Fitch upgrades Guatemala’s credit rating to BB+ on strong growth

Fitch Ratings has upgraded Guatemala’s Long-Term Foreign and Local Currency Issuer Default Rating to ’BB+’ from ’BB’ with a Stable outlook, reflecting the country's solid economic growth, prudent macroeconomic policies, and expanding current account surpluses. The upgrade is underpinned by projected real GDP growth of 3.7% in 2024 and 3.8% in 2025, driven by robust private demand and increased public investment, alongside low fiscal deficits and a manageable debt-to-GDP ratio. Despite these positive developments, the rating remains constrained by persistent governance challenges and low GDP per capita.

Analysis

Fitch Ratings has upgraded Guatemala's Long-Term Foreign and Local Currency Issuer Default Rating to 'BB+' from 'BB' with a Stable outlook, alongside raising its Country Ceiling to 'BBB' from 'BBB-'. This upgrade reflects the nation's stable economic growth, longstanding policy prudence, and expanding current account surpluses, which are bolstering external buffers.

The positive outlook is underpinned by robust economic indicators, including projected real GDP growth of 3.7% in 2024 and 3.8% in 2025, driven by a 20% year-over-year increase in remittances and a 10% rise in consumer credit through September. The current account surplus is expected to widen significantly to 4.8% of GDP in 2025 from 2.9% in 2024, supported by international reserves growing to $31.1 billion.

Fiscal management remains sound, with the central government deficit projected to widen modestly to 2.5% of GDP in 2025, while gross government debt at 28.1% in 2025 remains significantly below the 'BB' median of 54.1%. Inflation has also remained below the 4%±1 percentage point target since mid-2023, leading the central bank to cut policy rates twice by 25 basis points to 4.0%.

Despite these strengths, the ratings are constrained by persistent governance challenges, particularly in Control of Corruption and Rule of Law metrics, and a relatively low GDP per capita. Continued progress on public-private partnerships and capital expenditure execution could provide further upside.

Key Decisions for Investors

• Investors should re-evaluate Guatemala's sovereign debt and related fixed-income instruments given the improved credit rating and stable outlook, which may signal reduced risk and enhanced market access.
• Consider opportunities in domestic sectors poised to benefit from robust private consumption, sustained remittance inflows, and increased government infrastructure and social spending.
• Monitor the government's execution of public investment projects and any tangible improvements in governance metrics, as these remain key factors influencing long-term credit trajectory and investment attractiveness.