The first guidelines for the formulation of the income and expenditure budget project that the administration of President Bernardo Arévalo would execute next year would amount to Q148 thousand 685.5 million, which suggests an increase of 27.2% compared to the current one, which is the same as in 2023, according to the document “Preliminary Report 2025 on the Draft General Income and Expenditure Budget of the State for Fiscal Year 2025, and Multiannual 2025-2029”, from the Ministry of Finance (Minfin).
Exactly in 30 days, by law the Executive must present the draft law of the state budget for next year and the preparation of the preliminary figures is taking place in a cyclical framework, since on July 29 it was reported on the placement of Eurobonds for US$1.4 billion (about Q10.836 billion) and last Wednesday, the majority of the members of the Finance Commission of Congress voted to issue an unfavorable opinion on a request for an extension for Q14.451 billion that the Government presented last June.
The roofs
The report provides a breakdown of the figures and when compared to the current budget of Q116,886.8 million, spending would rise by Q31,818.7 million, reaching Q148,685 million.
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According to the proposal, 13 ministries would have increases, except for the Ministry of Energy and Mines (MEM), for which a reduction of Q142 million is proposed.
The five portfolios with the largest allocations would be:
- Education: Q25,650 million.
- Health: Q15.2 billion.
- Government: Q8,220 million.
- Communications: Q10 billion 68 million.
- Defense: Q3,860 million.
These five institutions together account for Q62,999 million, equivalent to 42.3% of the total amount.
The document states that in order to formulate the 2025 budget project, the Bank is working with “a conservative scenario of the main variables, supported by the estimates prepared by the Bank of Guatemala (Banguat) in the medium scenario of the closing estimate for 2024 and the medium scenario for 2025 to 2029.” The reference is a real gross domestic product (GDP) of 3.7% for 2025 and 7.1% of nominal GDP; imports with an 8% growth and exports with an increase of 6.5%.
Other roofs
Other relevant allocations in the document are: Obligations of the Treasury, which include constitutional contributions to municipalities, Departmental Development Councils, the University of San Carlos of Guatemala, the Judicial Branch, among other agencies, with an amount of Q52,516 million (28.2% more), for an increase of Q11,564 million compared to the current amount.
“We are working with a conservative scenario of the main variables, supported by the estimates prepared by the Bank of Guatemala (Banguat) in the medium scenario of the closing estimate for 2024 and the medium scenario for 2025 to 2029.”
Preliminary Report Document 2025 Ministry of Finance
The payment of public debt service is also being considered, with an increase of 23.6% from Q16,141 million to Q19,096 million. For the secretariats and other agencies, the proposal is for Q1,872 million, which would represent an increase of 29.6% with Q428 million.
Income and debt
In terms of income, a tax collection of Q109,302 million is projected; an internal public debt of Q25,419 million and an external public debt of Q2,568 million, so the fiscal deficit would reach 3.2% of GDP. A tax burden of 11.7% is projected.
Finally, the balance of public debt – which records both internal and external debt – will be Q252,937 million.
Priority: expansion
Short response to the query of Free Press Regarding this preliminary proposal, Finance Minister Jonathan Menkos responded verbatim: “We are still working on the budget project, so the data we can present are subject to change. Right now we are focused on having Congress approve the budget extension, because with that we will be able to move forward this year with all the obligations of the central government.”
Several observations
Representatives of leading economic research centres reacted to the proposal as follows:
Jorge Lavarreda, an analyst at the National Economic Research Center (CIEN), said that on the income side, a conservative estimate is still being used, using the average scenario of the Banguat; and on the expenditure side, an increase is proposed that would imply a high fiscal deficit.
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Most of the increase goes to State Obligations, which is the responsibility of the Treasury, and then Communications, which suggests that they are seeking to fulfill their promise of increasing the share of public investment; next would be debt service, taking into account the importance of interest (payments); and finally the increases would be concentrated in the Ministries of Education, Health, Development and Labor, so we will have to wait for the bill to see what explains these increases.
More indebtedness
For Érick Coyoy, consultant for the Association for Research and Social Studies (Asíes), the balance of public debt will increase from Q235,946 million registered in July after the placement of the Eurobonds to Q252,937 million in 2025.
This is an increase of 7% and “although the debt is currently at manageable levels, this dynamic of trying to finance expenses with debt on a permanent basis is not sustainable. At some point, the payment capacity (which is tax revenue) will be compromised.” He argued that the debt should increase at a lower rate than revenue, to ensure sustainability.
“The balance of public debt will increase from Q235,946 million registered in July after the placement of the Eurobonds to Q252,937 million in 2025”
Érick Coyoy, consultant of the Association for Research and Social Studies
Thus, the increase in debt proposed for 2025 is mainly through Treasury bonds and the amount of new issues practically doubles compared to the current amount for 2024, which is Q12,499 million and reaches Q25,419 million.
“Bond-based borrowing is more expensive than loans from international organizations and payment terms are longer, so the country should take advantage of the new credit offers made by the World Bank (WB) and the Inter-American Development Bank (IDB). The executing entities prefer to use bond resources because there are no efficiency and transparency controls, as required by international banks, but the country pays that debt with much higher interest rates,” he explained.
On the expenditure side, he stressed that there are several ministries with higher percentage increases (70% for Labor, Communications and Social Development and 96% for Economy), so it will be important to implement immediate reforms to improve the execution capacity.
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“It is especially necessary to comply with the mandate of the Organic Budget Law to implement a results-based budget scheme, which involves not only setting goals for spending programs, but also carrying out the necessary monitoring and evaluation to account for the results achieved with those resources.”
Real income
Ricardo Barrientos, executive director of the Central American Institute for Fiscal Studies (Icefi), preferred not to give an opinion until the final version that will be presented to Congress is known, “but in general, compared to the last four years, the calculation basis for the projection of tax revenues, not from the current budget, but from technical, realistic estimates of how 2024 will close.”
The official document states that this year is expected to close with a collection of Q101,627 million. “To project tax revenues for 2025, we hope that the authorities do not use a budget that we already know is miscalculated, but real estimates, and not underestimates,” he said.
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