Report No. 19617-GU Guatemala Expenditure Reform in a Post-Conflict Country February 4, 2000 Central America Department Latin America and the Caribbean Region Document of the World Bank CURRENCY EQUIVALENTS Currency Unit: Quetzal (Q) US$1.0 = Q7.90 (February 3, 2000) GOVERNMENT FISCAL YEAR January 1 to December 31 GLOSSARY OF MAIN ACRONYMS AND ABBREVIATIONS BANVI National Housing Bank INDE National Electrification Institute BOG Central Bank of Guatemala INDECA National Inst. For Agrarian Commercialization CABEI Central American Bank for Economic INFOM Municipal Development Institute Integration IUSI Impuesto Unico Sobre Inmuebles CG Consultative Group LSMS Living Standards Measurement Survey CGO Comptroller General's Office M1NUGUA United Nations Mission in Guatemala CIACI Inter-institutional Commission for the MOE Ministry of Education Facilitation of Int. Cooperation MIFIN Ministry of Finance CIEN National Center for Research and Studies MOH/MSPAS Ministry of Health/Ministerio de COEDUCAS Education Committees Salud Puiblica y Asistencia Social CONALFA National Literacy Commission MTEF Medium Term Expenditure Framework CONAMA National Environmental Commission NFPS Non Financial Public Sector COPECAS Permanent Commission for Coordinating NGO Non-Governmental Organization Water and Sanitation ONSEC National Office of Civil Service CORFINA National Finance Corporation PAHO Pan American Health Organization COVIAL Unidad Ejecutora de Conservaci6n Vial PHC Primary Health Care CSC Civil Service Commission PIP Peace Investment Plan DC Development Councils PIR Public Investment Review DTP Technical Budget Directorate POA Annual Operational Plan EEGSA Electricity Enterprise of Guatemala PRONADE National Program for Education Self- EMPAGUA Guatemala City Municipal Water Management Corporation SAT Superintendency of Tax Administration FEGUA Guatemalan Railroad Cmpany SCR Strengthening of Civil Rule FIS/SIF Fondo de Inversi6n Social/Social SEA Socioeconomic and Agrarian Issues Accord Investment Fund SEGEPLAN Economic Planning Secretariat FODIGUA Guatemalan Fund for Indigenous Development SIAF/SAG Integrated Financial Management System FOGUAVI Guatemalan Housing Fund Government Auditing System FONAPAZ National Peace Fund TELGUA Guatemalan Telecommunications Enterprise FSDC Solidarity and Community Development Fund UBN Unsatisfied Basic Needs GIS Geographic Information System UEP Project Execution Unit GOG Govemment of Guatemala UNDP United Nations Development Programme GUATEL Guatemalan Telecommunications Company UNICEF United Nations International Children's IAHS Integrated Attention to the Health System Education Fund IDB Inter-American Development Bank USAID United States Agency for International INE National Statistics Institute Development IFMS Integrated Financial Management System VAT Value Added Tax IGSS Guatemalan Social Security Institute ZONAPAZ Peace Zone IMF International Monetary Fund Managers and Staff Responsible Vice President : Mr. David de Ferranti Director PREM : Mr. Guillermo Perry Director CMU : Ms. Donna Dowsett-Coirolo Lead Economist : Mr. Ian Bannon Task Manager : Mr. Jose R. L6pez-Calix TABLE OF CONTENTS RESUMEN EJECUTIVO EXECUTIVE SUMMARY INTRODUCTION ...............................1.................................... Chapter 1: POST-CONFLICT EXPENDITURE TRENDS AND CHALLENGES ................2 A Overview ...................................................................2 B Trends in Public Finance During the Pre-Peace Period ......................................................3 C Post-Conflict Spending Trends ...................................................................4 D The Main Challenges of an Incomplete Agenda .................................................................9 Chapter II: PROGRESS ON PUBLIC SECTOR MODERNIZATION .. 19 A The Origins of Reform .19 B Early Benefits from Public Sector Modernization .21 C Remaining Challenges in Implementation of the IFMS .23 D The Missing Link of Public Sector Modernization: Civil Service Reform .26 E Decentralization through Deconcentration and Municipalization .29 F The Need for Improved Governance .31 Chapter DI: MONITORING FISCAL REFORM: A REVIEW OF PEACE TARGETS ... 33 A The Rationale of Peace Benchmarks .................................... .............................. 33 B Overview of Progress .................................................................. 35 C Rescheduling Peace Targets: Some Considerations ......................................................... 40 D The Need for Complementary Performance Indicators .................................................... 42 TECHNICAL ANNEXES A Guatemala: Projections of the Tax Revenue .46 B The Growth-Fiscal Deficit Gap .47 C Factors Present Prior to Fiscal Stress .48 D Contingent Liability Estimates for Several Countries .49 E IFMS Status and Best Practices in Public Financial Management .50 F CABEI, IDB and World Bank Loan Approval Procedure Delay .58 G Progress Report on the Recommendations Made by the WB/ PIR 1997 .59 BIBLIOGRAPHY STATISTICAL APPENDIX TEXT TABLES 1.1 Changes in Capital and Current Expenditure Shares, Pre and Post-Adjustment . 4 1.2 Unsatisfied Basic Needs (UBN), Human Development (HD) and Regional Distribution of Public Expenditure .5 1.3 UBN, HD and Departmental Distribution of Public Expenditure in 1998 . 6 1.4 Budget Inflexibility .8 1.5 Fiscal Scenarios .10 1.6 Sustainability of Public Debt and Fiscal Adjustment .1 11.1 IFMS Performance Indicators .22 111.1 Performance of Peace Monitoring Indicators .34 III.2 Average Cost of Reducing/Increasing 1% Point of Target .42 111.3 Revamping Performance Indicators for Social Expenditure Reform .43 TEXT FIGURES 1.1 Capital Expenditure of Central Government .................................3..................... 3 1.2 Allocation of Budget Among Major Categories ....................................................... 4 1.3 Share of Social Funds in Public Investment .......................................................5 1.4 Contingent Government Liabilities for Bank Bailouts ............................. ...................... 13 1.5 Domestic Debt Restructuring ...................................................... 14 11.1 Level of Budget Execution ...................................................... 23 11.2 Budget Executed/Programmed ...................................................... 23 11.3 External Loans, Disbursement Flows ...................................................... 23 11.4 External Loans Procedures, by Selected Donor ...................................................... 24 11.5 Trends of CG Employment 1995-1998 ........ .............................................. 26 11.6 Composition of CG Employment 1995 - 1998 ...................................................... 26 11.7 Comparison of Earnings for Selected Private and Public Sector Jobs 1998 ..................... 27 111.1 Infant Mortality, by Department, 1996 ...................................................... 39 111.2 Maternal Mortality, by Department, 1996 ...................................................... 39 111.3 Tax Ratio Gap ...................................................... 40 111.4 Illiteracy Gap ...................................................... 41 111.5 Three-Years Schooling Gross Coverage Gap ...................................................... 41 111.6 Infant Mortality Gap ...................................................... 42 111.7 Education attainment Profiles for Ages 15 to 19, by Economic Group ............................ 44 TEXT BOXES I. 1 Selected Peace Accord Targets ............................................ .......... 2 1.2 Mitch: External Financing Reconstruction Needs ....................................................... 7 1.3 Guatemala Privatization Program ...................................................... 9 1.4 The Fiscal Risk Matrix ...................................................... 12 1.5 The Medium Tern Expenditure Framework: South Africa and the UK .......................... 16 11.1 The New Regulatory Framework ....................................................... 19 I1.2 The First Steps of the IFMS .......................................... ........... 21 11.3 The IMF Code on Fiscal Transparency ...................................................... 25 111.1 The PRONADE System ...................................................... 37 111.2 The Integrated Attention to the Health System ...... ........... ..................................... 38 111.3 Main Statistical and Methodological Data Constraints ............................................... ... 45 Th. Task .a.. gr for this _== port =s =os6 =.. =.p x (. It is based on a series .f missions.. . _ ... = , , ..to 1~dNv~b~gs [~~~~~~~~~~~9 &s~oncfaoaieefrswt h oeneto Gnt aec fet fF~c~~ kt~s ~sotadPbi W ~~Bn fGu_~~~SOPAL~dtescal~,tSprnedniso Ternnumkation- E.e-y Xnk an Ta... Adiusrai th .ica ...ct. Commision =.UGA an the.. . .... .. RESUMENEJECUTIVO La firma de la paz en 1996 brind6 a Guatemala una oportunidad uinica de redefinir su agenda de desarrollo, aunque tambien implic' un reto crucial para la modernizaci6n de su sector publico. i. Cuando se firmaron los Acuerdos de Paz en diciembre de 1996, Guatemala tuvo una oportunidad uinica de revertir su viejo modelo de desarrollo que habia conducido a la pobreza y exclusi6n de grandes segmentos de la poblaci6n. Los Acuerdos de Paz conllevaron no solamente el fin del conflicto armado, sino ademas y mas fundamentalmente, la redefinici6n de la agenda social y econ6mica del pais. La visi6n de los Acuerdos de Paz es fundamentalmente la de una sociedad mas pr6spera, incluyente e igualitaria. Al mismo tiempo, el Gobierno comprendi6 que enfrentaba un tremendo reto para volver esta visi6n en realidad. El Programa Economico y Social 1996-2000 del Gobierno establecio claramente una estrategia para un mayor crecimiento econ6mico y reducci6n de la pobreza. Ello requeriria de un marco macroecon6mico s6lido, del financiamiento de los programas de paz manteniendo una posici6n fiscal prudente, de la redefinici6n de la relaci6n entre el sector privado y el puiblico para apoyar un crecimiento liderado por el sector privado, y de la modernizaci6n total del sector puiblico de Guatemala. Este informe, el tercero de una serie que ha acompafnado los Acuerdos de Paz, analiza el marco macroecon6mico, el progreso en la reestructuraci6n del gasto puiblico, las reformas institucionales para la modernizaci6n del sector pufblico, y el avance en el cumplimiento de las metas de paz y sus retos pendientes. El Gobierno comprendio desde el principio que la modernizaci6tn del sector puiblico seria clave para el cumplimiento de los Acuerdos de Paz y de sus objetivos de desarrollo de largo plazo. ii. El Acuerdo sobre Asuntos Socioeconomicos y Agrarios (SEA) establecio la base para la modernizaci6n del sector puiblico y la reforma del gasto puiblico. Adicionalmente a un marco socioecon6mico sano, se requeria de reformas para ampliar la base tributaria, reorientar el gasto hacia los sectores sociales y de infraestructura bAsica, reasignar el gasto publico fuera de la Ciudad de Guatemala y en beneficio de las comunidades rurales pobres (mayormente indigenas) e incrementar la equidad y eficiencia en la provisi6n de servicios puiblicos. Han habido avances considerables en varias dreas... iii. Guatemala ha logrado considerables avances en la reorientaci6n del gasto y en la mejora de la eficiencia del sector puiblico. Estos esfuerzos han sido apoyados por medidas complementarias de reducci6n de la deuda intema y por el programa de privatizaci6n del Gobierno. Los avances han sido significativos en cuanto: * al incremento del gasto puiblico de acuerdo con las metas fijadas en los Acuerdos; * a la mejora de la relacion gasto de capital/corriente para revertir decadas de subinversi6n en la infraestructura basica y social; * al incremento de la flexibilidad presupuestaria y la reorientaci6n del gasto hacia sectores sociales prioritarios: el gasto social y de infraestructura basica representa actualmente el 70 por ciento del presupuesto y se focaliza en la educaci6n pre-primaria y primaria, el uso de metodos preventivos y no curativos para la salud, la vivienda minima e infraestructura rural; * la delegaci6n de la ejecuci6n de la inversi6n social y de infraestructura basica a los fondos sociales y la subcontrataci6n con el sector privado; * al inicio de la desconcentraci6n del gasto fuera de la Ciudad de Guatemala; * a la implementaci6n exitosa del manejo de desastres naturales, tales como el huracan Mitch; y * al mayor esfuerzo de focalizaci6n de los recursos hacia grupos de mayor pobreza. ii ...las cuales necesitan ser sostenidas, pero la inestabUidad macroeconomica representa una anenaza mas inmediata. iv. Las reformnas necesitan ser consolidadas y profundizadas, aunque se ha presentado un reto mas inmediato debido al empeoramiento del entorno econ6mico externo y el debilitamiento de los balances macroecon6micos fundamentales en 1999. La mayor vulnerabilidad es el resultado de una politica fiscal debilitada durante el proceso electoral, de politicas monetarias erraticas e inapropiadas y de continuos fracasos en el fortalecimiento de la base tributaria. A su vez, estas condiciones estAn ligadas a las debilidades del sistema financiero y de la posici6n externa. La privatizaci6n ha alimentado una ilusi6n fiscal, contribuyendo al relajamiento de las politicas fiscales, mientras los pasivos fiscales contingentes han crecido a consecuencia de un sistema financiero en dificultades. Una pre-condici6n para el sostenimiento de la paz es la reduccidn de la vulnerabilidad macroecon6mica... v. La necesidad de corregir los desbalances macroecon6micos que enfrentara la nueva Administraci6n a principios del afio 2000 amenaza con desviar la atenci6n de los retos pendientes de la agenda de paz. Una de las prioridades a corto plazo es el fortalecimiento del manejo macroecon6mico para reducir la posibilidad de una crisis gemela, cambiaria y financiera. Protegiendo en lo posible a los programas de paz durante la fase de ajuste, las politicas deberian pretender: v/ reducir los deficit fiscales y de cuenta corriente externa a niveles sostenibles - aproximadamente I y 3 por ciento del PIB; v mantener una politica monetaria ajustada y estable, previniendo los amplios ciclos de expansi6n- contracci6n que han caracterizado a los mercados crediticios recientemente; V reconstruir la posici6n de las reservas internacionales para respaldar plenamente la base monetaria; v, mantener una politica de tipo de cambio efectivo real neutral; y V reducir los pasivos fiscales contingentes y restablecer la confianza del publico en la solvencia del sistema financiero mediante el fortalecimiento de las regulaciones del sistema financiero, incluyendo las recientes reformas a la ley de bancos y creaci6n del seguro de dep6sitos, el cierre o fusi6n de las instituciones insolventes y el establecimiento de fondos presupuestarios contingentes manejados con criterios claros para proveer liquidez de emergencia. ...aunque tambien serd esencial ampliar la base tributaria para la estabilidad macroeconomica y para financiar la paz... vi. El doble reto de restablecer la estabilidad macroecon6mica mientras se continua con la agenda de paz, puede lograrse umicamente con el fortalecimiento de la base tributaria. Un fracaso clave en el proceso de paz ha sido la falta de avance significativo en el cumplimiento de la meta tributaria. La experiencia de Guatemala sugiere que la nueva Administraci6n deberia actuar rapida, en6rgicamente y en consenso con el Pacto Fiscal en el campo de ingresos tributarios si ha de cumplir con la meta tributaria reprogramada. Lograr este objetivo requerira de una combinaci6n de incrementos en las tasas impositivas, una reducci6n de las exenciones tributarias, una administraci6n mas efectiva por parte de la Superintendencia de Administraci6n Tributaria (SAT), una reforma del c6digo tributario y de los procedimientos judiciales que tienen que ver con los casos de evasi6n impositiva, y la total erradicaci6n de las amnistias tributarias. iii ... ademds de reformas adicionales del gasto. vii. El avance de la reforma del gasto piublico ha sido substancial. Este logro debe ser sostenido y profimdizado, especialmente para: V mantener, a un nivel macro, un coeficiente minimo (r) de gasto de capital con respecto a gasto corriente de 0.55; lo cual a corto plazo requeriria de un estricto control del empleo del sector piiblico, exceptuando al sector educaci6n ya que requiere mas maestros para cumplir con los compromisos de paz. Asimismo, a un nivel micro, se necesita una evaluaci6n del coeficiente r sectorial apropiado para los proyectos nuevos y existentes, cuestionando aquellos que no lo satisfacen; v destinar por lo menos 75 por ciento del gasto a la infraestructura basica y social; v utilizar los recursos futuros de privatizaci6n para, primero, cancelar la deuda puiblica (bonos) de corto plazo (de menos de 6 meses) y/o los bonos indexados al d6lar (de menos de 1 afio) en su totalidad y, segundo, para crear un fondo fideicomiso (similar a Panama), cuyos intereses financiarian programas de desarrollo de largo plazo con rendimientos econ6micos y sociales significativos y, de esa manera, prevenir choques de liquidez en el mercado cambiario; V aumentar la relaci6n deuda externa/interna a 2/1, mientras se reduce el tamafio y se amplian los plazos de la deuda interna; V aprovechar las herramientas del SIAF-SAG para mejorar la reorientaci6n del gasto hacia los mas pobres; considerando establecer metas minimas de gasto sujetas a monitoreo, tales como: 60 por ciento del gasto del Gobierno Central asignado fuera de la capital y 50 por ciento del gasto de los fondos sociales hacia las regiones, departamentos, municipalidades y localidades mas pobres; y V considerar la eliminaci6n o fusi6n de los fondos sociales de bajo rendimiento - exceptuando los tres mAs grandes, FIS, FONAPAZ, FSDC y tal vez, FOGUAVI y mejorar su grado de coordinaci6n y especializaci6n por area y regiones. La modernizaci&n de la administracion financiera a traves del Sistema Integrado de Administraci6n Financiera-Auditoria Gubernamental (SIAF-SAG) ha mejorado signifcativamente la provision de servicios p4blicos. viii. El objetivo de la modernizaci6n del sector puiblico ha sido mejorar su capacidad de proveer servicios puiblicos en el combate a la pobreza y la mejoria de las condiciones sociales. El Gobierno comprendi6 que sus esfuerzos tenian que empezar con la forma en que manejaba sus propias finanzas. Por ello, adopt6 un sistema integrado de administraci6n financiera, no s6lo para mejorar su eficacia y eficiencia, sino tambien su transparencia. Despues de tres afios de implementaci6n, los logros son notables e incluyen: * Ia creaci6n de un centro integrado de funciones basicas de una administraci6n financiera: presupuesto, contabilidad, tesoreria, auditoria y adquisiciones; * un sistema contable presupuestario comun en todos los ministerios e instituciones puiblicas; * un sistema contable centralizado - en base a efectivo y devengamiento - de acceso virtual apoyado por fibra 6ptica y compatibilidad Y2K; * el uso de transferencias electr6nicas de recursos para mAs del 50 por ciento de los pagos del sector pudblico, incluyendo la n6mina salarial, eliminando asi significativamente el uso de cheques; * procedimientos de pago mas expeditos y transparentes, reduciendo asi los pasos a seguir, y el tiempo y costo de las transacciones; * la creaci6n de una base de datos umica para toda transacci6n financiera, con acceso de internet abierto a todo el p(iblico; iv * la creaci6n de nuevos procesos de auditoria y reducci6n de practicas que permitian altos indices de corrupci6n (es decir, cuentas multiples, pagos discrecionales, proveedores fantasma y precios con primas por pago tardio); * un sistema de adquisiciones nuevo y transparente que conduce a una reducci6n significativa de los precios pagados a los proveedores; + la eliminaci6n de atrasos (deuda flotante) en el plazo de pago a proveedores y de carestia de fondos de contrapartida para proyectos externos; * el seguimiento a diario del manejo presupuestario por parte de los ministerios; * incrementos significativos en el porcentaje de ejecuci6n presupuestaria anual por parte de los ministerios: de menos del 50 por ciento a principios de los 1990s, a mas del 90 por ciento actualmente; + mejoras en la planificaci6n presupuestaria y manejo de efectivo trimestrales; * la duplicaci6n de los desembolsos de prestamos extemos entre 1997 y 1998; y * la reducci6n a la mitad del tiempo requerido por el Congreso para el procesamiento y aprobaci6n de prestamos externos. ...pero el nuevo sistema debe ser consolidado y sostenido. ix. El SIAF-SAG ha tenido un comienzo prometedor, pero auin se requiere de un esfuerzo importante para garantizar su consolidaci6n y ampliaci6n, asi como el fortalecimiento de su marco legal e institucional. Los esfuerzos pendientes requieren: V su ampliaci6n horizontal para integrar a todos los ministerios, fondos sociales y mayoria de las municipalidades; algunos fondos sociales siguen estando fuera del control presupuestario y de auditoria por el Contralor; l la creaci6n de una unidad de administraci6n de deuda puTblica externa e interna en el Ministerio de Finanzas, la cual deberia absorber a la CIACI y la cooperaci6n externa; l la integracion del Sistema de Informaci6n Geografica (SIG) de SEGEPLAN al SIAF, para asi contar con una herramienta unica y actualizada de planificaci6n y monitoreo de la inversi6n puiblica; V el desarrollo de un Programa de Gasto Puiblico a Mediano Plazo y la adopci6n del C6digo de Buenas Practicas y Transparencia Fiscal del FMI, incluyendo las nuevas disposiciones contables y presupuestarias relativas al manejo de los pasivos fiscales contingentes; V el apoyo a la modernizaci6n y autonomia de la Contraloria General de Cuentas; V el fortalecimiento de la base legal del sistema, por medio de la aprobaci6n de las leyes del SIAF, de la Contraloria General de Cuentas, de adquisiciones puiblicas y de probidad administrativa; y la preservaci6n de un equipo tecnico nacional fuerte y profesional, mientras se amplia la capacidad local para el uso del sistema, promoviendo inclusive la capacitaci6n en el SIAF por las instituciones puiblicas, asociaciones profesionales y universidades. El servicio civil ha sido el eslab6n perdido de la reforma del sector puiblico... x. Aunque la reforma del servicio civil es una prioridad dentro de los Acuerdos de Paz, y es critica para el sostenimiento de la modernizaci6n del sector puiblico en el mediano plazo, el Gobierno no ha podido Ilevarla a cabo. Sin embargo, tom6 algunas medidas para reestructurar el empleo y los salarios del sector piiblico de acuerdo con las prioridades de paz. El resultado de estas medidas fue: + Ia significativa reestructuraci6n del empleo del sector puiblico, con la significativa reducci6n de personal en tres ministerios - Comunicaciones y Transporte, Agricultura y Finanzas - compensada por su incremento en dos ministerios vinculados a los acuerdos de paz: Educaci6n y Gobernaci6n. * la reducci6n del empleo publico en empresas asociadas al proceso de privatizaci6n. v * una leve baja de la n6mina salarial como proporci6n del gasto corriente, lo cual podria indicar alguna mejora en la eficiencia del sector piiblico. Sin embargo, es dificil confirmarla debido a informaci6n inconsistente e incompleta respecto del empleo total del sector publico y de los programas de jubilaci6n voluntaria. * la mejora de salarios y beneficios para el personal de la SAT y nueva Policia Nacional, aunque siguen habiendo inconsistencias entre los salarios del sector puiblico y los del sector privado, particularmente en los puestos altos. * el incremento de la movilidad laboral en los niveles profesionales y gerenciales debido a la multiplicaci6n de contratos 029 (temporales). ... y debe ser tratado deforma integraL xi. Estas medidas limitadas y ad hoc parecen haber contribuido a la mejora en la eficiencia y flexibilidad del sector publico, pero deben ser reforzadas como parte de un esfuerzo mas integral y de largo plazo de reforma del servicio civil. El exito de la modernizaci6n del sector puiblico debe ser acompafiado de un servicio civil moderno, eficiente y basado en m6rito. La agenda minima de reforma del servicio civil tendria que considerar: / prontas acciones para la cancelaci6n automatica de posiciones vacantes, tan pronto sean completadas las indemnizaciones de los trabajadores recientemente despedidos que auin estan en la n6mina; * enmiendas a la ley de servicio civil para crear una nueva carrera de servicio civil, reformando el sistema de salarios del sector puiblico, redefmiendo el papel de los sindicatos y modernizando los procedimientos para tratar las disputas laborales, limitando asi apelar a los tribunales laborales; v' la transformaci6n de la Junta Nacional del Servicio Civil a una Comisi6n del Servicio Civil independiente, y el establecimiento de nuevos procedimientos para el reclutamiento, contrataci6n, promoci6n y capacitaci6n del empleado piuiblico; / la limitaci6n de las funciones de ONSEC a un papel normativo; / la no-definici6n de una estructura de salario unica para puestos profesionales y de alta capacitaci6n, mas bien promover una estructura flexible adaptada a los ministerios e instituciones reestructurados; el establecimiento de topes en la utilizaci6n de contratos 029 por ministerio para impedir abusos y promover la descentralizaci6n; y l la evaluaci6n del impacto fiscal de la reforma del servicio civil, incluyendo una nueva estructura de salarios y beneficios, necesidades de capacitaci6n y esquemas unificados de pago de indemnizaciones. Se han visto adelantos en el esfuerzo de descentralizacion del Gobierno, por medio de la desconcentraci6n defunciones y, particularmente, en el incremento de las transferencias y autononda financiera de las municipalidades... xii. Conforme fue avanzando el proceso de paz, se vi6 la descentralizaci6n como un medio natural para ampliar la cobertura, mejorar los objetivos y reducir la concentraci6n del gasto en las areas urbanas, especialmente la capital. Aunque el Gobierno no haya establecido claramente una estrategia de descentralizaci6n, sus esfuerzos se han enfocado en la desconcentraci6n de ciertas funciones y el fortalecimiento de la autonomia financiera de las municipalidades. El esfuerzo de desconcentraci6n se di6 en algunos programas piloto de ciertos ministerios, la transferencia de la ejecuci6n de la inversi6n piublica a los fondos sociales, la descentralizaci6n de los programas de educaci6n (PRONADE) y salud (IAHS), y la puesta en marcha de programas piloto para el mantenimiento de caminos rurales por ciertas municipalidades. Ha habido un avance sustancial en la descentralizaci6n. Como resultado: vi * el Gobierno cumpli6 con la transferencia oportuna del 10 por ciento de los ingresos generales a las municipalidades; * las municipalidades se han vuelto importantes inversionistas en los sectores sociales (1 por ciento del PIB), lo cual alcanzaria un nivel muy similar a la inversi6n de los fondos sociales en 1999; * las municipalidades estan comenzando a jugar un papel activo en los consejos de desarrollo regional; * el numero de municipalidades que actualmente administran sus propios recursos se increment6 de 10 en 1995 a 52 en 1999, triplicando estas sus ingresos recibidos durante los uiltimos tres afios; y * los proyectos piloto de desarrollo local, tales como DECOPAZ apoyado por el BID en Huehuetenango y el Proyecto de Desarrollo Local-PDL-apoyado por el Banco Mundial en San Marcos, representan nuevos enfoques para mejorar la participaci6n de las comunidades locales, siguiendo una nueva matriz de colaboraci6n inter-gubernamental. ...pero se requiere de una estrategia de descentralizaci6n a mds largo plazo. xiii. Los gobiemos municipales seguiran siendo protagonistas de los esfuerzos del Gobierno para ampliar la cobertura y cumplir con las necesidades de las comunidades locales. Sin embargo, existe la necesidad de establecer claramente una estrategia de descentralizaci6n global la cual, ademas de una ampliada desconcentraci6n ministerial y descentralizaci6n de la provisi6n de servicios puiblicos, deberia al menos considerar: l la simplificaci6n de la estructura tributaria municipal, reemplazando alrededor de 150 impuestos obsoletos sobre el consumo y 80 ingresos no-tributarios por una estructura mas simple, s6lo manteniendo un numero muy reducido de aquellos impuestos de ingreso tributario significativo; V la aprobaci6n de un nuevo C6digo Municipal y de un marco legal para los Consejos de Desarrollo requeridos en los Acuerdos de Paz; los cuales, mientras se aprueba la autonomia municipal, deberian requerir la adopci6n de normas financieras compatibles con el SIAF-SAG en cuanto a contabilidad, presupuesto, administraci6n de efectivo y auditoria; V capacitaci6n intensiva para mejorar la capacidad administrativa y financiera de las municipalidades, incluyendo como meta la adopci6n de la normativa del SIAF-SAG en dos terceras partes de las municipalidades para el 2003; / la regulaci6n de las condiciones bajo las cuales las municipalidades podrian acceder a los mercados de credito comercial y prestamos externos; y / basado en las lecciones de los proyectos piloto de desarrollo local, la promoci6n de una nueva matriz de transferencias inter-gubernamentales, la cual deberia especificar una clara divisi6n de trabajo, los mecanismos de cooperaci6n de los donantes, las responsabilidades de las comunidades locales, municipalidades y Gobiemo Central en cuanto a la movilizaci6n de recursos locales, los criterios de sostenibilidad de los proyectos y su eventual absorci6n por programnas basados en la comunidad, los cuales estarian siendo financiados externamente en sus inicios. Las reformas al sector piublico estdn contribuyendo alfortalecimiento de la transparencia, aunque las reformas de segunda generaci6n deberian asignarle prioridad a la mejora de la gobernabilidad. xiv. Una buena gobernabilidad es esencial para mejorar la provisi6n de servicios puiblicos y su efectividad en el desarrollo a largo plazo. Muchas de las reformas mencionadas en este informe estan ayudando a mejorarla, aunque una agenda mas desarrollada deberia estar en el centro de los futuros esfuerzos. Mejorar la gobernabilidad representa una tarea compleja y de largo plazo, la cual debe ajustarse a las circunstancias individuales del pais. Las reformas encaminadas y aquellas planificadas contribuiran significativamente a mejorarla, aunque su agenda de largo plazo tambien deberia considerar: la implementaci6n del programa integral en marcha de reforma judicial, la desregulaci6n, el incremento de la transparencia en la concesi6n de actividades privatizadas, el fortalecimiento de la capacidad y vii autonomia de las entidades reguladoras de los sectores afectados por la privatizaci6n, la elaboraci6n y cumplimiento de c6digos de conducta para funcionarios puiblicos, la incidencia de la sociedad civil en la preparaci6n y monitoreo de los programas de gobernabilidad y anti-corrupci6n en el marco de un Plan de Integridad Nacional. ElAcuerdo Socioecondmico de Paz de Guatemala contiene objetivosfiscales may especificos... xv. El Acuerdo SEA contiene la mayoria de las metas monitoreables de los acuerdos de Paz, las cuales permiten dar seguimiento al avance gradual hacia el logro de objetivos individuales. El Acuerdo establece metas fiscales y sociales, y estas conlievan metas intermedias, las cuales previenen a las Autoridades sobre posibles desviaciones y la necesidad de tomar acciones correctivas y/o de reprogramarlas. Las objetivos socioecon6micos son ambiciosos en el entorno guatemalteco, pero en la mayoria de los casos son modestos si se les compara con los promedios latinoamericanos. ...y, aunque han habido claros avances, su desempefio general ha sido ambiguo. Exceptuando a la meta de ingresos tributarios, han habido adelantos positivos en el planofiscal... xvi. El objetivo de los Acuerdos era un crecimiento del 6 por ciento. La economia estaba encaminada a alcanzar este objetivo durante la primera mitad de 1998, pero el crecimiento desaceler6 debido a condiciones externas adversas, a Mitch, a una severa contracci6n crediticia que vino como consecuencia de politicas fiscales y monetarias expansivas, y a las dificultades en el sistema financiero y cambiario. Las metas de gasto han sido mayormnente cumplidas, pero existe un serio retraso en cuanto a la de ingresos. El Gobierno no ha podido cumplir con las metas impositivas y aun su reciente reprogramaci6n hasta el 2002 sera dificil de cumplir, a menos que la nueva Administraci6n tome acciones inmediatas. Los objetivos de gasto en educaci6n, salud, justicia, militar y de seguridad puiblica, vivienda minima, desarrollo rural e infraestructura fueron cumplidos, y la meta de salud preventiva estaba encaminada para lograrse en 1999. ... y algun avance de las metas sociales, aunque con mucho retraso. xvii. Aunque los avances sean evidentes, el desempefio en el logro de las metas sociales ha sido menos que satisfactorio. Los retrasos son significativos y en la mayoria de los casos requeriran probablemente ser reprogramados por varios afios o sustituidos por otro indicador: * el programna de alfabetizaci6n CONALFA aument6 la alfabetizaci6n de un 64.2 por ciento en 1994 a un 67.4 por ciento en 1998, muy cerca de la meta de paz del 70 por ciento; * como resultado de PRONADE (el programna escolar de participaci6n comunitaria rural), la cobertura total de 3 afios de educaci6n primaria aument6 de aproximadamente 84 por ciento en 1996 a 89 por ciento en 1998, pero seguramente no alcanzara la meta del 100 por ciento para 1999; * la mortalidad infantil se redujo debido al exito del programa del Sistema de Atenci6n Integrada a la Salud (IAHS) - de 39.9/000 en 1995 a 37/000 en 1997 y deberia alcanzar 32/000 en el 2000; y aunque sea una mejora significativa, no lograri alcanzar la meta de paz de 20/000; * no existe informaci6n confiable para estimar las tendencias de mortalidad materna y, por lo tanto, el cumplimiento de la meta de paz. Los estimados existentes oscilan de menos de 100 a casi 200 muertes por cada 100,000 nacimientos vivos, y el subregistro representa un impedimento para el monitoreo adecuado de este indicador; y * pese a que no se han reportado casos de polio y apenas unos cuanto casos de sarampi6n han sido reportados en Guatemala desde 1995, queda pendiente una certificaci6n intemacional: la cobertura de la inmunizaci6n de polio y sarampi6n lleg6 a 88 y 79 por ciento en 1998; mientras que la certificaci6n internacional requiere que sea de 85 y 95 por ciento. viii Esto requerird la reprogramacion de las metas... xviii. Debido al progreso ambiguo hacia el logro de las metas socioecon6micas de paz, es inevitable considerar su reprogramaci6n, eliminaci6n o sustituci6n. Para lograrlo, seri importante restablecer metas realistas, garantizando la continuidad en los adelantos importantes logrados a la fecha. Las siguientes son opciones que deberian ser consideradas: v' La meta de carga tributaria ha sido reprogramada para el 2002, pero auin esto parece ser dificil de alcanzar a menos que la nueva Administraci6n actue con rapidez para alcanzar los 3 puntos porcentuales del PIB requeridos auin para Ilenar la brecha. En coherencia con el Pacto Fiscal, las medidas a ser consideradas debiesen incluir: el incremento de la tasa del IVA a niveles centroamericanos (con un rendimiento estimado de 1 por ciento del PIB), la eliminaci6n de exenciones impositivas (0.5 por ciento del PIB), ingresos adicionales acumulados por mejoras esperadas en la recaudaci6n por la SAT (0.5 por ciento del PIB) y otras modificaciones de tasas impositivas equivalentes a aproximadamente un 0.5 por ciento del PIB. V La reprogramaci6n de un afio para completar la meta de alfabetizaci6n, seguin la actual tasa de promoci6n, y siempre y cuando CONALFA cumpliese con sus proyecciones de registro de analfabetos, incrementase su tasa de aprobaci6n estudiantil y asegurase los fondos necesarios. V Pareciese ser necesaria una reprogramaci6n de siete affos de la meta de tres affos para la cobertura de educaci6n primaria. Alcanzar la meta del 100 por ciento para el affo 2006 requerira un mayor esfuerzo, incluyendo la absorcion de un minimo de 75,000 nuevos estudiantes anuales en los programnas de PRONADE y de Ciclo Vespertino (manteniendo constantes las tasas de inscripci6n del sistema tradicional), una leve mejora en cuanto a las tasas de promoci6n, repetici6n y abandono, la construcci6n de 1531 escuelas adicionales y un incremento de aproximadamente US$23.4 millones para el presupuesto anual de educaci6n. V Tambien pareciese ser necesaria una reprogramaci6n de siete affos de la tasa de mortalidad infantil debido a su tendencia actual, ya que el esfuerzo requerido para disminuir esta tasa se toma dificil mas a medida que se pretende alcanzar cifras de un digito. Alcanzar esta meta para el afio 2006 implica que el IAHS: continiie ampliando su cobertura en 100,000 nuevos beneficiarios anuales, que se cumpla la relaci6n salud preventiva/curativa de la meta de paz, que se extienda el apoyo de las ONGs y que el presupuesto anual de salud se incremente con aproximadamente US$4.4 millones. L/ a meta de mortalidad materna deberia ser eliminada ya que los problemas relacionados con la informaci6n pertinente no perniten su monitoreo en forma constante y confiable. / Las metas de erradicaci6n de la polio y del sarampi6n deberian ser reemplazadas por metas de cobertura de inmunizaci6n. Ya se cumpli6 con la meta de cobertura de polio del 85 por ciento de los niffos menores de 5 aflos en 1998 y se considera la de cobertura de sarampi6n del 95 por ciento de los niffos menores de I affo es alcanzable, pero en el aflo 2002. ...considerando tambien la introducci6n de una serie de indicadores complementarios de evaluaci6n del desempefio... xix. El monitoreo de la implementaci6n de la paz y su impacto en el bienestar social se verian beneficiados por la inclusi6n de una serie pequeina y bien seleccionada de indicadores complementarios, poniendo especial atenci6n no solamente al acceso, sino tambien a la calidad, eficiencia y objetividad. En educaci6n incluirian: las tasas de promoci6n de CONALFA, las inscripciones de PRONADE, el nuimero de escuelas bilinguies, las tasas de abandono escolar, de repetici6n y de promoci6n, y la relaci6n estudiantes/maestro(a) en educaci6n primaria. En salud incluirian: el numero de puestos de salud del IAHS, el nuimero de proyectos para agua, saneamiento y nutrici6n, la cobertura de la inmunizaci6n y los casos de enfermedades perinales y transmisibles en la mortalidad infantil. ix ...y otros compromisos de politica. xx. Garantizar que habra mejoras sostenidas en cuanto a bienestar social es claramente mas complejo que s6lo cumplir con las metas. Para lograrlo, es critico mantener los esfuerzos y evitar retroceder ante los limitados logros. Posibles nuevas prioridades deberian ser: V la ampliaci6n de la cobertura de PRONADE y del IAHS y la mejora de la calidad educativa (mejorando las tasas de abandono, repetici6n y promoci6n escolares), el incremento del n(imero de escuelas rurales en areas indigenas mas que en Areas urbanas, y el continuo incremento selectivo de la asignaci6n de materiales de ensefnanza y de provisiones medicas; V debido a la alta concentraci6n de baja cobertura educativa/analfabetismo y de mortalidad infantil/materna en una tercera parte de todos los departamentos, la focalizaci6n de las inversiones de PRONADE e IAHS en tales-departamentos; V el cambio del enfoque de CONALFA hacia la alfabetizaci6n post-adulto, para mejorar su tasa de promoci6n actual; el continuo incremento del gasto de salud para lograr alcanzar una relaci6n 3/2 entre salud preventiva/curativa, aumentar el nuimero de proyectos rurales de agua, saneamiento y nutrici6n; l la integraci6n del gasto de los fondos sociales y de las municipales al SIAF-SAG para garantizar su monitoreo, eficacia y transparencia; y v/ el fortalecimiento de la calidad de la informacion socioecon6mica basado en el ejercicio integral en marcha de medici6n de niveles de vida 2000-2003 (seguin el programa MECOVI) para evaluar las tendencias de la pobreza, analizar el impacto de la reforma del gasto y apoyar la coordinaci6n interministerial y entre los donantes. En conclusion... xxi. Guatemala ha logrado adelantos significativos en la implementaci6n de los compromisos de paz. Si bien quedan brechas significativas, la reforma del gasto publico proporciona una base s6lida para apoyar una segunda generaci6n de cambios; los cuales pueden consolidar los avances y apoyar una bien justificada reprogramaci6n de las metas de paz mis importantes. El serio compromiso adoptado por el Gobierno entrante con la profundizaci6n del Proceso de Paz y la modemizaci6n del sector publico sera clave para llevar adelante con exito estos esfuerzos. EXECUTIVE SUMMARY The signing of peace in 1996, provided Guatemala with a unique opportunity to redefine its development agenda, but also posed a major challenge to modernize its public sector. i. When the final Peace Accords were signed in December 1996, Guatemala had a unique opportunity to reverse a long-standing development pattern that had led to widespread poverty and the exclusion of large segments of its population. The Peace Accords aimed not only to end the armed conflict but also, and more fundamentally, to redefine the country's economic and social development agenda. Underlying the Peace Accords is a vision of a more prosperous, inclusive and egalitarian society. At the same time, the Government realized it faced a formidable challenge in implementing the Peace Accords and turning this vision into reality. The Government's 1996-2000 Economic and Social Program articulated a strategy for faster growth and reduced poverty, in line with the Peace Accords. Sustaining peace and accelerating growth would require a sound macroeconomic framework, the financing of peace programs within a prudent fiscal stance, redefining the relationship between the private and public sectors to support private sector-led growth, and a comprehensive restructuring and modernization of Guatemala's public sector. This report, the third in a series that has accompanied the peace process, analyzes the macroeconomic framework, progress in restructuring public expenditure patterns, institutional reforms to modernize the