World Economy

Guatemala's Poor Getting Poorer

Guatemala's Poor Getting PoorerGuatemala's Poor Getting Poorer

In Latin America, only Guatemala's poor are getting even poorer. A new World Bank study says a key reason is that the government collects too few taxes. Low spending leads to poor infrastructure and slow growth.

According to a World Bank report entitled "Guatemala Economic DNA", released Friday in Ciudad de Guatemala, the poorest 40 percent of the country's 15 million citizens lived on just $1.50 per day (1.16 euro) in 2012 – down from $1.60 in 2003. It's the only country in Latin America where the poor have been getting even poorer, DW reported.

A basic problem was inadequate public investment and decaying infrastructure, connected to very low levels of tax collection – at 11.9 percent, the share of GDP collected and spent by ranks 204th of 215 countries, according to the CIA World Fact Book. Public investment stands at just three percent of GDP.

The problem isn't that income tax or value-added tax rates are too low. It's that government is not effective at actually collecting taxes owed – in part because a large proportion of the citizenry lives entirely in the "informal economy", the report shows, meaning people don't have formal jobs or businesses and aren't registered with tax authorities. Tax evasion by registered businesses is also a big problem.

For comparison, Germany's government collects and spends 40.6 percent of GDP. Honduras, Guatemala's neighbor, collects 15.8 percent, Kenya 18.4, Costa Rica 21.0, South Africa 26.9, Mexico 29.7, and Canada 32.2 percent.

Productivity Growth

"The Guatemalan economy has been growing steadily in recent years, and that growth has been supported principally by private consumption," said Marco Antonio Hernandez, World Bank senior economist for Guatemala.

"But at the same time, the rate of investment has been declining… and productivity has scarcely increased. A lack of productivity growth can negatively affect the incomes of workers."

The report pointed to several factors that have kept more than half Guatemala's population in deep poverty.

The country avoided falling into a recession during the global financial crisis, but GDP grew on average by just 2.8 percent during 2008-12, compared to 4.4 percent during the pre-crisis period (2005-07). That's lower than the Latin American average.

The country's GDP growth rate looks even less impressive when the country's demographic trend is taken into consideration – the population is growing at 1.9 percent per annum. In per capita terms, GDP is growing at just one percent.

Both public and private investments have been decreasing year-on-year, resulting in stagnant productivity, the report said. Crime and insecurity as well as a failure to adopt new technologies are obstacles to creating more and better jobs, as are high levels of crime, corruption and insecurity.