Regarding the budget for the subsidy, decree 11-2026 establishes two ways to provide it with funds. One consists of the reduction in the budget of some ministries by Q808 million.
And the other, that the Ministry of Finance (Minfin) must carry out the necessary budgetary rearrangements for Q1,192 million to cover the remaining amount of the approved subsidy for Q2 billion for a period of three months.
However, there are doubts regarding which programs or projects will see their budget reduced to cover these amounts, which is why expert budget analysts believe that there needs to be transparency both in this aspect and in the way in which the method of applying the subsidy established by the aforementioned law is implemented.
Jorge Lavarreda, an analyst at Cien, says that the entity’s position is that it does not support the subsidy measure. Those who promote it indicate that the measure is to help those who need it most; However, he considers that it is not well focused, because it will help those who consume the most fuel. He points out that there are many people who do not have money for the fare or a vehicle and who also resent the cost of the basic basket, or that the benefit will come to them very indirectly if a product or the fare derived from the subsidy becomes cheaper.
Regarding resources, he said that it must be explicit about how it will be financed and the cost that this represents, in terms of what other programs or items will stop being executed to cover this new measure.
That detail does not appear in the decree and it is not yet known what readjustments the Minfin will make, to which that power was delegated in the regulations, he added.
“So what we recommend now is that it be made explicit, not only talking about the amount of money itself, but specifically talking about what goods and services will no longer be received so that this can be done. temporary subsidysaid Lavarreda.
Regarding the State’s finances, he explained that, if it will be through readjustment and as long as there is no expansion, a significant change in the fiscal deficit would not be expected, unless it was money that was not planned to be used and that, with this measure, it will mean a little more spending.
CONTENT FOR SUBSCRIBERS
The effect, for now, is not observed so much at a macroeconomic level, that is, in the fiscal deficit, but rather at a micro level, in goods and services that will no longer be executed, as well as in targeting and in that it will not benefit the most needy, but rather those who have a greater capacity to consume fuel, Lavarreda summarized.
Hugo Maul, also an analyst at Cien, adds that financing is what worries him the most, because they are Q2 billion subsidy that they were not budgeted for that expense, and to cover that amount the government “tightened the belt” on several entities; Among these, Q550 million are reduced to the Ministry of Communications, although it has not been detailed which programs or projects will have their budgets subtracted. In addition, there are around Q1,200 million that the Minfin must readjust.
“Here we must understand that this money must be seen from whom it is being taken or that it will not be given, which has a cost and is the cost of what is left undone,” said Maul, agreeing with what was mentioned by Lavarreda.
He pointed out that, if the budget originally assigned to Roads responded to some merit, they should now explain why Q200 million is being taken away, since this will have a direct impact, and the same occurs with the Q350 million that is reduced to the State Building Construction Unit.
“My technical reading is that this is the typical case of opportunity cost. The subsidy buys political tranquility for 90 days, but financially we are sacrificing investment in roads and schools that generate long-term development to subsidize immediate fuel consumption… That is, we are going to feel the relief in (the price of fuel at the) pump, but we are going to pay for it later with less infrastructure.”
Maul considers that it is worrying and important for the State’s finances to define with what sources of financing the subsidy will be covered, for example, how much will come from greater collection, from cash or other forms, and what programs or investments will be postponed.
They recommend transparency
Separately, Ricardo Barrientos, executive director of the Central American Institute of Fiscal Studies (Icefi), regarding financing, considers it positive that it was not done through a total budget expansion, but through a mixed scheme.
He agrees with the other sources in pointing out that the decree mentions budget reductions for some ministries or directorates, but it does not specify which programs the reduction will be applied to.
Barrientos explained that we must be totally transparent in that part. It is the criterion that everything should have been defined from the beginning regarding the programs or projects that will have their budget reduced.
“There are only the names of the ministries, the decree not only allows in a way that is too general and not very detailed how the readjustment will be carried out, but also leaves the task to the Minfin to do it based on article 32 of the Organic Budget Law. That is not illegal, but in terms of legitimacy and transparency it was advisable to leave it already defined in the decree,” said Barrientos.
Regarding other effects, he indicated that when done through readjustment it would not imply an increase in debt or fiscal deficit; besides, He considers it healthy that the suspension of taxes was not chosen, because that measure would have affected collection.
Barrientos said that technically the most advisable thing was for the subsidy to be implemented as a direct transfer to consumers, taking into account their socioeconomic conditions and characteristics, for being below the poverty line, among other criteria; However, he stated that there is no registry of beneficiaries.
He points out that it is not appropriate for it to be delivered directly to importers, because the impact on the final consumer could be diluted or not reach the pump price.
One of the ways mentioned was for the subsidy to be applied at gas stations based on the online electronic invoice, at the time of billing the sale, and for them to request payment from the State subsequently each month, presenting a documented electronic file that was verified by the SAT, which, in Barrientos’ opinion, guaranteed an effective reduction in the price at the pump. However, he criticized that it was decided to do it in the same way as the previous government that applied it during the pandemic.
Readjustments
The Minfin has not responded about which programs or projects will have their budgets reduced. However, last week, at a meeting of block heads in Congress, the authorities of that ministry indicated that the Government’s proposal – disclosed on that occasion – would be financed with readjustments to the budget, through uncommitted cash balances and tax collections projected for these months.
In addition, they assured that they have worked on budget readjustment so as not to reduce the space allocated to key programs, such as health, education and security.
Complex to meet
Maul mentions as key points that “the devil is in the details,” since what was approved in Congress “ends up being a dead letter.”
First, to see if the benefit will reach the people or not, since he considers that the law tries to be very strict, it forces importers to reflect the reduction in the price and also requires that the subsidy appear detailed in the invoice, said Maul. However, he pointed out that it also establishes a price containment measure, according to which the Ministry of Energy and Mines (MEM) must publish reference prices based on the international market and variation ranges so that the Diaco applies sanctions if they are not met; However, it must be taken into account that this international market is a roller coaster, with ups and downs.
Maul adds that with this provision there is implicitly a bet by Congress that there will be predictability; But, if there is not, it will be very complicated to put the measure into practice, since the prices of oil or fuel in international markets are not necessarily immediately reflected in the prices of gasoline that Guatemala imports, much less in the shipments that are purchased to supply national demand.
CONTENT FOR SUBSCRIBERS
To apply these measures we will have to wait to see what is established in the regulations and how much they can be applied, and recognize that there are gas stations in many places where it is very difficult to control.
Maul adds that it is very likely that the benefit could be lost along the way, not because the subsidy disappears, but because the risk is that it will be diluted, since prices rise differently in different parts of the country, and where there is less surveillance and presence of the State there may be greater risk, because the established mechanism is based on the assumption that the State will be able to verify immediately, quickly and extensively; In addition, Diaco is assigned a very complex task to supervise all gas stations in the country.
Data
- The subsidy will be Q8 per gallon of diesel and Q5 per gallon of gasoline. The measure will require Q2 billion to cover three months.
- To finance the subsidy, decree 11-2026 establishes the reduction of the budget of some ministries by Q808 million. Among these are the ministries of National Defense, for Q200 million; Agriculture, for Q58 million; and Communications, Infrastructure and Housing, for Q550 million, of which Q350 million correspond to the State Building Construction Unit and Q200 million, to the General Directorate of Roads.
- The amounts will be assigned to the Ministry of Energy and Mines to execute the subsidy.
- In addition, the Ministry of Finance (Minfin) must carry out the necessary budgetary rearrangements for Q1,192 million to cover the remaining amount of the subsidy.