public sector, progress in meeting peace targets and the remaining reform challenges. The Government realized at the outset that public sector modernization would be key to the fulfillment of the Peace Accords and the attainment of its longer-term development goals. ii. The Socioeconomic and Agrarian Issues (SEA) Accord provided the underlying rationale for public sector modernization and expenditure reform. In addition to a sound macroeconomic framework, reforms were needed to expand the tax base, shift expenditures toward previously-neglected social and basic infrastructure sectors, reallocate public spending away from Guatemala City to increasingly benefit rural (mostly indigenous) poor communities, and enhance the equity and efficiency of public service delivery. There has been considerable progress in a number of areas... iii. Guatemala has made considerable progress in reforming public expenditure patterns and improving the internal efficiency of the public sector. These efforts have been helped by complementary measures to reduce domestic public debt and progress in the Government's privatization program. Progress has been strong in terms of: * increasing public spending in line with the social and economic targets agreed in the Accords; * improving the capital/current expenditure mix to reverse decades of underinvestment in basic infrastructure and social services; * increasing budgetary flexibility and shifting spending toward priority social and basic infrastructure sectors; social and basic infrastructure spending now accounts for about 70 percent of the budget, with priority assigned to: pre-primary and primary education, preventive rather than curative health, low-income housing and rural infrastructure; * delegating execution of social and basic infrastructure investments to the social funds and sub- contracting schemes with the private sector; * beginning the process of shifting resources outside of Guatemala City; * successfully implementing disaster management, like the Mitch Emergency Plan; and * making efforts to improve targeting on the poor. ii ..which needs to be sustained, but macroeconomic instability poses a more immediate threat. iv. Reforms need to be consolidated and deepened, but a more immediate challenge has emerged due to the recent downturn in the external economic environment and the weakening of macroeconomic fundamentals. Increased macroeconomic vulnerability is largely the result of more lax fiscal policy in the lead up to the national elections, erratic and inappropriate monetary policies, and the continuing failure to strengthen the tax base. These conditions, in turn, are linked to weaknesses in the financial system and the country's external position. Privatization appears to have fed fiscal illusion, contributing to a relaxation of fiscal policies, while the public sector's contingent liabilities are growing due to a weakening financial system. A pre-condition for sustained peace is to reduce macroeconomic vulnerability... v. The need to correct macroeconomic imbalances, which will face the new Administration in early 2000, risks diverting attention from the remaining challenges in the peace agenda. A top priority over the short term should be to strengthen macroeconomic management in order to reduce the scope for a dual, currency and banking crisis. While attempting to protect, as far as possible, priority peace programs during the adjustment phase, economic policies should aim to: / reduce the fiscal and ensuing external current account deficits to sustainable levels-to about I and 3 percent of GDP, respectively; / maintain a tight and stable monetary policy, avoiding the boom-bust cycles that have characterized credit markets recently; V rebuild foreign exchange reserves to cover the monetary base; • maintain an effective neutral real exchange rate policy; and • reduce contingent liabilities by strengthening prudential regulations in the financial system, including implementing the recently-approved reforms of the banking law, closing or merging insolvent institutions, and considering the establishment of budget contingent sources of liquidity to rebuild public confidence in the solvency of the financial system. ...but widening the tax base will also be essentialfor macroeconomic stability and to finance peace... vi. The dual challenge of regaining macroeconomic stability while advancing on the peace agenda can only be met by strengthening the tax base. A key failure in the peace process has been the significant lack of progress in meeting the Peace Accord target on the tax revenue ratio. Guatemala's recent experience suggests that the new Administration should act early and forcefully on the tax revenue front if it is to meet the rescheduled Peace Accord revenue target in line with the consensus being built by the National Fiscal Pact. Meeting this objective will require increases in tax rates, a reduction of tax exemptions, a more effective tax administration by the SAT, reform of the tax code and judicial procedures dealing with tax evasion cases, and full eradication of tax amnesties. .. as well as further expenditure reforms. vii. Progress in expenditure reform has been substantial. This progress needs to be sustained and deepened, especially aiming to: V at the macro level, maintain a minimum ratio (r) of capital to current expenditure of 0.55, which in the short term would require tight control over public sector employment, except in the education sector where additional teachers are needed to meet peace commitments; and at the micro level, evaluate the r coefficient of existing and new projects, weeding out unproductive ones; V target a minimum of 75 percent of budget spending on social and basic infrastructure; V use future privatization proceeds to, first, fully repay short-term (less than 6-months) and/or dollar- indexed (less than 1 year) bonds gradually so as to prevent liquidity shocks and, second, consider the iii creation of a special fund whose interest would finance long-term development programs with high economic or social returns (as in Panama); / shift the mix of external-to-domestic debt to a 2/1 ratio, while reducing the level and lengthening the maturity of domestic debt; / take advantage of the IFMS and GIS tools to enhance expenditure targeting on the poorest; consider setting minimum spending targets, subject to monitoring, such as: 60 percent of Central Government spending allocated outside the capital, and 50 percent of spending by the social funds on the poorest regions, departments, municipalities and localities; and / consider the elimination or merger of low-performing social funds-other than the three big ones FIS, FONAPAZ, FSDC and, perhaps, FOGUAVI-and improve coordination and specialization among the remaining funds. Modernization of financial managenent through the Integrated Financial Management System (IFMS) has significantly improved service delivery... viii. The aim of public sector modernization has been to enhance its public service delivery capacity, with a focus on alleviating poverty and improving social conditions. The Government realized early on that its efforts to modernize the public sector needed to start by improving the way the public sector manages its own finances. Thus, at the core of the Government's modernization effort is the adoption of an integrated financial management system, not only to increase the efficiency of financial management but also to improve accountability. After three years of implementation, the achievements are impressive and include: * creation of an integrated core of basic and expandable financial management functions: budgeting, accounting, cash management, auditing and procurement; * a common budgetary accounting framework across all ministries and public institutions; * a centralized accounting system-on cash and accrual basis-with fiber optic-supported virtual access and Y2K-compatibility; * the use of electronic fund transfers for more than 50 percent of public sector payments, including the wage bill, thus significantly eliminating the use of checks; - shorter and more transparent payment procedures leading to reduced steps, time and transaction costs; * the creation of a unique database for all financial transactions, with Internet access open to the public; * the creation of audit trails and the reduction of practices with high corruption potential (i.e., multiple accounts, discretionary payments, phantom suppliers, and premium prices for late payments); * a transparent new procurement system leading to significant reduction of prices paid for supplies; * elimination of arrears (floating debt) to domestic suppliers and shortages of project counterpart funds; * full appropriation by ministries of their approved budget on a daily basis; * marked increases in annual budget execution by ministries from under 50 percent in the early 1990s to over 90 percent at present; * improvements in quarterly budget planning and cash-management; * the doubling of external loan disbursements between 1997 and 199.8; and * the halving of the time required for loan processing and approval by Congress. ...but the new system must be consolidated and sustained. ix. The IFMS has made a promising start but a continued effort is required to ensure it becomes sustainable, especially in terms of consolidating and extending it further, and strengthening its underlying legal and institutional framework. Over the medium term, efforts need to focus on: / expanding horizontally to integrate all ministries, social funds and most municipalities, which remain outside the budgetary and the Comptroller's auditing process; / creating an external and domestic public debt management unit at MIFIN, which should absorb CIACI and External Financing; iv / integrating SEGEPLAN's GIS to the IFMS software system, so as to have a single and coherent public investment planning and monitoring tool; V developing a Medium-Term Expenditure Framework and adopting the IMF Code on Good Practices and Fiscal Transparency, including full accounting and budgetary provisions for contingent liabilities; V supporting the modernization and autonomy of the Comptroller General's Office; V strengthening the system's legal base, through approval of laws on the IFMS, the Comptroller General's Office, public procurement and administrative probity; and / maintaining a strong and professional national team, while strengthening domestic capacity to run the system by promoting training in public institutions, professional associations and universities. Civil service has been the missing link in public sector reform... x. Although civil service reform is a key priority in the Peace Accords, and is critical to sustain economic modernization and expenditure reform in the medium-term, the Government has been unable to carry out a comprehensive reform in this area. While comprehensive civil service reform is pending, the Government was able to take discrete measures to restructure public employment in line with peace priorities. These measures have resulted in: + a significant internal restructuring of public employment, with staff reductions in three ministries- Transport and Communications, Agriculture and Finance-offset by increases in two ministries mandated by the peace accords, Education and Governance; * a reduction in overall public sector employment as a result of the privatization process; * a slight decrease in the wage bill as a proportion of current expenditures, which may signal some improvement in public sector efficiency which, however, is difficult to confirm due to inconsistent and incomplete data on total public sector employment and the voluntary retirement programs; * improved salaries and benefits for staff in the new SAT and National Police, although significant gaps remain between private and public sector wages, especially for top categories; and * increased labor mobility in the professional and upper managerial levels due to the expansion of 029 (temporary) contracts. ... and needs to be approached in a comprehensive way. xi. These limited and ad hoc reforms appear to have contributed to improved efficiency and flexibility in the public sector, but they need to be reinforced as part of a broader and longer-term effort to reform the civil service. The success of public sector modernization and expenditure reforms is placing additional demands on the civil service, and they will be difficult to sustain unless they are accompanied and reinforced by a modern, efficient and merit-based civil service. A civil service reform agenda would need to consider: / early actions to cancel vacancies automatically, once severance benefits for retired workers still on the payroll are completed; / amending the civil service law to create a new civil service career path, reforming the public sector salary system, redefining the role of unions, and streamlining procedures to handle labor disputes, limiting appeals to the labor courts; v/ transforming the Junta Nacional del Servicio Civil into an independent Civil Service Commission, and setting new procedures for recruiting, hiring, promotions and training; / limiting ONSEC's function to a normative role; / not defining a single salary structure for professional and high-skilled categories, but rather one tailored to restructured ministries and institutions; / setting ceilings on 029 contracts by ministry, to prevent abuses and promote decentralization; and / assessing the fiscal impact of comprehensive civil service reform, including the new salary and benefits structure, training needs and unified severance payments schemes. v The Government has made progress in its decentralization effort, through some deconcentration of functions and especially in increasing the transfers andfinancial autonomy of municipalities... xii. As the peace process advanced, decentralization was seen as a natural way to expand coverage, improve targeting and reduce the expenditure bias toward large urban areas, especially the capital. Although the Government has not articulated a longer-term decentralization strategy, its decentralization efforts have focussed on deconcentrating selected public sector functions and strengthening the financial autonomy of municipalities. The Government has made only limited progress in deconcentration but substantial progress in transferring resources to the municipal level. The deconcentration effort has focussed on pilots in a few ministries, transfer of investment execution to the social funds, decentralized programs in education (PRONADE) and health (IAHS), and pilot programs to transfer responsibility for rural road maintenance to selected municipalities. There has been substantially more progress with general decentralization to municipalities. As a result: * the Government has complied with the timely transfer of 10 percent of general revenues to the municipalities; + municipalities have become major investors in the social sectors (I percent of GDP), which is projected to be very close to investment by the social funds in 1999; * municipalities are beginning to play an active role in the regional development councils; * the number of municipalities now administering their own financial resources increased from 10 in 1995 to 52 in 1999, tripling the revenues they received in the past three years; and * pilot local development projects, such as the IDB-supported DECOPAZ in Huehuetenango and the Bank-supported Local Development in San Marcos, are testing new approaches to enhance participation by local communities under a new matrix of inter-government collaborative efforts. ... but a longer-term decentralization strategy is needed. xiii. Municipal governments will continue to play a leading role in Government efforts to expand coverage and meet the needs of local communities. There is a need, however, to articulate a comprehensive decentralization strategy which, in addition to further ministerial deconcentration and decentralization of specific service delivery schemes, should consider: / rationalizing the municipal tax structure by replacing the 150 outdated excises and 80 non-tax revenues, by a simpler structure retaining a handful of the most revenue-significant taxes; approving a new Municipal Code and legal framework for Development Councils required by the Peace Accords, which while providing for municipal autonomy, should require IFMS financial standards in terms of accounting, budget, cash management and auditing; / intensive training to improve the administrative and financial capacity of municipalities, including the application of IFMS standards in two-thirds of municipalities by 2003; / regulating the conditions under which municipalities can access commercial credit markets and external borrowing; and / based on the lessons of pilot local development projects, promoting a new matrix of inter-government transfers, which should specify a clear division of labor, donor coordination mechanisms, the responsibilities of local communities, municipalities and the Central Government in terms of mobilizing local resources, the sustainability of projects and the eventual absorption of community- based programs which are currently externally funded. Public sector reforms are contributing to strengthen transparency and governance, but a set of second generation reforms should assign high priority to improved governance. xiv. Good governance is essential to improve public service delivery and longer-term development effectiveness. Many of the reforms discussed in this report are helping to improve governance and transparency across Guatemala's public sector, but a full-fledged governance agenda should be at the core vi of future reform efforts. Improving governance is a complex and long-term undertaking, which must be tailored to individual country circumstances. Reforms underway or planned will make important contributions to improved governance, but a longer-term agenda should also consider: implementing the comprehensive judicial reform program, deregulation, increased transparency in the regulation of privatized activities and the privatization process, strengthening the capacity and autonomy of regulatory and control agencies, development and enforcement of codes of conduct for public officials, the involvement of civil society in the preparation and monitoring of governance and anti-corruption plans, and the development of a national integrity plan. Guatemala's Peace Accords contain very specific fiscal (input) and outcome targets... xv. Most targets are contained in the SEA Accord and aim to keep track of gradual progress toward individual goals. They are divided into fiscal and social targets, and involve intermediate targets, which alert the Authorities to possible deviations, the need to take corrective actions or reschedule targets. The targets are ambitious by Guatemalan standards, but in most cases they are modest by Regional standards. ...and while there are clear improvements, overallperformance has been mixed. With the exception of the tax ratio, there has been goodprogress on the fiscal side... xvi. The Accords targeted economic growth of 6 percent. The economy was on track to meet this target during the first half of 1998, but growth has slowed due to adverse external conditions, Mitch, a severe credit crunch following lax monetary and fiscal policies, and difficulties in the domestic financial and exchange system. The fiscal spending targets have been largely met but there is a serious lag on the revenue side. The Government has been unable to comply with the tax target, and even its recent rescheduling to 2002 will be difficult to meet unless the new Administration moves quickly on the tax front. Spending targets in education, health, justice, military and public security, low-income housing, rural development and infrastructure were met, and the target on preventive care is on track for 1999. Targets in four areas were exceeded-military, public security, rural development and infrastructure. ... and some progress on social outcomes, but with considerable delays. xvii. Although progress is clearly evident, performance in meeting social outcomes has been less than satisfactory. Deviation are significant and most are likely to require rescheduling, reprogramming or substitution by another indicator: * the CONALFA literacy program has increased literacy from 64.2 percent in 1994 to 67.4 percent in 1998, close to the 70 percent peace target; * as a result of PRONADE (the community participation school program), gross coverage of 3 years of primary education increased from about 84 percent in 1996 to 89 percent in 1998, but is likely to fall short of the 100 percent target by 1999; * infant mortality is decreasing due to the success of the Integrated Attention to the Health System (IAHS) program-from 39.9/000 in 1995 to 37/000 in 1997 and should reach 32/000 in 2000; although a marked improvement, it will be short of the peace target (20/000); * there are no reliable data to estimate trends in maternal mortality and hence fulfillment of the peace target-existing estimates range from under 100 to almost 200 deaths per 100,000 living births; under-reporting is a major constraint on monitoring this indicator; and * no polio and only a few isolated measles cases have been reported in Guatemala since 1995, but international certification is pending; immunization coverage for polio and measles was 88 percent and 79 percent in 1998-international certification requires 85 and 95 percent. vii This will require rescheduling or reprogramming key peace targets,... xviii. Given the mixed performance in reaching peace targets, it becomes unavoidable to consider their rescheduling, elimination or substitution. In doing so, it will be important to set realistic and attainable goals to ensure that the important progress achieved to date is maintained. The following are possibilities and options that would need to be considered: V the tax ratio target has been rescheduled for 2002 but even this appears difficult to attain unless the new Administration acts quickly to mobilize most of the approximately 3 percentage points of GDP required; measures to be considered would need to include: increasing the VAT rate toward Central American levels (13 percent), eliminating tax exemptions, additional revenues from SAT implementation, and other tax policy measures equivalent to about 0.5 percent of GDP. / a one-year rescheduling of the literacy target is needed under the present promotion rate, provided CONALFA meets its projections for registration of illiterates, increases its student approval rate, and secures the necessary funding; / a seven-year rescheduling of the target of three years of primary education coverage appears necessary; meeting the target of 100 percent coverage by 2006 will still require a major effort, including absorption of a minimum of 75,000 new students per year under the PRONADE and Afternoon-cycle programs (with enrollment rates in the traditional system remaining constant), some improvement in promotion, repetition and dropout rates, construction of 1,531 additional schools, and an education annual budget increase by a minimum of about US$23.4 million; / a seven-year rescheduling of the infant mortality rate also appears necessary given its present trend, since the effort required to decrease this rate becomes more difficult as it approaches single figures; meeting this target by 2006 implies that IAHS: continues expanding its coverage with 100,000 new beneficiaries per year, the peace target ratio for preventive/curative health is met, NGO support is expanded, and a health annual budget increase by a minimum of about US$4.4 million; v- the maternal mortality rate should be eliminated since data problems prevent reliable monitoring; and p poliomyelitis and measles eradication should be replaced by immunization coverage; the polio certification target of 85 percent coverage of children under 5 was met in 1998, whereas reaching the measles certification target of 95 percent of children under 1 would likely be reached in 2002. ... considering a complementary set of performance indicators... xix. Monitoring peace implementation and its impact on welfare would benefit from a wider set of complementary indicators, paying particular attention not just to access, but also to quality, efficiency and targeting. These could include: in education, CONALFA promotion rates, PRONADE enrollments, number of bilingual schools, dropout, repetition and promotion rates, and student/teacher ratios in primary education; and in health, IAHS health posts, number of water and sanitation projects, nutrition interventions, immunization coverage and cases of perinatal/transmittable sicknesses in infant mortality. ... and other policy commitments. xx. Meeting social outcome targets and ensuring that there are sustained improvements in welfare is clearly much more complex than meeting input targets (e.g., raising tax revenues, increasing health spending, etc.). Maintaining momentum and avoiding backtracking, even in the face of under- achievement, becomes critical, especially given that results have been mixed. Priorities should aim to: V expand PRONADE and IAHS coverage, and improve education quality (reducing dropout and repetition rates), increasing the number of rural schools in indigenous areas faster than in urban areas, and increase allocations for teaching materials and medical supplies; V given the high concentration of low education coverage/illiteracy and infant/maternal mortality in a third of all departments, target PRONADE and IAHS investments accordingly; / change CONALFA's approach to post-adult literacy, to increase its present promotion rate; viii $ continue to raise health outlays toward 3/2 preventive/curative health ratio, rural water and sanitation projects and nutrition programs; V integrate spending by social funds and municipalities in the IFMS to ensure monitoring and accountability; and V strengthen data quality based on the upcoming LSMS 2000-2003 (under the MECOVI program), so as to track poverty trends, analyze the impact of expenditure reform and support donor coordination. In conclusion... xxi. Guatemala has made important progress in implementingpeace commitments. Although some important shortcomings remain, public sector and expenditure reforms provide a solid foundation on which to base a second generation of reforms which can consolidate progress and support a reprogramming of major peace targets. Key to these efforts will be a strong commitment by the incoming Government to the peace process and the deepening of the public sector modernization and expenditure reform program. cl INTRODUCTION This report is the third in a series of joint Government-World Bank reviews designed to accompany and support Guatemala's peace process (Guatemala: Building Peace with Rapid and Equitable Growth, 1996, No. 15352-GU; and Guatemala: Investing for Peace. A Public Investment Review, 1997, No. 16392-GU). As this report was under preparation in late 1998, Guatemala faced an emergency caused by Hurricane Mitch and increasing macroeconomic pressures associated with expansionary monetary and fiscal policies. Macroeconomic conditions continued to weaken in 1999, exacerbated by a number of external shocks, inappropriate macro policies and a fragile financial system. The success of the privatization program, in turn fed fiscal illusion, which was especially hard to resist in an electoral year. The availability of relatively large privatization proceeds created a sense that the emerging macroeconomic imbalances could be tolerated, peace and electoral outlays could be financed without the need to adopt revenue measures, and that international reserves were adequate to defend the Quetzal and keep inflationary pressures under control. By end-March, as the election campaign intensified, policy-makers debated the right policy response-stabilization vs. expansion. In the end, fears that rising interest rates (from tighter monetary policy) would feed a recession and weaken an already battered banking system, prevailed. On April 1999, the Government submitted to Congress a proposal for an extraordinary budget increase of Q3 billion financed with privatization proceeds. The proposed expansion would be equivalent to 2.2 percent of GDP and absorb almost three quarters of privatization proceeds. If fully implemented, it would lead to fiscal and external current account deficits close to 5 and 6.5 percent of GDP, respectively. Despite strong concerns from many quarters, Congress approved the Q3 billion budget increase. Although the Government looked for ways of reducing the impact of the planned fiscal expansion, the markets reacted negatively to the proposed fiscal package and the uncertainty over the Government's macro stance, contributing to two severe speculative attacks on the Quetzal in May/June and August/September. By end-June, international reserves earned from privatization proceeds were fully exhausted in defending the currency. By end-September the Government succeeded in canceling the proposed fiscal expansion and proceeded to tighten somewhat monetary policy. Although a major fiscal crisis seems to have been averted, the incoming Administration will need to act quickly to strengthen macroeconomic policies and reduce the uncertainty in markets caused by the erratic and inconsistent policies of the past two years. While the original intention of this report was to analyze the fiscal stance supporting the peace process, progress in the Government's state modernization program, and performance in meeting agreed socioeconomic peace targets, the macroeconomic developments described above and the possibility of a major crisis required a more detailed analysis and intensified policy dialogue on the underlying macroeconomic risks in Guatemala. While this necessarily entailed delaying production of the report itself, the process of analyzing the macro situation with Government counterparts contributed in some measure to the avoidance of a more serious macro crisis. The report retains the macro analysis that was used in the policy dialogue with the Government, since although a major crisis seems to have been averted, the analysis remains broadly valid and should help to inform the incoming Administration's macroeconomic agenda. The analysis, policy dialogue and the process followed to prepare this report also proved useful in a number of specific areas. First, the macro analysis and fiscal projections were presented as a World Bank input to the Fiscal Pact-a national forum created by the Peace Commission to build consensus around a commonly agreed and, to the extent possible, apolitical fiscal agenda for 2000-03, especially on the tax front. The Fiscal Pact Meeting took place on October 12-13, 1999 in San Salvador, which included representatives from the Government, main political parties and civil society. Second, the macro analysis and recommendations were also used in an emergency donor meeting in Washington on October 1, 1999, called by MINUGUA to review macroeconomic developments. Third, the report's Chapter II recommendations on public sector modernization were an input in the elaboration of the 2000 budget. Fourth, Chapter III has served to inform discussions between MINUGUA and the Government on reprogramming of the peace targets. This will need to be taken up with the incoming Government, but the analysis in the report and the supporting working papers is helping to provide a technical base for the discussions. Fifth, the special sector reports have been considered by the leading think tanks, which are preparing policy proposals to be submitted to the new Government. The Bank will support further dissemination efforts as deemed appropriate by the new Administration in early 2000. Preparations for the study were fully supported by the Economic and Social Cabinets, in particular by the Ministries of Finance, Education, Health, Communications and Transport, Energy, Bank of Guatemala, SEGEPLAN, FIS, FONAPAZ, FSDC, INFOM and the Superintendencies of Energy, Telecommunications and Tax Administration, who also provided continued valuable inputs to the special sector reports. Most agreements and conclusions discussed with the Authorities, think tanks, sector specialists, political parties and civil society are reflected in these reports. n CHAPTER I__ POST-CONFLICT EXPENDITURE TRENDS AND CHALLENGES A. Overview 1.1 The Peace Accords signed in December Box LI Seleted Peace Accord Targets 1996 provide the overall framework for public sector modernization and expenditure reform in Socioeconomi pe nd Agrarian Issues . . ,, . . + @~~~Gowth: 6 percent by the year 2000. Guatemala. For many decades, public investment O Ta P emes: 50 percet inrae in the tax in the social sectors and basic infrastructure was revenue ratio between 1995 and 1999. seriously neglected. The Socioeconomic and + Public Spauilng:(i) 50 pernt increase of Agrarian Issues (SEA) Accord, in particular, executed public expenditure in heath and aims to restructure expenditures-reducing education 2000 with respec to 1995; (ii) at least 50 pacnt of executed health expenditures military spending and increasing spending on devoted to peventive car before 2000; (iii) 1.5 social and basic infrastructure-and enhance the percent of tax revenues allocatd to low-income equity and efficiency of public service delivery housing from 1997; (iv) annual public investment (Box 1.1). The new Administration inaugurated progm on rural development of Q.200 million AA , . . . . ~~~~~~and rural basic infrastructure of Q.300 million in January 1996, realized at the outset that simply and ba it2o 30 o redirecting budgetary allocations to priority areas O: Coverage of Education: (i) facilitate the access to would not be sufficient to meet peace 3 years of prinary education to 7-12 year old commitments, as well as its broader goals of children before 2000; and (ii) increase literacy faster growth and poverty reduction. Without a * to 70 percent by 2000. : Health: (i) 50 percet reduction in the 1995 concerted effort to reform institutions, processes infant and maternal mortlaity rates before 2000; and systems within the public sector, it would be and (ii) maintain potiomyclitis eradicated and unable to ensure that budget reallocations could eliminaion of measles by 2000. be sustained, reach intended beneficiaries or Strengthening of Civilian Rule sJudiial Reform 50 percent increa in the contribute to Improvements in quality. The 1997 executed budget allocated to the Judicial Body World Bank Public Investment Review (PIR) and the Public Ministry between 1995 and 2000. (Report No.16392-GU) found that budgeted * Public Security: 50 percet increase in execued expenditure reallocations were generally in line public security spending between 1995 and 2000. with peace priorities, consistent with a prudent * Army (i) 33 percent reduction in budget military spending between 1995 and 1999; (i) 33 percent fiscal scenario provided progress was made im reduction of army personmel in 1997; and (iii) raising the tax base, and included an appropriate full disbanding of fth military police in 1997. change in the public/private mix in service delivery. It noted, however, the need to advance on the public modernization program, especially since some sector allocations looked high relative to historical absorptive capacity in key sectors. 1.2 This report adopts a positive rather than a normative approach, which takes the Peace Accords as a given. It is also based on the premise that the key role that public sector modernization and expenditure reform would need to play in implementing the Peace Accords was well understood at the outset in Guatemala. Within this framework, the report looks at three interrelated aspects of the peace process in Guatemala-the fiscal stance underlying peace (Chapter I), progress in the public sector modernization program (Chapter II), and performance in meeting socio-economic peace targets (Chapter III). The first chapter examines post-conflict fiscal patterns resulting from peace program implementation, particularly: (i) fiscal trends in the pre- and post-peace periods; (ii) the consistency between sector policies and public outlays, including those not directly addressed in the Peace Accords, but which are essential components of reform; (iii) public spending targeted on the poor; (iv) budget flexibility; and (v) key challenges remaining, including the need to reduce macroeconomic vulnerability in the short term 3 and ensure sustainability of the reforms in the medium-term. The second chapter evaluates efficiency improvements in service delivery capacity associated with progress in public sector modernization and explores a set of pending second-generation reforms. Finally, the third chapter presents a detailed analysis of the Govermment's fulfillment of the quantitative and social benchmarks set in the SEA Accord, especially the role of restructured budgetary allocations and improved institutional capacity in meeting the agreed targets B. Trends in Public Finance during the Pre-Peace Period 1.3 Guatemala suffered a balance of payment crisis in 1990 mainly caused by the deterioration of public finances. Increased spending and a falling tax ratio-6.9 percent of GDP-raised the combined public sector deficit (including Bank of Guatemala-BOG-losses) to a high 4.2 percent of GDP. Inflation reached a record-high 60 percent, foreign exchange reserves fell to 1.8 months of imports, and the country accumulated external arrears. 1.4 Adjustment measures during 1991-95 stabilized the economy and allowed a modest recovery in growth, but with little progress on the social front. Economic growth averaged about 4 percent and inflation fell to single digits in 1995. As efforts to raise the tax ratio were only partially successful-it fluctuated between 6.8 and 8.3 percent of GDP-fiscal discipline was mainly achieved through tight expenditure control, with combined public spending decreasing from 17.5 percent of GDP in 1990 to 14.2 percent in 1996, and public investment stagnating below 3.3 percent of GDP. With limited access to external financing and low tax revenues, the Government's stabilization efforts also relied on domestic borrowing and monetary policy. Increased recourse to domestic borrowing raised domestic interest rates above regional levels. To sterilize the resulting capital inflows, the Government tightened monetary policy through high reserve requirements and recourse to open market operations to control liquidity, thus also contributing to higher interest rates and increasing domestic debt service. At the outset of peace, Guatemala had a relatively stable economy, growing modestly, but with social indicators ranked among the worst in the Latin American and Caribbean Region (LAC). 1.5 The Peace Accords sought to alter this historical macro- Figure 1.1 - Capital Expenditure of Central Government development framework through: (i) faster and more equitable growth to fMo=t._t make significant inroads in poverty; 4 . uetzGDP 3200 (ii) ambitious public expenditure 3 1. _.. 2 000 reforms, including additional a spending of over 4 percent of GDP; 2. -. (iii) a modest tax effort aimed at 5,000 raising the tax ratio to 12 percent of 0- ° GDP by 1999, to finance increased 1990 1991 1992 1993 1994 1995 1996 1997 199S 1999 social spending without creating So- Sufi,W lApp-fliselTbl10,11 fiscal instability; (iv) a peace dividend which would shift military expenditures (0.5 percent of GDP) toward the social sectors; and (v) reliance on external donor financing to cover temporary deficits arising from the implementation of peace programs. The Government also launched a privatization program that generated extraordinary capital revenues of US$584 million in 1998. 4 C. Post-Conflict Spending T able 1.1 - Changes in Capital and Current Expenditure Shares, Trends nr and Post - Adiustment 1.6 Capital and Current Bolivia 1987-92 9 8 90 2 22 5 77.5 + Expenditures. Although there is B-azi 1984 8.2 91.8 5.1 94.9 no optimal capital/recurrent Chad 1989 651 34 9 58.3 417 no ~~~~~ ~ ~~~~~~~~~Chile 1986-88 8.4 91 6 12 1 87 9 spending mix for developing Colombia 1985 21 8 78.2 18.2 81.8 countries (Pradhan, 1996 and Costa Rica 1985-89 14 6 85 4 10.8 892 Devaraj an, Heng-fu and Guatemala Pre-peace' 1993-95 20 80 25 75 + S 1996) i I t ti Guatemala Post-peace' 1997-98 25 75 35 65 + Swaroop, 1996), implementation Idon.esia 1987-91 44.8 5 52 50.1 49~9 ± of the Peace Accords would Panana 1984-87 14 5 85 5 2 1 97 9 - require a marked reversal in Rwanda 1991 32 8 67 2 25.9 741 Guatemala's n-standi Senegal 1981 8.2 91 8 20.9 791 Togo 1983-85 28.1 71 9 33 7 66.3 pattern of severe under- Tunisia 1987-89 289 711 21 1 788 investment and low access by the Turkey 1988 1 82 81 S 14.9 85 i majority of the population to umg y 1984-89 7.3 92 7 6.1 93 8 Zambia 1984-86 12 1 879 30.4 696 6 public services. Since the early Zimbabwe 1983 6.3 93.7 73 927 + 1 990s, the World Bank has * Note Data for Pre-Peace period are 1990-92 before adjustments and 1995-96 after adjaistment consistently recommended Date for Post-Peace penod aTe 1995-96 before adjustmeni and 1997-98 after adjusunent sustained increases in public S,urce Sitatistical Appendix, Table6, 10, Hlutler. Roberto, Shah (1997) capital spending to improve access to basic services by Guatemala's poor and excluded populations. Little progress was achieved until the Peace Accords were signed, when the Government began a gradual process of restructuring the level and composition of public expenditures in order to meet peace targets. In 1998, combined public spending increased to 15.7 percent of GDP-1.5 percent above pre-peace levels--entirely due to an extraordinary increase in capital expenditures (Figure 1.1). Therefore, compared not only to other countries in pre- and post-adjustment periods, but to its own 1993-95 pre-peace adjustment period, Guatemala is one of those countries whose adjustment and/or post-conflict allowed them to raise their capital/current expenditure ratio: above 50 percent over pre-peace levels (Table 1. 1). 1.7 Sector Composition. The Govemment has made considerable progress in shifting public expenditures toward key social sectors and basic infrastructure, and in reducing military and public debt outlays. In line with the Government's program and supported by the World Bank's PIR recommendations, intra- Figure 1.2 - Allocation of Budget Among Major Categories sector priorities in education, health, roads, power and telecommunications were o00 -. ._ ___ 90 . . P0epebto3ei. appropriately addressed (Annex G). During .... .. . 