According to the results and forecasts presented by the Bank of Guatemala (BANGUAT), Guatemala is expected to close 2024 with a foreign direct investment (FDI) inflow of USD 1.65 billion. While this is a positive indicator of the country’s economic potential, achieving further growth will require strategic actions. Guatemala must implement essential reforms, enhance its financial stability, and strengthen its investment climate to maintain or improve its position as a fertile ground for global investors. The Guatemalan goal for foreign direct investment will hinge on these coordinated efforts.
On the Radar
One of the most critical factors influencing investor decisions is exchange rate stability. Guatemala enjoys a unique advantage in a global market where currency volatility often sparks concern: a stable and predictable exchange rate.
Exchange rates are crucial to investment flows as they are a barometer of a nation’s economic health. A stable exchange rate reassures investors, signaling low financial risks and economic predictability. For the past two decades, the exchange rate between the U.S. dollar and the Guatemalan quetzal (GTQ) has consistently remained within a tight range of GTQ 7.72. This year, BANGUAT forecasts the rate to close at GTQ 7.70, underscoring the country’s long-standing commitment to monetary stability.
“Investors can take on debt in local currency, making it easier to project scenarios in financial statements,” said Álvaro González Ricci, president of the central bank. This stability gives investors confidence and positions Guatemala as a dependable market amid global uncertainty. By leveraging its stable exchange rate, the Guatemalan goal for foreign direct investment can gain momentum, attracting capital inflows and reinforcing economic resilience.
A volatile currency typically signals economic instability, which can deter FDI. This is not a concern for Guatemala, and the nation can leverage this stability to attract more significant capital inflows. Furthermore, the exchange rate stability also aids local businesses in integrating with global supply chains, as predictable costs reduce financial risks in long-term planning.
The Essentials
Guatemala’s credit ratings also significantly influence its appeal to international investors. González Ricci emphasized that improving these ratings would be critical to driving higher levels of investment and meeting the Guatemalan goal for foreign direct investment.
In recent years, the country has demonstrated a consistent record of macroeconomic stability, characterized by low public debt, moderate fiscal deficits, and prudent monetary policies. These efforts have not gone unnoticed by the three major credit rating agencies: Fitch Ratings, Standard & Poor’s (S&P), and Moody’s. For 2024, Fitch and S&P maintained Guatemala’s rating at BB/Ba2, while Moody’s gave it a slightly higher rating of BB/Ba1, just one step below investment grade.
Achieving an investment-grade rating would significantly enhance Guatemala’s economic profile. “With an investment-grade rating, Guatemala would have access to a higher level of investment, which would be extremely positive,” González Ricci noted. He further explained that such a rating would lower the costs of bonds issued abroad, enabling the government to redirect savings on debt servicing toward infrastructure and other developmental projects. These improvements would create a ripple effect, enhancing investor confidence and advancing the Guatemalan goal for foreign direct investment.
Between the Lines
While Guatemala boasts impressive economic indicators, the effective utilization of remittances remains a pressing challenge. BANGUAT projects that foreign currency inflows from remittances will exceed USD 21.6 billion in 2024, a significant sum driven by increasing migration trends. Over the past decade, remittances have grown nearly fourfold, underscoring their importance to the national economy. However, much of this money is currently used for consumption rather than being channeled into productive investments.
González Ricci highlighted the need to change this trend by ensuring that remittances are directed toward financing entrepreneurial ventures, infrastructure projects, or savings initiatives. Transforming remittances into productive capital could stimulate economic growth, create jobs, and foster long-term financial stability for millions of Guatemalans. This shift is a vital component in achieving the Guatemalan goal for foreign direct investment, as it would enhance the nation’s capacity for sustainable development.
Foreign exchange reserves also play a pivotal role in economic resilience and investor confidence. Over the past year, Guatemala has accumulated USD 24 billion in international reserves, which equates to nine months of imports. This figure far exceeds the International Monetary Fund’s (IMF) recommendation of three months of coverage, providing a substantial buffer against economic shocks.
“The IMF requires reserves to cover around three months of imports. In terms of dollars, Guatemala can withstand any shock in demand for the currency, which provides certainty,” González Ricci stated. This financial strength reassures investors, demonstrating the country’s ability to navigate potential external crises effectively. It also positions Guatemala as a reliable destination for investment, aligning with the broader Guatemalan goal for foreign direct investment.
Seen and Unseen
The Legislative branch’s role is integral to achieving the nation’s FDI goals. Legislative support is necessary for passing reforms and allocating resources to enhance Guatemala’s investment climate. A key focus is improving infrastructure, which is essential for reducing logistical costs, boosting competitiveness, and enabling smoother trade flows.
One of the most notable components of this legislative push is the “ANADIE Law,” which remains pending approval. This law aims to promote and streamline public-private partnerships (PPPs), a mechanism that could revolutionize infrastructure development in Guatemala. PPPs provide legal certainty, attract foreign expertise, and enable the creation of high-quality projects.
Kevyn Valencia, acting executive director of ANADIE, Guatemala’s public-private alliance, emphasized the importance of PPPs in enhancing Guatemala’s economic appeal. “The better the projects, the more attractive they will be to investors,” he noted. Valencia also pointed out that the private sector is increasingly interested in participating in infrastructure projects, provided adequate legal and institutional support exists.
Legislative efforts also ensure the country’s fiscal and legal frameworks align with global standards. These reforms are critical for fostering trust among foreign investors, who often prioritize transparent and predictable environments. Strengthening these frameworks will facilitate large-scale investments, further driving the Guatemalan goal for foreign direct investment and encouraging local entrepreneurship to diversify the economy.
The Bottom Line
As Guatemala works toward an ambitious target of USD 1.815 billion in FDI by 2025, a multi-faceted approach will be necessary. Legislative reforms, such as the approval of the ANADIE Law, will be critical in creating the legal framework needed to attract foreign investment. At the same time, leveraging the country’s financial stability, robust international reserves, and exchange rate predictability will solidify investor confidence.
Equally important will be efforts to transform remittances into productive capital and improve the country’s credit ratings. Achieving investment-grade status could unlock unprecedented opportunities for public and private sector growth. However, translating these favorable macroeconomic indicators into tangible, productive projects that strengthen the nation’s economic fabric and drive sustainable development is the ultimate challenge.
Guatemala’s position as a promising investment destination is clear, but realizing its full potential will require coordinated efforts from policymakers, the private sector, and international partners. By addressing its remaining challenges and building on its strengths, the Guatemalan goal for foreign direct investment can become a reality, ensuring steady progress toward the country’s 2025 FDI targets while fostering long-term economic growth.