Fitch Ratings raised its rating for Guatemala from BB- to BB with a stable outlook, in an upgrade that reflects “very strong fiscal and economic recovery, and a further improvement in external metrics, following the pandemic and global price shocks.”
The rating agency estimated that Gross Domestic Product (GDP) grew by 4.0% in 2022 after a strong recovery of 8.0% in 2021 and a small contraction of 1.8% in 2020.
This represents one of the strongest recoveries among rating and regional peers and has been achieved without large-scale policy support and despite an adverse terms-of-trade shock in the past year.
Increased remittance inflows, strong credit, and robust exports drove solid performance.
While Fitch sees these factors continuing to drive GDP this year, it expects economic activity to moderate by 3.3% due to a slowdown in global growth.
Inflation rose to 9.7% y-o-y in January, driven by fuel and food prices.
The Central Bank (Banguat) has responded by raising its policy rate by 250 basis points to 4.25% from early 2022, representing an accommodative monetary policy stance in contrast to most regional peers.
Fitch projects inflation to begin moderating in mid-2023 and reach 5.5% by year-end, as the imported component falls amid continued tightening global financial conditions and slowing global growth.
According to the report, the ratings remain constrained by exceptionally low governance scores, which have deteriorated further in recent years, and low human development indicators.
The administration has been able to overcome congressional gridlock to pass reforms and budgets.
However, this could remain a challenge under the next government after the June 25, 2023 elections, given a highly fragmented political landscape, according to the rating agency. corruption.
The central government (CG) fiscal deficit weakened slightly from 1.2% of GDP in 2021 to 1.7% in 2022, as improved revenues were offset by higher spending due to measures to address cost-of-living pressures. Fitch expects the CG deficit to increase moderately to 2.0% in 2023.
With information from Bloomberg