1995-99, spending on (Figure 1.2): hl 70 the o3 Social sectors reached almost half of the 60 / Soi- 1999 budget; 50 / & o Basic infrastructure raised its share to a 30 Ses iohaee,nc&ii,. quarter, from a pre-peace share of one- s 20f Defeeendt9,biicO - fifth of total expenditure, due essentially 10 ,h,.t,,a ,, a , -a--c to spending on roads and transport; 0 - 1991 1992 1993 1994 1995 1996 1997 1998 1999 o Debt servicing was halved, due largely to SoilreeiaLissaleD Appen93 Table.W 5 a significant reduction in BOG and domestic debt, while public administration and military expenditures declined by 3 and 4 percent respectively. This may not be sustainable, however, as fiscal policy weakened in 1999 and additional spending may be increasingly financed through domestic borrowing. 5 Figure L3 - Share of Social Funds in 1.8 The growing importance of Public Investment the social funds and municipalities SlFsl/ Total i __ b l llexplains the large increase in post- conflict social spending. In 1999, Housing _I * I | they account for 30 and 25 percent u ~~~ of total budgeted public investment. Hea-Kh Data on executed spending by municipalities is not available, but Ed,wmton the key role played by the social funds is illustrated in Figure 1.3: Roatds at Transpon Li All peace-related low-income 0T,6 1011e 2(Pt I 3T/6 4CPs5l/r b 70%|/ 81P/. 9r/. I 00%e housing investments were carried out by FOGUAVI; o Most school rehabilitation--roughly 80 percent of total education investment-was done by two funds, FlS and FSDC, sub-contracted by the Ministry of Education; o Social funds accounted for almost half of health investments; and o Social fund participation in the road sector investments was only 15 percent, but it almost doubled from its 1995 pre-peace share. 1.9 Regional Composition. As post-conflict social spending has increased significantly, targeting becomes critical for measuring its impact oni the poor. The Peace Accords call for a de- concentration of public spending from Guatemala City, while expenditure reform aims to focus outlays in the poorest areas of the country. A look at the regional decomposition of expenditures ranked by the index of unsatisfied basic needs (UBN)1 between pre-and post-peace years (1995- 98) reveals important progress but also some shortcomings (Table 1.2): Table 1.2 - Unsatisfied Basic Needs (UBN), Human Development (HD) and Regional Distribution ofPublic Expenditure r Central Government* FIS FSDC unicipalitie INEOM Region |I'BN IID 1995 1998 1998 1998 1998** 1998 _ (index) (index) (%) (%/) (%) (%) (%) (%/) Vil - T3W . 4.98 -4.90 .- 4858.- .8 1i - i 5 77 .40 40 50 T4.71 -12.4 7.52 7.40 3. 5 Iv --IW2F6- 5474 5.7 11.91 9.94 9.86 8.15 XII1 - T 2078 _T8 08 7-03 - 7.11 14.51 10.91 15.63 888 111 20 21 0 50 6.74 -T8.37 9.71 1290 11 45 15.75 VI 8 16 39 0.43 9.66 13.60 31.61 2 27 3S 3 V1 50 0.48 -6.T4 7.07 7.02 12.37 12.56 76 0 14 03 3. T3 47 I29 17.43 10T 903 Sowce: World Bank Staff estimates based on Rojas (1999), PNUD (I 999), Chocano (1999) and tables 33-39 * Percentages add up 100 (prorated debt service and multiregional spending) ** Constitutional 10% of budget current revenues transfer only. Notes: Region 1: Guatemala; n: Alta Verapaz, Baja Verapaz; HI: Zacapa, Chiquimula, El Progreso, Izabal; IV: Jutiapa, Jalapa, Santa Rosa; V: Sacatepequez, Chimnaltenango, Fscuintla; VI: Quetzaltenango, Retalbuleu, San Marcos, Solola, Suchitepequez, Totonicapan; Vll Quiche, Huehuetenango: VIm: El Peten. FIS 98: Up to July 30. l The Table also shows the tJNDP index of human development (HD), but its simple correlation coefficient with the UBN index is surprisingly low, 0.38. Other human development indexes (for women and social exclusion) were also tested. but their correlation with the IJBN coefficient also did not improve. 6 o There was progress in de-concentrating GOG expenditures from Guatemala City to the Regions, from 54 to 48 percent; o FIS, INFOM, the municipalities and FSDC contributed to this trend, devoting 4, 9, 12 and 17 percent of their resources respectively to Guatemala City, compared to 48 percent by the Central Government. o The Regions that have benefited the most from such de-concentration were not, however, the poorest (VIII, II and IV), but the richest (VI and to a much lesser extent, V). o Peace has not modified the status quo regarding overall budget composition by Regions: (i) the three poorest regions continue receiving the same share of GOG spending, 16 percent, whereas the three richest Regions continue receiving roughly 70 percent. o In absolute terms, the bulk of social fund investment was not assigned to the Regions with extreme or severe poverty-lower shares went to the three poorest Regions, 32 percent in the case of the FIS and 22 percent in the case of FSDC. At the same time, 41 and 54 percent were allocated to the three richest regions. 1.10 Departmental and Municipal Composition. Although spending on the poorest regions remains insufficient, targeting by the FIS on the poorest departments was higher and better focused than FSDC, municipalities, INFOM and the GOG (Table 1.3). In 1998: o FIS assigned 35 percent of its resources to the seven poorest departments compared to 21 percent to the seven richest. FSDC, however, assigned 27 percent to the poorest departments compared to 37 percent to the seven richest. L FIS does apply a poverty map (based on UEBNs) to allocate resources at the departmental level. Regression estimates show that the simple correlation coefficient between poverty and FIS investments by department in 1997 was a positive 61.6 (69 for education and 23 for water), but a negative -19.7 for sanitation. At the municipal level, however, results are mixed. The correlation coefficients between FIS investment and poverty for the 289 municipalities with available data, follow a similar pattern but with lower TableL3- UBN,HDandDepartamental Distribufion and less significant regression of PubicExpenditure - 19S coeficients. The 50 poorest UBN HD EIS PfDC coefficients. The 50 poorest ~~~~~~Departansents (index) (index) (%() municipalities, however, show an UD.prten- --T4-6 0.46 848 4.85 inverse relationship (Chocano, 1999b). AltaVerapaz 31.01 0.36 3.76 3.88 u FSDC does not apply poverty criteria to ChiquiJula 24.77 0.44 420 34 549 allocate resources. The simple Izaa 23.08 0.50 04 2.04 correlation coefficient between poverty Mi.729 0 37 2.47 524. and FSDC investments by departments BqaVerapaz --.S2 0.45 8.72 3.64 during 1995-98 was a negative -0.38, uebudenango 19.14- .40 7.02 5.43 SantaRosa 18.62 0.48 5 18 3.62 and was only positive in the case of Suchitepequez 18.37 0.44 2.49 3.74 power projects (Chocano, 1999a). Solola 18.29 0.39 6.26 298 ra6Wa -T 3W6 0.54 1.44 3.79 o In the same vein, investment by ChlrtG-arki, 16.69 0- 43 5 59 municipalities was not focused on Son Marcos 16.62 0.41 6.69 6.13 poverty needs. The simple correlation Rddh uleu TT 161 U.2_ 3.74 3.07 ElProgm T3 I Y3Y 27 2.58 coefficient between poverty and Sacatepu 15.42 0.05 1.17 3.03 municipality investments in 1997 was a Qu_ztenanmg 1498 0.46 3.27 4.67 negative -17.26. A similar inverse Escuint 119 0.37 2.13 3.5 relationship was found for municipality uaterinal 10.14 O. 4.29 17.43 investments in the 50 poorest s Ba(k1S9), FestCmates ( se1o99) (1999), municipalities (Chocano, 1999b). 7 1.11 The Mitch Factor. The reconstruction work required as a result of Hurricane Mitch strengthened the positive aspects of expenditure reform, but also highlighted its shortcomings. Mitch did not have longer-term effects on domestic production and basic infrastructure, with the exception of the banana sector and, to a lesser extent, coffee. Preliminary reconstruction needs of about US$260 million were much lower than those of neighboring countries (Box I.2). In response, the Government prepared an emergency plan (the 100 Days Plan), setting specific sectoral targets for immediate emergency and rehabilitation support. The Plan was managed by an interim Reconstruction Cabinet and supported by an Emergency Decree that allowed bypassing Guatemala's standard procurement procedures. Donors agreed to streamlined procedures, so as to provide swift external financing under exceptional circumstances. Box 1.2. Mitch External Financing Reconstruction Needs (US$ Millions) 4 Agricultural Exports 100-120 4 Roads / Transport 30-40 4 Power 8-10 4 Telecoms 6-8 4 Housing 9-11 4 Education 10-12 4 Health 15-20 4 Industry* 30-40 TOTAL 208-261 Source: staff estimates based on Govemment financing requests. * Projected fall in manufactured exports to the region. 1.12 The Plan was successfully implemented, suggesting a substantial improvement in the public sector's project execution capacity (para. 2.9). By the end of the 100 days, the Government had spent Q720.4 million (US$103 million), or about 98 percent of budgeted resources, having completed almost all planned activities. At least 40 percent of the Plan was estimated to have been externally financed (Schneider, 1999). 1.13 Post-Mitch reconstruction, however, highlighted a number of important shortcomings: o Limited institutional capacity: since Mitch-affected areas were different from those affected by the conflict-ZONAPAZ-and human resources were scarce, implementation of peace programs was defacto suspended during the Plan period. z Fiscal constraints: a weak revenue base and looser spending, partly related to Mitch, led to a GOG deficit of 2.4 percent of GDP-1 percent above projections (Table 1.5). • An ad-hoc division of labor among Government institutions that threatens to become a permanent distortion: (i) FONAPAZ was driven to work on non-peace urban areas, especially low-income housing, where it had little prior experience or technical expertise; (ii) FSDC got involved in school rehabilitation, a declining priority for its portfolio and a sector where FIS has a comparative advantage; and (iii) FIS got into areas more appropriately handled by ministries, such as food distribution and secondary roads rehabilitation. • Extreme poverty needs had little relationship with the allocation of Mitch resources. The simple correlation coefficient between poverty and Mitch investments at the municipal level is negative, -0.07. A similar conclusion results from the mapping of Mitch investments by poverty categories in health, water, education, and roads (Schneider, 1999). 1.14 Expenditure Flexibility. Increased budgetary flexibility has been a major achievement of the reforms (Table 1.4). In 1990, Guatemala ranked among countries with the most inflexible budget (inflexibility index of 80 percent). Under the structural adjustment program it diminished to 52 percent in 1995 and post-conflict reforms lowered it further to 40 percent in 1998. Key factors explaining such outcome were lower public debt interest payments, higher tax revenues 8 and lower military expenditures. Implementation of the Integrated Financial Management System (IFMS) also contributed (para. 2.6). Budget flexibility helped finance the initial steps toward fiscal decentralization, including the more than doubling of earmarked transfers to municipalities from 0.4 percent of GDP in 1990 to 1 percent in 1998. TABLE L4 Budget Inflexibility (Fixed Categories as % of Revenue) Region/Country 1977-1985 1986-1994 Industrial Countries 39 39 Latin America 29 37 South Asia 54 69 Eastern Asia and Pacific 37 34 Sub-Saharan Africa 27 41 Eastern Europe & Central Asia 35 20 Most Infleidble Countries Democratic Republic of Congo 39 122 Brazil 37 99 Guatemala 52 40 India 81 91 Note: Figures reflect period averages of the results for each year: (Defense outlays + interest payment + transfers to other levels of government)/(total revenue & grants - grants - public entrepreneurial & property income). Data for Guatemala are for 1995 and 1998. Sources: Huther, Roberts and Shah (1997), World Bank staff estimates. 1.15 Overall Progress in the Privatization Program. The Government's privatization program is almost complete (Box I.3). The mail and railroads, under concession to foreign operators, are showing improvements in service delivery. In the electricity and telecommunication sectors, large parts of the state enterprises have been privatized and a minimum competitive regulatory framework has been put in place. Although regulatory agencies have sufficient operational and financial autonomy, and appear adequately staffed and financed, their institutional capacity still requires considerable strengthening in terms of global expertise and technical capacity. The Government is also starting targeted programs to extend electricity and telecom services to rural areas with private sector participation. Power coverage has increased from 52 percent in 1995 to 68 percent at present, and is projected to be as high as 90 percent by 2002. The telephone penetration rate should increase from 4 percent to the LAC average of 10 percent by 2002. As tariffs in both sectors have been rising, there have been some concerns about the lack of competitive pressures in these markets and the effectiveness and mechanisms used by the Regulatory Power Commission to set tariffs. 1.16 From expected privatization revenues totaling over US$1.4 billion between 1998-2001, about 60 percent had been received by mid- 1999 (4.3 percent of GDP), of which the Govemment devoted only US$112 million to repay short-term domestic debt. TELGUA's privatization, however, generated pressure on the Quetzal in late 1998, as US$136 million of the required down payment by local investors was purchased in the domestic foreign exchange market. Since September 1998, the BOG has heavily supported the Quetzal by selling more than US$688 million (more than the privatization proceeds obtained in 1998). More seriously, and as discussed below, resources mobilized by the privatization program, appear to have made it harder to resist pressures to adopt an expansionary fiscal stance in the lead up to national elections. 9 Box 1.3 Guatemala Pri ion rogam D. The Main Challenges of an "0 ~77 : iIncomplete Agenda *: Power. The electricity disbion company (EEGSA), was sold for US$0 million to berdrola 1.17 Macroeconomic Instability. On (Spain) Electricidad de Portugal and TPS (US) on April 1999, the Government approved an July 30, 1998. The other distribution Cfinp;ly extraordinary budget increase of Q3 billion, to Fenosa (Span son Der IgI ibicembr22 t1 998.n be financed with privatization proceeds. As a *: Telecommunications. The teleoms company result of strong criticism and concerns, the (TELGUA) was soldi fo USS0 milionto UC, Authorities first announced on May 1999 that a Central-American holding cm r effective outlays-other than domestic debt 10, 1998. Payments wilt take paei tgs US$200 million at signing, and US$150 3 repayments-would have a ceiling of Q1.3-1.4 US350 million plus liMs1 billion. Even such a reduced package would months later. The bidding prshas n have had serious medium-term economic challenged on the grounds of lack ofrnsae effects and confronted the new Administration . Railroads. The airoad copny ( A) in early 2000 with a difficult macro picture: (i) (US), which wasto e etdto in0million the combined fiscal deficit would rise to about in 1999. 3.2 percent of GDP, requiring a relatively +* MaiL The Diretorate of Mail ad Tcleg was severe fiscal compression in 2000; (ii) the leased for 5 years to n a l ta Servic increased spending would likely exacerbate (IIS) Canada on inflationary pressures and increase pressure on Govement reins nofpotal fees. *> State Banks The National un B ) the Quetzal; (iii) gross international reserves is in the process of being liquidated, would decline below a vulnerable 2.5 months 4- Airports. The Governmet is eVal pre- of imports, especially if the monetary qualified operorst cncesioning of La authorities continued to rely on direct Aurora hnternational Airport(Guteml ity) and Santa E inteatio i Ele. intervention in foreign exchange markets rather 4, Ports. The Govermentc ed aninsn than indirect monetary policy instruments to bank to auction under a 25 y cttnew pt defend the currency; and (iv) growth would fall facilities in Quetzal and SAno below 4 percent if domestic interest rates rose *F Agriculture. The silosof O byarneo NatioalIitutie of Agriculturl Marketing (IND3C) wer od on bya range of 3-5 percentage poits as a result August 3, 19"9 for US;5.4 millions, of open market operations to sterilize excess * Roads. The Govrnmnt ppre 5 ts liquidity, and/or spreads rose due to higher for concessioning but receivednoo. country and exchange risks. As the budget 4:4 Natural Gas. The Govmnt is s private reduction had little success in calming the investment for a 1,000 kim. as pipelneelinkting Mexico, Guatemala, El Salvador and Hondura market, It was derogated on September 1999. 1.18 The Fragile Fiscal Base. The key challenge to fulfill the Peace Accords remains increasing tax revenues (Annex A). Between 1995 and 1998, the tax ratio increased by about 1 percent of GDP-barely one-fourth of the Peace Accords target-and this increase was partly due to a temporary asset tax. In 1999, the tax ratio will increase 0.4-0.5 percent of GDP, but most additional revenues will arise from March and September 1999 tax amnesties (about 0.3 percent of GDP) as the Government decided: (i) not to adjust tax rates in the lead up to the elections; (ii) place most of its hopes for additional revenues on improved tax administration through the newly-created Superintendency of Tax Administration (SAT); and (iii) convene a National Fiscal Pact to reach a consensus on longer- term fiscal reforms that could transcend political differences. 1.19 A major improvement in the tax revenue performance is critical for peace consolidation from 2000 onwards, but it is also required to ensure macro stability and higher growth. A passive scenario, including improved revenue collection expected through the SAT (0.4-0.5 percent of GDP), would result in a fall of the tax ratio of 0.3 percent of GDP and a fiscal deficit of 3.1 percent of GDP in 2000 (Table I.5). Upon its arrival, a new Administration committed to 10 implementation of the Peace Accords would face difficult choices: raising additional revenues, financing expenditure targets agreed in the Peace Accords with expensive domestic debt, further depletion of privatization proceeds, and/or closing the fiscal gap through substantial cuts in non- Peace social expenditures. Table L5 FISCALSCENARIOS 1995 1996 1997 1998P 19991 2000' (As percent of GDP) Central Government Revenues 8.6 9.2 9.2 9.8 9.9 9.9 Taxes 7.9 8.7 8.8 8.9 9.4 9.1 Other revenues 0.7 0.5 0.4 0.9 0.5 0.8 Total Expenditure 9.4 9.2 10.1 12.2 13.6 13 Social Sectors 3.9 3.8 4.4 5.9 6.5 6.1 Education 1.7 1.6 1.8 2.2 2.3 2.5 Health 0.9 0.8 1.0 1.1 1.2 1.3 Other' 1.3 1.4 1.6 2.6 3 2.3 Economic Infrastructure & Serv.2 1.7 2.1 2.8 2.9 2.8 2.8 Defense and Public Order 1.3 1.1 1.1 1.2 1.1 1.2 Defense 1.0 0.8 0.9 0.7 0.7 0.7 Public Order 0.3 0.3 0.3 0.5 0.4 0.5 Public Debt Interest 1.2 1.2 0.8 1.1 1.4 1.6 Administration and General Services 1.3 1.0 1.0 1.1 1.2 1.3 Overall Balance -0.9 0.0 -0.9 -2.4 -3.1 -3.1 Statistical Discrepancy 0.3 -0.2 0.4 -0.1 0.0 0.0 Central Government Deficit -0.6 -0.2 -0.5 -2.5 -3.1 -3.1 Memo Rest of SPNF 0.7 1.3 1 0.8 0.7 0.7 BOG losses -0.9 -1.2 -0.8 -0.3 -0.2 -0.3 Combined Public Sector Deficit -0.8 -0.1 -0.3 -2.0 -2.6 -2.7 Source: World Bank Staff estimates; p preliminary; f forecast ' Includes housing urban development, community development and social service. 2 Includes rural infrastructure and development. Excludes VAT returns (0.5% of GDP for 1997 and 1998). Note: Additional recurrent costs for a minimum of Q800 millions required by institutional peace programs 1.20 A deficit-growth-gap model (World Bank, 1996) was used to estimate the kind of fiscal effort that would be required. Based on projected deficit and growth figures for 1999, the fiscal effort required to bring the combined fiscal deficit to a sustainable path is between 1.5-1.9 percent of GDP. In the arithmetic of fiscal accounts, a fiscal deficit is unsustainable if its relationship to GDP growth is higher than the public debt/GDP ratio, i.e. it is under-financed. Sustainability improves as GDP growth increases or the fiscal deficit decreases or, preferably, both (Annex B). In Guatemala, the fiscal stance improved up to 1997 as a result of faster growth with low fiscal deficits (Table 1.6). Thereafter, the combination of high fiscal deficits with slower growth has weakened the fiscal situation. In 1999, the fiscal deficit-to-GDP-growth ratio (deficit after-grants equivalent to 0.4 percent of GDP) is projected to be more than three times higher than the debt-to- GDP ratio (21 percent). Assuming growth remains at 4 percent, to bring the deficit back to a sustainable level (0.7 percent of GDP) would require a budget cut of 1.9 percent of GDP, that would need to be mostly implemented in the first half of 2000. An alternative "rule of thumb" I1 would require a deficit equivalent to its external financing, which implies a projected cut of 1.5 percent of GDP in 1999.2 As the fiscal effort required is already significant (it does not, however, include budget provisions for contingent liabilities), and experience shows that a fiscal adjustment approaching 3 percentage points of GDP is politically difficult to implement in developing countries (Dinh, 1995), reaching a political consensus on the need to take strong revenue measures early in 2000 through the National Fiscal Pact is essential. TABLE I.6: Sustainability of Public Debt and Fiscal Adjustment (Percentage of GDP) Fiscal GDP Potential External Domestic Actual Fiscal Year Deficit Growth Debt/GDP Debt** Debt** Debt/GDP Effort (1) (2) (%) (3) (4) (%/0) (5) 1993 2.5 3.9 64.1 19.6 16.6 36.2 1.1 1994 2.3 4.0 57.5 18.7 14.4 33.1 1.0 1995 0.8 4.9 16.3 14.9 13.7 28.6 1996 0.1 3.0 3.3 13.0 13.0 26.0 1997 0.9 4.3 20.9 12.2 10.7 22.9 - 1998 1.8 4.7 38.3 11.5 9.1 20.7 0.8 1999 2.6 3.6 72.2 11.5 9.0 20.5 1.9 1993-95 1.9 4.3 46.0 17.7 14.9 32.6 0.5 1997-99 1.8 4.2 45.2 11.7 9.6 21.4 0.9 5Ource: worTa t5an aMO iMr statY esLmases and runes ( 1999). * Combined fiscal deficit, * * overall public debt (including BOG) 1.21 Dealing with Fiscal Stress. Guatemala appears to be a case where privatization proceeds have fed fiscal illusion. A fiscal adjustment is an illusion when proceeds of asset decumulation (privatization) are used to lower the budget deficit or reduce public debt liabilities, but leaving the Government's net worth constant (Easterly, 1999), or negative when offset by an increase in hidden contingent liabilities (fiscal stress). It is now widely accepted that the fiscal deficit should be defined conceptually as the change in net worth, including contingent liabilities, despite the empirical difficulties in estimating it3 State asset decumulation should result in efficiency gains, but when a government privatizes for fiscal reasons, i.e., instead of tax reform or to finance public consumption, fiscal adjustment becomes an illusion if the change in the public sector's net worth is constant or negative, as in Guatemala. 1.22 Since end- 1998, fiscal stress has significantly risen due to rising fiscal deficits and higher contingent liabilities, mostly in the financial system, which raises concerns over Guatemala's potential vulnerability to a twin-currency and financial-crisis. In theory, large and unsustainable fiscal deficits lead to reserve losses, as Authorities attempt to defend the peg, in turn triggering a currency crisis. Empirical work, however, has found little evidence of a systematic link between budget deficits and currency crises, but a significant one for banking 2 Using a primary-savings gap model, Funes (1999) estimates a 1.6 percent cut needed for filling 1998-99 fiscal gaps. 3The Government's net worth is the sum of asset income (multiplied by r as both the rate of return on its assets and the interest rate on its liabilities), minus debt interest (conventional fiscal deficit), asset de-cumulation, debt accumulation, and hidden contingent liabilities accumulation. The net worth of a solvent Government must be greater than or equal to the present value of its future consumption (discounted by a factor p). After privatization, there is no positive change in net worth if the Government uses proceeds to reduce debt interest (lowering the deficit), but increases hidden liabilities (fiscal illusion). As an irresponsible government values consumption today very highly relative to future consumption (high p), the change in net worth following asset de-cumulation may also be negative if p is greater than r, i.e., the Government disinvests in its future revenue capacity to finance consumption today. 12 crises as precursors of currency crises (the twin crises) as well as on the transmission mechanisms between the two (Kaminsky, Lizondo and Reinhart, 1997; and Kaminsky and Reinhart, 1999). It may be premature, however, to abandon the fiscal explanation of currency crises as the conventional fiscal deficit is an unreliable proxy for describing the actual fiscal situation of a country under significant fiscal stress as measured by the size of contingent liabilities. If these materialize, they can quickly produce a large fiscal drain (Kharas and Mishra, 1999). Contingent liabilities are explicit or implicit depending on the extent to which the Government is legally required to cover liabilities in the event of default. (Box 1.4). In the case of Guatemala, contingent liabilities have worsened due to: (i) increasing fiscal and external imbalances, with fiscal and current account deficits of 3.1 percent and 5.5 percent of GDP respectively, resulting from loose monetary policy and Hurricane Mitch in 1998; (ii) real exchange rate misalignment- a 27 percent real appreciation in June 1998 with respect to its average 1992-95; (iii) adverse terms-of-trade due to a marked fall in export prices (coffee and sugar) in 1999; (iv) a credit crunch that has affected the financial system during the second semester of 1999, preceded by a credit boom in 1998; (v) a reversal of short-term private capital inflows, as real domestic interest rates fell; (vi) an ensuing economic slowdown; and (vii) the use of privatization proceeds to finance an expansionary fiscal policy in an election year (Annex C). Box 1. 4: THE FISCAL RISK MATRIX Liablities Diret (obligaion in any event) Coatiageat(obiVion ifapaticularevent o_ u_s) - State gtees for nonsovceiip borrowi and obtigtions Explidt - Forcing and domestic soveaingborrwing obligstions issued to subnational 9>vermt and public (loans oontrated and securities issued by and private setor entities (development banks) Govaimet the centra pvalennait) INDE INOM Liability is - E,enditures by budgt law PUERTO QUETZAL EMPAGUA recoguized b - Budg:t eapcnditures leily binding in the GUATEL BANGUAT law or cortract longtem: BANVI CORFINA civil service pensions and IGSS MUNICIPALIDADES services pensions/health progams state isuac sdchees for dqosits * Future recrrent costs of public - Ddtkl of a sub%iQati gpvenment and pubgic or prvate A 'morals investment projecs entity on non-prannteed debt and other liabilities obliption of the - Future p ublic pensions (as opposed to INDE INFOM pvYanment that civil service pensions if not required by PUERTO QUETZAL EMPAGUA mainly rdlects law GUATEL BANGUAT public cecta- BANVI CORFINA tions and Social se u ty schemes if not requinTe by MUNICIPALIDADES pressures by law - Ceanup ofthe liabiities of privatized entities interest group GUATEL INDE - Future health care financing if not - Bank faire(yond state insurance) specifid by law - Deilt of the cmtl bank on its oblitions (Reign a,anp contracts, currency defensc, balnce of paynents stability a Of fscal authorities, not the central bank 1.23 Contingent liabilities arising from the financial system have soared. Severe solvency problems in at least 8 commercial banks, the failure of 17 financial companies and the slump in the economy and stock market reflect the considerable stress affecting the financial system in 1999 (Lemus, 1999). In addition to factors depicted above, it also results from: (i) deterioration of the agricultural portfolio, due to Mitch and low export prices; (ii) losses from the bankruptcy of informally linked agro-export financial intermediaries, hit by the credit crunch and bad investments in Russia; (iii) the loss of public confidence reflected in the flight of deposits from weaker financial intermediaries to larger commercial banks and the dollar; and (iv) shortcomings in prudential regulation and the ability of the Superintendency of Banks to intervene insolvent 13 institutions. These pressures emerged forcefully in 1999, when BOG heavily intervened with more than US$375 million (one fourth of December 1998 net reserves) to counter three speculative attacks against the Quetzal in January, May/June and August, and provided emergency financing (US$233 million) to illiquid commercial banks. 1.24 The first step toward fiscal Figure IA Contingent Government tabilities are Specially Higih discipline is to identify the sources of fiscal stress and estimate the likelihood of their materialization in the budget. EThrough end- 1998, the size of C-hb Rn,,k,k K f Rp Of Guatemala's contingent liabilities was 1q- I C L,-io4-deai,ec estimated at 9 percent of GDP, arising I ,,. from: sovereign guarantee to public or BD a ZDitf-- ceb--wCen sub-national external debt (30.2 percent), Mmco 5 d. bailout of commercial bank liabilities (29 percent), state debt to the health insurance system (25.4 percent), state l social security pension fund (10.5 percent) and BOG losses including sterilization costs (4.9 percent) (Funes, 1999). Financial system liabilities are not reflected in the budget, but if they were fully committed, they would account for about a third of total contingent liabilities, a low figure by international standards (Figure 1.4)4 As the larger the size of the financial sector and the level of intermediation, the greater the contingent liability, such a small figure is explained by: (i) the low depth of financial intermediation relative to the size of the economy, with a stable M2/GDP ratio averaging 2 percent of GDP in the 1990s- among the lowest in L[AC despite the adoption of financial sector reforms in the early-to-mid- 1990s; and (ii) high administrative costs in the banking sector, averaging 7 percentage points during 1995-98, among the highest in LAC and twice the average of developed countries (ABG, 1998; Burki and Perry. 1997). Under present conditions, the Government's decision to postpone closing insolvent bankis and writing-off bad loans for electoral reasons, might increase the fiscal costs of an eventual bailout. 1.25 Minimizing Domestic Debt in Dollar-Linked Bonds. Domestic debt ratios have improved dramatically during the 1990s. Hlowever, the proposed fiscal expansion without additional tax measures, is likely to adversely affect the term structure and currency denomination of domestic debt. The domestic debt-to-GDP ratio halved between 1993 and 1998 (Table 1.6), the domestic debt service to GDP (excluding repurchases of Treasury bonds) decreased from 1.4 percent in 1995 to 0.8 percent of GDP in 1998; whereas the share of less than six months bonds in total domestic debt decreased from 56 percent in 1995 to 19 percent in 1998 and the l-year+ termn bonds tripled to 61 percent between 1998 and 1995 (Figure 1.5). These improvements were due to: (i) the fall of nominal interest rates by 5-7 points between July 1996 and December 1998, partly due to the lowering of reserve requirements as the Authorities relaxed monetary policy; (ii) the decision by the Authorities to minimize open-market operations so as to reduce BOG losses (from 1.2 percent of GDP in 1996 to 0.3 percent in 1998), which contributed to lower domestic 4Standard & Poor's methodology divides the banking system into five risk categories, based on their vulnerability to asset quality pressures during periods of economic slowdown or recession and, under the worst case scenario, estimates the level of direct and indirect costs to the Government and the economy of potentially problematic risk assets. Guatemala's range of potential gross problematic assets as a percentage of domestic credit to the private sector and non financial public sector (NFPS) enterprises is 10-20 percent, and the upper and lower cost bounds are 2 and 3 percent of GDP (Annex D and Lemus, 1999), which is low by intemational standards. 14 interest rates; (iii) the lengthening of the maturity of new bond placements; and (iv) the decision to repay expensive short-term domestic debt with privatization proceeds (about US$112 million or one fifth of privatization revenues).' Such improvements, however, mask a steady expansion in dollar-linked bonds, which has introduced a strong incentive to avoid a nominal depreciation of the Quetzal. Dollar-linked bonds have rapidly risen from 6 percent to 26 percent of domestic debt between 1995 and June 1999 (Funes, 1999). This has resulted not only from Guatemala's successful return to international capital markets with a placement of US$150 million in 1997, but also from the accelerated placement of short-term Quetzal-denominated bonds-with exchange risk guarantee, similar to Mexican Tesobonos-with foreign commercial banks for about US$255 million in June 1999. In the first half of 1999, more than half of the increase in bonded debt was dollar-linked. Figure I.5 - Domestic Debt Restructuring 611 6ns% n ' N*BN ~ ~ ~ ~ ~ ~ ~ i 1.26 Recommendations. Strengthening the macro stance is fundamental to reduce Guatemala's vulnerability to speculative attacks and financial stress in the short-term, and to sustain priority post-conflict spending in the medium-term. Following years of expenditure restraint, social and basic infrastructure investment has increased, but these levels are not sustainable with Guatemala's present tax base. Peace targets are attainable, but a three-pronged approach is recommended to ensure their sustainability. First, there is an urgent need to reduce macroeconomic vulnerabilities that can derail the reform process and peace implementation. Second, Guatemala should consider adopting a medium-term expenditure framework (MTEF) to consolidate and deepen recent progress in public expenditure reform and its links with peace implementation. Third, and as part of a comprehensive MTEF, there is a need strengthen the fiscal base to ensure appropriate financing of peace expenditures and continued improvements in spending patterns. 1.27. Reducing Macroeconomic Vulnerability. This would require adopting a sound and credible stabilization and adjustment prograrn from the start of the new Administration, aiming to strengthen the fiscal position and, through its effect on aggregate expenditure, reduce the unsustainable current account deficit, as well as measures to deal with fragility in the financial 5 The Government had originally committed 50 percent of privatization proceeds to repay domestic debt. 15 system. The commitment to macro stabilization goals would be strengthened if they are part of an MTEF. The stabilization and adjustment effort should include: > Targetingfiscal and external current account deficits not to exceed I percent and 3 percent of GDP respectively, which could include a fiscal policy rule (backed by the Fiscal Pact) targeting a fiscal deficit below 1 percent of GDP. > Maintaining a tight monetary policy during the adjustment period, through tight control of private domestic credit expansion and the more effective use of indirect monetary policy instruments (open-market operations). Such policy would contribute to reduce excess liquidity episodes, minimize open market operations to sterilize them, keep domestic interest rates from rising too high and supporting a flexible exchange rate policy. > Maintaining an effective neutral real exchange rate policy. Further depreciation of the exchange rate is likely to be required to reduce the external current account deficit, especially since the stabilization costs of unsuccessful attempts to maintain a quasi-fixed exchange rate in 1999 have appeared too high in light of reserve losses, rising domestic interest rates, reversing private capital flows, adverse terms of trade and the elections. > Rebuilding the external position to a 1/1 reserve/monetary base ratio with incoming privatization proceeds. Reserves should cover a higher proportion of short-term financial sector liquid liabilities, mostly in foreign currency, which are now roughly equivalent to the monetary base. As Calvo (1995) has shown, countries with sound fundamentals but weak banking sectors and high capital mobility, may still face speculative attacks. Hence, a reserve target of 3 months of imports may not be sufficient, especially if the Authorities continue to attempt to maintain a quasi-fixed exchange rate policy. A 1/1 monetary base/net usable reserves ratio requires about US$600 million over present reserve levels (Edwards, 1999)6 > Quickly resolving the severe solvency difficulties of the banking system, by requiring increases in capital, in line with the recently approved Banking Law, and promoting closure or merger of banks that cannot comply. > Minimizing financial contingent liabilities by strengthening financial regulations and supervision, and establishing contingent sources of liquidity to gradually recover public confidence in the solvency of the financial system. Implementation of the new Banking Law will contribute to lower systemic risks by setting limits on related lending, higher capital requirements and establishing financial crime, but additional reforms are required, including: an insurance deposit scheme, open disclosure of asset risk valuation and external audits, consolidated prudential supervision-including off-balance sheet and off-shore operations- bank merger laws, the creation of a Risk Center (Central de Riesgos), and enhanced powers for the Superintendency of Banks to impose fines on financial institutions that violate prudential norrns. 1.28 A Medium-Term Expenditure Framework. The MTEF is a policy tool that integrates the three levels of key institutional arrangements required to ensure sound and more predictable fiscal management: (i) aggregate fiscal discipline under a monetary program to set formal/informal rules/targets on revenues, expenditures, fiscal balance, financing and contingent liabilities; (ii) sectoral allocations based on strategic priorities and external financing availability; and (iii) efficient and effective operational financial performance, which usually implies budget decentralization and performance monitoring mechanisms. Setting rules, targets, sectoral allocations and monitoring mechanisms has the following benefits: (i) promotes credibility in the monetary and fiscal program; (ii) improves the allocation and efficiency of spending; (iii) allows the annual re-prioritization of policies, target areas and beneficiaries; (iv) improves the investmnent climate by enhancing the predictability of taxes, fiscal balances, public debt and 6 The IMF employs the term "net usable reserves" excluding BOG's creditor position with Nicaragua for about US$206 million. Present gross reserve levels are about US$1,150 million (2.8 months/imports of G&NFS). 16 interest rates; (v) enhances budget management transparency, allowing Congress and civil society to influence budget priorities and monitor government performance. Although adoption of an MTEF in Guatemala would be a complex undertaking, the existence of a well-developed financial management system represents a considerable advantage (para. 2.6). In the case of Guatemala, an MTEF would be a powerful tool to reconcile stabilization pressures with the need to protect as much as possible peace-related expenditures and the recent progress in shifting expenditure patterns. This would reduce the risk that the stabilization costs fall disproportionately on peace programs. It also has the potential to become, over time, an effective instrument to re-prioritize and re-target peace-related expenditures and to allow timely monitoring of public sector performance. 1.29 Strengthening the fiscal stance to deepen and sustain expenditure reforms. The Government would need to consider: > Increasing tax revenues in line with rescheduled peace targets to be agreed by the Fiscal Pact (para. 3.9). Early actions on the tax front are needed as the experience in Guatemala shows that if an incoming administration does not move quickly to raise revenues, it will be very difficult or impossible later. Urgent measures should include tax rate increases, elimination of tax exemptions, a more effective tax administration by the SAT,7 tax code reforms to strengthen SAT powers and an increase in the number of judicial tribunals dealing with tax defaults. Other possible measures include: gradual phasing-out of taxes with marginal revenue impact (e.g., stamps, income tax on patrimonial property) or transfer of tax collection responsibility to a more appropriate level of government with shared responsibility, e.g., a reformulated IUSI tax to municipalities, exit tax to airports, vehicle taxes to COVIAL, review of VAT refund mechanisms to prevent abuses and eradication of tax amnesties. Box 13 The Medium Term Expenditure Framework Oft") The Cae of South Afrks sah the United Kingm Thbs to its IWMS (Chat 1) Guatmal has now the capacity to dwelop an MTEF. It could beome an extmely valuable too nt only fbr re-establishing fiscl stabily and protectng expenditue refom gain but could l form the basis for the m6dimtern fiscal connsesus that the National Fiscal Pact is attempting to forge. South Afica and cthe Utited Kingdom bae developed MTEFs. Te& MMEF of th South Afrian Govemnmnt sets out its recsrction and development objectives It is developed by te adegreed principles of adequate and predicble taxat, fiscal s inbility and pruen managmt of fi risks (essenily stae guante). it consists ot (i) a statement of fisc poic objectves and ' targts; (e) an ineratd mediumerm macoecoomi and fiscal ast; (iii) esies of expeaditu by m es and agecies, which beome hwd bdget constrain; and (v) rlianc on simle rls, cg., th debt ato canmot rise or exceed a specif limit It is not muti,yrbudtig but ania budgeting whin a 3-ye framewo- Regdig4 contingen libilitiae, it also leatis (i) a stmnt of publi flnaciial assets and liabilitieson a cash and on an accrual basis, with an exNte eogition of conten liabiles and a liabiies pet mnistry, add tdieir rik; (ii) explicit fisca amn ms between naonal piovincial and looem ts in Mhprocton (te national government ds '95 percent of thdr reveues); and (i) stict guidelines for issuing st guarantes, e.g, ocal governments are not pmitted to budget a deficit or guaantee fees are chged to discourage reliance o cental government borrowing. The UEs approach to the MTEF also inludes an indpndent review of macroeconomic assumptions perfomied by the OECM and an unalloaed reserve of 2 prce of total budget, to cover unforeseen events, including reaized contngent liabilities. Claims on the reserve fund arm severely restricted, decided at the ministeial level, and annual net savings are credited to rnt year's budget 7 For the SAT to meet its ambitious collection goals it needs to: (i) define a comprehensive tax collection strategy; (ii) develop a new taxpayer registry; (iii) create an urgently needed special taxpayer unit; (iv) design and implement a unified internal and external control system; (v) improve its commercial bank-supported tax collection system; and (vi) double the number of its auditors (Dos Santos, 1999). 