Guatemala Deficit to Widen in 2022 Despite Strong 2021

By Fitch

Fitch Ratings-New York-20 December 2021: Revenue growth, driven by an economic recovery stronger than regional peers, has led to a rapid narrowing of Guatemala’s fiscal deficit in 2021. This year’s tax collection and macroeconomic trends have underscored Fitch Ratings’ view of an environment supportive of fiscal consolidation as pandemic support programs were phased out and GDP growth rebounds. However, we expect growth to moderate next year as the base effect from the contraction in 2020 wears off and an expansionary budget passed by Congress will lead to a wider deficit in 2022.

Central government revenue between January and October grew by 27.3% yoy while expenditures in the same period fell by 5.7%. As a result, Fitch revised down its 2021 deficit forecast to 2% of GDP from 3.1%. Sustained revenue growth above nominal GDP growth would be credit positive as Guatemala has the lowest revenue-to-GDP ratio among Fitch-rated sovereigns in the Americas. Guatemala’s revenue-to-GDP was 10.7% in 2020, which was less than half that year’s ‘BB’ median of 27.6%. Fitch has previously highlighted the risks of a decline in this key metric as a rating sensitivity. The high interest-to-revenue ratio (16.1% in 2020 vs. the 9.5% ‘BB’ median) is also a notable rating constraint.