Despite the contained impact from COVID-19, Guatemala's difficult political environment and still-developing public institutions affect its ability to promote long-term economic growth. Political fragmentation and fragile coalitions limit the government's ability to advance meaningful reforms. The economic impact of the pandemic is unlikely to reduce Guatemala's long-term growth prospects. After contracting likely 1.5% in 2020, we expect GDP to grow 4% in 2021. Guatemala will largely reverse the temporary increase in its fiscal deficit. A cautious fiscal policy should gradually narrow the fiscal deficit during the next three years. We expect Guatemala's external profile to remain solid in the coming three years despite increasing pressure. A flexible exchange rate and sound monetary policy have anchored inflation expectations. The stable outlook