17 > Maintaining intra-sector priorities and increasing social and basic infrastructure spending to 75 percent of budget expenditure, as part of an MTEF and in line with quantitative peace targets, i.e., priority on pre-primary and primary education, preventive health, low-income housing and rural infrastructure and development, with improved targeting on the poorest regions, departments and municipalities. > At the macro level, maintaining a minimum ratio of capital to current expenditure, also known as r coefficient, of 0.55. In the short term, this should imply a hiring freeze in the public sector, except in education to meet peace commitments. At the project level, given low tax revenues and significant donor-driven investment programs, evaluating the r coefficient of existing and new projects rigorously is essentialto prevent counterpart funding shortages, adequately budget future current spending required by basic social investments, and weeding out unproductive programs.8 > Avoiding continued financing of current expenditures with future privatization proceeds (fiscal illusion) and, instead, first retiring short-term domestic debt gradually, so as to prevent liquidity shocks and, then, financing investments that will produce significant medium-term social or economic returns. Future privatization proceeds still have the potential to destabilize the economy unless they are properly managed. An option to consider is the creation of an investment fund or trust fund (fideicomiso) and using only interest earned to finance priority investments, as in Panama's Trust Fund for Development.9 > Shifting the present 1-to-I ratio between external and domestic public debt to 2-to-1, continuing to reduce the size and lengthen the maturity of domestic debt, while keeping external debt low. Reducing domestic debt is essential to enable the Authorities to lower reserve requirements and reduce pressure on domestic interest rates. Domestic debt restructuring requires: (i) the creation of a Public Credit Unit at MIFIN to effectively manage and monitor debt; (ii) enhanced coordination of open-market operations between BOG and MIFIN, by making a clear distinction between short-term BOG securities issued for liquidity management and medium-term Government bonds issued by MIFIN to finance the public sector deficit; (iii) reducing BOG losses to a minimum in line with the amount of BOG open market operations; (iv) the gradual use of 50 percent of privatization proceeds to fully repay short-term debt,10 and minimize medium-term debt to levels required by cash flow management by MIFIN; and (v) keeping the share of dollar-indexed bonds at reasonable levels (below 30 percent of total domestic debt), not only because their sterilization is expensive, but because of their exchange risk. > Improving targeting on the poorest. Taking advantage of the IFMS and GIS (para. 2.10), the minimum targets should be 60 percent of Central Government spending allocated outside the capital, and 50 percent of spending by the social funds on the poorest regions, departments and municipalities. This involves continuing to encourage community and private participation not just in project preparation and sub-contracting, but in co-financing local infrastructure and services through community involvement during implementation. The focus and coverage of operations should improve by the expansion of the new pilot models of local service delivery under implementation in San Marcos and Huehuetenango. Enhanced 8 International experience suggests as selected r coefficient per type of project for developing countries: 0.3-0.94 for primary schools, 0.29-0.67 for rural health centers, 0.86-0.94 for rural roads, and 0.60-0.92 for rural development projects (Pradhan, 1996). By law, privatization proceeds in Panama are invested in the Trust Fund for Development in liquid and low-risk assets. The Authorities can only use the interest earned by the Fund (US$43 million in 1998) to finance selected projects. Total assets in the Fund had reached about US$1.3 billion by end-March 1999. ° Assuming that 50 percent of 1998 privatization proceeds would be devoted to repay domestic debt, Funes (1999) estimated that net public savings from domestic debt repayments would have become positive and significant (0.2 percent of GDP) from year 2000 onwards, as sterilization costs in 1999 would have been equivalent to the sum of principal repayments and interest rate savings. 18 targeting should be accompanied by adequate monitoring mechanisms (para. 3.10). Integrating the social funds and the municipalities to the IFMS is essential to promote their transparency, facilitate their supervision and enhance their capacity to target the poor. > Eliminating distortions that emerged following Mitch in the division of labor among funds. Promoting consolidation rather than further dispersion and institutional fragmentation by creating more social funds is essential. The immediate phasing out of low-performing funds-other than the three big ones FIS, FONAPAZ, FSDC and, perhaps, FOGUAVI-and increased coordination and specialization of the remaining ones should lead to the adoption of uniform technical standards, preventing overlapping activities and speeding up project approval and execution. Whereas the merger of smaller funds should be considered, care should be taken not to create one large and administratively costly super-fund. Specialization by type of project should prevail over departmental focus. CHAPTER H_ PROGRESS ON PUBLIC SECTOR MODERNIZATION A. The Origins of Reform 2.1 The signing of peace in December 1 t 1996 generated strong pressures to modernize * j- the role of the state-implementing the Peace ~frS, Accords and advancing in the fight against i poverty would not be possible without *WCR reforming the way the public sector performed l; its functions. Guatemalan social indicators were among the lowest in LAC and were I ( 4 improving very slowly, reflecting persistent :.- i' i under-investment in social services and basic 7 i infrastructure, especially in rural areas. ~ i~a~ Governance problems, centralization and | l inefficiency plagued most public sector activities. Anecdotal evidence from the social sectors, for example, suggested: massive 3 overpayments for medicines by the public t | ! u sector relative to market prices, woefully 1~U inadequate inventory controls, serious anomalies in cash management, endemic * ~ ~ ~ . arrears to suppliers, little if any focus on results, and an overwhelming distortion of actual (vs. budgeted) spending in favor of the Capital City and hospitals. (r, f o 2.2 The Government was aware that post- conflict attempts to promote poverty reduction, while fulfilling targeted peace spending, could be frustrated by serious shortcomings on several institutional fronts. On the revenue side, poor tax administration and weak enforcement resulted in low tax compliance. The private sector successfully resisted new tax measures by arguing that the public sector was inefficient, corrupt and unable to productively use additional revenues. On the spending side, the public sector was excessively centralized, with a weak institutional and financial structure, making it extremely difficult to effectively reorient spending toward priority areas. This posed a serious challenge to the implementation of the Peace Accords, especially those that required expenditure switching and improved targeting. On the civil service side, the public sector was overstaffed, with an uncompetitive salary structure that made it difficult to attract competent and motivated staff. These constraints contributed to weak governance throughout the public sector, exacerbated by inadequate access and inefficiencies in the judicial system. In short, an inefficient and ineffective public sector posed a formidable obstacle to the implementation of the Peace Accords. 2.3 Conscious of these weaknesses, the Government adopted a comprehensive public sector modernization program focused on six key areas: (i) tax administration reform; (ii) privatization of public enterprises; (iii) institutional and financial expenditure management reform; (iv) civil service reform; (v) decentralization; and (vi) judicial reform (World Bank, 1996a). The first two 20 components were discussed in Chapter I. This chapter evaluates progress in implementing the Government's public sector modernization program, focusing on financial management and institutional reforms, progress in decentralization, and the need to deepen reforms in the civil service and governance. 2.4 The New Frameworlk A key element of the Government's public sector modernization program has been the adoption of a new framework supported by new regulations (Box 1.1). The new framework has two building blocks: a horizontal one, which would restructure the institutional macrostructure of the public sector, and a vertical one, which would modernize financial management through an integrated financial management system. After three years of reform, there has been remarkable progress in financial management but only partial and largely ad hoc progress on reforming the institutional macrostructure. 2.5 Progress in reforming the institutional macrostructure has been partial (CIEN, 1999c). Under the 1996 Program for the Modernization and Strengthening of the Executive, the Government intended to cut the number of ministries by a third, eliminate redundant ministerial units, de-concentrate their functions outside Guatemala City, and transfer most of its public investment execution functions to sub-contracting schemes with the private sector. Accordingly, a new Law of the Executive was approved in 1997, but lack of consensus within the Government resulted in only a relatively minor redefinition of ministerial functions and the establishment of only ad hoc coordination mechanisms among the social funds. No single ministry was eliminated, while pilot and partial de-concentration took place only in the Ministries of Education and Health. Even these efforts were more due to the need to meet IFMS technical requirements rather than to the effective transfer of decision-making power to lower level ministerial units. Reforms were more successful, however, in redefining the public/private service provision mix in a number of areas, including road and bridge rehabilitation, school construction, and rural electricity and telephone provision. 2.6 The LFMS. Progress in reforming financial and control management has been impressive, though significant challenges remain. The new IFMS (SIAF by its Spanish acronym), is a modern public sector financial management system aiming to increase the efficiency, accountability and transparency of public spending and support the decentralization to line ministries of the primary responsibility for managing sector resources to help improve the delivery of public services. It combines efforts in the key areas of budgeting, accounting, cash management, debt management, auditing, and procurement (Box 11.2). The principal integrating factors for the system are a commonly shared and reliable data base, standards and procedures for recording and reporting financial data in the accounting sub-system, and an open mini/ microcomputer based information technology system capable of communicating the data across the sub-systems. Full implementation of the IFMS permits a real time and single entry of data into the system to all users. New legislation and norms help protect its coherence, reflecting a common aim to improve the efficiency, effectiveness, and transparency of financial operations. 21 lBox ffq _ r ; *> - ? 2.7 The main pervasive shortcomings ... - in public sector financial management and In Edditio to the ,ww legal *ainowotk (B¶ meetd -f auditing that the IFMS addressed were: t' de lcsigaz WOIk ini , .~OT Sub lUpOOC has< O L financial administration highly centralized within MIFIN, affording line -desin andi ministries little scope to plan or manage - - leSted*h * ?*~wbg~&eet d-inualb d their budgets and ad-hoc decisions; on a utodoy - o financial management based on tight, in,cludingpbysca an lmil i~eo s .. + Aecountiag tA new-aX - giWA- daily control over cash spending, especially - d cOIOp@4 iWese~i on a t. . ww~g~ c ion given revenue uncertainties and the almost ' ew aoounti:g _O non-existent financial capacity of line #ngafta~ws ~ '*~i~oductl~of ministries; - CH.b managmast. A v o financial administration supported by pro mSng. qetaa AdOP~4 ~ an outdated and inconsistent legal ..eei*aon ¢.tk,os a,~ t~ciuite framework; .imely ..' A.pg , ,a- : o inefficient and administratively costly :-~- j; procedures governing public funds; have bees ~rniphfied by don. d~rn on ks o financial decision-making based on . + AP P . unreliable, fragmented, incomplete or _~ishiioa~fted and Fiouaiied $ de~el~ a obsolete data; complete reoipn.,..ion of ith. publie, procurement L disparate information technology, * Fluanejal mM_agemmt b ~ purchased in an ad hoc and uncoordinated way, leading to a multitude of non- inrk~ '~ c '4~ioa. lbliic communicating systems within the public :OIJ~ n .s ii sector; m.i ries 0t o financial administration carried out by a f or 60 pecnt ofp ubllpaitur;:. ... .-...' * Iafaruuatiou ~ M ~ small number of staff, many lacking the sup 4t ~ ~ ~ adequate training or experience to perform as d d ccas.fi - - ---. their jobs; -* :r~ini~ Ourer 1,600 civil servnts have been o inadequate auditing of accounts and an ;pograwa m audit backlog of several years, undermining the sense of public accountability; and o lack of public expenditure monitoring, especially targeting on poor areas and priority needs. B. Early Benefits from Public Sector Modernization 2.8 Overall Efficiency Gains. After three years of reform efforts, several significant results are emerging (Table 11.1), with Guatemala now among the leaders in financial management reform in the world: o Financial transactions are entered once into the public accounting system at the location where they originate and reported instantaneously by Y2K compatible electronic means. o Big reduction in prices paid for supplies (10-70 percent) due to a better procurement system and shorter payment procedures, substantially cutting processing times and steps (eliminating premiums built into prices to reflect inflation or bribes by suppliers to speed payments). o Electronic fund transfers have increased from near zero in 1996 to 50 percent of public sector payments in 1998, and are expected to cover nearly all payments in 1999. This reduces the time and transaction costs and lost/stolen checks. 22 Li Once a payment is authorized by a line agency, MIFIN executes it within an average of 72 hours. Arrears to suppliers have been eliminated. Li The unique relational database provides immediate and detailed information on all recorded financial transactions, on cash and accrual basis, thus providing an audit trail, timely budget execution and fis0al accounts information for managers. Legislators, private citizens, NGOs, and other stakeholder can access proposed and executed national budgets at several computer sites in Guatemala and through the Internet, thus providing infornmation on the use of tax revenues. Li Software is being developed to track procurement and management of inventories and fixed assets, with plans to make informnation On contracts and prices paid available on the internet. ci Reduced scope for fraud and corruption: adrninistrative discretion in payments has been limited considerably; an audit trail exists instantaneously on all transactions available to internal auditors and to the Comptroller's Office; the reliance on checks and paperwork in general has been cut sharply; public procurenient is now conducted on the basis of bids rather than price quotes from a minimum list of authorized (often phantom) suppliers; prices paid for goods and services can be rapidly compared across public agencies. Li The system is working closely with the new tax administration authority (SAT) and synergies are being exploited to cross check activities of suppliers and private banking. 23 o The IFMS also proved to be a valuable i Figue 11.1 Level of Budget Execution(%) disaster management tool following the Mitch emergency. Defese __1_ Public Finance 27 "A 2.9 Effectiveness Gains in Budget Governnce 01. Management. Major improvements in A operational aspects of the budget occurred ITnrnsport NN7S during 1996-98. Health o Arrears on the floating debt, a major Education .s . budgetary distortion, were eliminated. o Shortages of counterpart funds to external Total projects, a major bottleneck in the early 0 20 40 60 80 100 1990s, have been substantially reduced. L -_ I -= - o The level of budget execution by the Figure 112- Budget ExecutdlProgremmed Central Government significantly improved from 83 percent to 94 percent of approved funds, with the Education Ministry achieving 99 percent (Figure P e_ 11.1), a dramatic increase over 50 percent en - ta840 or lower rates prevalent in the early ge -Tr n.po,t 1990s. i 0 o Quarterly budget executed/planned significantly improved in 1998, as , 2 3 45 e7 8 9 i0 11 1l ministries quickly learned how to make I best use of their requested resources, increasing from around 40 percent in the first quarter to over 50 percent in the last quarter (Figure 11.2). o Improvements in budget execution were partly due to significant increases in loan disbursements-annual disbursements more than doubled from US$139 million to US$329 (Figure 11.3). o Through the ad-hoc government commission-CIACI-the Government was able to more than halve the average lag between Board and Congress approvals of IDB and World Bank loans (Figure 11.4). By end-1998, the average lag had fallen to under 60 days. In the case of CABEI, the approval process has not __ improved and continues to take about 6 Figure 11.3 External Loans. Disbursement Flows months (Annex ILF). 140 120 C. Remaining Challenges in lOD 100 * * |Implementation of the IFMS 80 8 60 | 2.10 Although the IFMS has made a i promising start, during implementation a 40 few components-debt management, 20 auditing and procurement-were scaled D.- down without causing basic changes in 1196K1119e 11 97 1197 11197 rV7 198 1198 11198 Ia98 199 overall goals. Delays in the debt So_ceV*rl Bnk SCeltllfltf bF id n ArZ M"! andJ Crr fgureu - management component were due to the Government's desire not to risk a major change in the processing of external assistance that could disrupt aid flows supporting peace implementation; delays in the auditing component were the result of disagreements over the legal framework and degree of autonomy of the Comptroller General's Office; whereas delays in the 24 procurement component were the result of the Government's decision not to seek major amendments to Guatemala's Procurement Law fearing it could affect the sale of TELGUA and the rest of the privatization program. To ensure its long-term sustainability, the IFMS will have to deal with these lags, as well as to address new challenges, including: o Key legislation is pending (Box 11. 1). u The budgetary process needs to be further Figum IIA - Extemal Loans Procedums, by strengthened, especially by addressing: sbictWd Donor unrealistic macro assumptions and 400 spending targets, overestimation of ! 3lv external disbursements, an excessive 200 aIDBI number of budget expansions throughout 100 ACABE the year, insufficient monitoring of budget E 0 performance, and no integration of z = m m spending by social funds and municipalities. As discussed in Chapter I, most of these issues could be effectively P, addressed through the adoption of a Medium-Term Expenditure Framework. o A disconnected procurement subsystem requires overhaul. As a result of the reforms, procurement is now based on bids, rather than price quotes from a list of authorized suppliers. This reform has produced substantial savings in official purchases, but it remains disconnected from the IFMS software, and significant institutional and legal changes are required to strengthen competition and quality control. L Progress in the audit subsystem has been slower than anticipated. It still requires ex-ante review of all transactions. u Local counterparts need to take over from the team of international consultants who have implemented the new system. This will require intensive training and an appropriate salary structure to retain qualified staff. The Govermnent changed about 400 staff not meeting the skill requirements of the new system and used some flexibility in pay categories to fund higher salaries for new, more skilled staff. Over the longer-term, more sustainable arrangements are needed, which should be part of broader civil service reform. o SEGEPLAN's Geographic Information System (GIS), designed to improve the geographic distribution of investment, is not linked to, and its software is not compatible with IFMS. 2.11 Recommendations. Based on the early experience, the remaining reform agenda and a detailed analysis comparing the IFMS with international best practices (Annex II.E), recommendations would include: > Maintaining a commitment to a single and coherent concept offinancial management reform, process reengineering and information technology, as well as a strong and professional national team. In this. connection, it will be important to: (i) continue with the vertical expansion of the IFMS to the new subsystems-debt management, procurement, auditing, human resources and public investment; (ii) improve and integrate in the IFMS peace monitoring targets and policy benchmarks; (iii) integrate SEGEPLAN's GIS with the IFMS; (iv) maintain strong oversight, training and ownership of system implementation, with close collaboration between system managers to prevent discrete changes to regulations; (v) continue training for managers and staff in public institutions, professional associations and universities to strengthen domestic capacity to run the system; and (vi) disseminate results and progress to key stakeholders (legislators, cabinet, press, civil society, donors, etc.) to foster wide understanding and support for improved governance, decentralization and improved service delivery. 25 Completing the legal framework to underpin IFMS, as well as complementarv legislation that can strengthen the impact of the reform program, including CGO. procurement and administrative probity laws. While major progress has been achieved within the existing legal framework, the sustainability of the new systern should be embedded in the IFMS Framework Law. Stronger CGO legislation should approve ex-post review procedures, procurement legislation should constraint the often-abused "open contracts" rules to limit exceptions, while the administrative probity law should codify and strengthen penalties against civil servants involved in corruption. > Fully integrating external and domestic debt management needs. The recent decision to opt for UNCTAD's SIGADE software system is appropriate since the software is fully compatible with the IFMS information system, but domestic debt also needs its own new system. Developing an MTEF linked with IFMIS and adopting the recently approved IMF Code of Good Practices on Fiscal Transparency (Box II. 3j. > Focusing on delivering early and tangible results as the IFMS' expands horizontally to other ministries, socialfunds and pilot municipalities. Being able to show cost reductions, reduced reporting times and less burdensome processing steps can help to build support as financial management is decentralized. Reconsidering the agenda of pending horizontal institutional reforms. i*'X' An emergency decree to cancel vacancies once severance benefits for retired workers still on the payroll are completed. > An urgent census ofpublic employees. > An amendment of the civil service law aimed to: (i) create a new civil service career path; (ii) reform the public sector salary system through a competitive wage structure and norms promoting labor flexibility; (iii) redefine the role of unions; and (iv) redefineemplazamiento procedures for dispute settlement, limiting appeals to the Labor Courts. > A new civil service career which would need to: (i) create a human resources system at the IFMS to develop a centralized census of all public employees, their salaries, benefits and severance payments; (ii) transform the actual Junta Nacional del Servicio Civil into an apolitical Civil Service Commission whose term should go beyond the electoral cycle, with its main role to be the final arbiter of personnel disputes; (iii) set new standard job descriptions/staffing needs per ministry, new procedures for hiring, recruitment, promotion and training, and performance benchmarks for each position; and (iv) reconsider ONSEC's functions from an operational to a normative role. > Reform the salary and benefit system. The new salary system should not attempt to define a single salary structure, but rather decentralize its definition per ministry/institution, at least for professional and technical categories. It should also monetize most benefits, set limits to contracting under category 029 so as to prevent abuses and, in support of the decentralization process, design bonuses and fringe benefits to induce professional personnel to accept assignments outside Guatemala City. > Assess the fiscal impact of comprehensive civil service reform, including the new salary and benefits structure, training needs and severance payments. Such study should also cover autonomous and decentralized state entities. 29 E. Decentralization through Deconcentration and Municipalization 2.21 Implementation of the Peace Accords requires improved coverage of basic social services and infrastructure, especially toward isolated rural areas. Decentralization was seen as a natural way to expand coverage, improve targeting and reduce the expenditure bias toward large urban areas, especially the capital. Although the Government has not articulated a comprehensive and coherent longer-term decentralization strategy, its decentralization efforts have focussed on deconcentration of selected public sector functions and a strengthening of the financial autonomy of municipalities. The Government has made only limited progress in deconcentration but substantial progress in transferring resources to the municipal level. 2.22 Although there has been some progress in deconcentrating government functions from Guatemala City toward a few pilot ministerial units, which was required by implementation of the IFMS, these efforts have been modest and still preserve the hierarchical relationship between the Central Government and units in the field. These efforts included: (i) requirements under the IFMS to create IFMSITOS (small, administratively decentralized ministerial pilot units); (ii) partial internal deconcentration in the Ministries of Education, Health and Agriculture; (iii) formal decentralization of ministerial functions to decentralized line programs, such as education to PRONADE (Box 111.1) and rural health services to IAHS (Box 111.2); (iv) formal transfer of public investment execution to social funds, e.g., school building by the MOE to the FIS and FONAPAZ, and water and sewerage projects to municipalities/INFOM by the MOH; and (v) partial transfer of rural roads rehabilitation and maintenance to selected municipalities in the department of San Marcos, as part of a pilot World Bank-supported project. 2.23 There has been considerable progress in strengthening the. financial autonomy of municipalities. Municipal elections were reestablished in Guatemala soon after the transition from military to civilian rule in 1985. The 1985 Constitution established a transfer of 8 percent of Central Government current revenues to municipalities. Up to 1995, Governments had not complied with the full transfer and amounts transferred suffered frequent delays. Transfers to municipalities were strengthened during peace negotiations in 1995, when a 1 percentage point of the value added tax (VAT) was earmarked for municipalities. Since 1996, other measures have been taken to strengthen municipal finances, including: (i) helped by the IFMS, compliance with the timely transfer of 10 percent of general revenues to municipalities, a higher level than in any Central American country; (ii) creation of ad-hoc committees in the regional Development Councils (DCs) with an active participation of municipalities; (iii) supported by a World Bank/UNDP program, a gradual increase in the number of municipalities that are now able to administer their own financial resources, from 10 in 1995 to 52 in 1999, tripling the resources they had received in the past three years (Rojas, 1999); and (iv) successful development of pilot models of financial cooperation between DCs, social funds, municipalities and local communities. By law, 80 percent of the constitutional transfer and 90 percent of the VAT transfer must be allocated by the municipalities to investment in social and basic infrastructure (Rojas, 1999). Municipal governments have not increased their own locally collected resources significantly, relying almost exclusively on the Central Government transfers. 2.24 While there has been important progress in the decentralization approach adopted by the Government, a number of important obstacles to further and effective decentralization remain: o Ministries and social funds, including those that are taking steps to deconcentrate some of their functions, still face considerable resistance to change. As a result, deconcentrated units have limited political and financial decision-making power. In the case of FONAPAZ, the fund has created deconcentrated executing units in Huehuetenango (DECOPAZ) and San 30 Marcos (under the Local Development Program), but their impact remains constrained by the lack of effective delegation of decision-making powers and limited autonomy (World Bank, 1 997b). o The SEA Accord calls for a new legal framework through a reformed Municipal Code, in order to strengthen and clarify the functional role of municipalities. The revised Code should also strengthen the accountability of municipalities, since unlike the social funds which are scheduled to adopt IFMS accounting procedures in 2000, municipalities are treated under the present legislation as autonomous entities required to submit their budget to MIFIN for information purposes only, thus exempting them from full public accountability. o The Central Government does not require nor collects budget execution data for municipalities (nor for the social funds). There is therefore no way to assess the extent to which municipalities are complying with the requirement to devote 80-90 percent of Central Government transfers ta investment needs or the sectoral allocation of their spending. o Only three social funds-FIS, FONAPAZ and FOGUAVI-are subject to partial audits by the Comptroller General's Office. o With a few exceptions, DCs remain largely underdeveloped and lack autonomy from the Central Government. The legal framework for DCs is unclear, especially in terms of their functional autonomy and integration with municipal governments. The SEA Accord also calls for a revised legal framework for DCs. • Guatemala maintains a long list of excises inherited from colonial times. The INFOM form for the collection of municipal revenues includes more than 150 different excises and more than 80 non-tax revenues, most of them negligible in terms of revenue raised, and with relatively significant reporting and administrative processing costs. • There is some evidence that a few larger municipalities are turning to commercial credit lines that have an implicit state guarantee, raising income above central govemment transfers and their own revenue sources. These municipalities appear to be using the revenue transfers from the Central Government as collateral for commercial debt. For instance, Mixco, with a debt service/revenue ratio of 17 percent and INFOM transfers of Q140 million, has put together a commercial credit package of QIOO million (Rojas, 1999). Although the amount of sovereign debt guarantee to municipalities is not high at 0.3 percent of GDP nationally in 1998 (Funes 1999), if not controlled this practice may eventually undermine municipal fiscal discipline and create a potentially large implicit contingent liability for the Central Government (Box 1.4). 2.25 Recommendations: Municipalities will continue to play a key role in Govemment efforts to expand service coverage and meet the needs of local communities. There is a need, however, to clarify and rationalize the role of municipalities in implementation of peace programs and their links with community-based programs, especially as many of these programs are donor- funded and at some point will need to be absorbed locally. The new Administration should consider articulating a longer-termn and comprehensive decentralization strategy which, in addition to further ministerial de-concentration and decentralization of service delivery schemes such as PRONADE and IAHS (Boxes 111. 1-2), should consider inter alia: > Development of a new matrix of inter-government collaborative transfers. As already being successfully piloted by the social funds, the Central Government should channel external resources to social and basic infrastructure investments and, for their part, municipalities and local community programs should provide not only matching resources (already recognized by multilateral institutions as counterpart funds to their loans), but define their role in areas they could realistically take over from the Central Government-e.g., maintenance and upgrading of rural roads-and the sustainability of projects. The pilot local development and rural roads programs in San Marcos and Huehuetenango are examples of efforts geared 31 toward a new decentralized model of collaboration between the Central Government, FONAPAZ, DCs, INFOM, municipalities and local communities. > Approval of a new Municipal Code and legal framework for DCs, required by the Peace Accords. This should include the need for financial discipline as a guiding management principle and municipal compliance with essentially the same accounting principles and rules that apply to the Central Government. > Intensive training to build institutional administrative capacity at the municipal level in line with extension of the IFMS to the municipal level. The reforms should aim to ensure that by the end of the next Administration, two-thirds of municipalities are effectively managing and auditing-internally and externally-their own resources. > Full and prompt integration of the social funds to the IFMS and amendment of the legal framework required to allow the auditing of their domestically-financed budget by the Comptroller General's Office. > The replacement of the presently complex system of municipal excise taxes by a simple structure that only retains the most revenue-significant taxes. > Regulation of the conditions under which municipalities can have access to, and rely on state guarantees for borrowingfrom domestic commercial sources or external sources. F. The Need for Improved Governance 2.26 International experience clearly shows the importance of good governance for effective development generally, and particularly for efficient public service provision. Recent empirical evidence finds a strong causal relationship between good governance and better development outcomes (Kaufinan, Kraay and Zoido-Lobat6n, 1999). Governance can be broadly defined as the traditions and institutions by which authority in a country is exercised. This includes: (i) the process by which governments are selected, monitored and replaced; (ii) the capacity of the government to effectively formulate and implement sound policies; and (iii) the respect of citizens and the state for the institutions that govern economic and social interactions among them. Given such a broad definition, measuring governance in quantitative terms requires measuring subjective perceptions through surveys drawn from international risk-rating agencies and national residents. Although, as discussed throughout this report, many of the Government's recent public sector reforms are contributing to improved governance, international rankings still indicate that corruption (or the failure of governance) is a serious problem in Guatemala. It should be noted, however, that the most recent indices and rankings of the quality of governance do not reflect the recent reform effort. Although perceptions are slow to change, they nonetheless constitute a good measuring device to assess the impact of reforms. 2.27 Although there are no comprehensive diagnostic studies or reliable data on which to base a serious analysis of governance in Guatemala, international experience and conditions in Guatemala suggest that a future governance agenda should focus on four clusters of governance issues to guide the reform effort (Johnson, Kauffmann and Zoido-Lobat6n, 1999):' o Regulatory burden, or the set of variables measuring the impact of regulations, e.g., the tax burden, or the credibility of the government's policies on business development; o Governance effectiveness, or the combined perception of the quality of public service provision, e.g., the quality of bureaucracy; Two other possible clusters are: (i) voice and accountability, or the set of indicators measuring various aspects of the political process, civil liberties and political rights; and (ii) political instability and violence, or the combined perceptions on the likelihood of political destabilization by unconstitutional and/or violent means (Kauffmann, Kraay and Zoido-Lobat6n, 1999). 32 Li Corruption or the exercise of public power for private gain, also a symptom of the failure of governance; and u Rule of law, or the indicators that measure the extent to which agents have confidence in and abide by the rules of society and include perceptions on the incidence of crime, the effectiveness and predictability of the judiciary and the enforceability of contracts. 2.28 Guatemala's weak judicial system has been detrimental to the rule of law. About half of the population does not have access to the judicial system. The system is cumbersome and inefficient. There are insufficient judges, rural lawyers, no justice centers in more than one- fourth of municipalities and no clear role assigned to the traditional (indigenous) dispute resolution mechanisms in the formal system. According to a recent survey, 88 percent of the population does not have confidence in the judicial system, perceiving it as inefficient, inadequate, corrupt and poorly managed (World Bank, 1999). Recent empirical research shows a positive relationship between the rule of law and government revenues, as well as an inverse relationship between the rule of law and the size of the unofficial economy. Guatemala appears among countries with the poorest rule of law, lowest Government revenues and highest unofficial economy (Johnson, Kauffman and Zoido-Lobat6n, 1999). 2.29 The Govemment assigned high priority to strengthening the judicial system, seeing it as a key element of the peace process and the country's longer-term development agenda. With the support of the World Bank and other donors, it has been implementing a comprehensive judicial reform program, including: (i) strengthening the institutional capacity of the Judicial Branch; (ii) supporting the fight against corruption among staff in the judicial system; and (iii) strengthening access to justice through expanded infrastructure and access to the judicial system by indigenous populations. 