04 Dec Interview with Jonathan Menkos, Minister of Public Finance, Guatemala
What shifts has Guatemala’s new administration made in the nation’s economic goals and ethos?
The current government has provided a solid fiscal outlook from the beginning of the electoral campaign. We presented a fully costed government plan, which is unusual for Latin American countries. We have been upfront with the public about what we want to do and how much it would cost. Fulfilling this plan has provided certainty. Part of our commitment has been a focus on properly collecting existing taxes to improve the country’s tax burden and achieve a higher investment-grade rating rather than creating new taxes or raising existing tax rates.
A major effort has been made to drive transparency and accountability. In 2024 we implemented a space for citizen participation to discuss the budget for the first time in our history. This has resulted in a heightened number of citizens and organizations trusting the process, with 11 proposals submitted for us to consider. Our ministry, which oversees fiscal transparency, has implemented more than 10 measures to ensure that every citizen — including investors — can see that all activities are being carried out with the utmost care for public resources. Another key goal is improving the government’s execution capacity. We have maintained continuous work with all entities to ensure the full execution of the budget and that all activities are linked to results. People want to see how budget resources translate into tangible outcomes, which is why we have focused on areas like healthcare, infrastructure improvements and road repairs. We aim to deliver concrete results.
We also aim to fulfill human rights and support more effective democratic governance. All our actions have been to create conditions for greater social well-being. We expect the budget expansion — approved by the Congress of the Republic — will advance our goal of achieving a 4.1% annual growth rate, making our economy the strongest in Central America. This is partly due to a decline in economic growth in countries like Panama. Our goal is to create one million jobs over the next four years. We set a goal to increase revenue and surpass the original target of $10.9 billion by raising it to $12.6 billion due to our budget expansion. We have set goals that will allow us to maintain good revenue collection with a tax burden of 11.7% of our gross domestic product in the coming years. We expect our tax burden to rise to 12.7% of our gross domestic product. According to data from the Bank of Guatemala, if we execute 95% of our expanded budget, we expect economic growth to increase from the projected 3.6% to 3.8%. Starting in 2025, our goal is to achieve growth of 4.1%.
What changes have been made to Guatemala’s recent annual budget that most reflect the new government’s aims?
Fiscal policy is the cornerstone of our government’s plan to achieve greater development, economic growth and a more capable public sector. My goal for this year is to secure the approval of our 2025 budget in Congress. The budget is balanced; it focuses on improving social well-being, investing in higher economic growth and expanding Guatemala’s growth potential. This budget reflects the DNA of our government and includes a focus on employment growth. In our first year, we have expanded the budget to move forward with our plans. The budget allocates each quetzal of expenditure to the following key areas: 21 cents to education, 10 cents to health, 11 cents to social protection, around 11 cents to security and defense and about 18-20 cents to overall investments.
Among the advances enabled by our fiscal policy under the vision of President Arévalo is investment in housing, specifically in popular housing. We allocated $2.5 billion to address the housing needs of the population with relatively low incomes, approximately equal to four minimum wages. The 2025 budget continues our effort to maintain the first-time homebuyer fund, knowing that the country faces a significant housing deficit. We are allocating another $63.2 million to help households quickly access their first home with very low interest rates. Additionally, we are allocating the initial resources required to construct the Guatemala City metro in the 2025 budget. We are allocating $215 million for the project, with the presidential goal of completing the first phase by 2027. The budget also includes significant investments in improving rural roads, another of our presidential goals. We aim to enhance key highways while ensuring rural roads connect communities and create conditions for greater economic progress.
We are also promoting access to credit for small and medium-sized agricultural producers to increase food and raw material production capacities. These innovative credits permanently include insurance against climate risks. They allow small and medium-sized producers to avoid being affected by lowered production capacities and their ability to pay due to climate-related phenomena. We are also launching an innovative and productive transformation fund, the first of its kind in Central America. The fund is designed to support small, medium and large businesses in the ecological transition process. It will not only help to improve production but also reduce ecological footprints.
We have also begun an important infrastructure reform regarding maintenance and new projects. For the first time, a local government has renovated approximately one-third of all school buildings in the country in one year. Around 10,000 schools will be renovated by the end of 2024. All required resources for the project are being managed by specific ministries while the Ministry of Public Finance is ensuring the availability of funds. We have also improved pensions for retired public employees. We are allocating more resources for investments in infrastructure, road maintenance, rural road construction, water and sanitation projects and the health sector. In 2024, we have already improved 51 health centers. Moreover, the president has insisted on improving ports and airports as a larger economy requires better access.
How successful have the government’s bonds been in supporting the economic growth of Guatemala?
