, and will rebound slightly to 3.7% in 2024. The slower increase in domestic production will be linked to a less dynamic American economy. We expect a slight increase in the government´s financial deficit during 2023 and 2024. The high increase in government revenues of last year will not be repeated in 2023. The Guatemalan Central Bank’s restrictive monetary policy will remain for most of the forecast period, and we do not expect changes before inflationary pressures recede. The exchange rate will remain stable.
Costa Rica’s better fiscal results and commitment to maintaining its IMF agreement helped improve the country´s credit rating. During February and March, Standard and Poor’s and Fitch Ratings upgraded the sovereign rating to “B+” and “BB-”, respectively. This was a good sign, especially as $1.5 billion in Eurobonds will be placed soon. We believe the yields from the fiscal reform of 2018 are coming to an end. This will be challenging for reducing current debt levels in coming years. President Rodrigo Chaves has stated his commitment to continuing the fiscal consolidation program with the IMF, but has also sent mixed signals, in trying to relax the fiscal rule. It could be tempting to start increasing spending again, now that the deficit is considerably lower than in 2018. But that could send a bad sign to credit rating agencies, especially after four years of reforms.
El Salvador’s economic and political conditions showed little change in the last month. We don’t expect political tensions domestically, with 12 months to go before the presidential elections in March 2024. The exception regime to fight crime and violence will turn one year old this March 27th, and people keep supporting this government decision. Public worries related to slow disinflation persist, well understood as coming from external conditions. No major risks are expected from the turbulence in the U.S. financial sector, after the problems of Silicon Valley Bank, or Credit Suisse’s troubles in Europe, but these developments do call for attention to the low level of domestic banking liquidity reserves. The outlook for the external sector, foreign remittances and government revenues is not good.
Now read on...
Register to sample a report