2.30 Recommendations. Improved governance should be an important second-generation reform, both to improve Guatemala's development prospects but also as an essential complement to the public sector reforms underway. Defining and implementing a governance agenda is necessarily a complex and longer-term effort, which must be adapted to each country's circumstances and political reality. Many of the public sector reforms underway or planned should be integral parts of a governance agenda, including extension of the IFMS, an effective and autonomous SAT, improved accountability by the social funds and municipalities, civil service reform to create a professional and accountable public sector, and the judicial reform program. Other elements that could be considered include a major effort to deregulate the economy, increased transparency in the remaining privatization process and an improved regulation of already privatized activities, strengthening the autonomy, control and accountability of institutions such as the Comptroller General's Office, development and enforcement of codes of conduct for public officials, targeting of specific areas or agencies where corruption perceptions are high,2 greater involvement of civil society in the monitoring of public sector activities and the development of a national integrity plan. 2A Bank survey of non-traditional exporters pointed to inefficiencies and corruption in customs as a major constraint on private sector activity (World Bank, 1996a). CHAPTER III MONITORING FISCAL REFORM: A REVIEW OFPEACE TARGETS A. The Rationale for Peace Benchmarks 3.1 Background. Guatemala's Peace Accords are unique in that they attempt to engineer a fundamental shift in the country's development agenda, reversing a long-standing pattern of low social investments and exclusion. To do this, the Accords include a set of social and economic targets, which although relatively simple, require a major and sustained shift in public expenditure patterns. Most of targets are in the SEA Accord and the remaining ones are part of the Strengthening of Civilian Rule (SCR) Accord (Box I.1). Other Accords, such as the one on Indigenous Rights and Identity also feature cultural and gender commitments, but have no or negligible links with expenditure patterns or allocations. As argued in the previous two chapters, the Government has made important progress in public sector modernization and expenditure reform, which was considered vital for peace implementation. This chapter reviews progress in meeting key social and economic targets of the Accords. The Accords divide targets into fiscal and social. Fiscal targets, known as quantitative targets, also involve intermediate non-mandatory performance indicators, which are designed to keep track of gradual progress toward individual targets. They are intended to alert Authorities about possible deviations, allow them to take corrective actions and, in the case of significant lags, serve as a basis to reschedule/reprogram the original targets. Social targets, known as qualitative targets, refer to output or outcome-oriented targets. 3.2 Main Features. The set of agreed targets places similar emphasis on fiscal inputs (spending levels) as on social outcomes and outputs (e.g., literacy rates, gross coverage of primary education). The need to target increased spending stems from Guatemala's chronic under-investment in social and basic infrastructure, crowded-out by high military spending during the conflict years, and leading to the exclusion from the development process of large segments of the population, especially poor and isolated rural areas, and indigenous communities and women. o The SEA targets a 6 percent growth rate. Bank studies show that the minimum growth rate needed to reduce the number of poor in Guatemala is 5.8 percent, slightly below the peace target, but well above average growth of 4 percent during pre-peace years (World Bank, 1995). The country's poverty reduction potential depends on the responsiveness of poverty to changes in mean incomes, i.e., the growth elasticity of poverty. Such elasticity, however, is inversely related to income inequality-countries such as Guatemala with high income inequality have a lower growth/poverty elasticity and typically require higher growth rates to offset growth losses arising from unequal income redistribution effects. Guatemala has the second most unequal distribution of income among 150 developing countries (World Bank, 1997a), and its growth/poverty elasticity (-1) is the lowest in LAC. o In 1995, Guatemala had the second lowest rate of public investment as a share of total investment among LAC countries- 1I percent (Burki and Perry, 1997) and the lowest share of Central Government expenditure in Central America-9.4 percent of GDP (World Bank, 1997b). As a result, the Peace Accords assigned high priority to increasing public investment. o Among 7 social outcomes and outputs, six of them refer to literacy and coverage of primary education, infant/maternal mortality and polio/measles rates, whose potential gains would greatly affect the target populations (Table 111.1). In 1995, overall adult illiteracy was 35.8 percent, but reached 72 percent among indigenous people and 53 percent among women; gross coverage of three years of primary education averaged 84 percent of the school age 34 Table 111.1 Performance of Peace Monitoring Indicators Fiscal of GDP) Base 95 1997 1998 1999 2000 1. Growth Rate (%) Target 4.2 5.1 6.0 6.0 Actual 4.3 5.1 P M f I f 2. Tax Ratio 7.6 Target 8.6 10.0 11.4 12.0 Actual 8.8 a p i f a f 3. Health Spending 0.9 Target 1.0 1.1 1.2 1.3 Actual 1.0 1.1 p 1.2 f 1.3 f 4. Education Spending 1.6 Target 1.9 2.1 2.3 2.5 Actual I 2.2 P w f i f 5. Public Security Spending 0.3 Target 0.3 0.4 0.4 0.5 Actual 0.3 0.5 P 0.6 0.6 f 6. Judicial/Public Ministry Spending 0.3 Target 0.3 0.4 0.4 0.5 Actual 0.3 0.4 P g f 0.5' 7. Military Spending 1 Target 0.9 0.8 0.7 0.7 Actual 0.9 0.7 P 0.6 0.6 8. Preventive Care 38 Target - - >50.0 >50.0 (% of health budget) Actual 43.0 46.0 P s f 52.0 9. Low Income Housing Budget - Target - 1.5 1.5 1.5 (% of tax revenues) Actual - 1.5 a 1.6 f 1.5 f 10. Investment on Rural Development Target 50.0 50.0 50.0 50.0 (Million of Q.) Actual - 265.9 e 329.3 a >300.0 f 11. Investment on Rural Infrastructure Target 300.0 300.0 300.0 300.0 (Million of Q.) Actual - >300.0 e >300.0 a >300.0 f Social/Security Base 95 1997 1998 1999 2000 12. Literacy rate (%) 64.2 Target - - - 70.0 (INE -- 1994 Census) Actual 66.4 ' 67.4 e 68.6 to f 13. Primary Education Coverage 84 Target - - 100.0 100.0 (three years - gross rate) Actual 86.0 e 89 0 f 14. Primary Education Coverage 69 Target - - 100.0 100.0 (three years -net rate) Actual 71.0 72. 9 e a f a f 15. Infant Mortality Rate 39.9 Target - - 20.0 20.0 (deaths per 1000 living births) Actual 38.5 e 37 0 in f a f 16. Maternal Mortality Rate 97 Target - - 48.5 48.5 (deaths/i 00,000 women giving birth) Actual 97.9 e 97 7 e a e a f 17. Poliomyelitis Cases 80 Target 85.0 85.0 85.0 85.0 (vaccination coverage) Actual w 88.0 e 88.0 f 88.0 18. Measles Cases 83 Target - - - 95.0 (vaccination coverage) Actual 74.0 ' 79.0 84.0 f a f 19 Army Reduction 46,900 Target 31,423.0 31,423 31,423 31,423 (number of troops) Actual 31,270.0 - - - 20 Military Police 2,421 Target Nil Nil Nil Nil (number of members) Actual Nil Nil Nil Nil a. Assigned; e. World Bank staffestimate; f. World Bank staff forecasts PIB99: Q134,301.7 million Sources: MIFIN, MINUGUA, Anderson (1999), Chinchilla (1998), Acefla (1998), Barillas and Valladares (1999) Note: Preventive health includes water & sanitation. Shading means under achievement. 35 population, but indigenous males averaged only 1.8 years of schooling and females 0.9 years; infant mortality was 39.9 per 1,000 live-births, but reached over 55 in the poorest rural areas; and polio was eradicated in LAC in the early 1990s, but measles was still responsible for over 10 percent of deaths of poor children below 5 years old in the developing world (PAHO, 1998). Since both illnesses were responsible for infant deaths among poor children in developing countries in the 1980s, their inclusion in the Accords appears to respond more to a worldwide commitment to their full eradication, rather than to specific conditions in Guatemala. These social priorities are appropriate, but the targets are relatively modest by international standards (para. 3.3). Thus, in a number of instances specific targets are complemented by additional peace commitments. For instance, although peace spending is expected to benefit women, there has also been an effort to strengthen women's rights through the creation of a participatory body to improve the role of women, the Women's Forum (Foro de la Mujer) in 1997 and the Legal Defense Agency for Indigenous Women (Defensoria de la Mujer Indigena) in 1999. A similar case applies to indigenous peoples, where the Indigenous Rights Accord complements the efforts of the SEA Accord to improve development in indigenous communities. 3.3 International standards. Guatemala's peace targets may appear ambitious in national terms, but their gap with respect to international standards is significant, reflecting Guatemala's low social base and the modest revenue effort agreed in the Accords. For instance, in 1996: o the average tax revenue ratio in Latin America was close to 14 percent when the Accords were signed, but Guatemala's target of 12 percent would only be reached more than half a decade later; o average LAC public spending on health was 3.0 percent of GDP (World Bank, 1997), whereas the 2000 peace targets is only 1.3 percent of GDP; o LAC countries spent an average 4.3 percent of GDP on education (Burki and Perry, 1997), whereas the peace target would require reaching only half of this figure; o the illiteracy target of 30 percent appears a decade behind a LAC average under 20 percent (IJNDP, 1998); o maternal mortality rates in LAC averaged 31 per 100,000 in the mid-1990s (PAHO, 1998b); the Accords would require Guatemala to halve the 1995 maternal mortality rate, but even then it would still be 48.5 per 100,000; and u Guatemala's infant mortality rate would be halved over five years to reach 20 percent, in line with the LAC average (22 per 1,000 live-births), but recent trends in a group of LAC countries with high mortality rates show that it took no less than 15 years to halve infant mortality rates (PAHO 1998b). B. Overview of Progress 3.4 Overall performance in implementing peace targets has been mixed. In terms of quantitative inputs, with the exception of the tax ratio, fiscal measures adopted by the Government have ensured timely compliance with most spending targets, with minor deviations. In terms of social outcomes and outputs, however, performance has been less than satisfactory. Significant deviations from the original targets suggest the need to consider their rescheduling or, due to data limitations, their eventual reprogramming. 3.5 Fiscal inputs. Fulfillment of most public spending commitments reflects the Government's extraordinary effort to shift resources, partly resulting from lower military spending, toward social and basic infrastructure sectors. These increased spending levels, 36 however, will become unsustainable over the medium term unless tax revenues rise in line with peace commitments (para. 1.19). Until 1998, the degree of progress was as follows (Table III. 1): o Most targets in education, health, justice, military and public security, low-income housing, rural development and infrastructure expenditure were met. Spending on education, justice and preventive care are projected to be slightly below their 1999 target. u Four targets-military, public security, rural development and infrastructure-featured over- compliance. In the case of rural investment, the Accords required a relatively modest amount, less than 0.3 percent of GDP. Q Growth was on track to reach 6 percent in 1998, but the economy lost dynamism in the second semester due to the threat of global recession, lower commodity prices, the impact of Mitch (especially in banana production), a severe credit crunch following lax monetary and fiscal policies, and difficulties in the domestic financial/exchange system. Liquidity and solvency problems in the financial system have led to a tightening of credit availability, as banks have protected themselves from bad loans. As a result, Authorities project growth of 3.6 percent in 1999, well below the peace target of 6 percent. o Compliance with the tax-ratio target of 12 percent of GDP remains unsatisfactory and its recent rescheduling to 2002 might prove insufficient. The deviation from its intermediate target in 1998 was about 1 percent of GDP and, in the absence of any further tax policy measures, the gap is projected to reach above 2 percent of GDP in 1999. Meeting this target is essential to sustain peace investments (para. 1.19). The Comisi6n de Acompanamiento agreed to reschedule it to 2002 and to convene a National Fiscal Pact that would attempt to reach consensus on the fiscal measures needed. 3.6 Recommendations: The Peace Accords place considerable emphasis on meeting expenditure targets. While this is appropriate given Guatemala's history of low social spending, these targets would need to be complemented by qualitative goals and deeper reforms that can make these gains sustainable. For example: > Survey data are needed to verify whether higher social and basic infrastructure spending allocations are indeed contributing to improved living standards among target beneficiaries: rural, poor, indigenous and female (including girls) populations. > Maintaining the budgetary shift toward a capital/current ratio spending of 0.55, with the exception of education, is as important as increasing overall spending levels in line with peace priority targets needs. Otherwise, meeting the Government's share of sector spending could be explained by additional recurrent costs, such as salary increases. > Better data and integration with the Government's financial management system are required to assess the impact of social fund expenditures. At present, official data only register as sector executed spending the amount of resources transferred from the Central Government to a specific social fund, but there is no information on the composition of executed spending by the funds (Chocano, 1999a), nor on their impact by type of beneficiaries. In 1997, transfers to social funds represented around 30 percent of public investment (para. 1.8), but due to inadequate data, compliance with targets can only be estimated indirectly through proxies. > Actual spending by municipalities should also be recorded by sector and integrated within the IFMS. In 1997, the Constitutional transfer to municipalities represented 25 percent of public investment (para. 1.8). By law, 90 percent of earmarked revenues must be devoted to non-recurrent expenses, but there is inadequate information to assess compliance, how these resources are spent and their social or gender impact (para. 2.24).1 As the Ministry of Education has transferred the responsibility for classroom construction to the social funds and a large share of their investment has been devoted to school rehabilitation/construction, municipalities might conceivably share responsibility with local parent-teacher associations and NGOs in the future, leaving the Central Government to share the cost of counterpart funding for donor-financed projects, with the social funds gradually shifting their resources to a wider set of basic needs. 37 > A better geographic desegregation of sector spending is needed to ensure that resources are targeted to rural areas and where the poorest/indigenous populations live. Despite some improvements, budget allocations are still significantly biased toward Guatemala City and non-poor departments (Tables 1.2-3). > Private contribution to local development projects should also be registered. Some funds (e.g., FIS) have only recently started to consider private contributions as counterpart funding. > The IFMS budget reclassification needs to be amended to enable an adequate monitoring not only of peace, but also expenditure-reform targets. The 1997 IFMS budget reclassification disrupted fiscal time-series and makes peace monitoring an extremely hard and time-intensive task. In the interim, significant statistical discrepancies remain (Box 111.3). 3.7 Social indicators. Performance has improved, but only moderately in terms of ios ml The PRoNADE System social outcomes and outputs. In most cases, PRONE (Prgana Nacionl de Autogesiin deviations from targets (represented by shaded Ldecavq) is- a comtmmity-managed ad areas in Table 111.1) are significant and require de ;talid -roga that an to reas prnmry their rescheduling or, due to data limitations, a o n n es, in line wh peace . 6 u -Vi ' wess tE thre years, PRONADE their elimination or substitution by alternative h l$1 COEDW Coites of indicators (para. 3.9). - pars t by Imicioud Li Literacy rate. The CONALFA literacy 71t4cn 377teahm working with program has led to an increase in literacy 1325 -a stulet in 19 departments. The from 64.2 percent in 1995 to 67.4 percent p ses on 4 ri Aira in 1998 (Anderson, 1999). Illiteracy rates ioOamco l . in indigenous populations, however, are 45 - i acher ttendance, and percent higher than in non-indigenous, and i s inoveent by parents, expansion of 32 percent higher among women than in fRANA3E is faig chaeges (CIEN/PREAL, men (UNDP, 1998, 1999). Despite this + taches are e The sntAeacher initial success, the program faces rdioa of O *j'al scools is tw igh, requiring a increasing difficulties in meeting peace la n ofrmnuWigrde schools; targets due to: (i) geographic dispersion, 4 ONADE in6aiutrc needs to be ethnic and gender diversity, which makes it s a f o the scols are in bad increasingly harder to identify and A, prcr o wakig payments motivate the rural (mostly Mayan and o Emm are m rsne ind lengthy; women) illiterate population to register in l he di o labor between ISEs and the program; (ii) a low 37 percent approval CQEDUAr, tCiCand or promotion rate from pre- to post-literate 4eVeCsaad bqqeflts for RONADE tts~i6e oiweihint6rteachers in traditional stage (Ral6n, 1999>-a frequent problem among adult programs worldwide; and (iii) low availability of bilingual schools (literacy and school attendance are positively correlated) which can attract illiterate indigenous adults-there were 1,367 bilingual schools in 1995 (12 percent of total schools), growing by about 100 schools per year; and 9 out of 23 Mayan languages have no bilingual school (Comisi6n Paritaria, 1998). o Primary education coverage. The target of 100 percent gross coverage of 3 years of primary education by 1999 requires rescheduling. It increased from about 84 percent in 1996 to 89 percent in 1998, i.e., an annual increase of 2.5 percent but below the 4 percent effort required to meet the peace target. The innovative PRONADE program (Box 111.2), covered 75,603 new rural and poor (mostly Mayan) students in 1998 (Statistical Annex, Table 36). The female/male ratio, however, showed a slight improvement arnong indigenous and rural women between 1996 and 1998 (UNDP, 1999). Meeting the peace target would require a formidable effort not just in terms of expanding school infrastructure, but also in terms of the quality of the primary education provided: (i) the dropout rate in primary schools is 38 extremely high (7.7 percent in 1999), which almost fully erodes annual progress on this indicator; (ii) repetition rates in primary school are also very high (7.9 percent in 1999), and represents an annual cost for the state of US$13.2 million; (iii) the average number of 7-12 year old rural students per teacher (49) is high by international standards (40), which contributes to the high dropout and repetition rates (Statistical Appendix, Table 41); (iv) coverage and average school years attained are still extremely low in five out of six departments with high density of indigenous rural populations: Totonicapin, Solola, Alta Verapaz, Quiche and Huehuetenango (Statistical Appendix, Table 39); and (v) low coverage remains critical among rural girls (Chesterfield and Rubio, 1998). o Infant mortality rate. INE data show that infant mortality is decreasing, but not ~ R~*2 hXR enough to meet the target. From 39.9 _ deaths per 1000 living births in 1995, it - Il ll decreased to 37 in 1998 and should reach 33.5 by 2000, well short of the target of p~ 20. Infant mortality is positively i correlated with ethnicity and rural poverty ~. .li EE_ (Barillas and Valladares, 1999). The main puai causes of infant deaths remain respiratory . . E l problems, diarrhea, heart problems, * * :l| i 5 5 premature birth and chronic malnutrition. Malnutrition also has a positive correlation with school dropout, 0.66 (IJNDP, 1998). Nine departments account p * l l for about 60 percent of infant deaths: San . t Marcos, Quetzaltenango, Huehuetenango, l Quiche, Escuintla, Totonicapan, Alta Verapaz, Chimaltenango, and * du4ier. Suchitepequez (Figure 111.1) Infant Os mortality is positively correlated with . = ID higher public spending, but only if services are well delivered and managed-especially through enhanced local capacity and participation in preventive health-and combined with the 1 expansion of water and sewerage programs which reduce the incidence of diseases (Abo and Reinikka, 1998). Although preventive health spending is budgeted to be close to 50 percent in 1999, the success of the Integrated Attention to the Health System (IAHS) is far more relevant (Box 111.2.). o Maternal mortality rate. Data on maternal mortality is unreliable and contradictory (the next national health survey is scheduled for 1999-00). INE reports 97 deaths per 100,000 living-births for 1995, whereas the National Maternal-Child Health Survey estimated an average of 190 deaths for 1990-95, and the National Maternal-Child Health program estimated it at 163 deaths during 1991-97. Under-reporting is clearly a reason for such a wide dispersion in estimates. Maternal mortality is also highly concentrated: 9 departments account for 74 percent of reported maternal deaths (Figure 111.2). o Poliomyelitis and measles cases. No polio and only a few isolated measles cases have been reported in Guatemala since 1995, but international certification is still pending. Given data under-reporting, it will depend on an indirect indicator: immunization coverage. Polio and measles coverage were 88 percent and 79 percent respectively in 1998; whereas international certification requires a minimum coverage of 85 and 95 percent (Barillas and Rosales, 1999). Accumulated Percentage Accumulated Percentage W4 V Co~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~rk 4^> > 9 § ° § y § &,, R y W Z G G § t l04gi iS XSSZ~~~~~~~~~~~ 40 A Army reduction and disbanding of the military police. The Goverinment exceeded the target for reducing the armed forces by 33 percent. The number of troops on active duty fell from 46,900 in 1996 to 31,270 in early 1998. In addition, demobilization of the military police was carried out in two phases: 699 members on March 1997 and 1.722 members on December 1997. Progress in this area allowed a decrease in military spending (0.4 percent of G 1) P). 3.8 Recommendations. Although social indicators have improved gradually, there is still a iong way to go in meeting specific peace targets by the specified dates. Although targets will need to be rescheduled, there is no escaping the fact that without a considerable increase in aHlocations to the social sectors, even the rescheduled targets will be difficult to meet. In addition, 6iovernment efforts should focus on: .Expanding PRONADE and the IAHS is a necessary, but not sufficient condition to reach coverage targets. Improving the quality, ethnic and genderfocus of education, e.g., reducing dropout and repetition rates, or increasing enrollment rates among indigenous and girls, should he given as much priority as raising the volume of education resources. 'I'his also iimplies increasing the number of rural schools in indigenous areas faster than in urban areas (Chesterfield and Rubio, 1998), as well as a stronger effort by MOE in areas that affect quality, e.g.. teaching materials, textbooks, school supervision. .(.h$.4LFA should change its approach to post-adult literacy, placing greater emphasis on inte^asing its present promotion rate, and with an increased focus on indigenous women. Lessons ftron Indonesia's best practice could be helpful. G (riven the high concentration of low education coverage/illiteracy and infant/maternal mortaliiiv in afiew departments, applying a well targeted approach is essential, both by using the GIS, as well as baseline surveys under an LSMS exercise (para. 3.12). EI;x-ante targeting by PRONADE and IAHS using these instruments can greatly improve their effectiveness. s'. ' Rescheduling Peace Targets: Some Considerations : 9 Althiough Guatemala has made L3-Ta op imnportant progrFess toward the fulfillment 13 of peace targrets, there are some important 12 gaps that will require a reassessment f 1 indicators by the Comisi6n de (l Alconmpananiento. These include: . r Tax ratio. Given recent performance, even reaching the 12 tax ratio target ' bV 2002 looks difficult to attain. In 7. 1995 1996 1 i 1999 S t 0 2 net terms, the tax ratio is projected to Taf 79 a7 a8 10 114 12 12 12 inctease to 9.4 percent by 1999, or 2.6 P 7.9 87 a8 a9 9.4 11 11.5 12 percent of GlDP below the target now rescheduled for 2002 (Figure 111.3). Moreover, a passive scenario suggests that this gap would increase to about 3 percent by 2000 itf no additional measures are taken (Table 1.5). While raising an additional 2.6 percent of (,DP in tax revenues over a three year period does not appear as an unrealistic target, Guatemala's fiscal history over the past couple of decades strongly suggests that unless most of this revenue effort is undertaken early on in the term of the incoming Administration, it is unlikely to occur. In other words, given Guatemala's political economy realities, a gradual approach to expanding the tax base is unlikely to succeed. Measures that would need to be considered include: (i) an unavoidable VAT rate increase toward Central American levels 41 (13 percent), which would yield about 1 percentage point in additional revenues; (ii) elimination of most tax exemptions yielding about 0.5 percent of GDP (Schenone, 1999); (iii) a strong revenue collection effort by SAT, which according to Bank estimates would add no more than 0.4-0.5 percentage points of GDP in cumulative terns; and (iv) other tax rate increases jointly agreed for an additional 0.5-0.6 percent of GDP. Figure 111.4 - Illiteracy > Literacy rate. A one-year rescheduling 381F I- - is needed under the present promotion 36 - Target rate (Figure 111.4). Meeting the 2000 34 1 - Rescheduled target would imply that CONALFA: (i) * . succeeds in registering 189,000 and 32 195,000 illiterates in 1999 and 2000; (ii) X 30 E ' raises the approval or promotion rate 28 from 37 to 40 percent; and (iii) executes 26 1 in 1999 and 2000 the estimated average 1995 1996 1997 1998 tsss 2000 200 cost of reducing 1 percent of illiteracy TResed 35.8 34.6 33.4 32 2 31 30 30 Rescheduled 35 8 34 7 33 6 32 6 31 4 30 7 30 of US$4.4 million (Statistical Annex, Tables 35).3 > Three years of primary education. A seven-year rescheduling appears necessary given present enrollment, dropout, repetition and promotion rates(Figure 111.5). Meeting this target by 2006 would require that: (i) the combined PRONADE and Afternoon-cycle programs succeed in absorbing a minimum of 75,000 new students per year; (ii) enrollment rates in the traditional system remain constant, and that they increase in the PRONADE and the Afternoon-cycle systems by an average of 61,000 and 14,000 students per year over 2000-03; (iii) the average annual cost of enrolling a student remains constant, Q969 in PRONADE and Q707 in the traditional schools; (iv) promotion rates increase by an average 0.5 percent per year; (v) repetition rates decrease by an average 0.5 percent per year; Figure 111.5 - Three-Years Schooling Gross (vi) dropout rates decrease by Coverage Gap about 0.16 percent per year; (vii) 101 1,531 additional schools are built, 98 half of those actually required by - the overall enrollment gap and for a budget of US$79.4 million; and 92 (viii) adequate financing is 89 Target - . . .Reschedule available, given that the average 86 cost of expanding primary 83 1995 1996 1997 1998 1999 2000 2cot 2002 2003 2004 2005 2006 education coverage by 1 percent is Taget 84 88 92 96 100 100 100 100 100 100 100 100 US$3.9/US$14.8 million per year, Rascheduled 84 85 86 89 91 92 94 95 97 98 99 100 excluding/including infrastructure (Statistical Appendix, Table 36). > Maternal mortality rate. This indicator may need to reconsidered. The lack of regular annual data and complex statistical problems associated with health surveys prevent its adequate monitoring. Regression estimates show it has no regular trend and data collection is unreliable (Barillas and Valladares, 1999). Under-reporting is so serious that even if IAHS 2 The Income and Expenditure Survey being carried out by INE, will allow updating the literacy and gross/net primary education coverage rates, and estimate the distributive impact of raising the VAT. CONALFA had an extraordinary allocation of 3.7 percent of the budget of the Ministry of Education in 1999. but since Constitutional reforms were not approved, such allocation ends this year. However, an extraordinary allocation is included in the budget 2000. 42 succeeds in expanding its coverage in rural areas, the preventive/curative health ratio is met, and financing support is maintained, this ratio could increase if these efforts lead to better reporting. > Infant mortality rate. Under Figure 111.6 - Infant Mortality Gap present trends, a seven-year rescheduling would also appear necessary, as the effort required to 3Z- 3arget decrease this rate becomes more c 3...Rescheduled difficult as it approaches single 8 28 figures (Figure 111.6). Meeting this 2 target in 2006 implies that IAHS: 23 (i) continues expanding its coverage with 100,000 new 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 beneficiaries per year; (ii) the Target 39.9 36 32 28 24 20 20 20 20 20 20 20 20 peace target ratio for paschdubd 39.9 39.9 38.5 37 35.3 33.5 31.7 29.8 28 26.2 24.3 22.5 20.7 preventive/curative health is met; (iii) the number of participating NGOs, currently 73, can be expanded to support service expansion; and (iv) the health budget increases by a minimum of US$4.4 million per year, given the estimated average cost of reducing 1 percent of infant mortality of US$2.2 million (Barillas and Valladares, 1999)4 > Poliomyelitis and measles eradication. Vaccination coverage should be considered to formally replace certification of cases as the official indicator. Data collection on cases shows improvement with the IAHS, but this remains limited to the areas where it works. On the other hand, PAHO has suggested collecting data on vaccination coverage by municipality (PAHO, _ g c of 1998), as vaccination campaigns are being carried Redaeingfincreui 1 - t of out with the support of IAHS and the municipalities. agt(nM ..U ) Under present trends, reaching an 85 percent coverage of children below 5 for polio will be met * $ this year. Meeting 95 percent minimum coverage of * 3 . I Dt children below 1 for measles, however, would only 1 t*cI U$ Ml be achieved by 2002, suggesting the target should be i . w I tE.US$ 4.8. M rescheduled. As both campaigns are closely related,. )n l Y U.$2"2 achieving 100 percent vaccination coverage would require a minimum annual investment of about $0.5 million in the next 3 years (Table III.2). D. The Need for Complementary Performance Indicators 3.10 Success in sustaining expenditure reform critically depends on the fiscal space created by the SAT and a set of complementary policy commitments to be agreed by the Fiscal Pact, which involves key actions on the revenue and expenditure side (para. 1.29). Monitoring performance in complying with peace objectives, however, should also track selected complementary non fiscal social outcomes and outputs, an extremely useful tool to assess the impact of increased spending on development and peace commitments. Table 111.3 presents a possible set of revamped and complementary education and health indicators at the municipal level, and with a rural, ethnic and gender focus. 4We also explored a scenario leading to an accelerated fulfillment of this commitment, and estimated its overall financial needs at US$182 million (0.9 percent of GDP); but fulfillment would be constrained by the lack of implementation capacity from present NGOs and local service delivery agents. 43 Table 111.3 Revamping Performance Indicators For Social Expenditure Reform E4t~~~~~~~~~~~~~~~~~~~~~~~~~~t - ~~~~~~~~~~~~~~~~~~~~~~~7, Broader mmr 3.11 Monitoring the Poverty Gap. Bridging the poverty gap remains, in the end, the most important outcome for social expenditures. We illustrate the poverty gap in education (Figure 111.7). An analysis of data on education in Guatemala reveals three relevant findings: (i) low initial enrollment by the poorest (70 percent) is much lower than the richest (96 percent), so raising enrollment rates among the former, especially rural and indigenous girls, is critical to achieve universal education; (ii) high dropout rates among the poorest is the key problem in completing primary education-whereas almost 60 percent of the richest complete primary education, less than 20 percent of the poorest do so; and (iii) dropout rates among the poorest are concentrated in the first four grades rather than in the final grades, as is the case among the richest, so completing the first four years by the poorest is essential to raise the level of their education significantly. 3.12 Strengthening the quality of data. Indicators to monitor expenditure reformn are very weak (Box 111.3). The proposed Living Standard Measurement Survey (LSMS), supported through the so-called MECOVI partnership (World Bank, IDB, UJNDP and ECLAC), should provide a stronger foundation to design improved monitoring indicators. The program over 1999- 03 consists of: (i) a 2000 LSMS which will permit an analysis of national poverty conditions and assessment of the incidence of expenditure reformn; (ii) annual income and employment surveys in 2001 and 2002 to track changes in employment and wages; (iii) a second LSMS in 2003 to compare poverty trends over time and analyze targeting of public spending; and (iv) selective qualitative surveys to better capture the dynamics of poverty and exclusion (e.g., village poverty baseline overviews, social mapping exercises, wealth rankings, case history interviews and measurements of social capital). 44 Figure 111.7-Attainment profiles for ages 15 to 19, by economic group 0.8 +Poorest 0.2 - Middle l Richest\ 1 2 3 4 5 6 7 8 9 Source: Filmer and Pritckett (1998) Grade 1r~~E1 'It~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~c TECHNICAL ANNEXES Annex A Guatemala: Projections of the Tax Revenue Annex B The Growth-Fiscal Deficit Gap Annex C Factors Present Prior to Fiscal Stress Annex D Contingent Liability Estimates for Several Countries Annex E IFMS Status and Best Practices in Public Financial Management Annex F CABEI, IDB and World Bank Loan Approval Procedure Delay Annex G Progress Report on the Recommendations Made by the WB/ PIR 1997 46 Annex A Guatena: Projections for the Tax Revenue 1998 1999 2000 WB MinFin WB MnFin WB MinFm (In nilions of quetzdes) 1998: Mae ts prposed to the Coir6n de AomIfteilento 1. Exteasi(n oftheEMAA 349.3 402.1 774.2 958.4 Gros oolleoiom 349.3 402.1 1008.2 1008.2 Less: CQiet agaist the inomm tax 0.0 0.0 -234.0 -149.8 2. b1vwUKS 0.0 0.0 200.1 200.1 3. Adinnistrtivenasnzs: 406.4 761.8 769.7 1977.4 SAT 406.4 541.8 769.7 1757.4 Venfication ofx1thmpnces (nt effect)* 0.0 220.0 0.0 220.0 4. Pbst peniot oftbetariffduc*kon 63.4 125.0 153.9 153.9 Esdnuated yield of the new nnemmir 819.1 1288.9 1897.9 3071.8 |Projected tax raio whhot aio nd 8.90 &90 8L.o 8.50 8.O 810 1. Extansiai of the DEMA 0.26 0.30 0.53 0.66 (is o tiec*km 0.26 0.30 0.69 0.76 Less: auit agaist die mioame tax 0.00 0.00 -0.16 -0.10 1998: Mmrs appoved by Coniuifn deAonaflanieto 0.26 0.30 0.3 0.66 Projeed tax itio induding ST & 90 9 876 80 8.62 876 2. SAT+ Veification of ixtp prices* 0.30 0.56 0.50 1.35 3. Taxawnety 0.30 0.20 lProjected tax ratio im s 890 &90 9.36 956 9.13 10.11 Nonind GDP(nillion Q) 121,C43 133,736.6 146,489.1 *fverification es awe not paid by usss; if they u, it oxild be hi. Sowre: Mfnisty of Fmance, 'MrId Bank aid IMF staffesumntes 47 Annex B The Growth-Fiscal Deficit Gap Assessing the fiscal deficit and growth trends toward sustainable levels is a complex issue that depends on alternative models with many variables. The growth-fiscal deficit gap model is a useful guide for policy makers and analysts as a standard toolkit of country economic analysis and one of the main performance indicators for country reports by the IMF and the World Bank.' In the growth-fiscal deficit gap model, two easily available economic indicators are examined: The ratio between the fiscal deficit and GDP growth, and its relationship with total public debt-to-GDP. To put it in simple terms, the fiscal deficit is covered, every year, by an increase in the public debt, either domestic or external. If the fiscal deficit rises, it may be unsustainable unless GDP grows sufficiently to repay the debt principal and interest coming due and/or the debt-to-GDP ratio also increases to finance it. Such a simplified relationship between fiscal deficits, GDP growth and the debt-to-GDP ratio is expressed by a simple equation that represents the change over time of the debt- to-GDP ratio (D/GDP). In mathematical notation, this change over time, written as a "'" over the variables, is decomposed as follows: * * 0 D/GDP = (D/GDP)+(D/GDP) GDP/GDP where D is the change in the amount of debt, equal to the fiscal deficit; and D/GDP is the measure of the fiscal deficit as a share of GDP. In economic terms, the equation tells us how the fiscal deficit is financed. The fiscal deficit (as a share of GDP) is equal to the change in the debt to GDP ratio plus the growth rate multiplied by the debt to GDP ratio at the beginning of the period. Thus, assuming the country decides to keep its debt-to GDP ratio constant, the equation expresses the common thought that unsustainable fiscal deficits can not be corrected unless GDP growth increases or fiscal deficit decreases or, preferably, both. The equation also assesses which way a country is headed according to its fiscal deficit and growth rates achieved in the most recent years. To do this, we first estimate the debt-to-GDP ratio. This ratio defines the "ceiling" value for a sustainable fiscal deficitlGDP growth. In terms of the equation depicted above, assuming the first term of the right-hand side is equal to 0 yields * 0 * 0 D/GDP = (D/GDP) GDP/GDP or, rearranging, D/GDP = (D/GDP)/GDP/GDP, i.e. the fiscal deficit- to-GDP growth rate should match its ceiling debt-to-GDP ratio. Hence, if the projected fiscal deficit is 3 percent of GDP and the growth rate is 4 percent, i.e. a fiscal deficit-growth rate ratio of 75 percent; and the "ceiling" debt-to-GDP ratio is 20 percent, budget sustainability would require to bring the deficit/growth ratio down to 20 percent, i.e. a fiscal adjustment of 2.2 percent. This would yield a fiscal deficit/growth rate of 20 percent [(0.8/4)xlOO]. I IMF, Overview of Developments in Countries with Stand-by and Extended Arrangements Approved During 1988-91, Policy Development and Review Department, 1994; The World Bank, Adjustment Lending in Sub-Saharan Africa: An Update, Report No. 16594, 1997, and Fiscal Management in Adjustment Lending, Report No. 16040, 1996. Annex C Factors Present Prior To Fiscal Stress Over- Excessive Bank Asset- Macro- Exchange Macro- Terms of Capital Economic hang Financial Sector Credit External Price economics Rate Mis- economic Trade Account Contr- from Country Period Iiberalization Growth Borrowing Inflation Imbalances alignments Stabilization Shock Shock action NFPEs Asia/Pacific Australia 1989-92 x x x India 1994-present x x x Indonesia 1992-present x x x Jap6n 1992-present x x x x Malaysia 1985-88 x x x x x Philippines 1981-87 x x x x x x Thailand 1983-87 x x 1997 x x x x x x Latin America Argentina 1980-82 x x x x x 1995 x Brazil 1994-present x x x x x Chile 1981-86 x x x x x x Colombia 1982-87 x x x Mexico 1994-present x x x x Uruguay 1981-84 x x Venezuela 1994-present x x x x Guatemala*/ 1995-98 x x x x x x Westerm Europe/US Finland 1991-94 x x x x x x x Norway 1987-93 x x x x x x Sweden 1990-93 x x x x x United States 1980-92 x x x x Middle East Egypt 1991-95 x x Kuwait 1982 x 1990-91 Israel 1983-84 x x x Turkey 1982-85 x 1994 x x x Central Europe/Transition Economies CzechRepub 1991-present x x x x Hungary 1987-present x x x x x x Kazakhstan 1991-95 x x x x x Latvia 1995-present x x x x x Lithuania 1995-present x x x x x Poland 1991-present x x x x Russia 1992-present x x x x Sources: Standard & Poor's Credit Week 1997 */Estimate for World Bank 48 49 ~~~.on on lnp ADN ZD1 7 - ~~~~~~~1J6i17c.~~~~~reit to O gncrA! I FCILC 1919'T-6 ..... . DP1 ) 1I997 est -17rof-IMP) (/o6f GDP) 1997e69. 50745%I7 1~~~~~~~~~~~~~~~~~~~~~~~~9 1.3 ~~~ 20122~~~347-- 12. . j~~~iiiiiiy . AA7AAA . "2636 11~171 -62- Wdff -AA+[AAA "'25-174 39 21 6' 76 UnifeddKfingdOif AAAJAA 21. . -T632" -127 6 '19 533 Un i RSrt s ATAJ7 ' ". 2932T - 119 - 6 's60 LTHIV- -3578 -53- 511 16 IFfi-nra-n t A .A----232357 56 6 -11 6I Ho-fi-g K6Kg ~~~~~~~ ~ ~~~~~~~~~~~AV):-' 1 26472 '177'" 1"'I 35 ItaW ~~~~~~AMKAJA ~ 19917 . ...48 5 1-0 123 'J~pi 1** AAVAIAA -35622 . ....... 193 1139 90 v lN5o~Y . -. AAA7AAAT.... 34979' .15.....33 ~Si-apore I -2.72 ~in-AmFIrca.- - B7BERVBE .... "2e5'.' --7 9. GWmUTe-iWli4/ -13MR 164D -26'" 2 3 ~ 21 7 iii-wa BBBT7?M -130 3O 7 . 30 2163 -..... .....3L.....3..5. Ko-?Fa4A~ I 11U3 147 '22 17 IM&alasi AA+[ 4731-63 '24 ".49 32 1paaifii5a BBF/B+ j3331 81" 12 --24 82 1PE-prnis'" BTA- .11-39j i6l 95 iP5IV1i&'- BB:7- '3365 .2 4. . ..7 ~ 45 '908 --4 10 21 ~~UFU~~iiay BBB4BBBF ~~~~~~~ 6394 - 2 3 . ila . 38 1Brail B3-/BB+ ..... 7421 -31- 8 48 Czech R~oublic- 1A/NR- 46590 23 -36 15 7A ~~~~~T23-M64 38 '9 -13 II0 1-ndo6REsi14 -43137A- 637 1-6 . 25 33 1U~~~l~~~on tBB7BB~~~~~~~ 401T-6 -- 5 3 4 78 ~~ov~~~kia . /BB:l 33517. ... 4 1 I O-16 27 Thia'iiid . - -BBB1K-' 2673.3149 -601 23 ChiniaBit3.N -772 . iOr --~--- *'33 . - 6.0 11 r~~~~j- ~~~BB:/:7BBB1;. -420l~ 2. 8 .14 66 !La-i1ii7i BBB7A-- "-244t .I*I -4 7 19 1Mexico BIB/BBB+ ~~~~~~~~~4361 ..1 -6 9 -15 jP~~~kisVan B4-/NR ~~~~~~~~~4871 20 7 12 ~ 93 MR-iii-Ma 'BBBH;. -1443 -19 7 -' 1`21 -25 Mw1iEa BB- BB 3TS31 7 54 en zura H*R-- -363U . .2..1 .-..... 73 1ii~~~~~~d1997 Sitima e, 1~~~~~~~~~~~~~~i5t er 1I~~~~~~~~I1~~~...~~~~.... -. ..... jV*Y~ze-ar n -I99 -efi--are,-3ileUblK 13 4-aE 50 Annex E THE IFMS AND BEST PRACTICES IN PUBLIC FINANCLIL MANAGEMENT THE FRAMEWORK OF FORMAL AND INFORMAL RULES. The formal rules are embodied in the legal framework - the constitution, the organic budget law, the IFMS incoming law, norms and legislation on finance regulations - and in the procedures of the legislature and the executive. The informal rules tend to be reflected in what actually happens. Guatemala may have an exemplary set of formal rules, but they are meaningless if they cannot be enforced because of the more powerful informal rules. The key point is that any assessment of the institutional arrangements requires that both the formal and informal rules - and the nature of their enforcement - be understood. Assessing the effectiveness of the legal framework and in understanding the informal rules follow. LAW AND RULES ADEQUATE INADEQUATE Improvements Needed * There are checks and balances in the system Approval of (e.g. executive and legislative, committing and X Comptroller spending, external and internal audit). General's Office * There is a requirement that tax revenue be paid X Law into consolidated revenue fund and funds can only be spent by appropriation of the legislature. * Formal rules require minimum ex ante controls X on expenditure. * Rules do not unnecessarily circumscribe X managerial capacity at service delivery. 