Caribbean & Central America - December 2022

On 9 November Guatemalan lawmakers approved the budget for 2023, which will be the largest in the country’s history.

The final version of the budget is worth a total Q115.4bn (US$14.8bn) after congress approved several additions to the initial version of the bill, sent for consideration by the finance ministry, which was for Q112.3bn, already an increase on the Q106.23bn approved for 2022.

Among these last-minute changes was a fund to allow the health ministry to finance salary increases that have been demanded by protesters as well as an extra Q800m allocated to the electoral authorities (TSE), which is staging general elections in June 2023, bringing its total assignation to Q1.1bn. Other last-minute increases include the allocation of Q600m for local departmental development councils (Codedes) to invest in initiatives contemplated in the Gran Cruzada por la Nutrición (GCNN), the flagship initiative of the conservative government led by President Alejandro Giammattei aimed at tackling malnutrition (see sidebar).

President Giammattei hailed the decision to approve the budget, which he said “will allow us to continue along the path of transforming the country, widening productive programmes and projects that benefit vulnerable populations and strengthening local authorities”. However, multiple concerns have been raised regarding the extra funds handed over to Codedes. The idea is that these authorities are responsible for executing projects that aim to improve access to drinking water, wastewater treatment, and the construction of rural roads, among other things. However, opposition lawmaker Sonia Gutiérrez, of the indigenous Winaq party, told local outlet Prensa Libre that there are worries that spending will be utilised for electoral purposes. Critics also warn that it will be difficult for analysts to track this spending, and analyst Pablo Hurtado, from the Guatemala-based think tank, Asociación de Investigación y Estudios Sociales (Asies), said that several elements of the budget need to be watched to ensure they don’t become electoral tools.

In an article published on 11 November by national daily elPeriódico, Manfredo Marroquín, the director of Acción Ciudadana, the local branch of international anti-corruption NGO Transparency International, said that it is “almost certain” that the funds assigned to Codede will go on financing electoral campaigns. He said the extra funds will be used for “administrative issues rather than for families with children suffering malnutrition”.

Another local think tank, Instituto Centroamericano de Estudios Fiscales (Icefi), added its voice to calls for greater transparency, asking for better tracking of physical investment projects, in particular those carried out by Codedes.

Icefi also presented an analysis of the proposed budget to the congressional public finance committee, which has to scrutinise the draft before it is sent to congress for approval, but the think tank later published a statement on 11 November criticising the committee for a lack of interest in its recommendations. The committee rushed the proposal through, said Icefi, “increasing the risk of repeating the errors committed in previous years”.

Guatemala’s new finance minister, Edwin Martínez, who was promoted from deputy minister at the end of September after his boss Álvaro Gónzalez Ricci was named as the new central bank (Banguat) governor, sought to reassure regarding the sources of extra finance. In an interview with national newspaper, Prensa Libre, published on 14 November, he said that increased spending would not be financed by growth in public debt. Instead, the budget will be financed by income, particularly from increased tax receipts as the tax authorities (SAT) have exceeded its goals for the year, he said, adding that the fiscal deficit will only increase from 2.4% to 2.6% of GDP. However, the 11 November Icefi statement warned that tax revenues for 2023 had been overestimated by at least Q7.9bn, of which just Q1.6bn had been corrected in the final approved budget.

Other criticisms

Another think tank, Centro de Investigaciones Económicas Nacionales (CIEN), highlighted technical deficiencies in the 2023 budget. An article by CIEN published on 27 October points out that Guatemala has one of the most rigid budgets in the world, with 86% of spending destined for specific projects. CIEN analyst Verónica Spross also notes that operational costs are eating up an increasing proportion of the country’s budget, growing from 52% of spending for the period 2004-2007 to 67% in 2021. The fastest growing subsector is human resources, according to CIEN, and the issue is that increasing operational costs has led to decreasing public investment.

As things stand, the 2023 budget will be executed at a time when economic problems are mounting. In an opinion piece published on 10 November in Salvadorean media outlet Gato Encerrado, Icefi senior economist Ricardo Castaneda highlights forecasts suggesting poverty, food insecurity, and inequality are set to rise as spending power decreases at a time of rising inflation and stagnant earnings. Remittances have softened the blow of recent economic shocks such as the coronavirus (Covid-19) pandemic, but there are rising worries over a global economic slowdown that could tip the US into recession, with knock-on effects on remittances, as well as Guatemalan exports to the US and foreign direct investment, according to Castaneda. “Public budgets are the key instrument in reducing all of the aforementioned negative effects, but most of all to protect the most vulnerable groups,” said Castaneda, who calls for more transparency and public involvement in the process to decide where money is spent. 

However, these think tanks warn that Guatemala’s 2023 budget was pushed through with minimal scrutiny while leaving such a huge chunk of resources to be spent at the discretion of local authorities raises the risk that money will be lost to corruption, rather than helping vulnerable people, as well as increasing the possibility that spending is used to distort the electoral process.

• Young people side-lined

Icefi economist Julio César Hernández believes that the budget continues a trend that sees Guatemala miss out on benefiting from a demographic dividend. In 2023 there will be 5.8m Guatemalans aged 13-29 years old, equivalent to 33% of the total population, but Hernández says that there is not enough support for young people. For example, access to education is limited, with 52% of those aged 13-18 no longer in education in 2021. And spending on young people has fallen in recent years, from 7.1% of public spending in 2015 to 5.9% in 2021.

• Golden rule’

CIEN analyst Verónica Spross also highlights that successive governments in Guatemala have broken a so-called “golden rule” implemented in 1997, which established that the government should only take out loans in order to invest and pay interest on public debt. In fact, the percentage of public debt which is used to finance government operations has increased from 4% in 2004-2007 to 40% in 2021. CIEN recommends that budget assignments to specific projects should be gradually eliminated, and laws which promote budget rigidity should be reformed in order to encourage a style of management that focuses on responsibility for results.