Government: Lights, Shadows and Challenges

The agile execution of economic stimulus programs, the considerable increase in public debt and the need to accelerate the process of economic reactivation are the lights, shadows and challenges identified a year after Alejandro Giammattei took office as president of Guatemala.

Thursday, January 14, 2021

On January 14, 2020, when Giammattei took office as president of Guatemala, he received a country with weak institutions, legal uncertainty and a business sector that was asking for a less "hostile" environment for new investments.

Upon the arrival of the new administration, it was expected that importance would be given to an agenda that focused on economic growth, attracting investment, and modifying laws to make the labor and financial markets more flexible.

In March 2020, when the first cases of the coronavirus were reported, the government was forced to close the borders, restrict the mobility of people and ban various productive activities. These actions caused a sharp drop in the Monthly Index of Economic Activity (IMAE), with May being the month in which the worst reduction was reported, amounting to 12%.

In order to face the health and economic crisis, Giammattei asked for loans in the millions to finance the construction of hospitals, social programs, plans to help businesses and payments to unemployed workers.

In general, the first year of the government has been marked by the pandemic, the economic crisis, the fall in public income, the high levels of debt and the growing need to reactivate the economy.

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Paul Boteo, executive director of Fundación Libertad y Desarrollo, explained to that "... although it was possible to act with agility in the programs of economic and social stimulus and to face the pandemic, it failed in the execution. Unfortunately, there is a perception of slow execution, that people were not reached with the necessary speed."

Regarding public finances, Boteo stated that "... compared to other countries, the government's debt levels are relatively low, but by Guatemalan standards, especially in the debt/tax revenue ratio, it is at a critical point, as it exceeded 300% and the ceiling is 240%. The objective of this variable is to measure the country's payment capacity. It is a very critical point that must be solved in the budget readjustment that will be proposed this year, and the deficit does not have to be so high for 2021 because that critical point was exceeded."

The country's economic environment has improved notably, since according to the last report of the Bank of Guatemala, the economic activity in the country began to report positive year-on-year variations as of September 2020, month in which a 0.4% increase was registered. In October and November, the IMAE continued its upward trend, growing 1.7% and 2%, respectively.

Although in general economic activity has recovered, sectors such as tourism and construction need support to be able to reactivate, since negative variations were still reported in November 2020.

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