4* Laws require a comprehensive budget. X * Extra-budgetary funds are transparent and valid. X * The budget is executed as legislated. X 4* Rules govern whether the legislated budget can X be adjusted during execution. * There are incentives for working with the best X possible estimates of resources. * Next year's budget is not based primarily on X what was spent in, or appropriated for, this year. * The central budget agency relentlessly pursue X savings for return to the treasury. * Rules require timely publication of information X for transparency and to enhance accountability. * There are sanctions for overspending and poor X program and project performance. I_I_I_I 51 BUDGET COVERAGE AND STRUCTURE. The basis for sound government finances is a single central fund into which revenues are received and out of which public activities for citizens are paid. For good microeconomic management, controls need to be exercised over all revenues and expenditures. Activities placed outside the official "budget" are not subject to the discipline of the resource allocation process. A comprehensive budget process promotes allocative efficiency because it forces trade-offs between the different ways a government uses financial resources. Budget coverage that results in efficient use of resources consists of total revenues and all budgeted expenditures, including funds that usually are not reported such as extrabudgetary. Budget structure that results in efficient use of resources consists of capital and recurrent (or operating) spending, and country-financed and aid-financed spending. BUDGET COVERAGE & STRUCTURE ADEQUATE INADEQUATE Improvements Needed * The budget covers total revenue and X expenditure. *: No funds or financial mechanisms are excluded. X *:* Donor finance is channeled into the budget. X Aid is under- *: Earmarking is limited. X registered *: Laws on earmarking can be modified or limited. X * Special funds are separately or supplementary X budgets are limited. * State enterprise investments financed from X budget are included in the capital budget. * Measures taken to improve coordination of X autonomous agency investment without full incorporation into the government budget. * An attempt is made to calculate and forecast X Improved costing recurrent cost implications of investments, and accuracy & more results are reflected in the annual budgets. frequent exercise BUDGET POLICY AND PLANNING. The system aims to provide a medium-term framework for public expenditure by identifying the resources that are to be available and the strategic sector priorities that will drive resource use. Political ratification to the policies/programs should be the basis of budget proposals. BUDGET POLICY AND PLANNING ADEQUATE INADEQUATE Improvements Needed * Policy/planning provides a realistic framework X for public expenditure rather than a "wish list." * It links macroeconomic and revenue projections X with public expenditure proposals. * The planning framework is made public and X There is no widely disseminated. planning system *: The planning framework is updated regularly X Ad-hoc exercise (annual/mid-term economic plan review). for CG meetings * Government's policies are accessible and clearly X Dissemination by articulated in each sector. Government *: The policy process drives any PIP. X A PIP framework *: The policy/planning process is tightly linked to X An operative the budget. Affordability influences decisions. Public Investment *: Conflicts between resource needs and X Plan availability are resolved in appropriate decision making arena. *: Needs, as perceived by Agencies, are prioritized X and made consistent with available resources. * A decision-making forum at the center demands X 52 information to facilitate decisions, increasing transparency and accountability for results. Similar arrangements at the sector level promote effective implementation at the operational level. *:* Decision makers at all levels held accountable X Accountability still for authority (flexibility) provided to them. is a vague concept BUDGET PREPARATION. The process of annual budget preparation follow several stages:assessment of overall resource availability and the adoption of aggregate expenditure and revenue targets; disaggregation of targets into ministry ceilings; preparation and distribution of budget guidelines, including ministry ceilings, and their distribution to spending ministries (the "budget call circular"); preparation of submissions by spending ministries and departnents; review of submissions by the Finance Ministry; and submission to and approval by Congress of draft estimates. The determination of ceilings are crucial stages for the budget process to be credible. Aggregate targets must be agreed upon at the political level. Often, most budgets are incremental, taking last year's allocation as base, adding a small percentage for inflation and, perhaps, a little real growth. Step-budgeting may reflect a mismatch between policies and resources. BUDGET PREPARATION ADEQUATE INADEQUATE Improvements Needed * The budget preparation cycle has logical X sequence and timing. * The macroeconomic and revenue forecasts, and X Higher accuracy of budget ceilings are linked. the assumptions *: The budget circular is timely and provides a X clear set of rules for the budget process. * Budget ceilings are determined for sector X ministries. * Ceilings cover both recurrent and capital X components of the budget. * They are communicated prior to the preparation X of the sector submissions. * Mechanisms require a medium-term perspective X Multiyear Budget to decision making. 4* Estimates for the capital budget reflect total X costs of projects, not only those of a single year. *: Earmarking does not play a significant role in X the allocations of funds and is not distortionary. *: No arbitrary cuts are made. X *: Budgeted costs reflect realistic O&M. X Better budget * Sector ministries are consulted before budget X programming finalization. * Sufficient time is devoted to debating funding X for existing policy. * There is a well-defined process for considering X Better budget new policy proposals. programming +: All relevant issues, information and stakeholder X perspectives are available to decision makers. AID MANAGEMENT. Increasing external aid flows impact on several phases of the budget process. Preserving consistency between donor and government priorities (some projects are funded because of the availability of funds rather than consistency with government priorities), and keeping track of how much donors have disbursed, what the funds have been spent on, and whether government obtained value for the money is essential. 53 AID MANAGEMENT ADEQUATE INADEQUATE Improvements Needed * All aid is incorporated in the budget. X Single Register at *: Aid projects are derived from the Program X MIFIN priorities, not from the priorities of donors. *: Adequate aid coordination with roles clearly X defned, and Ministry responsibilities do not overlap. *: Aid pledges are well coordinated. Govermment X prepares sufficiently for meetings with aid agencies. * There are adequate procedures for matching X Closer coordination projects to aid agencies. with the entities. * The government takes the lead role in X discussions with aid agencies. * In the case of direct disbursement, government is X involved in sanctioning expenditure. * Government receives expenditure statements X Regular collection from aid agencies and records them. of information. *: It provides aid agencies with progress reports X Ad-hoc exercise and statements on expenditure incurred. * Aid management is facilitated by a coordinating X Work a regular PIP medium - this may be one useful role for PIP. BUDGET EXECUTION. Constraints in the "plumbing" of the budget are a major cause of poor program and project implementation. Even when there is provision, MIFIN may still make tactical budget cuts by authorizing expenditure levels well below those provided for in the estimates. Cuts tend to fall on capital spending. Outlays on salaries, however, are rarely touched. Even where expenditure has been authorized, there can still be problems caused by delays in authorizations, by sufficient funds in Ministry bank accounts or by the requirements of government tendering procedures. These problems are often compounded by the multiplicity of donor disbursement procedures. Another issue is funds fungibility. Expenditures reflect budget categories but may be applied to purposes different from those originally intended. BUDGET EXECUTION ADEQUATE INADEQUATE Improvements Needed * Budget is approved by Congress and distributed X to ministries in time for the start of the year. * Annual cash requirements for each agency are X forecast, Government cash flow is prompt. * Line ministries manage recurrent X Better project budgets/development projects well. management needed 4: There is a process of rationing out releases over X the year and for accommodating major expenditures occurring one time in the year. * MIFIN has the authority to change allocations to X line agencies during year. * It is easy for agencies to obtain supplements to X their original budget. 4 Decentralized payments do not undermine X expenditure control. * Information on actual expenditure is available on X time for monitoring tasks. * Arrears are not significant as a proportion of X total expenditure. *: Agencies have a control system that ensures that X expenditure does not exceed budget. 54 *: The payments system is centralized and X Increased focus on payments are made on time. local participation * In a decentralized system, payments do not X exceed appropriation limit. There are sanctions for overspending. ACCOUNTING SUBSYSTEM. The accounting subsystem is at the heart of an integrated fioancial management system because other subsystems depend upon it for useful, timely and reliable data necessary for the full range of decisions made as part of the resource allocation, budgeting, and financial management system and process. A well-performing accounting system enables inputs to be tracked and costs to be attributed to specific government interventions. A sound system also:provides information to managers for use in making informed decisions; permits faith in the ability to substantiate financial transactions where necessary based upon well-organized supporting documentation; makes it possible to report results in financial terms and, where performance data is maintained, to report costs; permits controlling current year budgetary execution as disbursements are made and preparing future year budgets based upon actual expenditures; provides periodic financial reporting and auditability, lending credibility to governmental operations and strengthening accountability. ACCOUNTING ADEQUATE INADEQUATE Improvements Needed *: All accounting and budget categories or coding X Transition between schemes is fully integrated into a single common budget categories classification constant over several years. disrupted the *: The chart of accounts is comprehensive. It X comparability of integrates accounts containing assets, liabilities, fiscal accounts government equity, revenues and expenditures. (still needs a dual *: Financial statements/public accounts follow a X budget statement) recognized set of accounting standards. * The accounting system (cash, modified cash, X modified accrual, full accrual) works well. *: There are manuals setting out the procedures and X regulations for the accounting system. *. Budget execution data are recorded normally, X not segregated into a separate data subsystem. *. Expenditure statements are produced regularly X and are available to stakeholders. * An annual and accurate expenditure statement X Prompt publication appears shortly after the end of the year. is needed *:* The accounts include aid expenditures X Better recording undertaken directly by aid agencies. Isystems AUDITING SYSTEM. The focus of auditing is to determine whether public funds have been spent for the purposes of which they were designated. The scope of auditing should be sufficiently broad. The objectives of an audit should include compliance with budget appropriations, and whether public funds purchased value for money. Three recommendations to improve internal and external auditing are: To continue building staff capacity; establish and abide by uniform and transparent standards and procedural norms for basic financial accounting and management; and standardize and centralize control of a financial information system for audit purposes. AUDITING ADEQUATE INADEQUATE Improvements Needed *: Government accounts are audited on time. X * Audit queries are responded to swiftly. X More staff for CG *. The Comptroller General (CG) is independent. X Modernize the When it adverse reports, prompt action is taken. CG's Office 55 * Govermment decides on the audit priorities. X *: A Comptroller's report was issued last year. X *: Reports of the CG are made public. X *: The legislature has established mechanisms for X pursuing reports of the CG. *: The CG follows certain standards in carrying out X To improve audit audits. A manual sets out the standards. systems *: The CG undergoes external quality control X Apply external reviews. System improvement are provided. quality control. * The CG's office has the capacity to do systems X Training on audit. systems audits *: Financial auditing is sufficiently effective to X Comptroller's move to performance auditing. new law *: Auditors review specifications of performance X To improve audit objectives and reports on results using standards. standards * The CG employs private sector auditors to carry X Comptroller's out audits on his behalf. Rules prevent hiring a new law firm of auditors as consultants to the same client. * There are requirements for internal audit within line ministries. Internal audit is directly X To improve audit responsible to the head of the agency. systems INTEGRATED FINANCIAL MANAGEMENT INFORMATION SYSTEM (FMIS). The IFMS computerized information system is essential to support expenditure management activities. In the past, the information systems had little capacity for data sharing. The integrated system is now strengthening the Government's core financial systems. Summary data from computerized modules for similar transactions are transferable and usable within the system. People speak the same technical and legal language across the organization and program structures to make the integrated system work. INTEGRATED FM1S ADEQUATE INADEQUATE Improvements Needed *: The accounting system is sufficiently reliable to X move to an integrated FMIS. * All national level financial regulations, rules and X guidelines have a common language. * Budgeting and accounting categories at the X national level have a common classification. * Operating unit produced financial data, centrally X and regionally produced data in a single financial data base is accessed by all systems. *: There is a uniform flow of information-based X decisions throughout the management cycle. *: Clear inter-linkage of data flow and reporting X throughout the agencies and the government. *: The basic subsystems of the FMIS within each X agency (budgeting, accounting, cash and debt management systems) are fully compatible, consistent and coordinated under a single head. * The basic subsystems of the FMIS at the X national level have a unified head and control. +: Financial management staff selection is based X on unified professional criteria. + Non-financial data are processed for purposes of X Needs performance performance and cost-measurement criteria. monitoring ratios 56 EVALUATION. A rule of thumb for any IMFS is that no major new program should be launched without either an extensive evaluation of similar earlier programs or a pilot program. Close monitoring followed by an interim evaluation could provide valuable infornation for decision making on expansion, modification or termination of a program. Evaluation can be ex ante, during implementation and ex post. Well-focused and property time evaluation can: (a) provide the infornation needed to bring about mid-course corrections in programs and projects; (b) allow for the analysis and resolution of systemic or policy issues; (c) improve the design of future operations; and (d) contribute to strategic policy and program decisions. Regular evaluation is most effective and should include staff involved in implementing the progran. Regular independent evaluations should also be carried out. Evaluation skills within MIFIN are needed so that budget proposals can be rigorously scrutinized based on cost-effective or cost- benefit analysis. EVALUATION ADEQUATE INADEQUATE Improvements Needed 4* There is a requirement for carrying out X Only some donors evaluations by central and line agencies or by do, but should be independent extemal agencies for a certain generalized percentage of programs/projects. * The results are used in budget decision making. X Donors' report be * The results of ex-post evaluations are published. X published * Client surveys are routinely and frequently X Develop client's carried out as part of these evaluations for survey ministries and services. Results are published. *: There are incentives in the budgetary system for X Link budget to line agencies to undertake evaluation. outcomes * There is a requirement that new policy proposals X Develop an are accompanied by evaluation strategy. evaluation system PERFORMANCE MIEASUREMENT (PM). Increasing attention is being given to performance measurement in the IFMS, peace accords and donor projects. Performance indicators refer to what specifically is to be measured for each aspect of performance, that is, the specific numerical measurement that is to be made such as the "number of customer complaints" or "percentage of customers that report being satisfied with the service they received." In an education program, the outputs may be measured by the number of dropouts or the percentage of students advancing to a certain grade; the outcomes by the percentage of students completing elementary school or advancing to higher education. Project managers collect both output and outcome information. Ideal characteristics for performance measures and indicators are:They are consistent over time and between units, and comparisons are made only with similar programs; they should be simple, well defined and easily understood, emphasizing aspects important to decision making; emphasis should be given to a limited number of key measures or indicators that reflect the program's purpose or objective or signal whether the program is worth continuing; managers' performance are measured for areas under their control. Measurements should also include the impact and quality of services. This means: timeliness, responsiveness to beneficiaries' needs and manner of delivery. Quality may also be measured via surveys. PERFORMANCE MEASUREMENT ADEQUATE INADEQUATE Improvements __________________________ __ __ Needed * Government fosters an environment that X Build a PM system supports and demands perfornance. in the FMIS 4* Managers have clear short - and long-term X Design and define performance targets. Ithem 57 *: There are feedback mechanisms to supply data X Adjust the IFMS to on performance and part of them is published. it *: The accounting system ties costs to performance, X Costing is part of measuring workload, outputs and outcomes. the PM system *: There is a systematic collection, analysis and X Adjust the OFMS reporting of performance information to verify to it compliance with strategic goals. * Agencies have benchmarks based on best X Peace benchmarks practices with similar challenges, whose are a starting point performance they try to match or surpass. * Agencies or managers contract to produce X Issue a new civil outputs or results with agreed resources. service law&norms 58 Annex F Annex II.B CABEI Projects to (5124199) Project Board Effectiveness Staes Totals Totals No. Number Approval Date Prolect Name 1 2 3 4 5 6 1231 8/1197 5/27198 "CA-I1 Road Constnuction - Section Vado Hondo-el Flonado 19 70 149 8 297 2 1290 3/27/98 Pending* "Integral Development Program in Potental Irrigation and Drainage Areas" 133 16 98 247 - 247 3 1307 5/27/98 Pending* 'Rural Development in Chorti Communities" 70 15 98 183 183 4 1308 5/27/98 Pending* 'Aid to Productive Sector of the Republic of Guatemala (FIS)" 83 17 97 197 197 5 1427 11/18/98 Pending* 'Productive Infrastructure for Sustainable Development in Frontier Zone, Gua-Mex' 174 - - 174 174 AVERAGE . . 104 16.8 90.8 190 148 219.6 1 There is a period of 104 days (average) between the approval of a project by CABEI's Board and the time it is sent to the Monetary Board 2 There is a period of 16.8 days (average) among the reception, of the document at the Monetary Board, the resolution issued by this institution and the time it is sent to the President's General Secretariat. 3 There is approximately a period of 90.8 days (average) since the document is received by the President's General Secretariat, approval by Congress, and the time it takes to be published. 4 In general, there is an average of 190 days between the Board's approval and the publication in the Official Gazette. 5 In average, there is a period of 148 days between the publication and the effectiveness date of a project. 6 In total, there is an average of 219.6 days between Board's approval and the effectiveness date of a project. Projects pending effectiveness date. IDB Project to (5124199) Project Board Effectiveness Stages Totals Tota No. Number Approval Date Project Name 1 2 3 4 5 6 i T 101410C-GU 6/25/97 1219/97 "Technical Assistance Program to Support Sectorial Reform in Infrast. & Investment' 44 3 56 103 53 1S56'1 2 886/SF-GU 8115197' 7/28/98 'Global Credit Program for Micro-Enterprises and Small Enterprises' 70 6 124 200 146 346 3 1048/OC-GU 10/15197- 8/3/98 'Housing Program' 29 8 98 135 152 287 4 1054/OC-GU 11112197- 11126/98 "Support to Education Reform Project 100 11 95 206 167 373 5 1106/OC-GU 5/10/98 1/15199 "Pre-investment for Peace Program' 22 38 111 171 70 241 6 11 20/OC-GU 8/12/98 Pending 'Judicial Reform Support Program "+ 20 9 91 120 - 120 7 1147/OC-GU 11/18/98 3/8/99 "Natural Disaster Emergency Program" 6 2 46 54 56 11 0 8 11 53/OC-GU 1221298 Pending 'Support to Agro Productive Reconversion"+ 49 9 - 58 - 58 9 1162/OC-GU 12/16/98 Pending "East Development Program '+ 82 4 86 _ AVERAGE 46.9 10 88.7 125.9 107.3 19774 There is a period of 46.9 days (average) between the approval of a project by the IDB Board and the moment 'd is sent to the Monetary Fund 2 There is a period of 10 days (average) among the reception of the document by the Monetary Fund, the resolusion issued by this instituton and the time it is sent to the Presidents General Secretariat. 3 There is approximately a period of 88.7 days (average) among the date the document is received by the President's General Secretariat, the approval by Congress and the time it takes to be published. 4 In total, there is an average of 125.9 days between the approval by the Board and the publication in the Official Gazette. 5 In average, there is a period of 107.3 days between the publication and the effectiveness date of a project. 6 In total, there is an average of 197.4 days between Board's approval and the effeciveness date of a project. "Ref: Legal Departament. -"this project was modfied on 9/9/98 """This project was cancelled during its implementation and the stages were initated from the beginning, + Effectiveness date pencing World Bank Projects to (5/24199) No. Project Board Effectiveness Stages Totals Totals Number Approval Date Project Name 1 2 3 4 5 6 1' GT-PE-48756 4/22/97 4/24/98 TechnicalAssistanceforPrivateParticpatonin Infastructure" 76 21 140 237 115 352 2 GT-PE-7223 5/20/97 3/19/98 'Basic Education Reform' 56 22 57 135 153 288 3 GT-PE-48654 8/28/97 12/11/98 "Technical Assistance for Tax Administration" 46 20 306 372 93 465 4 GT-PE-35737 12/11/97 12/11198 'Rural and Main Roads' 85 10 174 269 93 362 5 GT-PE-48657 12/23/97 11/19/98 'Technical Assistance Integrated System of Financial Admin. 11' 52 15 188 255 71 326 6 GT-PE-49386 7128/98 2/15/99 "Local Reconstrucci6n and Development" 16 18 80 114 80 1s4 7 GT-PA-47039 10/22198 4/22/99 "Judical Refom" 22 2 52 76 101 177 8 GT-PE-40198 11/12/98 1/15/99 "Second Project Social Inversion Fund" 12 1 46 59 35 94 9 GT-PA-49619 12/3/98 Pending "Land Administration Program"" 77 9 - 86 - - i10 GT-PA-54462 117l99 Pending "Land Fund"" 49 11 60 - - IAVERAGE 49.1 112.9 13 19. 92.6 282.3 1 There is a period of 49.1 days (average) betweenthe approval of a projectbytheWorld Bank Board and themomentitissenttothe Monetary Fund. - | - 1 |9. 283 2 There is a period of 12.9 days (average) among the reception of the document by the Monetary Fund, the resolution issued by this institution and the time it is sent to the Presidenfs General Secretariat. 3 There is approximately a period of 130.4 days (average) since the document is received by the Preisident's General Secretariat, the Congress approval and the time it take for the project to be published. 4 In total, there is an average of 139.3 days between the approval by the Board and the publication in the Official Gazette. 5 In average, there is a period of 92.6 days between the publication and the effectiveness date of a project. 6 In total, there is an average of 282.3 days between Board's approval and the effectiveness date of a project. " The projects without information are stll pending. 59 ANNEX G Progress Report on the Recommendations Made by the World Bank's Public Investment Review - 1997 EDUCATION RECOMMENDATION ACTIONS CARRIED OUT 1. Timely supply of funds by the Ministry of Finance; * The implementation of the SIAF and the creation of creation of the UDAF at the Ministry of Education in order the UDAF at the Ministry of Education (January to implement the SIAF. 1997). New procedure for budget planning which coordinates the advancement of the works with the flow of resources; monthly estimates of the cash flow to avoid a crisis in liquidity and periodic assignments (monthly and quarterly) of the Ministry of Finance to MINEDUC. 2. Internal restructuring of MINEDUC to define functions * Reorganize and simplify the processes at MINEDUC; and responsibilities at different levels and participants. deconcentration of activities; reduction in the number Improve the supply of services concentrating on priority of offices and the creation of departmental offices. programs: PRONADE, CONALFA, bilingual education, * Complete assignment of the constitutional 1 % and teaching staff training, and educational texts and material. the ministerial budget 1% to CONALFA. * Increase in the PRONADE coverage to 152,000 students. * Improvements in the coverage of bilingual education (60 new establishments). * Training programs that reached 51,700 people (teachers, directors, supervisors, trainers, and others). 3. The restrictions that the civil service imposes on * There has been no reform to the Civil Service Law. contracting highly qualified personnel, must be abided. 4. Strengthen PRONADE by clearly defining its role; * The creation of the Trust in order to facilitate the flow improve its execution capacity and simplify the inputs and of funds (November 1996). outputs of funds. * The implementation of the SIAF * Focusing PRONADE's work during the first three years of elementary education and the areas that are most lacking. 5. Transfer the investment in infrastructure to the social * 87% of the physical investment is carried out by the funds, although ensuring that they contract companies for social funds. the execution of the works. The clear coordination * Contracting the companies for the execution of the between the Ministry and the funds to ensure the projects (FIS) and transfer of resources to the technical details and establish priorities. communities or committees (FONAPAZ & FSDC). * Making up a Social Cabinet in which the funds and the ministries participate; nevertheless, it carries out follow-up functions of works and not as much of assessing projects based on the social income-yield capacity and priorities. 6. Increase, at least for the year 2000, public spending * The education spending executed in 1998 was 2.2% executed in education, in relation to the GDP, by 50% of the GDP. over spending executed in 1995. 7. Facilitate the access of 100% of the population * The children registered in the first three years of between the ages of 7 and 12 to at least three years of elementary education represent 91 % of the children schooling before the year 2000. between the ages of 7 and 12 (Table 111.1). 8. Increase the percentage of literacy to 70% for the year * Literacy accounts for 68.6% (Table 111.1) 2000. 9. Carry out the education reform and form commissions * Formation of the Consultative Commission. - joint and consultative - for the design and * Presentation of the Education Reform Design by the implementation. Joint Commission (July 1998). Source: Acetia and Lee (1998) 60 Progress Report on the Recommendations Made by the World Bank's Public Investment Review - 1997 HEALTH RECOMMENDATIONS ACTIONS CARRIED OUT * Priority must be given to the infrastructure * SIAS has been implemented in 11 departments, 8 of which are required by the new attention model, the already receiving the services. SIAS, however, does not integrated health service system (SIAS), and require any type of physical infrastructure, except where first- the rehabilitation of infrastructure and aid kits and biological are given out. equipment in the new construction areas. * It is essential that hospitals establish the * The curative area is more important in the sense of MSPAS order of their priorities in order to achieve a total spending (49% in 1998) (Table 111.1). balance between preventive and-curative * IGSS and MSPAS are in the process of establishing medicine. The improvement of the cooperation agreements. relationship between the ministry of health * The MSPAS has not increased the number of hospitals in the and IGSS must be given much attention. national network, but it has begun a maintenance program in 15 hospitals in the departments. * Roosevelt Hospital is the hospital that has absorbed 60% of the hospital investment during 1996 and 1997. * The cost of each project, including doctors, * As far as financial cooperation is concerned, the MSPAS has medical and pharmaceutical supplies, and not received any loan additional to IDB's (Reform Program) for maintenance must be evaluated carefully, US$40 million, US$25 million for MFP to reinforce health including the possible contribution of extemal spending, and US$15 million for MSPAS. Another IDB Health- funds. Il loan was approved end-1999. * The project execution responsibility must be * Drinking water projects were physically, administratively, and transferred to the social funds, particularly in financially transferred to the Institute of Municipal Development the case of sanitation and drinking water -INFOM,- because they have better relations and better projects (36% of the health budget), at the execution that some social funds. same time hiring negotiators for dealing with * In 1998, only 20% of the investment allocated had been the private sector, municipalities, and executed during 8 months, as opposed to 58% for 1995. cooperatives. * To ascertain the progress of the recent * The reform program has been implemented with the foilowing program on health services improvement, results: which has an important role in: i) * Approval of the Health Code. restructuring and reforming the health * Implementation of SIAS in 11 departments with a ministry, ii) providing support for increasing coverage of close to 600,000 persons at an average coverage and strengthening SIAS; iii) direct cost of US$4.85-6 per person per year, for a total of improve public hospital efficiency. These Q66.75 million between 1997 and 1998. efforts must be consistent with the SIAF * 99 agreements have been signed with 85 NGO's up to project, which focuses on the August 1998. decentralization of the public sector. * New agreements that will have a coverage of more than 2 million persons by the end of the year will hopefully be signed soon * Hospital efficiency has been improved by means of the implementation of administrative management in all hospitals, implementation of an acquisitions program, introduction of maintenance and beginning the Source: Chinchilla and Klose (1998b) extemalization of services through a pilot program at Roosevelt Hospital. No cost recovery program has been implemented. 61 Progress Report on the Recommendations Made by the World Bank's Public Investment Review - 1997 ROADS RECOMMENDATIONS ACTIONS CARRIED OUT Strengthen the Roads * A 1996-1999 technical training plan was implemented. Directorate Unit at the Ministry's * Technical assistance for supervision of works was given. (DGC) institutional capacity for * A follow-up program verifies the status of the works. planning investments in the * Planning technical assistance introduces an HDM system for prioritizing, in sector. an economical manner, the road projects, following social, economic, & physical parameters. * Purchase of new maintenance machinery. * Strengthening the environmental management program. * Improvement of the facilities. Increase number of contracts The number of contracts entered into for maintenance has increased over the with private companies for the last 5 years, from 84 in 1994 to 335 in 1998. The maintenance cost has been maintenance of primary & reduced, from $3,000/km/yr for paved roads & Q70,000/km/yr for secondary secondary roads. roads in 1994, to $2,000/km/yr for paved roads & Q50,000/km/yr for secondary roads in 1998. The key investment for tertiary & Currently, DGC is still the entity in charge of programming, supervising, rural roads can be carried out by maintaining, & executing tertiary roads. The Social Funds coordinate their DGC by contracting the Social execution with DGC, but still depend on DGC's technical capacity. Until 1998, Funds and municipalities for the the Municipalities had not participated actively in the construction and execution. maintenance of roads; as of 1999, a pilot project was introduced in the Department of San Marcos so the Municipalities could take care of the maintenance of the rural roads in the area. Analyze the advantages of To this date, this office has not been created, and it is not expected to be done forming the Assistant General before the next administration. Currently, the Maintenance Department by Office for Tertiary Roads, with Contract is the entity in charge of tertiary-road matters. specific financial mechanisms. Improve coordination between Some degree of coordination exists between DGC and the Social Funds for the the Ministry, the Social Funds, development of larger works. Maintenance of tertiary roads is carried out by and the Ministry of Economy for DGC's Maintenance Department. the construction, restoration, and maintenance of tertiary roads. Establish work standards for In order to ensure that the existent tertiary roads last a long time, the following tertiary roads. standards were established: A. Rural roads: * One 4-meter wide lane; * made up of 3.60m-wide ballast or covering; * Light traffic; less than 100 vehicles daily; * Maximum 12% slopes; * Average design speed for flat, rolling, or mountainous land of 40km/h, 30km/h, and 20km/h respectively. B. Opportunity Roads Program: * Two 3-meter wide lanes (6m total); u made up of a double treatment surface or ballast; * 15 cm granular base and 20 cm granular sub-base; * Traffic greater than 200 vehicles daily; * Design speed of 50km/h for maximum 6% slopes, 40km/h for maximum 8% slopes, and 30 km/h for maximum 10% slopes. Train the personnel for the DGC trains its Social Funds personnel in the following areas: Social Funds in obtaining funds, * Project planning; liquidation, and maintenance for * Funds management assistance; & road projects. * Monitoring projects management. 62 Subcontracting the final FONAPAZ Road Restoration (support for the basic infrastructure in Ixcan, preparation of the designs for Quiche) is already being executed; & Construction and Enlargement of 565 the road projects in ZONAPAZ. km of roads in ZONAPAZ is already advanced. Furthermore, several projects of the Roads Opportunity Program are being executed in ZONAPAZ. Continue financing the In the 1996-2001 Roads Development Plan, the restoration and enlargement of restoration and enlargement of the Rutas Centroamericanas is contemplated. the roads between the borders. Reduce restoration costs by * The greater road construction &/or restoration contracts greater than means of: US$1.5 million) are awarded by means of an international public bid. The 1. Allow greater participation publication appears in the Development Business newspaper, 3 national of foreign entities to submit newspapers (including the official newspaper), and also, all the countries offers. that are members of the donator organization will be invited to participate. 2. Greater decentralization This way, foreign companies represent 60 to 100% of the offers. The represents sharing more participation of foreign companies has increased competition levels in costs with the Guatemala, causing a reduction in construction prices and in the rendering Municipalities. of related services. 3. Paving tertiary roads when * There exists a pilot project in San Marcos so that by means of planning the cost compared to its and channeling INFOM resources and the coordination of DGC, the useful expectancy justifies Municipalities (making up an association of municipalities) become in it. charge of the maintenance of rural roads. The Municipalities will contribute with around US$1 million during the first four years and will be in charge of the project as of the fifth year. The foresight for this project is to become self-financed. * In 1999, a study will be carried out in order to determine the strategy related to tertiary roads. Technical strengthening of the * Technical assistance plan. Roads Maintenance Fund * Strengthening planning by means of a new activities, budget, and (COVIAL). maintenance programming outline. * Expert support from intemational advisors. e Training by means of conventions and specialized courses. * Implementation of the Integrated Maintenance Administrative system (SAMI) with which road conditions are diagnosed digitally. Collection of other funds by This only exists on the road from Palin to Escuintla, and no other project of this means of concessions and tolls type is being contemplated in the short or medium term. The organization of in selected cases. the current roadways makes this process difficult because the possible roads, which could be granted, do not have altemate routes. In any manner, there will be a study of the possibility of carrying out concession projects for the 2000- 2010 Road Development Plan. Source: Chinchilla and Ruata (1998a) 63 Progress Report on the Recommendations Made by the World Bank's Public Investment Review - 1997 POWER RECOMMENDATIONS ACTIONS CARRIED OUT 1. Contemplate regulation and norms to support * Regulatons issued for recommendations 2, 3, 4, & 5 in this the General Law for Electricity. Table. 2. Implement the market mechanisms to establish * Resolution CNEE N°1 5-98, 26-98, & 27-98 'Mechanisms to the tariffs contemplated by the General Law for establish base tariffs, their maximum values, and the Electricity. periodic adjustment formulas, as well as the general tariff application conditions for all regulated consumers of the final distribution system." 3. Accelerate the establishment of the Comisi6n * The National Committee for Joint Implementation (June 27, Nacional de Electricidad (National Committee for 1997) is created by means of Governmental Agreement Electricity). N0474-97. 4. Complete the restructuring of INDE. * INDE is separated according to law among 3 companies (October 27, 1997): 1. INDE's Electric Power Generation Company (EGEE) 2. Transportation & Electric Power Control Company (ETCEE) - Agreement N°OM-273-98. 3. INDE's Electric Power Distribution Company (EDEE) * INDE's Purchase and Contracting Regulations are published (April 20, 1998). 5. Contemplate EEGSA's division. * By means of Agreement N°OM-1 58-98, definite authorization is granted (without exclusiveness) to EEGSA to render final distribution services pertaining to power in the whole Departments of Guatemala, Sacatepequez, and Escuintla. * By means of Agreement N0865-98, the transferring of the onerous title of stock, which the State of Guatemala owns in EEGSA, is authorized. * 80% of the Govemment's stocks in EEGSA are sold at US$520 million. 16% of all the stock will be offered to priority investors, such as EEGSA employees and national entrepreneurs, and the last 4% will remain in the hands of private investors. 6. Promote private participation in the distribution, * Resolution CNEE No13-98 "Distribution Service Technical as well as the generation. Norms" (NTSD) 7. Before selling and assuming an adjustment in * The tariff adjustment was carried out during the second tariffs, divide EEGSA's activity into two companies semester of 1997, and the sale of 80% of EEGSA's stock that cover areas that do not overlap in the City of was carried in July 1998, without dividing regions. Guatemala, in order to generate yardstick competition. 8. Conclude the crossed debt negotiations . * As a result of the sale of EEGSA, the government will pay between the state entities and the government. the debt it has with INDE in the amount of US$300,000. 9. Introduce commercial terms in the relations * The tariffs that are charged are negotiated (or regulated, if so between the municipalities that purchase in bloc, be the case). INDE is financing the works, but the. requiring they purchase from private entities and communities, together with the municipalities, are in charge not from INDE. of the execution. 