This year we have adjusted our financial target to ensure we remain on track to increase revenue and provide certainty to all stakeholders, including investors, through our bonds. This adjustment ensures we have the resources to meet all bond payments and manage our debt. We issued two types of bonds abroad totaling $1.4 billion. These bonds are financing a framework of policies necessary for the country’s sustainable development. The demand for these bonds was extremely high; although we needed $1.4 billion, there was demand for $5.5 billion. The bonds had favorable interest rates of around 6.1% to 6.5%, which are historical rates for the country and reflect the current high investor confidence in Guatemala.
What measures are being taken to improve the quality of public services for citizens and businesses?
Each ministry is responsible for different areas. The Ministry of Public Finance has implemented what is colloquially known as the Anti-Bureaucracy Law. We are now operating under this law, which allows us to simplify procedures and processes. The Ministry of Public Finance manages the General State Procurement Registry, which is a registration platform for those wanting to become state suppliers. We have worked to minimize the time required for these processes to increase accessibility and encourage businesses and individuals to become state suppliers. Previously, procedures for answering questions from investors and state suppliers were very slow. What took one or two weeks is now addressed on the same day or through a scheduled appointment the following day. We have also developed a space to address phone inquiries from suppliers and assist in resolving issues. We are continuing our efforts through platforms like the Guatecompras contract registry. Using this platform, suppliers and potential suppliers can download information about the prices the public administration pays for goods and services, which allows them to assess whether they can compete and become a state supplier. The Ministry of Economy is involved in facilitating the entry of investors into the country, maintaining ongoing relationships and helping resolve any problems they might encounter as they integrate into the Guatemalan economy.
How would you describe current relations between Guatemala and the USA?
The United States is a strategic partner for Guatemala. It is not only the primary economy we trade with, but around three million Guatemalans live and work in the United States and send the fruits of their labor back to families in Guatemala. Our relationship with the United States is extremely cordial, built on the common goal of advancing our economic and social relations. One of our key channels is the US-Guatemala High-Level Economic Dialogue, in which more than 17 US agencies and the entire Guatemalan central government participate. Thanks to this dialogue, we are already seeing positive outcomes, including efforts to improve our bureaucratic capabilities, economic growth and the potential export of Guatemalan avocados to the US market. Another significant result is a reduction in costs for remittance transfers.
The USA supports Guatemala with expertise in general investment and our metro construction. We maintain a permanent expert who evaluates the quality of public investment spending through the support of the USA and the International Monetary Fund. We work together in six main defined fields, and the relationship is very active. In June 2024, we were honored by the participation of US Deputy Secretary of State José Fernández during a presentation with investors in New York who sent a strong message to investors and credit rating agencies emphasizing the US government’s close workings with the Guatemalan government to achieve a positive investment-grade rating. In my years of experience, we have never had such a close and mutually beneficial relationship with the United States as we do now. Our president is highly regarded for his work and agenda. Our close ties present an opportunity to demonstrate that deeply democratic governments can also be economically successful.
What makes Guatemala an attractive destination for foreign direct investment?
The forecasted growth rate of 4.1% in the coming years will be achieved by increasing public investment starting in 2025 and will drive demand for private investment. Guatemala is an attractive nation for investors; it is a young nation with a youthful population, strong economic growth and political stability. We now require public investments to improve conditions to attract more investment, including essential infrastructure such as roads, ports and airports. The government is also preparing to launch a new energy concession this year. In April 2024, the Ministry of Economy presented its investment attraction strategy, which includes various forms of support for investors. One important aspect is our relatively low tax rate. The tax administration is also becoming more agile and is focused on preventing unfair competition such as smuggling, fraud and tax evasion.
We are also improving education and healthcare quality, which is crucial when investors assess opportunities. Another critical factor is our ongoing fight against corruption. We have made strong efforts to leave the era of corruption behind us, and today investments can be made without dealing with corruption that may have occurred in the past. These efforts have resulted in large investments such as Walmart’s $700 million commitment to be disbursed over the next four years. We are also seeing the construction of a gas distribution plant in Escuintla, the largest gas distribution facility in Latin America. As a sign of our efforts to attract investment, we launched our first public-private partnership, which will allow for the construction of a highway to the country’s main commercial port, Puerto Quetzal.
I invite investors to come to Guatemala. Our young country is the engine of Central America, and the largest economy in the region. We have excellent economic, political and social relations with the United States and North America. We are experiencing what we consider a new spring; we are striving towards great goals and building a country we all want to live in that offers certainty to all its inhabitants. We are working around the clock so Guatemalans and investors can see our society as an ideal place to stay, live and work.