10. In order to promote competition in the * The signing of new PPA contracts is avoided and the generation and allow for the development of a effectiveness of the Wholesale Market (which operates as a wholesale market, PPA contracts must be "power bag") is the new mechanism to achieve transparency avoided. In their place, EEGSA contracts must in the negotiation. only guarantee payments of the load capacity (fixed costs). 11. The interconnection projects must be carried * A few communities are implementing power projects and a out by the communities, not by INDE. rural electricity plan is on the move. Source: Prera and Urizar (1998) 64 Progress Report on the Recommendations Made by the World Bank's Public Investment Review - 1997 TELECOMMUNICATIONS RECOMMENDATIONS ACTIONS CARRIED OUT 1. To create the General Telecommunications Law * On October 17, 1996, Decree 94-96 was enacted, containing the General Telecommunications Law, which has, as a main objective, to liberalize the sector. 2. To establish a technical regulating entity * The General Telecommunications Law, by means of its Title II, Article 5, creates the Telecommunications Superintendency, an eminently technical body, whose main responsibility is enforcing the Law. 3. To rebalance the rates * GUATEL changed its telephone rates for both local and intemational call, in agreement with a system that should reflect the service costs, eliminating the crossed subsidy that existed between international and local rates. (Feb. 1997) 4. To reduce the personnel costs of the state entity * In April 1998, severance payments were paid to GUATEL GUATEL's ex-employees (Q300.0 million) and TELGUA, S.A. followed a competitive process for rehiring 5. To negotiate with central govemment the amounts of * On one hand TELGUA, S.A., now pays taxes like any the profits to be transferred annually private entity. GUATEL still transfers its profit only to the extent that it generates operational profits. 6. 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INE/CELADE (1997), "Guatemala: Necesidades Basicas Insatisfechas 1981-1994." INE/MOH/USAID/UNICEF/FNUAP (1999), "Encuesta Nacional de Salud Materno Infantil 1998/99." Memo. IPES (1999), "Analisis del Presupuesto General de Ingresos y Egresos del Estado 1999," Pulso Tematico Magazine, November. Johnson, Simon, Daniel Kaufmann and Pablo Zoido-Lobat6n (1999), "Corruption, Public Finances, and the Unofficial Economy," The World Bank Policy Research Working Paper No. 2169. Kaaminsky Graciela, Leonardo Leiderman and Carmen Reinhart (1997), "Leading Indicators of Currency Crises" IMF Staff Paper, Vol. 45, No. 1, pp. 1-48. Kaaminsky Graciela and Carmen Reinhart (1997), "The Twin Crises: The Causes of Banking and Balance of Payments Problems Forthcoming in" American Economic Review. Karacadag, Cem and Virginia Manzer (1997), "Financial System Stress and Sovereign Credit Risk", Features Magazine. Kaufmann, Daniel, Aart Kraay and Pablo Zoido-Lobat6n (1999), "Govemance Matters," The World Bank Policy Research Working Paper No. 2196. Kaufmann, Daniel, Aart Kraay and Pablo Zoido-Lobat6n (1999), "Aggregating Govemance Indicators," The World Bank Policy Research Working Paper No. 2195. Kharas, Homi and Deepak Mishra (1999). "Hidden Deficits and Currency Crises", Memo. Klein, Michael (1998), "Bidding for Concessions," The World Bank Policy Research Working Paper No. 1957. Lavarreda, Jorge/CIEN (1998), "Revisi6n del Programa de Inversi6n Publica de Mediano Plazo-Sector Vivienda," Special Report to Guatemala: Expenditure Reform in a Post-Conflict Country, The World Bank, December. Lemus, Rafael (1999a), "Identificaci6n y Estimaci6n de Pasivos Contingentes Fiscales de Guatemala, Special Report to Guatemala: Expenditure Reform in a Post-Conflict Country, The World Bank, May. Lemus, Rafael (1999b), "Balance preliminar de los Efectos de la Ampliaci6n Presupuestaria," Special Report to Guatemala: Expenditure Reform in a Post-Conflict Country, The World Bank, July. Lemus, Rafael (1999c), "Estimaci6n de Cuenta Econ6mica del Gobiemo Central para 1998," Special Report to Guatemala: Expenditure Reform in a Post-Conflict Country, The World Bank, February. Lemus, Rafael (1998a), "Estimaci6n de Cuenta Econ6mica Fiscal de 1997," Special Report to Guatemala: Expenditure Reform in a Post-Conflict Country, The World Bank, August. Lemus, Rafael (1998b), "Comentarios sobre Fondos Sociales Gastos Estimados 1997," Special Report to Guatemala: Expenditure Reform in a Post-Conflict Country, The World Bank, November. Lewis, Christoper M. and Ashoka Mody, "The Management of Contingent Liabilities: A Risk Management Framework for National Governments", The World Bank,memo. Mackenzie, Sandy (1998), "The Macroeconomic Impact of Privatization," IMF Staff Papers, Vol. 45, No. 2. 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SEGEPLAN/UNDP (1998), "Politicas, Programas y Proyectos en Materias de Inversi6n P6blica, Descentralizaci6n y Participaci6n Ciudadana en Guatemala." SEGEPLAN/PNUD (1993), "Resumen de la Metodologia de Focalizaci6n Desarrollada por el Proyecto GUA/91/023 SEGEPLAN/PNUD." Shah, Anwar (1998), The Impact of Public Expenditure Reviews: An Evaluation, The World Bank, Washington, D.C. Singh, Raju Jan and Rene Weber (1997), "The Composition of Public Expenditure and Economic Growth: Can Anything be Learned from Swiss Data?" Swiss Journal of Economic and Statistics, Vol. 133 (3), 617-634. Sisk, Paul (1998), "The Republic of Guatemala-Second Social Investment Fund Project" The World Bank, memo. Struben, Willem (1996), "Guatemala-Social Investment Fund (SIF) Project (Ln. 3534-GU)," Supervision Report, The World Bank. Swaroop, Vinaya (1999), "Towards a New Development Partnership: Public Expenditure Reform Loans." The World Bank, Memo. 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STATISTICAL APPENDIX Table 1 Guatemala: Growth and Investment Table 2 Guatemala: Combined Public Sector Expenditures, 1984-98 (Million of Quetzales) Table 3 Guatemala: Combined Public Sector Expenditures, 1984-98 (As percent of GDP) Table 4 Guatemala: Combined Public Sector Expenditures, 1984-98 (Million of 1992 Quetzales) Table 5 Guatemala: Total Expenditure of Central Government by Sector (Million of Quetzales) Table 6 Guatemala: Total Expenditure of Central Government (% of GDP) Table 7 Guatemala: Total Expenditure of Central Government (Million of 1992 Quetzales) Table 8 Guatemala: Total Expenditure of Central Government (% of Total Current Quetzales) Table 9 Guatemala: Capital Expenditures of Central Government by Sector (Million of Quetzales) Table 10 Guatemala: Capital Expenditures of Central Government (% of GDP) Table 11 Guatemala: Capital Expenditures of Central Government (Million of Quetzales) Table 12 Guatemala: Capital Expenditures of Central Government (% of Current Quetzales) Table 13 Guatemala: Programmed and Actual Expenditures of the Central Government (Million of Quetzales) Table 14 Guatemala: Bilateral External Grants, 1998 Table 15 Guatemala: Financing of Public Capital Expenditures, 1996-97 Table 16 Guatemala: Public Fixed Investment (Million of Quetzales) Table 17 Guatemala: Composition of Public Fixed Investment Table 18 Guatemala: Level of Public Fixed Investment Table 19 Guatemala: Programmed and Effective Official Loan Disbursements Table 20 Guatemala: Official Disbursements Table 21 Guatemala: Outstanding Public External Debt Table 22 Guatemala: Central Government Outstanding Public Domestic Debt Table 23 Guatemala: Central Government Bonded Debt Maturities Table 24-A Guatemala: Savings on Interest Payments from Public Debt Restructuring, Proposals' Results Comparison Table 24-B Guatemala: Savings on Interest Payments from Public Debt Restructuring, (millions of Quetzales) Table 25 Guatemala: Social Funds Investment in 1997 and 1998, by Sector (millions of Quetzales) Table 26 Guatemala: Regression Estimates of the Social Investment Fund (FIS) and Municipal focalization on Poverty for 1997 Table 27 Guatemala: Total Expenditure of Central Government by Region (Millions of Quetzales) Table 28 Guatemala: Total Expenditure of Central Government by Region (as % of Total) Table 29 Guatemala: 1998 Mitch Reconstruction, 1999 Budget Allocations and Actual Transfers (Millions of Quetzales) Table 30 Guatemala: Mitch Reconstruction Program Portfolio, by Executing Unit Table 31 Guatemala: Mitch Reconstruction Program Portfolio, by Project Type Table 32 Guatemala: Budgeted Permanent Positions as reported by DTP and ONSEC, 1995-1998 Table 33 Guatemala: Estimated Cost of the Voluntary Retirement Program as of December 31, 1997 Table 34 Guatemala: Infant Mortality Rate, by Department (children under one year) Table 35 Guatemala: Estimated Cost of Reducing the Illiteracy Rate by 1 percent Table 36 Guatemala: Education Indicators, Projections and Estimated Cost of Increasing the Gross Primary Enrollment Rate by 1 percent Table 37 Guatemala: Comparison of Indigenous Population, by Source Table 38 Guatemala: Amount of Mayan Language Speakers and Schools, by Linguistic Community Table 39 Guatemala: Indigenous Population Average Years of Schooling and Enrollment within the 7-14 Years of Age, by Department Table 40 Guatemala: Net Primary Education Enrollment by Area, Gender and Percentage of Indigenous Population Table 41 Guatemala: Student to Teacher Ratios by Department Table 42 Guatemala: Average Teachers per School, by Department and Area Table 43 Guatemala: Third Grade Completion Rates in Three Years by Gender, Department and Area Table 44 Guatemala: Percentage of Not Promoted and School Drop Outs in 1996 who Returned to School in 1997, by Gender, Department, Area and Grade Table 1. Guatemala: Growth and Investment % GDP As % of GDP Pub Inv/ Period growth ICOR Priv. Inv. Pub. Inv. Gross Inv 1950-54 2.3 4.9 6.1 2.8 31.9 1955-59 5.4 3.1 8.7 4.9 35.5 1960-64 4.9 2.7 7.8 2.5 24.4 1965-69 5.5 2.5 9.9 2.8 22.6 1970-74 6.4 1.9 11.4 3.0 21.1 1975-79 5.4 3.3 15.2 4.4 22.4 1980-84 -0.2 6.6 8.6 5.6 38.8 1985-89 2.2 10.1 10.0 2.5 20.1 1990-94 3.9 2.6 13.3 2.5 16.2 1995-98* 4.4 2.8 11.3 2.7 19.2 1950-59 4.0 3.9 7.4 3.8 33.7 1960-69 5.2 2.6 8.8 2.7 23.5 1970-79 5.9 2.6 13.3 3.7 21.8 1980-89 1.0 8.4 9.3 4.1 29.5 1990-98* 4.1 2.7 12.6 2.7 17.6 Sources: Bank of Guatemala and Ministry of Finance. * Data for 1998 are preliminary figures. Table 2. Guatemala: Combined Public Sector Expenditures, 19S4-98 /1 (Millions of Quetzales) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 lg97' 1997f Total Expenditure 1539.4 1872.7 2375.9 2830.1 3843.2 4400.3 5541.9 5998.0 7144.9 9030.8 9880.6 10999.6 12513.1 14506.4 18288.5 o/wTotalnon-debt 1375.2 1439.6 1864.9 2240.2 2943.7 3449.6 3935.4 4411.9 5682.8 7088.7 7404.6 8323.4 9286.1 10964.4 13337.4 Recurrent 1186.5 1555.9 2042.6 2413.5 3094.1 3516.9 4384.5 4703.1 5753.0 6933.6 7400.1 8200.6 9332.2 9406.1 11290.1 Wages & Salaries 595.0 653.4 903.8 1083.8 1276.9 1452.7 1424.7 1685.9 2278.9 2772.3 2947.1 3402.2 3358.3 3625.6 4585.1 Goods&Services 321.4 336.7 437.7 545.6 707.6 826.2 834.8 879.1 1189.6 1311.2 1214.4 1217.8 1492.3 1765.2 2147.6 Interest&BOGlosses 152.5 427.6 487.4 545.9 735.0 761.1 1343.9 1416.0 1386.6 1590.3 1904.6 2002.0 2418.5 1736.3 1810.5 Foreign interest 51.3 33.7 74.4 90.0 146.6 189.6 291.4 317.3 384.8 321.6 539.2 582.1 606.5 452.0 567.8 Domestic interest 58.8 60.9 182.6 202.8 260.4 274.5 324.5 349.1 376,5 546.0 449.0 625.6 673.4 480.3 898.5 BOG losses 2 42.4 333.0 230.4 253.1 328.0 297.0 728.0 749.6 625.3 722.7 916A 794.3 1138.6 803.9 344.2 Otberrecurrent 117.6 138.2 213.7 238.2 364.6 476.9 781.1 722.1 897.9 1259.8 1334.0 1578.6 2063.1 2279.0 2746.9 Recurrent (excl. nterest) 1034.0 1128.3 1555.2 1867.6 2349.1 2755.8 3040.6 3287.1 4366.4 5343.3 5495.5 6198.6 6913.7 7669.8 9479.6 Capital Expenditures 352.9 316.8 333.3 416.6 759.1 883.4 1157.4 1294.9 1391.9 2097.2 2480.5 2799.0 31S0.9 5100.3 6998.4 o/wCapitad (non-financial) 341.2 311.3 309.7 372.6 594.6 693.8 894.8 1124.8 1316.4 1745.4 1909.1 2124.8 2372.4 3294.6 3857.8 Revenues 1189.4 1390.5 2016.4 2410.3 2976.9 3161.5 4095.6 5155.5 7181.9 7438.2 8138.9 10260.1 12384.0 14241.8 15885.1 Fiscal Surplus/Deficit -350.0 -482.2 -359.5 -419.8 466.3 -1238.8 -1446.3 -842.5 37.0 -1592.6 -1741.7 -739.5 -129.1 -264.5 -2403.4 Memo:CurrentGDP 9470.3 11180.0 15838.1 17711.1 20545.1 23684.6 34316.9 47302.3 53985.4 64243.2 74669.2 85156.7 95478.6 107873.4 121127.3 AverageCPI(1992-100) 21.4 25.4 34.8 39.2 43.4 48.3 68.2 90.9 100.0 111.8 124.0 134.4 149.2 163.0 174.4 P denotes preliminary data and " World Bank estimates using preliinary data from the Ministry of Finance. 1Capital expenditure data have been reclassified using the new accounting metbodology introduced in 1997, thus Source: Ministy of Finance, IMF and World Bank staff esfimates. they differ from the one presented on the rest of this Statistical Annex. 2 Actual data for the whole period. Annual flows. Table 3. Guateab: Combined Public Sector Expenditure, 1984-98 (As peroent of GDP) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997P 199S Total Expenditure 16.3 16.8 15.0 16.0 18.7 18.6 16.1 12.7 13.2 14.1 13.2 12.9 13.1 13.4 15.1 oAvTotal non-debt 14.5 12.9 11.8 12.6 14.3 14.6 11.5 9.3 10.5 11.0 9.9 9.8 9.7 10.2 11.0 Remuent 12.5 13.9 12.9 13.6 15.0 14.8 12.8 9.9 10.7 10.8 9.9 9.6 9.8 8.7 9.3 Wages & Salaries 6.3 5.8 5.7 6.1 6.2 6.1 4.2 3.6 4.2 4.3 3.9 4.0 3.5 3.4 3.8 Goods & Services 3.4 3.0 2.8 3.1 3.4 3.5 2.4 1.9 2.2 2.0 1.6 1.4 1.6 1.6 1.8 Interest & BOG losses 1.6 3.8 3.1 3.1 3.6 3.2 3.9 3.0 2.6 2.5 2.6 2.4 2.5 1.6 1.5 Foreign interest 0.5 0.3 0.5 0.5 0.7 0.8 0.8 0.7 0.7 0.5 0.7 0.7 0.6 0.4 0.5 Domestic interest 0.6 0.5 1.2 1.1 1.3 1.2 0.9 0.7 0.7 0.8 0.6 0.7 0.7 0.4 0.7 BOGlosses 0.4 3.0 1.5 1.4 1.6 1.3 2.1 1.6 1.2 1.1 1.2 0.9 1.2 0.7 0.3 Otherrecurrent 1.2 1.2 1.3 1.3 1.8 2.0 2.3 1.5 1.7 2.0 1.8 1.9 2.2 2.1 2.3 Recurrent(excl. Interest) 10.9 10.1 9.8 10.5 11.4 11.6 8.9 6.9 8.1 8.3 7.4 7.3 7.2 7.1 7.8 Capital Expenditures 3.7 2.8 2.1 2.4 3.7 3.7 3.4 2.7 2.6 3.3 3.3 3.3 3.3 4.7 5.8 o/wCapital(non-financial) 3,6 2.8 2.0 2.1 2.9 2.9 2.6 2.4 2.4 2.7 2.6 2.5 2.5 3.1 3.2 Revenues 12.6 12.4 12.7 13.6 14.5 13.3 11.9 10.9 13.3 11.6 10.9 12.0 13.0 13.2 13.1 Fiscal Surplus/Deficit -3.7 -4.3 -2.3 -2.4 -4.2 -5.2 4.2 -1.8 0.1 -2.5 -2.3 -0.9 -0.1 -0.2 -2.0 Menmo:Nettransfers 1.4 1.3 1.5 1.6 2.6 2.8 3.0 1.9 1.8 2.5 2.6 2.6 3.0 3.8 4.9 Source: Statistical Appendix, Table 2. Table 4. Guatemala: Combined Public Sector Expenditure, 1984-98 (Millions of 1992 Quetzales) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997P 1998S Total Expenditure 7180.3 7360.6 6817.7 7227.0 8861.3 9106.5 8121.0 6602.0 7144.9 8076.6 7971.2 8184.9 8385.3 8898.9 10487.8 o/w Total non-debt 6414.4 5658.3 5351.4 5720.6 6787.3 7139.0 5766.8 4856.2 5682.8 6339.7 5973.7 6193.5 6222.8 6726.1 7648.5 Recurrent 5534.3 6115.4 5861.3 6163.2 7111.0 7278.3 6424.9 5176.8 5753.0 6201.0 5970.1 6102.1 6253.7 5770.2 6474.5 Wages & Salaries 2775.3 2568.2 2593.5 2767.6 2944.2 3006.4 2087.7 1855.7 2278.9 2479.4 2377.6 2531.6 2250.5 2224.1 2629.4 Goods&Services 1499.1 1323.4 1256.0 1393.3 1631.5 1709.8 1223.3 967.6 1189.6 1172.7 979.7 906.2 1000.0 1082.9 1231.5 Interest&BOGlosses 711.3 1680.7 1398.6 1394.0 1694.7 1575.1 1969.3 1558.6 1386.6 1422.3 1536.6 1489.7 1620.7 1065.1 1038.3 Foreign interest 239.3 132.5 213.5 229.8 338.0 392.4 427.0 349.3 384.8 287.6 435.0 433.1 406.4 277.3 325.6 Domestic interest 274.3 239.4 524.0 517.9 600.4 568.1 475.5 384.3 376.5 488.3 362.2 465.5 451.3 294.7 515.3 BOG losses 197.8 1308.8 661.1 646.3 756.3 614.6 1066.8 825.1 625.3 646.3 739.3 591.0 763.0 493.2 197.4 Otherrecurrent 548.5 543.2 613.2 608.3 840.7 987.0 1144.6 794.9 897.9 1126.7 1076.2 1174.6 1382.5 1398.1 1575.2 Recurrent (excl. Interest) 4822.9 4434.7 4462.7 4769.1 5416.3 5703.2 4455.6 3618.2 4366.4 4778.7 4433.5 4612.4 4633.0 4705.0 5436.2 Capital expenditures 1646.1 1245.2 956.4 1063.8 1750.3 1828.2 1696.0 1425.2 1391.9 1875.6 2001.2 2082.7 2131.6 3128.8 4013.3 o/wCapital(non-financial) 1591.5 1223.6 888.7 951.5 1371.0 1435.8 1311.2 1238.1 1316.4 1561.0 1540.2 1581.1 1589.8 2021.1 2212.3 Revenues 5547.8 5465.3 5786.1 6155.0 6863.9 6542.8 6001.5 5674.7 7181.9 6652.3 6566.1 7634.6 8298.7 8736.7 9109.6 Fiscal Surplus/Deficit -1632.5 -1895.3 -1031.6 -1072.0 -1997.4 -2563.7 -2119.4 -927.3 37.0 -1424.3 -1405.1 -550.3 -86.5 -162.3 -1378.2 Source: Statistical Appendix, Table 2. Table 5. Guatemala: Total Expenditure of Centrai Government by Sector (Miiiions of Quetzales) 1992 1993 1994 1995 1996 1997 1998 2 1999 20002 Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget Public Debt Management' 1157.0 1357.5 1734.6 1839.3 2266.9 1629.9 1704.7 1815.4 2680.8 Intemal 363.5 443.3 426.1 594.0 650.1 456.4 885.3 707.8 1089.1 Extemal 168.2 191.5 392.1 451.0 478.2 369.6 475.2 807.5 1088.7 BOG losses 625.3 722.7 916.4 794.3 1138.6 803.9 344.2 300.0 503.0 AdministrationandGeneralServices 691.0 900.5 751.6 1062.3 941.4 1050.0 1343.6 1524.9 2130.0 Defense and Public Order 785.1 869.1 1008.4 1132.0 1074.2 1219.6 1476.3 1551.6 1961.3 Economic Infrastructure & Services 1541.9 1491.0 1307.4 1471.8 2016.4 3525.6 4124.9 4242.5 5851.5 Roads and Transport 552.1 498.8 582.6 783.1 1089.7 1747.3 2045.4 1741.7 2427.2 Communications 44.2 45.9 51.6 49.1 43.9 47.9 69.4 72.5 431.1 Energy 585.3 398.4 111.0 88.7 114.2 119.2 188.5 181.4 496.2 AgricultureandMining 182.5 259.5 313.9 291.4 262.1 323.2 414.1 562.1 643.4 Finance, hndustry and Other Activibies 177.8 288.4 248.3 259.5 506.5 1288.0 1407.5 1684.9 1853.6 Social Sectors 2205.4 2895.2 3100.5 3296.5 3636.2 4813.1 7125.1 8145.7 9195.3 Education,ScienceandCniture 922.4 1158.0 1346.2 1411.9 1504.6 1900.0 2617.1 3039.32 3676.3 Health, Environment & Other Activities 525.7 623.5 701.5 750.4 805.7 1106.2 1377.4 1829.4 1926.7 Housing and Urban Development 298.5 597.8 461.3 534.4 693.4 1024.9 2078.3 1796.93 2157.9 of which, Housing 22.1 50.6 23.7 14.2 33.0 68.0 673.7 214.1 300.5 Municipal Works 228.7 368.7 368.7 497.8 563.5 906.0 1215.9 1325.16 1566.9 Community Devel. & Social Services 458.8 515.9 591.5 599.8 632.5 782.0 1052.3 1480.1 1434.4 Total 6380.4 7513.3 7902.5 8801.9 9935.1 12238.2 15774.6 17280.1 21818.9 Memo: Central Government Deficit -510.6 -1288.3 -1230.2 -519.7 -177.2 -512.4 -2988.6 -3698.5 -4545.2 Expenditures by Social Funds 47.3 192.5 351.6 395.8 412.2 971.0 1888.7 1677.6 2054.6 Current GDP 53985.4 64243.2 74669.2 85156.7 95478.6 107873.4 121127.3 133736.5 146489.0 AverageCPI(1992=100) 100.0 111.8 124.0 134.4 149.2 163.0 174.4 183.0 193.4 IMF data for 1990-96, Ministry of Finance and World Bank staff estimates fothe rest. Excludes capital amortization. nt 1997 a new system for goverment financial management was introduced. To ensure comparability, the Staff reclassified figures for 1998-2000 that are compatible with the old series IMF and IFMS staff are working together to recassify historical data according to the new budget classification. It does not include any budget expansion. Table 6. Guatemala: Total Expenditure of Central Government by Sector(% of GDP) 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget Public Debt Management 2.1 2.1 2.3 2.2 2.4 1.5 1.4 1.4 1.8 Intemal 0.7 0.7 0.6 0.7 0.7 0.4 0.7 0.5 0.7 External 0.3 0.3 0.5 0.5 0.5 0.3 0.4 0.6 0.7 BOG losses 1.2 1.1 1.2 0.9 1.2 0.7 0.3 0.2 0.3 Administration and General Services 1.3 1.4 1.0 1.2 1.0 1.0 1.1 1.1 1.5 DefenseandPublicOrder 1.5 1.4 1.4 1.3 1.1 1.1 1.2 1.2 1.3 Economic Infrastructure & Services 2.9 2.3 1.8 1.7 2.1 3.3 3.4 3.2 4.0 RoadsandTransport 1.0 0.8 0.8 0.9 1.1 1.6 1.7 1.3 1.7 Communications 0.1 0.1 0.1 0.1 0.0 0.0 0.1 0.1 0.3 Energy 1.1 0.6 0.1 0.1 0.1 0.1 0.2 0.1 0.3 Agriculture and Mining 0.3 0.4 0.4 0.3 0.3 0.3 0.3 0.4 0A Finance, Industry and Other Activities 0.3 0.4 0.3 0.3 0.5 1.2 1.2 1.3 1.3 Social Sectors 4.1 4.5 4.2 3.9 3.8 4.5 5.9 6.1 6.3 Education, Science and Culture 1.7 1.8 1.8 1.7 1.6 1.8 2.2 2.3 2.5 Health, Enviromment & Other Activities 1.0 1.0 0.9 0.9 0.8 1.0 1.1 1.4 1.3 Housing and Urban Development 0.6 0.9 0.6 0.6 0.7 1.0 1.7 1.3 1.5 of which, Housing 0.0 0.1 0.0 0.0 0.0 0.1 0.6 0.2 0.2 Municipal Works 0.4 0.6 0.5 0.6 0.6 0.8 1.0 1.0 1.1 Community Dev & Sociai Services 0.8 0.8 0.8 0.7 0.7 0.7 0.9 1.1 1.0 Total 11.8 11.7 10.6 10.3 10.4 11.3 13.0 12.9 14.9 Memo: Central GovemmentDeficit -0.9 -2.0 -1.6 -0.6 -0.2 -0.5 -2.5 -2.8 -3.1 Expenditures by Social Funds 0.1 0.3 0.5 0.5 0.4 0.9 1.6 1.3 1.4 Source: Statistical Appendix, Table 5. Table 7. Guatemala: ToGtl Expenditure of Central Government (Mjilions of 1992 Quetzales) 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget Public Debt Management 1157.0 1214.1 1399.4 1368.6 1519.1 999.9 977.6 992.1 1386.1 Internal 363.5 396.5 343.8 442.0 435.6 280.0 507.7 386.8 563.1 External 168.2 171.3 316.3 335.6 320.5 226.7 272.5 441.3 562.9 BOG;losses 625.3 646.3 739.3 591.0 763.0 493.2 197.4 164.0 260.1 Administration and General Services 691.0 805.4 606.4 790.5 630.8 644.1 770.5 833.4 1101.3 Defense andPublic Order 785.1 777.3 813.5 842.3 719.8 748.2 846.6 848.0 1014.1 Economic Infrastructure & Services 1541.9 1333.5 1054.8 1095.1 1351.2 2162.8 2365.5 2318.6 3025.5 Roads and Transport 552.1 446.1 470.0 582.7 730.2 1071.9 1173.0 951.9 1255.0 Commumications 44.2 41.1 41.6 36.5 29.4 29.4 39.8 39.6 222.9 Energy 585.3 356.3 89.6 66.0 76.5 73.1 108.1 99.1 256.6 Agriculture and Mining 182.5 232.1 253.3 216.8 175.6 198.3 237.5 307.2 332.7 Finance, Industry and Other Activities 177.8 257.9 200.3 193.1 339.4 790.1 807.1 920.8 958A Social Sectors 2205.4 2589.3 2501.4 2452.9 2436.7 2952.6 4086.0 4451.8 4754.4 Education,ScienceandCulture 922.4 1035.6 1086.1 1050.6 1008.3 1165.6 1500.8 1661.0 1900.8 Health, Environment & Other Activities 525.7 557.6 565.9 558.4 539.9 678.6 789.9 999.8 996.2 Housing and UrbanDevelopment 298.5 534.6 372.2 397.6 464.7 628.7 1191.8 982.1 1115.7 of which, Housing 22.1 45.3 19.1 10.5 22.1 41.7 386.3 117.0 155.4 Municipal Works 228.7 329.7 297.5 370.4 377.6 555.8 697.3 724.2 810.2 Community Dev & Social Services 458.8 461.4 477.2 446.3 423.9 479.7 603.5 808.9 741.7 Total 6380.4 6719.5 6375.4 6549.5 6657.7 7507.5 9046.2 9443.9 11281.4 Source: Statistical Appedix, Table 5. Table . Guatemala: Total Expenditure of Central Government (% of Total Current Quetzales) 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget PublicDebtManagement 18.1 18.1 21.9 20.9 22.8 13.3 10.8 10.5 12.3 Internal 5.7 5.9 5.4 6.7 6.5 3.7 5.6 4.1 5.0 Extemnal 2.6 2.5 5.0 5.1 4.8 3.0 3.0 4.7 5.0 BOG losses 9.8 9.6 11.6 9.0 11.5 6.6 2.2 1.7 2.3 Administration and General Services 10.8 12.0 9.5 12.1 9.5 8.6 8.5 8.8 9.8 Defense andPublic Order 12.3 11.6 12.8 12.9 10.8 10.0 9.4 9.0 9.0 Economic Infrastructure & Services 24.2 19.8 16.5 16.7 20.3 28.8 26.1 24.6 26.8 Roads and Transport 8.7 6.6 7.4 8.9 11.0 14.3 13.0 10.1 11.1 Communications 0.7 0.6 0.7 0.6 0.4 0.4 0.4 0.4 2.0 Energy 9.2 5.3 1.4 1.0 1.1 1.0 1.2 1.0 2.3 Agriculture and Mining 2.9 3.5 4.0 3.3 2.6 2.6 2.6 3.3 2.9 Finance, Industry and Other Activities 2.8 3.8 3.1 2.9 5.1 10.5 8.9 9.8 8.5 Social Sectors 34.6 38.5 39.2 37.5 36.6 39.3 45.2 47.1 42.1 Education, Science and Culture 14.5 15.4 17.0 16.0 15.1 15.5 16.6 17.6 16.8 Health, Environmnent & Other Activities 8.2 8.3 8.9 8.5 8.1 9.0 8.7 10.6 8.8 Housing andUrban Development 4.7 8.0 5.8 6.1 7.0 8.4 13.2 10.4 9.9 of which, Housing 0.3 0.7 0.3 0.2 0.3 0.6 4.3 1.2 1.4 Municipal Works 3.6 4.9 4.7 5.7 5.7 7.4 7.7 7.7 7.2 Community Dev & Social Services 7.2 6.9 7.5 6.8 6.4 6.4 6.7 8.6 6.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Memo: Expenditures by Social Funds 0.7 2.6 4.4 4.5 4.1 7.9 12.0 9.7 9.4 Source Statistical Appendix, Table S. Table 9. Guatemala: Capital Expenditures of Central Government, by Sector (Millions of Quetzales) 1992 1993 1994 1995 1996 1997 1998 I 1999 2000' Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget Administration and General Services 75.7 207.8 133.2 355.5 96.4 142.6 197.3 271.6 732.1 DefenseandPublicOrder 54.9 36.0 44.0 130.6 73.7 132.1 82.7 117.1 109.4 Economic Infrastructure & Services 997.2 940.4 760.5 904.3 1212.9 2412.8 2444.5 2596.6 3575.7 RoadsandTransport 353.5 383.7 476.9 672.6 996.2 1662.4 1902.5 1760.7 2211.6 Communications 2.0 6.7 1.6 0.6 0.1 0.0 10.1 28.2 349.8 Energy 583.4 364.7 94.9 47.7 54.9 115.3 184.4 194.2 487.2 Agriculture and Mining 53.4 117.6 166.4 167.2 157.8 172.2 227.9 428.6 390.5 Finance,IndustryandOtherActivities 4.9 67.7 20.7 16.2 4.0 462.9 119.5 184.9 136.6 Social Sectors 436.4 777.1 781.6 856.3 1096.6 1668.3 2840.1 3114.9 2708.0 Education, Science and Culture 83.3 90.5 163.3 152.3 163.3 267.8 519.5 631.8 226.7 Health, Envirornent &OtherActivities 73.0 104.5 164.6 181.8 246.1 390.8 247.0 431.2 341.1 Housing and Urban Development 279.7 581.6 451.1 519.8 684.2 1009.7 2071.7 2048.9 2134.9 of which, Housing 22.0 50.3 23.7 13.5 25.2 67.2 668.9 290.2 295.3 Municipal Works 228.7 368.7 368.7 497.8 563.5 896.5 1215.9 1472.4 1566.9 Commnunity Devel. & Social Services 0.4 0.5 2.6 2.4 3.0 0.0 2.0 3.0 5.3 Total 1564.2 1961.3 1719.3 2246.7 2479.6 4355.8 5564.7 6100.2 7125.2 Memo: Expenditures by Social Funds 47.3 192.5 351.6 395.8 412.2 971.0 1888.7 1677.6 2054.6 In 1997 a new systen for government financial management was introduced. To ensure comparability, the Staff reclassified figures for 1998-2000 that are compatible with the old series. IMF and IFMS staff are working together ito reclassify histrical data according to the new budget classification. It does not include any budget expansion. Soure: Ministry of Finance Table 10. Guatemala: Capitl Expenditures of Central Government (of GDP) 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget Administration and Gen. Services 0.1 0.3 0.2 0.4 0.1 0.1 0.2 0.2 0.5 Defense and Public Order 0.1 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1 Economic Infrastructure & Services 1.8 1.5 1.0 1.1 1.3 2.2 2.0 1.9 2.4 Roads and Transport 0.7 0.6 0.6 0.8 1.0 1.5 1.6 1.3 1.5 Communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 Energy 1.1 0.6 0.1 0.1 0.1 0.1 0.2 0.1 0.3 AgricultureandMining 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 Finance,IndustryandOtherActivities 0.0 0.1 0.0 0.0 0.0 0.4 0.1 0.1 0.1 Social Sectors 0.8 1.2 1.0 1.0 1.1 1.5 2.3 2.3 1.8 Education, ScienceandCulture 0.2 0.1 0.2 0.2 0.2 0.2 0.4 0.5 0.2 Health, Environment & OtherActivities 0.1 0.2 0.2 0.2 0.3 0.4 0.2 0.3 0.2 Housing and Urban Development 0.5 0.9 0.6 0.6 0.7 0.9 1.7 1.5 1.5 of which, Housing 0.0 0.1 0.0 0.0 0.0 0.1 0.6 0.2 0.2 Municipal Works 0.4 0.6 0.5 0.6 0.6 0.8 1.0 1.1 1.1 Community Dev & Social Services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 2.9 3.1 2.3 2.6 2.6 4.0 4.6 4.6 4.9 Memo: Expenditures by Social Funds 0.1 0.3 0.5 0.5 0.4 0.9 1.6 1.3 1.4 Source: Statistical Appendix. Tables and 9. Table 11. Guatemala: Capital Expenditures of Central Government (Millions of 1992 Quetzales) 1992 1993 1994 1995 1996 1997 1999 1999 2000 Sector Actual Actual Actual Actual Actual Actual Actual Budget Budget Administration and General Services 75.7 185.8 107.5 264.5 64.6 87.5 113.1 148.4 378.5 Defense and Public Order 54.9 32.2 35.5 97.2 49.4 81.0 47.4 64.0 56.6 Economic Infrastructure & Services 997.2 841.0 613.5 672.9 812.8 1480.1 1401.8 1419.1 1848.8 Roads and Transport 353.5 343.2 384.7 500.5 667.6 1019.8 1091.0 962.3 1143.5 Communications 2.0 6.0 1.3 0.4 0.0 0.0 5.8 15.4 180.9 Energy 583.4 326.2 76.6 35.5 36.8 70.7 105.7 106.1 251.9 AgricultureandMining 53.4 105.2 134.2 124.4 105.7 105.6 130.7 234.2 201.9 Finasnce,IndustryandOOterActivities 4.9 60.5 16.7 12.1 2.7 284.0 68.6 101.1 70.6 Social Sectors 436.4 695.0 630.6 637.2 734.9 1023.4 1628.7 1702.4 1400.2 Education, ScienC and Culture 83.3 80.9 131.7 113.3 109.4 164.3 297.9 345.3 117.2 Health, Enviromnent & Other Activities 73.0 93.5 132.8 135.3 164.9 239.7 141.6 235.7 176.4 HousingandUrbanDevelopment 279.7 520.1 363.9 386.8 458.5 619.4 1188.0 1119.8 1103.8 of which, Housing 22.0 45.0 19.1 10.0 16.9 41.2 383.6 158.6 152.7 Municipal Works 228.7 329.7 297.5 370.4 377.6 550.0 697.3 804.7 810.2 Community Devel. & Social Services 0.4 0.4 2.1 1.8 2.0 0.0 1.1 1.6 2.7 Total 1564.2 1754.1 1387.1 1671.8 1661.6 2672.1 3191.1 3333.9 3684.1 Memo: Expenditures by Social FundS 47.3 172.2 283.7 294.5 276.2 595.7 1083.1 916.8 1062.3 Sources: StatistiCal Appendix, Tables 5 and 9. lesS and 9. Table 12. Guatemala: Capital Expenditures of Central Government (% of Total Current Quetzales) 1992 1993 1994 1995 1996 1997 1998 1999 2000 Sector Actu Actual Actu Acta Actual Actual Actual Budget Budget Administration and General Services 4.8 10.6 7.7 15.8 3.9 3.3 3.5 4.5 10.3 Defense and Public Order 3.5 1.8 2.6 5.8 3.0 3.0 1.5 1.9 1.5 Economic Infrastructure & Services 63.8 47.9 44.2 40.3 48.9 55.4 43.9 42.6 50.2 RoadsandTransport 22.6 19.6 27.7 29.9 40.2 38.2 34.2 28.9 31.0 Communications 0.1 0.3 0.1 0.0 0.0 0.0 0.2 0.5 4.9 Energy 37.3 18.6 5.5 2.1 2.2 2.6 3.3 3.2 6.8 Agriculture and Mining 3.4 6.0 9.7 7.4 6.4 4.0 4.1 7.0 5.5 Finance, Industry and Other Activities 0.3 3.5 1.2 0.7 0.2 10.6 2.1 3.0 1.9 Social Sectors 27.9 39.6 45.5 38.1 44.2 38.3 51.0 51.1 38.0 Education, Science and Culture 5.3 4.6 9.5 6.8 6.6 6.1 9.3 10.4 3.2 Health.Enviromnent&OtherActivities 4.7 5.3 9.6 8.1 9.9 9.0 4.4 7.1 4,8 Housing and Urban Development 17.9 29.7 26.2 23.1 27.6 23.2 37.2 33.6 30.0 ofwwhich, Housing 1.4 2.6 1.4 0.6 1.0 1.5 12.0 4.8 4.1 Municipal Works 14.6 18.8 21.4 22.2 22.7 20.6 21.9 24.1 22.0 Community Dev & Social Services 0.0 0.0 0.2 0.1 0.1 0.0 0.0 0.0 0.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Memo: ExpenditUres by Social Funds 3.0 9.8 20.5 17.6 16.6 22.3 33.9 27.5 28.8 Sources Statistical Appendix, Tables 5 and 9. Table 13-A. Guatemala: Programmed and Actual Expenditures of the Central Government (Millions of Quetzales) 1994 1995 1996 1997 1998 Budget % Budget % Budget % Budget % Budget % Sector Approved Actual Diff. Approved Actual Diff. Approved Actual Diff. Approved Actual Diff. Approved Actual Diff. PublicDebtManagement 469.7 818.2 74.2 864.3 1045.0 20.9 1065.8 1128.3 5.9 819.7 826.0 0.8 1385.4 1360.5 -1.8 Internal 163.6 426.1 160.5 270.3 594.0 119.8 415.7 650.1 56.4 362.4 456.4 25.9 481.8 885.3 83.7 External 306.1 392.1 28.1 594.0 451.0 -24.1 650.1 478.2 -26.4 457.3 369.6 -19.2 903.6 475.2 -47.4 Administration and Gen. Services 1060.4 751.6 -29.1 1519.0 1062.3 -30.1 1799.5 941.4 -47.7 2204.4 1050.0 -52.4 2708.9 1343.6 -50.4 Defense and Public Order 1014.5 1008.4 -0.6 1157.6 1132.0 -2.2 1138.3 1074.2 -5.6 1232.3 1219.6 -1.0 1519.3 1476.3 -2.8 Economic Infrastructure & Services: 1330.5 1307.4 -1.7 1553.8 1471.8 -5.3 2448.9 2016.4 -17.7 3003.1 3525.6 17.4 3466.6 4124.9 19.0 RoadsandTransport 785.7 582.6 -25.8 1072.4 783.1 -27.0 1425.2 1089.7 -23.5 2259.0 1747.3 -22.7 2351.1 2045.4 -13.0 Communications 53.7 51.6 -3.9 57.9 49.1 -15.2 51.1 43.9 -14.2 275.1 47.9 -82.6 135.3 69.4 -48.7 Energy 128.7 111.0 -13.8 96.6 88.7 -8.2 139.1 114.2 -17.9 147.6 119.2 -19.2 200.2 188.5 -5.8 AgricultureandMining 334.0 313.9 -6.0 300.0 291.4 -2.9 299.8 262.1 -12.6 292.3 323.2 10.6 486.6 414.1 -14.9 Finance, Industry and 28.4 248.3 774.3 26.9 259.5 864.7 533.7 506.5 -5.1 29.1 1288.0 4326.1 293.4 1407.5 379.7 Other Activities Social Sectors: 3371.4 3100.5 -8.0 3782.4 3296.5 -12.8 5200.6 3636.2 -30.1 5466.7 4813.1 -12.0 7662.4 7125.1 -7.0 Education 1315.2 1346.2 2.4 1432.4 1411.9 -1.4 2044.5 1504.6 -26.4 1914.4 1900.0 -0.8 2549.3 2617.1 2.7 Health and Environment 691.3 701.5 1.5 780.3 750.4 -3.8 1024.9 805.7 -21.4 966.7 1106.2 14.4 1285.7 1377.4 7.1 Housing and Urban Dev. 493.7 461.3 -6.6 640.6 534.4 -16.6 861.3 693.4 -19.5 1217.5 1024.9 -15.8 2170.8 2078.3 -4.3 Community Dev. & Social 871.2 591.5 -32.1 929.1 599.8 -35.4 1269.9 632.5 -50.2 1368.1 782.0 -42.8 1656.6 1052.3 -36.5 Services Total (incl. Interest) 7246.5 6986.1 -3.6 8877.1 8007.6 -9.8 11653.1 8796.5 -24.5 12726.2 11434.3 -10.2 16742.6 15430.4 -7.8 Total (exci. Interest) 6776.8 6167.9 -9.0 8012.8 6962.6 -13.1 10587.3 7668.2 -27.6 11906.5 10608.3 -10.9 15357.2 14069.9 -8.4 1/ Excludes capital amortization. Source: World Bank staff estimates based on MIFIN data, Table 13-B. Guatemala: Programmed and Actual Expenditures of the Central Government (Millions of Quetzales) /2 1994 1995 1996 1997 1998 Budget % Budget ¾ Budget % Budget % Budget % Sector Approved Actual Diff. Approved Actual Diff. Approved Actual Diff. Approved Actual Diff. Approved Actual Diff. PublicDebtManagement' 469.7 664.6 41,5 864.3 864.3 0.0 1065.8 1065.6 0.0 819.7 812.2 -0.9 1385.4 1360.5 -1.8 Intemal 163.6 455.3 178.3 270.3 594.0 119.8 415.7 650.1 56.4 362.4 456.4 25.9 481.8 885.3 83.7 External 306.1 209.3 -31.6 594.0 270.3 -54.5 650.1 415.5 -36.1 457.3 355.8 -22.2 903.6 475.2 47.4 Administration and Gen. Services 1060.4 1047.5 -1.2 1519.0 1383.0 -9.0 1799.5 1587.3 -11.8 2204.4 2036.8 -7.6 2708.9 2571.2 -5.1 DelenseandPublicOrder 1014.5 1009.0 -0.5 1157.6 1132.1 -2.2 1138.3 1077.9 -5.3 1232.3 1230.5 -0.1 1519.3 1476.3 -2.8 Economic Infrastructure & Services: 1330.5 1055.8 -20.6 1553.8 1203.1 -22.6 2448.9 1493.8 -39.0 3003.1 2423.6 -19.3 3466.6 2976.0 -14.2 Roads andTransport 785.7 584.9 -25.6 1072.4 783.0 -27.0 1425.2 1089.7 -23.5 2259 1747.5 -22.6 2351.1 2076.6 -11.7 Communications 53.7 52.5 -2.2 57.9 50.0 -13.6 51.1 44.9 -12.1 275.1 274.9 -0.1 135.3 69.4 -48.7 Energy 128.7 111.0 -13.8 96.6 88.7 -8.2 139.1 114.2 -17.9 147.6 119.1 -19.3 200.2 188.5 -5.8 AgricultureandMining 334.0 285.7 -14.5 300.0 255.7 -14.8 299.8 230.5 -23.1 292.3 254.3 -13.0 486:6 414.7 -14.8 Finance, Industry and 28.4 21.7 -23.6 26.9 25.7 -4.5 533.7 14.5 -97.3 29.1 27.8 -4.5 293.4 226.8 -22.7 Other Activities Social Sectors: 3371.4 3170.6 -6.0 3782.4 3391.7 -10.3 5200.6 3772.9 -27.5 5466.7 5015.0 -8.3 7662.4 7133.1 -6.9 Education 1315.2 1257.7 -4.4 1432.4 1304.2 -9.0 2044.5 1405.0 -31.3 1914.4 1781.6 -6.9 2549.3 2448.7 -3.9 HealthandEnvironment 691.3 664.6 -3.9 780.3 682.1 -12.6 1024.9 642.7 -37.3 966.7 898.9 -7.0 1285.7 1177.9 -8.4 HousingandUrbanDev. 493.7 485.9 -1.6 640.6 575.0 -10.2 861.3 778.7 -9.6 1217.5 1121.6 -7.9 2170.8 1889.6 -13.0 Community Dev. & Social 871.2 762.4 -12.5 929.1 830.4 -10.6 1269.9 946.5 -25.5 1368.1 1212.9 -11.3 1656.6 1616.9 -2.4 Services Total (incl.lterest) 7246.5 6947.5 -4.1 8877.1 7974.2 -10.2 11653.1 8997.5 -22.8 12726.2 11518.1 -9.5 16742.6 15517.1 -7.3 Total (excl. Interest) 6776.8 6282.9 -7.3 8012.8 7109.9 -11.3 10587.3 7931.9 -25.1 11906.5 10705.9 -10.1 15357.2 14156.6 -7.8 1/ Excludes capital anortization. Sources: Direccion de Anilisis Fiscal, Ministty of Finance. 2/ This new table was included per request of the Ministry of Finance and is only partly consistent with the rest of this Statistical Appendix Table 14. Guatemala: Bilateral External Grants, 1998* (US$ Thousands) Donor Outstanding Balance* 1998 Mitch Countries Dec./97 Dec./98 Flows Mitch Total (% of total) TOTAL 76,822 143,120 46,513 19,214 65,727 29.2% Germany - 4,773 3,900 873 4,773 18.3% Algeria - 100 50 50 100 50.0% Argentina - 3 3 - 3 0.0% Barbados - 3 - 3 3 100.0% Canada 3,194 3,600 406 0 406 0.0% Santiago de Compostela Community - 771 700 71 771 9.2% Korea - 160 80 80 160 50.0% IBERDROLA Spain - 400 200 200 400 50.0% United States 41,457 55,737 7,043 7,237 14,280 50.7% Venezuela's Social Investment Fund - 9,720 9,720 - 9,720 0.0% France - 9,345 4,800 4,545 9,345 48.6% Italy 1,670 4,300 1,030 1,600 2,630 60.8% Japan 28,845 36,863 7,764 254 8,018 3.2% Mexico 3,000 1,500 1,500 3,000 50.0% Norway 1,500 8,100 6,600 - 6,600 0.0% Poland - 25 10 15 25 60.0% Andorra's Principality - 14 7 7 14 50.0% Galicia's Autonomous Province - 185 90 95 185 51.4% United Kingdom - 1,100 1,100 - 1,100 0.0% Malta - 227 110 117 227 51.5% Switzerland 156 1,593 1,400 37 1,437 2.6% Taiwan - 2,530 - 2,530 2,530 100.0% * Does not include China, Demnark, Spain, The Netherlands and Sweden because of inconsistencies in the reports. Data are underestimated due to underreporting by bilateral agencies Source: SEGEPLAN Reports. Table 15. Guatemala: Financing of Public Capital Expenditures, 1996-97 (Millions of Quetzales) 1 99 6 1997 Total | Local |External Financing Total Local Externa Financing Investment Financing Total Bilateral Multilateral Donations Counterpart Investment Financing Total Bilatera Multilateral Donations Countepart TOTAL 4484.5 2913.7 775.0 15.3 570.2 94.6 795.8 6044.6 4624.7 887.0 275.7 532.5 56.8 532.8 CENTRAL GOVERNMENT 2479.6 1757.4 670.1 15.3 570.2 84.6 52.1 4355.8 3423.6 864.9 275.7 532.5 56.8 67.2 Administraion & General Services 96.4 34.8 44.4 0.0 35.5 8.9 17.2 142.6 118.8 17.2 17.2 0.0 0.0 6.6 Defense andtPublic Order 73.7 73.7 0.0 0.0 0.0 0.0 0.0 132.1 132.1 0.0 0,0 0.0 0.0 0.0 Economiclnfrastructure&Srvices 1212.9 S88.5 313.4 14.7 278.9 19.8 11.0 2412.8 1888.2 513.1 85.5 409.5 18.2 11.5 Roads and Transpet 996.2 759.8 232.9 14.7 218.2 0.0 3.5 1662.4 1201.3 454.3 72.5 375.4 6.5 6.S Cotmmunications 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Ery 54.9 54.7 0.0 0.0 0.0 0.0 0.2 115.3 106.3 9.0 9.0 0.0 0.0 0.0 AgnictureandMingng 157.8 72.0 78.5 0.0 58.7 19.8 7.3 172.2 117.S 49.8 4.0 34.1 11.7 4.6 Finance, Industry and Others 4.0 2.0 2.0 0.0 2.0 0.0 0.0 462.9 462.9 0.0 0.0 0.0 0.0 0.0 Soci Sectors 1096.6 760.4 312.3 0.6 255.8 55.9 23.9 1668.3 1284.5 334.6 173.0 123.0 38.6 49.1 Educaon, Science and Culture 163.3 99.8 63.5 0.0 63.5 0.0 0.0 267.8 146.9 120.9 64.4 53.7 2.8 0.0 Hedth 246.1 18.4 227.7 0.6 171.2 55.9 0.0 390.8 319.3 71.5 25.9 27.5 18.1 0.0 HousingandUrbanDevelopment 684.2 639.2 21.1 0.0 21.1 0.0 23.9 1009.7 818.4 142.2 82.7 41.9 17.6 49.1 Coninunity Dev. & Social Services 3.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NF PUBLIC ENTERPRISES 828.6 0.0 84.9 0.0 0.0 0.0 743.7 487,7 0.0 22.1 0.0 0.0 0.0 465.6 GUATEL 512.3 0.0 52.0 n.a. n.a. n.a. 460.3 352.4 0.0 10.1 n.a. n.a. n.a. 342.3 INDE 155.3 0.0 9.5 n.a. n.a. n.a 145.8 103.4 0.0 12.0 n.a n.a. na. 91.4 EMPAGUA 93.1 0.0 23.4 n.a. n.a. n.a. 69.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Puertos Quetzal & Santo Tomnas 64.9 0.0 0.0 0.0 0.0 0.0 64.9 22.0 0.0 0.0 0.0 0.0 0.0 22.0 Others 3.0 0.0 0,0 0.0 0.0 0.0 3.0 9.9 0.0 0.0 0.0 0.0 0.0 9.9 RESTOFGENERALGOVERNMENT 1176.3 1156.3 20.0 0.0 0.0 0.0 0.0 1201.1 1201.1 0.0 0.0 0.0 0.0 0.0 IGSS 264.6 264.6 0.0 0.0 0.0 0.0 0.0 53.8 53.8 0.0 0.0 0.0 0.0 0.0 INTECAP 43.1 43.1 0.0 0.0 0.0 0.0 0.0 17.8 17.8 0.0 0.0 0.0 0.0 0.0 IRTRA 80.6 80.6 0.0 0.0 0.0 0.0 0.0 67.7 67.7 0.0 0.0 0.0 0.0 0.0 University of San Carlos 24.0 24.0 0.0 0.0 0.0 0.0 0.0 22.9 22.9 0.0 0.0 0.0 0.0 0.0 Other decentralized 112.0 112.0 0.0 0.0 0.0 0.0 0.0 28.9 28.9 0.0 0.0 0.0 0.0 0.0 Local governments 652.0 632.0 20.0 n.a. n.a. n.a. 0.0 1010.0 1010.0 0.0 n.a. n.a. n.a. 0.0 Source: Ministry of Finance Table 16. Guatemala: Public Fixed Investment (Millions of Quetzales) /1 1995 1996 1997 1998 1999 2000 (actual) (actual) (actual) (actual) (budget) (budget) TOTAL 2240.3 2808.1 4136.1 5923.7 5482.4 6677.7 CENTRAL GOVERNMENT 1109.1 1292.5 2447.3 4106.3 5482.4 6677.7 Presidency of the Republic 419.9 363.1 875.3 1650.9 3296.9 4054.0 o/w Social Funds 294.1 351.2 789.4 1472.1 1403.8 1651.1 Fondo Nacional para la Paz (FONAPAZ) 92.8 146.1 176.0 591.7 411.1 383.3 Fondo de Inversion Social (FIS) 35.9 13.5 181.4 366.9 310.1 520.9 Fondo Nac. Conservaci6n Naturaleza (FONACON) 12.6 0.0 0.0 0.0 3.0 3.0 Fondo Solidaridad Desarrollo Comunitario (FSDC) 138.0 174.1 412.1 491.2 642.6 705.0 Fondo Indigena Guatemalteco (FODIGUA) 14.8 17.5 19.9 22.3 30.0 31.9 Fondo Guatemalteco del Medio Ambiente 0.0 0.0 0.0 0.0 7.0 7.0 Foreign Relations 0.3 0.4 0.6 7.8 6.9 3.7 Police and Interior Affairs 36.8 0.6 117.3 82.3 109.6 84.3 National Defense 14.1 15.0 71.4 0.0 0.0 0.0 Public Finances 14.9 15.0 3.0 6.5 1.0 0.0 Education 39.9 18.9 74.4 147.7 181.3 13.8 o/w Social Funds 24.2 9.8 65.0 92.9 122.0 0.0 Fondo Educacion Rural Coparticipativa (FERC) 24.2 9.8 65.0 92.9 122.0 0.0 Health and Labor 27.2 80.3 69.5 3.7 3.0 5.3 Economy 11.9 6.4 73.0 246.4 9.3 299.3 o/w Social Funds 9.1 1.2 71.6 245.2 6.5 295.3 Fondo Guatemalteco pro Vivienda (FOGUAVI) 9.1 1.2 67.1 245.2 0.0 295.3 Fondo de Ciencia y Teenologia (FONACYT) 0.0 0.0 4.5 0.0 6.5 0.0 Agriculture 73.7 57.7 84.3 154.1 283.7 327.3 o/w Social Funds 68.4 50.0 45.0 78.6 145.2 108.2 Fondo Nacional Agropecuario (FONAGRO) 41.4 12.5 7.2 21.1 39.3 0.0 Fondo Nacional de Tierras (FONATIERRA) 27.0 37.5 37.8 57.5 105.9 108.2 Communications, Transport and Public Works 468.9 731.4 1048.5 1767.6 1539.9 1819.3 Energy and Mining 0.4 0.6 18.3 5.8 7.2 9.0 Culture and Sports 0.1 3.0 10.3 32.8 43.5 61.6 Office of Procurement 1.1 0.1 1.4 0.9 0.0 0.0 NONFINANCIAL PUBLIC ENTERPRISES 471.3 728.0 487.7 547.6 n.a n.a GUATEL 261.0 379.2 352.4 395.7 n.a n.a INDE 78.0 82.7 103.4 116.1 n.a n.a EGGSA 70.9 147.0 n.a. n.a. n.a n.a EMPAGUA 21.3 65.0 0.0 n.a. n.a n.a Puertos Quetzal & Santo Tomas 33.3 40.8 22.0 24.7 n.a n.a Others 6.8 13.3 9.9 11.1 n.a n.a REST OF GENERAL GOVERNMENT 659.9 787.6 1201.1 1269.7 n.a n.a IGSS 41.4 9.6 53.8 n.a n.a n.a INTECAP 8.3 43.1 17.8 n.a n.a n.a IRTRA 28.0 70.6 67.7 n.a n.a n.a University of San Carlos 20.1 22.7 22.9 11.2 n.a n.a Other decentralized 39.8 62.6 28.9 n.a n.a n.a Local governments 522.3 579.0 1010.0 1258.5 n.a n.a o/w Transfers from Central Government2 497.8 563.5 906.0 1215.9 n.a n.a Memo: Total Social Funds 395.8 412.2 971.0 1888.7 1677.6 2054.6 ' Includes capital transfers to Social Funds. Does not include any budget expansion or cut. Source: Ministry of Finance. 2 Resources aimed for municipal works. Table 17. Guatemala: Composition of Public Fixed Investment (%) /I 1995 1996 1997 1998 1999 2000 (actual) (actual) (actual) (actual) (budget) (budget) TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 CENTRAL GOVERNMENT 49.5 46.0 59.2 69.3 100.0 100.0 Presidency of the Republic 18.7 12.9 21.2 27.9 60.1 60.7 o/w Social Funds 13.1 12.5 19.1 24.9 25.6 24.7 FondoNacionalparalaPaz(FONAPAZ) 4.1 5.2 4.3 10.0 7.5 5.7 Fondo de Inversion Social (FIS) 1.6 0.5 4.4 6.2 5.7 7.8 Fondo Nac. Conservaci6n Naturaleza (FONACON) 0.6 0.0 0.0 0.0 0.1 0.0 Fondo Solidaridad Desarrollo Comunitario (FSDC) 6.2 6.2 10.0 8.3 11.7 10.6 Fondo Indigena Guatemalteco (FODIGUA) 0.7 0.6 0.5 0.4 0.5 0.5 Fondo Guatemalteco del Medio Ambiente 0.0 0.0 0.0 0.0 0.1 0.1 Foreign Relations 0.0 0.0 0.0 0.1 0.1 0.1 Police Administration 1.6 0.0 2.8 1.4 2.0 1.3 Defense 0.6 0.5 1.7 0.0 0.0 0.0 Public Finances 0.7 0.5 0.1 0.1 0.0 0.0 Education 1.8 0.7 1.8 2.5 3.3 0.2 o/w Social Funds 1.1 0.3 1.6 1.6 2.2 0.0 Fondo Educacion Rural Coparticipativa (FERC) 1.1 0.3 1.6 1.6 2.2 0.0 Health and Labor 1.2 2.9 1.7 0.1 0.1 0.1 Economy 0.5 0.2 1.8 4.2 0.2 4.5 o/w Social Funds 0.4 0.0 1.7 4.1 0.1 4.4 Fondo Guatemalteco pro Vivienda (FOGUAVI) 0.4 0.0 1.6 4.1 0.0 4.4 Fondo de Ciencia y Tecnologia (FONACYT) 0.0 0.0 0.1 0.0 0.1 0.0 Agriculture 3.3 2.1 2.0 2.6 5.2 4.9 o/w Social Funds 3.1 1.8 1.1 1.3 2.6 1.6 Fondo Nacional Agropecuario (FONAGRO) 1.8 0.4 0.2 0.4 0.7 0.0 Fondo Nacional de Tierras (FONATIERRA) 1.2 1.3 0.9 1.0 1.9 1.6 Communications, Transport and Public Works 20.9 26.0 25.3 29.8 28.1 27.2 Energy and Mining 0.0 0.0 0.4 0.1 0.1 0.1 Culture and Sports 0.0 0.1 0.3 0.6 0.8 0.9 Office of Procurement 0.0 0.0 0.0 0.0 0.0 0.0 NONFINANCIAL PUBLIC ENTERPRISES 21.0 25.9 11.8 9.2 n.a n.a GUATEL 11.6 13.5 8.5 6.7 n.a n.a INDE 3.5 2.9 2.5 2.0 n.a n.a EGGSA 3.2 5.2 n.a. n.a. n.a n.a EMPAGUA 1.0 2.3 0.0 n.a. n.a n.a Puertos Quetzal & Santo Tomas 1.5 1.5 0.5 0.4 n.a n.a Others 0.3 0.5 0.2 0.2 n.a n.a REST OF GENERAL GOVERNMENT 29.5 28.0 29.0 21.4 n.a n.a IGSS 1.8 0.3 1.3 n.a n.a n.a INTECAP 0.4 1.5 0.4 n.a n.a n.a IRTRA 1.2 2.5 1.6 n.a n.a n.a University of San Carlos 0.9 0.8 0.6 0.2 n.a n.a Other decentralized 1.8 2.2 0.7 n.a n.a n.a Local governments 23.3 20.6 24.4 21.2 n.a n.a o/w Transfers from Central Government2 22.2 20.1 21.9 20.5 n.a n.a Memo: Total Social Funds 17.7 14.7 23.5 31.9 30.6 30.8 Includes all transfers to Social Funds. Does not include any budget expansion. 2 Resources aimed for municipal works. Source: Statistical Appendix, Table 16. Table 18. Guatemala: Level of Public Fixed Investment (% of GDP) /1 1995 1996 1997 1998 1999 2000 (actual) (actual) (actual) (actual) (budget) (budget) TOTAL 2.6 2.9 3.8 4.9 4.1 4.6 CENTRAL GOVERNMENT 1.3 1.4 2.3 3.4 4.1 4.6 Presidency of the Republic 0.5 0.4 0.8 1.4 2.5 2.8 o/w Social Funds 0.3 0.4 0.7 1.2 1.0 1.1 Fondo Nacional para la Paz (FONAPAZ) 0.1 0.2 0.2 0.5 0.3 0.3 Fondo de Inversion Social (FIS) 0.0 0.0 0.2 0.3 0.2 0.4 Fondo Nac. Conservaci6n Naturaleza (FONACON) 0.0 0.0 0.0 0.0 0.0 0.0 Fondo Solidaridad Desarrollo Comunitario (FSDC) 0.2 0.2 0.4 0.4 0.5 0.5 Fondo Indigena Guatemalteco (FODIGUA) 0.0 0.0 0.0 0.0 0.0 0.0 Fondo Guatemalteco del Medio Ambiente 0.0 0.0 0.0 0.0 0.0 0.0 Foreign Relations 0.0 0.0 0.0 0.0 0.0 0.0 Police and Interior Affairs 0.0 0.0 0.1 0.1 0.1 0.1 National Defense 0.0 0.0 0.1 0.0 0.0 0.0 Public Finances 0.0 0.0 0.0 0.0 0.0 0.0 Education 0.0 0.0 0.1 0.1 0.1 0.0 o/w Social Funds 0.0 0.0 0.1 0.1 0.1 0.0 Fondo Educacion Rural Coparticipativa (FERC) 0.0 0.0 0.1 0.1 0.1 0.0 Health and Labor 0.0 0.1 0.1 0.0 0.0 0.0 Economy 0.0 0.0 0.1 0.2 0.0 0.2 olw Social Funds 0.0 0.0 0.1 0.2 0.0 0.2 Fondo Guatemalteco pro Vivienda (FOGUAVI) 0.0 0.0 0.1 0.2 0.0 0.2 Fondo de Ciencia y Tecnologia (FONACYT) 0.0 0.0 0.0 0.0 0.0 0.0 Agriculture 0.1 0.1 0.1 0.1 0.2 0.2 o/w Social Funds 0.1 0.1 0.0 0.1 0.1 0.1 Fondo Nacional Agropecuario (FONAGRO) 0.0 0.0 0.0 0.0 0.0 0.0 Fondo Nacional de Tierras (FONATIERRA) 0.0 0.0 0.0 0.0 0.1 0.1 Communications, Transport and Public Works 0.6 0.8 1.0 1.5 1.2 1.2 Energy and Mining 0.0 0.0 0.0 0.0 0.0 0.0 Culture and Sports 0.0 0.0 0.0 0.0, 0.0 0.0 Office of Procurement 0.0 0.0 0.0 0.0 0.0 0.0 NONFINANCIAL PUBLIC ENTERPRISES 0.6 0.8 0.5 0.5 n.a n.a GUATEL 0.3 0.4 0.3 0.3 n.a n.a INDE 0.1 0.1 0.1 0.1 n.a n.a EGGSA 0.1 0.2 n.a. n.a. n.a n.a EMPAGUA 0.0 0.1 0.0 n.a. n.a n.a Puertos Quetzal & Santo Tomas 0.0 0.0 0.0 0.0 n.a n.a Others 0.0 0.0 0.0 0.0 n.a n.a REST OF GENERAL GOVERNMENT 0.8 0.8 1.1 1.0 n.a n.a IGSS 0.0 0.0 0.0 n.a n.a n.a INTECAP 0.0 0.0 0.0 n.a n.a n.a IRTRA 0.0 0.1 0.1 n.a n.a n.a University of San Carlos 0.0 0.0 0.0 0.0 n.a n.a Other decentralized 0.0 0.1 0.0 n.a n.a n.a Local governments 0.6 0.6 0.9 1.0 n.a n.a o/w Transfers from Central Government2 0.6 0.6 0.8 1.0 n.a n.a Memo: Total Social Funds 0.5 0.4 0.9 1.6 1.3 1.4 ' Includes all transfers to Social Funds. Does not include any budget expansion. 2 Resources aimed for municipal works. Source: Statistical Appendix, Table 16. Table 19. Guatemala: Programmed and Effective Official Disbursements (Millions of US$) l ~~~~ ~ ~~ ~ ~~~~~~1995 1-1996 1997 1998l | Debtor/Creditor Programmed Effective Disb. Rate |Programmed Effective Disb. Rate |Programmed Effective Disb. Rate |Programnmed Effective Disb. Rate| TOTAL 300.7 118.7 39.5% 186.4 210.5 112.9% 281.9 323.6 114.8% 245.1 320.2 130.6% CentralGovernment 281.9 114.5 40.6% 186.4 198.4 106.4% 281.9 323.4 114.7% 245.1 320.2 130.6% IDB 72.3 47.3 65.4% 45.7 38.9 85.2% 170.5 101.0 59.3% 134.0 125.6 93.7% IBRD 72.0 14.5 20.1% 69.7 68.9 98.8% 17.2 16.5 95.8% 17.3 29.5 170.8% BCIE 53.1 37.1 69.9% 41.2 34.0 82.6% 27.5 17.7 64.3% 38.5 112.4 291.9% FIDA 5.1 2.7 52.90/o 3.4 2.3 67.1% 2.9 2.7 90.4% 2.8 2.5 89.4% OPEC 1.6 0.7 43.8% 1.1 0.7 62.8% 5.1 0.5 9.5% 10.0 2.6 26.4% USAID 14.6 0.6 4.1% 0.5 17.3 0.0 0.0 0.0 0.0 KFW 11.7 4.3 36.8% 9.8 19.5 199.7% 13.9 9.0 65.0% 20.8 3.5 16.7% MCC 8.0 2.0 25.0% 0.0 0.2 0.0 0.2 0.0 0.0 FIV - Venezuela 21.2 5.1 24.1% 2.8 12.0 428% 13.9 4.4 31.5% 4.1 1.9 47.4% Govt. of Switzerland 2.3 0.2 8.7% 0.0 0.0 0.0 0.0 0.0 0.4 Eximbank-China 20.0 0.0 0.0% 0.0 0.0 20.0 20.0 100.0% 0.0 40.0 OECF-Japan 0.0 0.0 12.2 0.0 0.0% 10.8 1.4 13.2% 17.7 1.7 9.8% Private Creditors (Bonds) 0.0 0.0 0.0 0.0 0.0 150.0 0.0 0.0 USA Government 0.0 0.0 0.0 4.6 68.867 0.0 0.0 0.0 0.0 Municipalidad de Guatemala n.a. n.a. n.a. 0.0 4.7 0.0 0.0 0.0 0.0 GUATEL 13.8 3.8 27.5% 0.0 7.5 0.0 0.1 0.0 0.0 OECF-Japan 12.0 3.8 31.7% 0.0 7.5 0.0 0.1 0.0 0.0 BCIE 1.8 0.0 0.0% 0.0 0.0 0.0 0.0 0.0 0.0 EMPAGUA 5.0 0.4 8.0% n.a. n.a 0.0 0.2 0.0 0.0 OECF-Japan 5.0 0.4 8.0% n.a. n.a 0.0 0.2 0.0 0.0 Source: Ministry of Finance and Bank of Guatemala. Table 20. Guatemala: Official Disbursements (US$ mn) /1 (Millions of US$) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Bilaterals 42.8 96.3 31.8 61.6 74.5 59.1 41.3 53.6 48.7 64.2 35.6 50.2 Multilaterals 27.6 105.1 85.3 68.2 69.7 95.2 28.8 118.3 100.3 144.1 137.8 270.0 Private Creditors 16.4 12.8 43.8 28.1 18.4 36.7 13.5 104.1 61.8 0.0 150.3 0.0 Total Official 86.8 214.2 160.9 157.9 162.6 191.0 83.6 276.0 210.8 208.3 323.6 320.2 l Data includes disbursements to Bank of Guatemala. Source: World Bank on data provided by the Ministry of Finance and Bank of Guatemala. Table 21. Guatemala: Outstanding Public External Debt (Millions of US$) 1990 1991 1992 1993 1994 1995 1996 1997 1998e1 Total 2402.4 2345.1 2281.2 2248.1 2405.9 2347.7 2515.3 2680.9 2774.6 Nonfinancial public sector 1309.2 1315.1 1341.6 1375.3 1627.1 1609.6 1652.9 1926.0 2037.6 Multilateral 824.1 789.2 763.1 713.4 784.6 807.0 919.1 999.7 1226.3 IDB 516.7 508.3 497.7 477.9 558.6 570.8 606.0 666.9 777.4 World Bank 202.0 174.5 172.3 146.3 140.6 123.9 180.9 197.2 203.1 BCIE 103.1 103.6 86.6 81.5 75.1 100.5 119.7 116.6 227.9 'FAD 0.7 1.0 3.0 4.2 6.0 7.8 9.1 12.0 13.8 OPEC 1.6 1.8 3.5 3.5 4.3 4.0 3.4 7.1 4.1 Bilateral 406.2 437.8 475.4 521.0 554.7 603.0 572.4 524.8 555.9 Commercial Banks 23.0 21.5 31.9 40.6 60.8 59.6 51.0 49.0 49.6 Bonded debt 0.0 0.0 0.0 40.0 40.3 38.3 39.4 189.4 150.0 Short-term 55.9 66.6 71.2 60.3 186.7 101.7 71.0 163.1 55.8 CORFINA 350.3 373.0 387.2 402.1 421.4 437.1 592.4 546.1 581.2 o/w Banco Exterior de Espana 203.3 203.3 188.7 370.9 370.9 370.9 506.4 540.2 576.3 Bank of Guatemala 742.9 657.0 552.4 470.7 357.4 301.0 270.0 208.7 155.9 MLT debt 474.7 390.4 394.3 368.6 298.0 256.9 239.7 166.0 140.7 Short-term 268.2 266.6 158.1 102.1 59.4 44.1 30.3 42.8 15.2 Memo:CurrentGDP 6843.4 9379.1 10128.6 11095.5 13219.3 14336.1 15913.1 17455.2 17687.5 Official external debt/GDP (%) 35.1 25.0 22.5 20.3 18.2 16.4 15.8 15.4 15.7 Source: IMF. Bank of Guatemala and Ministry of Finance. e/ 1998 data are preliminary estimates Table 22. Guatemala: Central Government Outstanding Public Domestic Debt (Millions of Quetzales) Balance Balance Balance Balance Balance Balance Balance Balance Balance 31/12/90 31/12/91 31/12/92 31/12/93 31/12/94 31/12/95 31/12/96 31/12/97 31/12/98 1. FLOATING DEBT 580.6 522.3 696.6 1153.1 1075.8 1271.0 661.5 304.1 126.4 PROGRAMA DEFUNCIONAMIENTO 345.0 280.3 432.9 662.1 577.2 530.1 253.1 Organismo Legislativo 3.2 3.0 5.5 20.0 6.0 4.4 Presidencia de la Republica 58.9 18.7 46.2 57.6 28.0 29.5 Ministerio de Relaciones Exteriores 10.3 6.5 7.8 16.0 28.4 19.8 Ministerio de Gobernacion 11.4 9.1 20.7 36.9 18.8 16.8 Ministerio de la Defensa Nacional 69.3 47.6 55.7 47.6 62.0 24.1 Ministerio de Finanzas Publicas 53.5 33.0 96.8 145.1 87.1 82.9 Ministerio deEducacion 29.4 30.9 32.1 53.1 96.7 119.7 Ministerio de Salud Publicay A.S. 74.9 76.6 110.4 183.0 164.6 175.6 Ministerio de Trabajo y Prev Soc 0.6 1.0 2.0 7.3 3.2 2.2 Mmnisterio de Economia 2.2 0.7 8.9 14.1 4.7 4.6 Ministerio de Agricultura Ganad. Alim. 14.2 13.1 16.3 38.5 38.2 19.6 Ministerio de Comunicaciones T. y O.P. 8.3 14.2 19.6 23.1 22.5 18.0 Ministerio de Energia y Minas 0.5 19.0 1.0 5.6 2.6 1.2 Ministerio de Asuntos Especificos 0.5 0.0 0.0 0.0 0.0 0.0 Ministerio de Cultura y Deportes 2.8 2.6 5.3 6.3 6.6 7.8 Ministerio de Desarollo Urbano y R. 4.3 1.0 1.4 1.4 1.4 0.0 Ministerio Publico 0.1 0.8 1.1 3.5 0.9 0.0 Procuradoria Gral de la Nacion 0.0 0.0 0.0 0.0 0.9 0.2 Contraloria General de Cuentas 0.6 2.5 2.1 3.0 4.6 3.7 PROGRAMA DE INVERSION 235.6 242.0 263.7 491.0 498.6 740.9 408.5 PresidenciadelaRepublica 6.5 1.4 2.9 51.2 64.3 106.8 Ministerio de Relaciones Exteriores 0.1 0.5 1.5 2.5 2.6 0.5 Ministerio de Gobemacion 1.2 0.0 0.0 2.0 2.5 56.1 Ministerio de la Defensa Nacional 11.4 45.6 1.4 4.9 3.2 2.7 Ministerio de Finanzas Publicas 123.5 43.5 62.8 216.6 193.3 261.4 Ministerio de Educacion 2.1 20.9 10.2 8.1 35.3 25.7 MinisteriodeSaludPublicayA.S. 3.4 7.5 11.2 25.6 21.9 17.2 Ministerio deTrabajoyPrev Soc 0.0 0.4 0.1 0.0 1.5 1.7 Ministerio de Economia 14.3 4.0 0.0 0.0 7.8 19.5 Ministerio de Agricultura Ganad. Alim. 11.8 26.7 13.3 14.5 23.7 59.6 Ministerio de Comunicaciones T. y O.P. 50.9 83.2 154.3 139.2 133.7 167.7 Ministerio de Energia y Minas 6.7 2.3 0.4 0.4 4.5 0.9 Ministerio de Cultura y Deportes 1.9 4.0 3.4 3.6 2.0 20.6 Ministerio de Desarollo Urbano y R. 1.8 2.0 2.2 16.3 0.1 0.0 Contraloria General de Cuentas 0.0 0.0 0.0 6.1 2.2 0.5 2. BONDED DEBT 3408.7 3712.6 3684.5 4153.5 4854.7 4485.2 5095.0 5864.9 6259.4 3. CARRYOVER DEBT 2.2 88.1 51.6 32.2 200.1 241.6 0.0 0.0 0.0 4. CIRCULATING SECURITIES 0.1 0.2 0.4 0.6 1.0 1.2 1.1 1.1 0.8 5. OTHERS 1.5 1.8 6.2 6.1 7.9 22.3 0.2 0.0 0.0 TOTAL DOMESTIC PUBLIC DEBT 3993.1 4325.0 4439.3 5345.5 6139.5 6021.3 5757.8 6170.1 6386.6 (as % of GDP) 11.6 9.1 8.2 8.3 8.2 7.1 6.0 5.7 5.3 Memo: Current GDP 34316.9 47302.3 53985.4 64243.2 74669.2 85156.7 95478.6 107873.4 121127.3 Source: Ministry of Finance and Bank of Guatemala. 1998 data are preliminary estimates. Table 23. Guatemala: Central Government Bonded Debt Maturities (Millions of Quetzales, end of period balances) 1994 1995 1996 1997 1998 1 month 763.4 483.5 289.7 405.8 383.7 2 months 23.2 641.8 373.0 447.6 214.4 3 months 107.5 245.4 396.0 398.9 329.3 4 months 67.0 307.1 271.0 521.9 189.4 5 months 92.7 101.3 154.0 414.7 99.4 6 months 227.2 149.9 235.6 537.8 199.0 7 months 158.0 245.9 457.0 372.0 379.1 8 months 103.6 113.5 314.1 518.1 263.0 9 months 208.8 100.4 99.8 203.2 224.1 l0months 366.4 140.8 134.7 370.0 110.1 11 months 40.8 20.7 113.9 88.2 69.4 12 months 141.8 69.0 130.8 228.8 147.0 13 to 24 months 274.9 179.7 1254.0 850.0 1139.1 25 months + 471.0 330.7 86.8 426.6 2512.7 Subtotal 3046.3 3129.7 4310.4 5783.6 6259.6 Bank of Guatemala 1808.4 1355.5 782 78.4 78.0 Total 4854.7 4485.2 5092.4 5862.0 6337.6 Acumulated Percentual Structure I month 25.1 15.4 6.7 7.0 6.1 2 months 25.8 36.0 15.4 14.8 9.6 3 months 29.4 43.8 24.6 21.7 14.8 4 months 31.5 53.6 30.8 30.7 17.8 5 months 34.6 56.8 34.4 37.8 19.4 6 months 42.1 61.6 39.9 47.1 22.6 7 months 47.2 69.5 50.5 53.6 28.7 8 months 50.6 73.1 57.8 62.5 32.9 9 months 57.5 76.3 60.1 66.0 36.4 10 months 69.5 80.8 63.2 72.4 38.2 11 months 70.9 81.5 65.9 74.0 39.3 12 months 75.5 83.7 68.9 77.9 41.7 2 years 84.5 89.4 98.0 92.6 59.9 3 years + 100.0 100.0 100.0 100.0 100.0 Subtotal 62.7 69.8 84.6 98.7 98.8 Bank of Guatemala 37.3 30.2 15.4 1.3 1.2 Total 100.0 100.0 100.0 100.0 100.0 Source: Ministry of Finance Table 24-A. Guatemala: Savings on Interest Payments from Public Debt Restructuring, Proposals' Results Comparison RESULTS 1999 2000 2001 2002 2003 SUM A. Interest Payments Savings 97 204.0 183.6 163.2 127.0 774.8 1. Proposal I 0.1% 0.1% 0.1% 0.1% 0.1% (as % of GDP) 185.8 340.0 306.0 272.0 235.8 1339.6 2. Proposal 2 01% 0.2% 0.2% 0.2% 0.1% (as % of GDP) B. Intervention Costs 1. Proposal 1 99 152.4 97.8 33.4 5.1 387.7 (as % of GDP) 0.1% 0.1% 0.1% 0.0% 0.0% 2. Proposal 2 177.4 254.5 155.9 51.2 7.3 646.3 (as % of GDP) 0.1% 0.2% 0.1% 0.0% 0.0% C. Net Effect 1. Proposal 1 -2.0 51.6 85.8 129.8 121.8 386.9 (as % of GDP) 0.0% 0.0% 0.1% 0.1% 0.1% 2. Proposal 2 8.4 85.5 150.1 220.8 228.5 693.2 (as % of GDP) 0.0% 0.1% 0.1% 0.1% 0.1% Source: Statistical Annex Table 24-B, Funes 99. Table 24-B. Guatemala: Savings on Interest Payments from Public Debt Reestructuring (millions of quetzales) 1999 2000 2001 2002 2003 1999-2003 Scenarios Description Interest Principal Interest Principal Interest Principcl Interest Principal Interest Principal Interest Principal Passive: Witow Antg privaieioapn ceed Balance January I (Source: Min.Finanzas) 6,179.1 5,617.4 5,018.2 4,356.7 3,623.8 Debt Service (1dem, only principal for 1999) 1,174.0 561 7 1,123.5 5992 903.3 661.5 697.1 732.9 543.6 808.4 4,441.4 3,363S (as % of GDP) 0.9% 0.4% 0.8% 0.4% 0.5% 0.4% 0.4% 0.4% 0.3% 0.4% Bal nceas of December31 5,617.4 5,018.2 4,3567 3,623.8 2,815.3 Opeon No, 1: ClSSI5O S lilifina p,vafzce proceeds Effective as of January 30,1999 S 75 millions a of July 30,1999 S 75 millions Balnce as of Jnuary I 6,179.1 4,597.4 3,998.2 3,336.7 2,603.8 6,179.1 Debt Service 97.8 46.8 9195 599.2 719.7 661.5 533.9 732.9 4166 808.4 2,687.5 2,848.9 Ue of privatization proceds (January 30; S75 millions) 510.0 - - 510.0 New balance 5,622.3 3,998.2 3,336.7 2,603.8 1,795.3 2,820.2 Debt Service 979.2 5149 - - - - - - , 979.2 514.9 Use of pfivatization proceeds (July 30; S75 millions) 510.0 - - - - 5100 Total Service, includingprivatization affect 1,0771 1,581.7 919.5 599.2 719.7 661.5 533.9 732.9 416.6 808.4 3,666.7 4,3S3 8 BalanceamofDecember31 4,5974 3,998.2 3,336.7 2,603.S 1,795.3 1,795.3 TotalSevioeas%ofGDP 0.8% 12/o 0.6%/. 0.4% 0.4% 0.4% 0.3% 0.4% 0.2% 0.4% Savings per year -million of Quetzales 97.0 204.0 183.6 163.2 127.0 774.7 as%ofGDP 0.1% 0.1% 0.1% 0.1% 0.1% Opd-a No2: US$259 nsiB sfi papr,fsNizo, proceedis Effective n of January 30,1999 $150 millions a of July 30,1999 $150 millions BanlsceasofJanuwry 1 6,179.1 3,917.4 3,318.2 2,656.7 1,923.8 6,179.1 DebtSeaviee 97.8 46.8 783.5 599.2 597.3 661.5 425.1 732.9 307.8 808.4 2,211.5 2,848.9 Use of privatization proceeds (January 30; $150 millions) 1,020.0 ,- - 1,020.0 New balanc 5,112.3 3,318.2 2,636.7 1,923.8 1,115.3 2,310.2 Debt Service 890.4 514.9 - - - - - - - - 890.4 514 9 Us of privatization proceeds (July 30; $S50 millions) 680.0 - - - 680.0 Total Service, includingprivalizationeffect 988.2 2,261.7 783.5 599.2 597.3 661.5 425.1 732.9 307.8 808.4 3,101.9 5,063.8 Bnlance sofDecember31 3,917.4 3,318.2 2,656.7 1,923.8 1,115.3 1,115.3 Total Service ns % of GDP 0. /. 1. /. 0.5% 0.4% 0.4% 0 4% 0.2% 0.4% 0.2% 0.4% Savings per year -millions of Quetzales 185.8 340.0 306.0 272.0 235.8 1,339.6 as%ofGDP 0.1% 0.2Y. 0.2% 0.2% 0.1% Source; World Bank staff estianste and Fusses, 1999. Assamptios Variables 1999 2000 2001 2002 2003 A. Nominal exchange rate (average) 680 7.00 7.20 7.41 7.62 B. Nominal lGDP in quetales 134,846 149,797 165,376 183,237 202,110 C. Banking system lending interet rate 19.0% 20.0% 1 B.0% 16.0h 15.0/. D. For both sctarios, normal amortization is kept conamt as % of GDP. E. Central Government cos from intnal debt ecrordinary payments: Scenaios 1999 2000 2001 2002 2003 A. Option No. I 1999 /2003 -OMO'saverageintereatrste(Source: MF) 14.6% 20.2% 18.21% 16.1% 15.1% -Intere paymenu from OMOs -millions of Quetzler 1/ 99.0 152.4 97.8 33.4 5.1 3878 (as % of GDP) 0.1% 0.1% 0.1% 0.0% 0.0Y. B. ODOfi No.2 -OMO's averageistert rate (Source 11MP) 14.6% 20.2Y. 18.2% 16.1% 15.1% -InterestpaymentsfromOMO's-millionssofQuetzales 1/ 177.4 254.5 155.9 51.2 7.3 646.3 (a % of GDP) 0.1% 0.2%l 0.1% 0.0Y 0.W. Nominal net effect =fBudgtetarv Savings] - [intervention's monetary castl A Option No.1 -millionsofQuetsales (2.0) 516 S5.8 129.8 121.S 386.9 (as% of GDP) 0.0Y% 0.0Y. 0.1% 0.1% 0.1% B. Option No 2-millions of Quetzales 8.4 85.5 150.1 220.8 228.5 693.2 (s 8 ofGDP) 0.0Y. 0.1% 0.1% 0.1% 0.1% 1/ BoGs Open Market Opemions (OMO s) haew one year maturity terms and are grdually reduced by 75%/., 50/% nd 25% from the original payment. Table 25. Guatemala: Social Funds Investment in 1997 and 1998, by Sector (Millions of Quetzales) Administration Defense and Housing and Agricultureand Roadsand Health& Social Education, Finance, Industry SOCIAL FUND TOTAL and General Public Order Urban Mining Transport Energy Services Science and and Others Servlces Development Culture 1998 1,888.7 62.9 0.5 422.8 331.5 223.6 180.1 284.4 383.0 Fondo Guatemalteco pro Vivienda (FOGUAVI) 245.2 - - - 245.2 - - - - Fondo Nacional para la Paz (FONAPAZ) 591.7 6.2 - 422.8 59.5 - 45.6 57.6 Fondo de Inversion Social (FIS) 366.9 34.5 - - 5.1 30.5 30.8 88.1 177.9 Fondo Solidaridad Desarrollo Comunitario (FSDC) 491.2 - 0.5 - 2.7 133.5 149.2 150.7 54.6 Fondo Educ. Rural Coparticipativa (PRONADE) 92.9 - - - - - 92.9 Fondo Nacional Agropecuario (FONAGRO) 21.1 - 21.1 - - Fondo Indigena Guatemalteco (FODIGUA) 22.3 22.3 - Fondo Nacional de Tierras (FONATIERRA) 57.5 - - - 57.5 Fondo de Ciencia y Tecnologia (FONACYT) - - - - 1997 971.0 35.6 7.2 103.3 71.6 215.8 116.9 181.5 233.5 5.6 Fondo Guatemalteco pro Vivienda (FOGUAVI) 67.1 - - 67.1 - - - - - - Fondo Nacional para la Paz (FONAPAZ) 176.0 35.6 22.6 22.5 22.6 - 50.1 22.6 FondodelnversionSocial(FIS) 181.4 - - - 2.8 4.6 37.8 37.1 93.5 5.6 FondoSolidaridadDesarrolloComunitario(FSDC) 412.1 - 7.2 13.6 1.3 188.6 79.1 94.3 28.0 - Fondo Educ. Rural Coparticipativa (PRONADE) 65.0 - - - - - - 65.0 Fondo Nacional Agropecuario (FONAGRO) 7.2 - 7.2 - Fondo Indigena Guatemalteco (FODIGUA) 19.9 - - - - - - - 19.9 Fondo Nacional de Tierras (FONATIERRA) 37.8 - 37.8 Fondo de Ciencia y Tecnologia (FONACYT) 4.5 - - - - - 4.5 Source: Direccion Teenica de Presupuesto, Minis;y of Finance Table 26. Guatemala: Regression estimates of the Social Investment Fund (FIS) and Municipal focalization on Poverty for 1997 Investment * As % of Correlation Determination t Statistic t Statistic 5% #of Objectives (in MM QZ$) Total Coefficient Coeffcient Independent significance observations Variable 1. FIS Investment b6 Deoanment 1.1 FlSlnvestmentversusNBIbydepartinent 136.30 100% 61.60% 37.94% 3.5 2.09 22 1.2 FIS investment in water projects versus WaterNNBI 6.03 4.42% 22.79% 5.19% 1.05 2.09 22 1.3 FIS investment in sanitation projects versus NBI of sanitary services 10.66 7.82% -19.67% 3.87% -0.9 2.09 22 1.4 FIS investment in education projects versus educational NBI 82.46 60.50% 69.17% 47.84% 4.28 2.09 22 2. F/SInvestmenl bvMunicipalitv 2.1 FIS InvestmentversusNBIbymunicipality 136.30 100% 21.66% 53.54% 3.82 1.96 298 2.2 FIS investment in water projects versus WaterNBI 6.03 4.42% 12.309/6 1.51% 2.13 1.96 298 2.3 FIS investment in sanitation projects versus NBI3ofsanitaryservices 10.66 7.82% -7.55% 0.57% -1.3 1.96 298 2.4 FIS investment in education projects versus educationalNBI 82.46 60.50% 11.71% 1.37% 2.03 1.96 298 3. Municioal Capital Ezendinrre Q289 municdwlties) 3.1 Municipal Investment versus municipal NBI 902.08 100% -17.26% 2.98% -2.97 1.96 289 Includes only investment from municipalities where information was obtained. Source: Chocano 1999b Table 27. Guatemala: Total Expenditure of Central Government by Region (Millions of Quetzales) 1995 1996 1997 1998 2 19992 20002 Region Actual Actual Actual Actual Budget Budget 1- Metropolitan 4567.0 2965.6 2906.4 4262.2 4315.0 5375.0 11- North 208.4 199.0 278.9 415.0 467.5 673.5 III- North-East 356.2 388.6 630.1 738.0 647.1 855.0 IV- South-East 267.3 335.3 418.3 517.3 482.7 616.4 V- Central 365.3 498.9 525.3 622.9 610.7 787.2 Vl- South-West 616.8 795.2 1101.2 1198.6 1125.5 1518.4 Vll- North-West 382.3 352.6 457.4 626.4 780.6 976.2 Vlll- El Peten 199.4 225.9 216.5 431.6 425.4 406.0 IX- Mutiregional - 1907.0 4074.2 5191.1 6550.6 7843.1 Foreign Services - - - 66.8 59.5 87.3 Public Debt Management' 1839.3 2266.9 1629.9 1704.7 1815.4 2680.8 Internal 594.0 650.1 456.4 885.3 707.8 1089.1 External 451.0 478.2 369.6 475.2 807.5 1088.7 BOG losses 794.3 1138.6 803.9 344.2 300.0 503.0 Total 8801.9 9935.1 12238.2 15774.6 17280.1 21818.9 ' Excludes capital amortization. 2 In 1997 a new system for govermment financial management was introduced. To ensure comparability, the Staff reclassified figures for 1998 and 1999 that are compatible with the old series. IMF and IFMS staff are working together to reclassified historical data according to the new budget classification. Does not include any budget expansion. Table 28. Guatemala: Total Expenditure of Central Government by Region (as % of Total) 1995 1996 1997 1998 1999 2000 Region Actual Actual Actual Actual Budget Budget 1- Metropolitan 51.9 29.8 23.7 27.0 25.0 24.6 11- North 2.4 2.0 2.3 2.6 2.7 3.1 111- North-East 4.0 3.9 5.1 4.7 3.7 3.9 IV- South-East 3.0 3.4 3.4 3.3 2.8 2.8 V- Central 4.1 5.0 4.3 3.9 3.5 3.6 Vl- South-West 7.0 8.0 9.0 7.6 6.5 7.0 Vll- North-East 4.3 3.5 3.7 4.0 4.5 4.5 Vlll- El Petdn 2.3 2.3 1.8 2.7 2.5 l.9 IX- Mutiregional - 19.2 33.3 32.9 37.9 35.9 Foreign Services - - - 0.4 0.3 0.4 Public Debt Management' 20.9 22.8 13.3 10.8 10.5 12.3 Internal 6.7 6.5 3.7 5.6 4.1 5.0 External 5.1 4.8 3.0 3.0 4.7 5.0 BOG losses 9.0 11.5 6.6 2.2 1.7 2.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 Sources: Ministry of Finance and Bank of Guatemala Table 29. Guatemala: 1998 Mitch Reconstruction, 1999 Budget Allocations and Actual Transfers (Millions of Quetzales) 1998 1999 1998-99 Actual Entity Actual Budget Total Transfers* Autoridad Rescate Amatitlan 5.0 - 5.0 18.0 CONRED 8.2 - 8.2 - FIS 32.2 99.5 131.7 131.5 FONAPAZ 10.0 57.5 67.5 56.1 INFOM - 160.0 160.0 - MAGA 34.7 45.0 79.7 26.6 MCTOPV 12.0 20.0 32.0 160.0 Ministry of Culture and Sports 0.7 1.0 1.7 1.8 MINEDUC 40.0 25.7 65.7 65.6 MSPAS 13.4 28.0 41.4 25.7 Ministry of Defense 19.3 - 19.3 - Ministry of Labor 0.9 6.5 7.4 Social Welfare Secretariat 0.7 - 0.7 - Executive Coordination Secretariat 10.9 89.0 99.9 150.0 SINAFIP - - - 2.0 TOTAL 188.1 532.2 720.4 637.3 * Up to February 12, 1999. Source: Schneider (1999) Table 30. Guatemala: Mitch Reconstruction Program Portfolio, by Executing Unit (As of February 12, 1999. Millions of Quetzales) Number Budget Execution Actual as % Executing Unit of Projects Approved Actual of Budget FIS 202 82.8 34.7 41.9 FONAPAZ 298 31.0 11.5 37.1 lNDE 20 26.8 26.8 100.0 INFOM 552 29.1 10.6 36.4 IGN 1 3.3 - - MAGA 194 25.2 9.1 36.1 MCTOPV 174 323.7 322.4 99.6 Ministry of Culture and Sports 2 1.2 - - Ministry of Defense 2 69.5 - - MSPAS 10 74.1 0.3 0.4 Ministry of Labor 1 12.1 - - Executive Coordination Secretariat 225 112.5 25.4 22.6 TOTAL 1681 791.3 440.8 55.7 Source: Schneider (1999) Table 31. Guatemala: Mitch Reconstruction Program Portfolio, by Project Type (As of February 12,1999. Millions of Quetzales) Number Budget Execution Actual as % Sector of Projects Approved Actual of Budget Productive Activity 194 25.2 9.1 36.1 Water Supply and Sanitation 617 34.5 12.5 36.2 Energy 20 26.8 26.8 100.0 Infrastructure: Education 96 16.4 4.9 29.9 Infrastructure: Transport 436 519.4 375.50 - Health 12 75.0 0.4 0.5 Food Supply 101 3.9 1.3 33.3 Housing 98 25.3 10.10 - Other 107 64.8 - - TOTAL 1681 791.3 440.6 55.7 Source: Schneider (1999) Table 32. Guatemala: Budgeted Permanent Positions as reported by DTP and ONSEC, 1995-1998 1995 1996 1997 1998 Ministry DTP ONSEC DTP ONSEC DTP ONSEC DTP ONSEC Presidency 3017.0 2996.0 2996.0 2647.0 266.0 295.0 257.0 348.0 External Relations 551.0 554.0 564.0 523.0 522.0 523.0 523.0 527.0 Governance 17932.0 18713.0 12718.0 24702.0 19019.0 24702.0 24702.0 24662.0 Public Finance 4249.0 3619.0 3621.0 3205.0 3220.0 3214.0 3214.0 3489.0 Education 71839.0 77301.0 77301.0 82321.0 79772.0 83820.0 83236.0 87928.0 Health 20465.0 21066.0 21067.0 20663.0 20964.0 20634.0 20597.0 20815.0 Labor 674.0 631.0 631.0 616.0 554.0 615.0 615.0 691.0 Economy 301.0 298.0 302.0 222.0 237.0 204.0 204.0 193.0 Agriculture 5687.0 4633.0 4643.0 3883.0 3870.0 3126.0 3108.0 2802.0 Communications 12698.0 12725.0 12785.0 9.5 9397.0 8642.0 8500.0 11423.0 Energy and Mines 414.0 313.0 313.0 303.0 303.0 303.0 303.0 373.0 CultureandSports 1016.0 1016.0 1016.0 1011.0 960.0 1011.0 961.0 2292.0 TOTAL 138843.0 143865.0 137957.0 140105.5 139084.0 147089.0 146220.0 155543.0 Source: Gregory and Ochoa (1999) Table 33. Guatemala: Estimated Cost of the Voluntary Retirement Program as of December 31, 1997 (in millions of Quetzales) Institution Estimated Cost Ministry of Public Finance 100.0 Ministry of Agriculture 10.0 Ministry of Communications 20.0 Ministry of Culture and Sports 2.0 Ministry of Defense 60.0 Ministry of Economics 5.0 Ministry of Education 10.0 Ministry of Energy and Mines 0.5 Ministry of Governance 25.0 Ministry of External Relations 5.0 Ministry of Health 7.0 Ministry of Labor 3.0 National Office of the Civil Service (ONSEC) 1.5 National Institute of Public Administration 1.0 Secretariat for Social Welfare 10.0 Other Secretariats 7.5 National Attorney General 1.0 Secretariat for Economic Planning 5.0 Contingencies 16.5 TOTAL 290.0 Source: Gregory and Ochoa (1999) Table 34. Guatemala: Infant Mortality Rate, by Department (children under one year) Department Per 1,000 live births Guatemala 39.9 Progreso 46.8 Sacatepequez 56.2 Chimaltenango 58.9 Escuintla 67.9 Santa Rosa 43.1 Solola 68.2 Totonicapan 84.4 Quetzaltenango 58.9 Suchitepequez 49.4 Retalhuleu 50.2 San Marcos 40.5 Huehuetenango 37.2 El Quiche 49.3 Baja Verapaz 39.9 Alta Verapaz 28.7 Peten 35.5 Izabal 39.8 Zacapa 31.8 Chiquimula 38.5 Jalapa 34.8 Jutiapa 31.8 Country Average 45.5 Source: National Statistics Institute (INE) Table 35. Guatemala: Estimated Cost of Reducing the Illiteracy Rate by 1 percent As % of Population Population 1994 1998 1999 2000 2001 2002 2003 2004 2005 2006 Population /i 8,293,706 10,799,133 11,088,362 11,385,338 11,690,465 12,003,770 12,325,471 12,655,793 12,994,968 13,343,234 Population Growth Rate /2 30.21 2.68 2.68 2.68 2.68 2.68 2.68 2.68 2.68 Age Group: 15-19 11.0 20-24 8.5 25-29 6.7 30-34 6.2 35-39 5.3 40-44 4.5 45-49 3.4 50-54 2.8 55-59 2.1 60-64 2.0 Total 15-64 Age Group /3 52.5 Population over 15 years /4 5,669,545 5,821,390 5,977,302 6,137,494 6,301,979 6,470,872 6,644,291 6,822,358 7,005,198 Illiterate Population /5 1,849,600 1,899,137 1,950,001 2,002,261 2,055,922 2,070,901 2,126,401 2,183,389 2,241,904 Illiteracy Rate /6 32.62 32.62 32.62 32.62 32.62 32.00 32.00 32.00 32.00 CONALFA's capacity to reduce illiteracy rate /7 75,240 78,000 81,000 84,000 88,000 92,000 96,000 100,000 (assuming a 40% promotion rate) 153,240 234,240 318,240 406,240 498,240 594,240 694,240 Illiterate Population minus CONALFA's reduction /8 1,823,897 1,796,761 1,768,021 1,737,682 1,664,661 1,628,161 1,589,149 1,547,664 Expected llliteracy Rate /9 31.33 30.06 28.81 27.57 25.73 24.50 23.29 22.09 Cost of reducing the Illiteracy rate in 1999 Quetzales /10 37,379,232 38,750,400 40,240,800 41,731,200 43,718,400 45,705,600 47,692,800 49,680,000 CONALFA's budget /11 83,060,000 Cost of reducing the Illiteracy rate by 1% (in Q) /12 30,511,699 Cost of reducing the Illiteracy rate by 1% (in US$) /13 4,358,852 Footnotes: Source: Anderson (1999) /1 INE's population growth rate used in projections. /2 Based on INE's data for 1997-2000. /3 Percentage of population within the 15-64 age group, based on 1994 Census. Target population of CONALFA's Literacy Program. /4 Estimated using the 1994 Census proportion (52.5%) /5 1998 source is CONALFA. For future years, the illiteracy rate is kept constant if no intervention happens to improve the quality and coverage of primary education. /6 Illiterate population as % of population over 15 years of age. /7 1998 source is CONALFA. For future years, CONALFA's capacity to reduce illiteracy rate is assumed to improve. /8 Illiterate Population from line 5, minus CONALFA's cumulated reduction in line 7. /9 Illiterate population as % of population over 15 years of age (line 4). /10 Calculated by multiplying the marginal cost of educating one individual (Q468 in 1998, adjusted for inflation) by the number of people educated in a given year (line 7). /11 Budget approved by the Congress (reported by CIEN). Presented as reference. Its magnitude could indicated a greater budget availability to educate a greater number of persons, a under estimation of the marginal cost of educating one individual, or the partial allocation of these resources to other programs. /12 Based on 61,417 educated persons (78,000 educated persons / difference between the illiteracy rate of 1999 and 2000). /13 Exchange rate US$1 = Q7. Table 36. Guatemala: Education Indicators, Projections and Estimated Cost of Increasing the Gross Primary Enrollment Rate by I percent 1997 1998 1999 2000 2001 2002 2003 2004 1/ Population within the 7-12 age group 1,751,775 1,805,003 1,844,905 1,886,380 1,928,788 1,980,634 2,033,913 2,088,523 2/ Population enrolled with the MINEDUC (2,- + 5,1) 1,544,709 1,605,490 1,679,043 1,740,320 1,815,320 1,890,320 1,965,320 2,040,320 3/ Population (7-12) not served by the MINEDUC (1-2) 207,066 199,513 165,862 146,060 113,468 90,314 68,593 48,203 4/ DropOuts (2 *24) 125,121 127,444 129,118 132,508 135,278 137,804 140,088 142,129 5/ New individuals integrated to the system (6+7) 75,603 61,277 75,000 75,000 75,000 75,000 75,000 6/ of which, PRONADE 75,603 61,277 55,000 60,000 60,000 65,000 65,000 7/ Night-time students - 20,000 15,000 15,000 10,000 10,000 8/ Net population served by the MINEDUC (2+5-4) 1,419,588 1,553,649 1,611,202 1,682,812 1,755,042 1,827,516 1,900,232 1,973,191 9/ Gross Primay Enrollment Rate (%) (2/ l) 88.18 88.95 91.01 92.26 94.12 95.44 96.63 97.69 10/ NetPrimaryEnrollmentRate(%/) 72.59 73.45 75.51 76.76 79.12 80.44 82.13 83.19 11/ Marginal cost of adding one student in PRONADE schools (Q) 969 12/ Marginal cost of adding one student in traditional schools (Q) 707 13/ Infrastucture cost derived from the increase of the student population (Q) 79,446,630 14/ Infrastructure cost per student (13/6) 2,190 15/ Cost of increasing the enrollment rate by I /, excluding infrastructure (Q) 28,769,561 16/ Cost of increasing the enrollment rate by I %, excluding infrastructure (US$) 3,941,036 17/ Cost of increasing the enrollment rate by 1%, including infrastructure (Q) (13+15) 108,216,191 18/ Cost of increasing the enrollment rate by 1%, including infrastructure (USS) 14,824,136 19/ Students not promoted (failing students) (2*23) 132,126 127,504 125,610 120,541 114,657 110,728 20/Costoffailingstudents (Q) 93,434,514 90,165,499 88,826,160 85,241,426 81,081,028 78,302,530 21/ Cost offailing students (USS) 12,799,248 12,351,438 12,167,967 11,676,908 11,106,990 10,726,374 System's Internal Efficiency Indicators 22/ Average primary promotion rate (%) 81.91 81.99 84.44 85.06 85.63 86.33 87.04 87.61 23/ Average primary failing rate (%) 13.57 10.18 7.87 7.33 6.92 6.38 5.83 5.43 24/ Averageprimaiy drop outrate() 8.10 7.94 7.69 7.61 7.45 7.29 7.13 6.97 Footnotes: Source: Anderson (1999) 1/ INEs population projections till 2001. Staff estimations for the rest. 2 and 3/ For 1997, data from the original registration (Source: Information Unit, Ministry of Education (MINEDUC). For 1999-04, staff estimations based on prior year enrollment plus the total amount of new individuals integrated to the system. 4/ It is assumed that these new spaces, available after the drop outs, are used to enroll about 50% of the overage children. The other 50% enrolls through the traditional system. 6/ PRONADEs estimations to enroll new students to the educational system. 7/ MINEDUC' estimations to enroll new students through night-time classes. MINEDUC has agreed with the World Bank to enroll 75,000 students annually for five years (1998-02) 8/ Annual enrollment growth, including drop outs. 10/ For 1997, data obtained from MINEDUC (Anuario Estadistico 1997). Staff estimations for the rest. 11/ Anuario Estadistico 1997, adjusted by the inflation rate. 12/ Anuario Estadistico 1997, adjusted by the inflation rate and to include administrative expenses. 13/ Excludes 1999 infrastructure for 25,000 students already built by PRONADE; estimated by multiplying 36,277 new students by the cost of building one classroom with 40 students, Q87,600. 14/ Cost per student=Q79,446,630/(61,277-25,000=36,277 students)=Q2,190. 15/ Estimated using 29,700 students (61,277 new students, divided by the difference between gross enrollment rate of 1998 and 1998). 16/ Exchange rate US$1 = Q7.3 19/ Failing rate (line 23) multiplied by the initial enrollment (line 2). 20/ Non promoted students (line 19) by the marginal cost of adding one student to the traditional school (line 12). This figure is underestimated because it not adjusted for PRONADE's greater marginal cost (line 11) 22.23.24/ Anuario Estadistico 1997, MINEDUC. For 1998-04, staff estimations assuming an improvement on the intemal efficiency of the system. Table 37. Guatemala: Comparison of Indigenous Population, by Source Language 94 Census Indigenous Languages TZIAN Official Commission K'iche' 647,624 647,624 1,896,007 Mam 346,548 346,548 1,126,959 Kaqchikel 343,038 343,038 1,032,128 Q'echi' 473,749 473,749 732,340 Achi 15,617 (*) Poqomchi' 94,714 266,750 Q'anjob'al 75,155 211,687 Tz'utujil 57,080 160,907 Chuj 50,000 87,489 Ixil 47,902 134,599 Poqomam 46,515 130,928 Popti' 39,635 86,266 Ch'orti' 27,097 76,782 Awakateko 18,572 35,485 Akateko 40,991 40,991 Tektiteko 4,895 4,895 Uspanteko 12,402 22,025 Mopan 8,500 13,460 Itza' 650 1,835 Sakapulteko 3,033 43,439 Sipakapense 4,409 6,118 Garifuna 2,477 6,730 Xinka 107 306 Otros(**) 317,131 TOTAL 2,128,094 2,345,093 6,118,126 (*) Linguistically these are Kiche's. (* *) This is in reference to the 94 census, which specifies 4 languages and the rest of them as Others. Source: Comisi6n Paritaria de Educaci6n (1998) Table 38. Guatemala: Amount of Mayan Language Speakers and Schools, by Linguistic Community Language No. of Speakers No. of Schools Ratio of Speakers to Schools Awakateko 35,485 18 1,971 Q'anjob'al 211,687 103 2,055 Q'eqhi' 732,340 283 2,588 Ixii 134,599 39 3,451 K'iche' 1,986,007 429 4,629 Popti' (Jakalteko) 86,266 17 5,074 Man 1,126,959 210 5,366 Kaqchikel 1,032,128 182 5,671 Achi 58,000 9 6,444 Poqomchi' 266,750 40 6,669 Chuj 87,489 12 7,291 Tz'utujil 160,907 19 8,469 Ch'orti' 76,782 8 9,598 Poqoman 130,928 8 16,366 Sakapulteko 43,439 NA NA Akateko 40,991 NA NA Uspanteko 22,025 NA NA Mopan 13,460 NA NA Itza' 1,835 NA NA Garifuna 6,730 NA NA Sipakapense 6,118 NA NA Tektiteko (Teko) 4,895 NA NA Xinka 306 NA NA Source: Tay Coyoy (1996) Table 39. Guatemala: Indigenous Population Average Years of Schooling and Enrollment within the 7-14 Years of Age, by Department Indigenous Enrollment Department Population as Yera s 7-14 Years % of Total 1995 Totonicapan 97% 1.5 56% Solola 94% 2.0 59% Alta VerapAz 89% 1.0 36% El Quiche 85% 1.1 40% Chimaltenango 80% 2.8 63% Huehuetenango 66% 1.8 49% Quetzaltenango 61% 3.4 76% Baja Verapaz 57% 2.3 59% Suchitepequez 56% 2.6 64% San Marcos 48% 1.9 67% Sacatepequez 47% 3.6 70% Chiquimula 35% 1.7 61% Jalapa 33% 2.3 65% Retalhuleu 31% 2.8 67% Santa Rosa 26% 3.1 77% El Peten 23% 2.6 60% Izabal 23% 2.9 61% Guatemala 12% 5.3 79% Escuintla 10% 2.7 67% Jutiapa 8% 2.6 71% Zacapa 3% 3.3 74% El Progreso 1% 3.2 83% Source: Ministry of Education. Annual Statistical Education Report, 1996. Table 40. Guatemala: Net Primary Education Enrollment by Area, Gender and Percentage of Indigenous Population Percentage of Mayan Population Area Men Women Total Less than 20% Urban 81.1% 81.7% 81.4% Rural 81.5% 74.9% 78.2% From 20% to 30% Urban 71.4% 70.7% 71.1% Rural 70.7% 63.4% 67.1% From 40% to 59% Urban 91.0% 82.7% 86.9% Rural 68.8% 57.4% 63.2% From 60% to 79% Urban 83.6% 79.0% 81.3% Rural 65.1% 55.3% 60.3% More than 79% Urban 85.6% 71.4% 78.6% Rural 57.4% 42.6% 50.1% Source: Chesterfield and Rubio (1998) Table 41. Guatemala: Student to Teacher Ratios by Department Departrnent Indicator Urban Rural Total Guatemala Total Students 27.7 42.7 30.6 Aged 7-12 27.2 46.7 31.0 Progreso Total 35.4 34.8 35.0 Aged 7-12 31.6 33.8 33.2 Sacatep6quez Total 29.1 32.2 29.8 Aged 7-12 29.3 41.4 32.1 Chimaltenango Total 36.1 33.8 34.8 Aged 7-12 38.3 41.8 40.3 Escuintla Total 32.9 36.5 35.0 Aged 7-12 37.4 46.2 42.5 Santa Rosa Total 33.9 38.9 37.6 Aged 7-12 33.8 39.2 37.7 Solola Total 30.0 28.9 29.3 Aged 7-12 34.1 37.5 36.3 Totonicapan Total 55.1 43.4 45.3 Aged 7-12 38.1 63.1 58.9 Quetzaltenango Total 33.0 42.4 37.9 Aged 7-12 32.6 46.2 39.6 Suchitel6quez Total 32.3 42.2 37.3 Aged 7-12 27.9 63.1 45.7 Retalhuleu Total 29.0 35.8 33.3 Aged 7-12 30.1 43.7 38.8 San Marcos Total 36.2 49.1 46.0 Aged 7-12 27.7 58.4 51.0 Huehuetenango Total 38.0 33.6 34.5 Aged 7-12 33.9 54.4 50.0 El Quiche Total 39.2 33.1 34.2 Aged 7-12 48.4 59.6 57.6 Baja Veraplz Total 34.7 43.1 40.7 Aged 7-12 40.0 61.8 55.6 Alta Verapaz Total 34.7 31.5 32.2 Aged 7-12 33.1 53.9 49.0 Petan Total 32.1 34.7 34.2 Aged 7-12 49.6 38.0 40.5 Izabal Total 22.9 37.9 33.1 Aged 7-12 26.7 51.2 43.3 Zacapa Total 26.7 44.4 36.5 Aged 7-12 24.2 48.9 37.9 Chiquimula Total 30.1 46.9 40.1 Aged 7-12 30.7 61.2 48.9 Jalapa Total 36.2 44.2 41.5 Aged 7-12 38.4 52.3 47.6 Jutiapa Total 32.9 42.2 39.8 Aged 7-12 36.1 44.7 45.1 Country Total 30.7 386 35.0 Aged 7-12 32.3 49.1 41.6 Source: Anderson (1999) Table 42. Guatemala: Average Teachers per School, by Department and Area Department Urban Rural Total Guatemala 10.9 5.0 8.0 Progreso 9.3 2.2 2.7 Sacatepequez 11.9 4.3 7.8 Chimaltenango 11.7 2.8 3.8 Escuintla 11.1 4.3 5.4 Santa Rosa 8.3 2.7 3.1 Solola 11.1 3.3 4.1 Totonicapan 8.9 3.4 3.7 Quetzaltenango 9.7 3.8 4.9 Suchitepequez 9.5 3.4 4.9 Retalhuleu 10.2 4.5 5.4 San Marcos 8.0 2.3 2.7 Huehuetenango 9.4 2.4 2.8 El Quiche 10.0 2.1 2.5 Baja Verapaz 9.1 1.8 2.3 Alta Verapaz 11.2 1.8 2.3 Peten 9.7 2.0 2.4 Izabal 10.7 1.8 2.4 Zacapa 10.1 1.7 2.4 Chiquimula 9.4 1.3 1.8 Jalapa 8.7 1.9 2.5 Jutiapa 9.1 2.4 2.8 Country Average 10.2 2.5 3.4 Source: Chesterfield and Rubio (1998) Table 43. Guatemala: Third Grade Completion Rates in Three Years by Gender, Department and Area Department Area 1991-1993 1992-1994 1993-1995 1994-1996 1995-1997 l_________________ Boys Girls Boys Girls Boys Girls Boys Girls Boys Girls Metropolitan Area Urban 53.3% 54.6% 49.5% 55.8% 52.9% 56.0% 53.5% 59.3% 55.0% 59.7% Rural 31.4% 39.8% 234.0% 233.5% 70.6% 81.6% 40.8% 52.6% Total 53.3% 54.6% 49.4% 55.7% 53.6% 56.7% 53.7% 59.6% 54.8% 59.6% Guatemala Urban 52.4% 54.4% 51.2% 54.2% 54.7% 55.5% 54.6% 59.5% 56.3% 61.0% Total 37.2% 38.3% 34.7% 37.1% 39.2% 39.7% 44.1% 46.0% 45.4% 48.3% Total 43.2% 44.8% 40.8% 43.8% 44.8% 45.7% 48.0% 51.2% 49.5% 53.2% El Progreso Urban 45.4% 48.7% 52.8% 60.1% 45.5% 57.2% 41.9% 58.0% 43.1% 58.3% Rural 27.7% 33.5% 28.1% 31.4% 30.9% 33.2% 29.6% 35.9% 33.4% 36.3% Total 30.7% 36.6% 32.2% 37.0% 33.4% 37.7% 31.9% 40.3% 35.3% 40.7% Sacatepequez Urban 52.3% 45.6% 49.5% 45.6% 50.5% 44.7% 51.5% 50.0% 51.7% 50.2% Rural 39.2% 37.8% 42.2% 42.2% 39.6% 37.6% 31.1% 41.3% 44.5% 46.1% Total 48.5% 43.3% 47.4% 44.6% 47.2% 42.5% 45.0% 47.3% 49.4% 48.9% Chimaltenango Urban 46.9% 43.5% 49.5% 51.0% 49.5% 48.4% 49.7% 45.2% 46.4% 50.0% Rural 37.5% 32.5% 36.6% 32.2% 39.0% 33.7% 38.4% 35.5% 38.1% 35.0% Total 41.1% 36.8% 41.2% 38.9% 42.6% 38.9% 42.3% 38.8% 40.9% 40.0% Escuintda Urban 38.7% 37.9% 40.2% 43.4% 40.6% 44.4% 41.4% 45.8% 44.7% 45.9% Rural 27.0% 28.3% 26.3% 27.3% 28.3% 28.5% 29.6% 31.5% 32.3% 33.9% Total 30.4% 31.2% 30.2% 32.0% 31.7% 33.0% 32.9% 35.5% 35.8% 37.4% SantaRosa Urban 43.6% 44.9% 41.8% 49.4% 41.0% 50.2% 45.6% 48.1% 47.2% 48.7% Rural 28.1% 30.8% 28.9% 30.41.% 29.9% 31.8% 30.6% 33.3% 29.5% 32.4% Total 30.8% 33.5% 31.2% 33.6% 31.9% 35.0% 33.3% 35.9% 32.6% 35.3% Solola Urban 38.4% 38.7% 46.6% 43.4% 46.5% 38.9% 41.7% 42.1% 44.1% 44.9% Rural 33.6% 29.2% 37.2% 30.8% 34.8% 32.0% 35.7% 32.4% 36.5% 33.0% Total 35.0% 31.8% 39.8% 34.6% 38.1% 34.0% 37.4% 35.3% 38.5% 36.3% Totonicapan Urban 43.3% 40.2% 44.2% 46.2% 40.0% 49.5% 50.9% 53.2% 51.0% 46.6% Rural 36.4% 30.1% 36.6% 31.2% 38.5% 30.6% 37.2% 32.5% 41.4% 36.3% Total 37.5% 31.7% 37.7% 33.5% 38.6% 33.2% 39.1% 35.0% 42.6% 37.7% Quetzaltenango Urban 42.5% 46.6% 45.7% 45.6% 45.7% 53.3% 48.1% 47.8% 44.0% 48.4% Rural 32.3% 29.1% 29.7% 27.6% 38.3% 30.7% 33.3% 30.4% 33.5% 31.0% Total 35.6% 34.7% 34.4% 33.1% 39.6% 34.4% 37.7% 35.6% 36.5% 36.2% Suchitepequez Urban 41.8% 42.3% 42.4% 40.2% 41.7% 40.7% 44.2% 42.2% 42.9% 42.1% Rural 24.9% 20.0% 25.6% 22.7% 25.9% 22.5% 29.0% 26.7% 28.5% 24.5% Total 31.1% 28.1% 31.5% 28.8% 31.1% 28.6% 34.2% 32.2% 33.4% 30.8% Retalhuleu tJrban 40.7% 38.9% 41.8% 41.7% 50.1% 50.5% 48.1% 48.8% 45.2% 48.5% Rural 29.0% 25.9% 29.6% 25.7% 31.3% 29.9% 35.0% 32.8% 36.1% 32.6% Total 31.6% 29.1% 32.4% 29.3% 35.3% 34.1% 37.8% 36.3% 38.0% 36.2% Page I of 2 Table 43. Guatemala: Third Grade Completion Rates in Three Years by Gender, Department and Area Department Area 1991-1993 1992-1994 1993-1995 1994-1996 1995-1997 Boys Girls Boys Girls Boys Girls Boys Girls Boys Girls San Marcos Urban 45.9% 49.6% 49.4% 46.5% 46.1% 48.5% 52.0% 51.1% 47.5% 52.4% Rural 32.1% 24.5% 30.0% 25.3% 32.1% 27.4% 32.5% 28.1% 33.0% 28.4% Total 33.9% 27.9% 32.5% 28.3% 33.9% 30.2% 35.0% 31.1% 34.8% 31.5% Huehuetenango Urban 46.7% 48.0% 49.9% 51.3% 49.3% 48.5% 47.4% 49.1% 49.9% 49.2% Rural 36.7% 28.0% 34.9% 29.1% 35.7% 29.4% 37.4% 30.8% 37.3% 31.4% Total 38.3% 31.4% 37.1% 32.5% 37.8% 32.3% 39.0% 33.7% 39.1% 34.1% El Quiche Urban 39.7% 40.0% 42.9% 41.4% 39.2% 42.4% 41.0% 46.0% 46.5% 46.5% Rural 24.2% 21.2% 23.5% 19.2% 25.2% 20.5% 26.3% 22.4% 26.8% 22.6% Total 26.7% 24.4% 26.4% 22.6% 27.2% 23.8% 28.5% 26.0% 29.5% 25.9% Baja Verapaz Urban 38.4% 35.5% 39.5% 45.3% 40.9% 38.0% 41.8% 43.9% 46.3% 48.4% Rural 28.6% 25.6% 26.1% 24.3% 28.0% 27.0% 28.6% 27.8% 27.3% 25.2% Total 30.4% 27.7% 28.6% 28.8% 30.5% 29.1% 31.1% 31.2% 30.8% 29.5% Alta Verapaz Urban 40.4% 41.4% 42.2% 39.2% 44.9% 43.3% 47.3% 47.7% 43.8% 44.2% Rural 24.1% 16.7% 22.1% 17.4% 24.5% 18.4% 21.6% 19.7% 25.0% 20.7% Total 27.8% 23.3% 26.5% 22.8% 28.3% 23.7% 26.4% 25.4% 28.5% 25.6% Peten Urban 40.6% 41.8% 38.3% 45.5% 45.2% 53.1% 53.4% 60.3% 47.4% 54.3% Rural 26.3% 25.7% 24.9% 25.7% 24.2% 24.2% 23.6% 25.5% 25.2% 25.9% Total 28.8% 28.7% 27.0% 29.0% 27.1% 28.4% 27.4% 30.2% 28.2% 29.7% Izabal Urban 38.1% 42.3% 41.6% 43.1% 37.6% 49.5% 41.7% 51.0% 44.7% 52.5% Rural 23.6% 27.9% 21.1% 24.7% 24.7% 26.1% 28.1% 29.0% 26.1% 29.3% ._________________ Total 26.1% 30.5% 24.2% 27.7% 26.8% 29.9% 30.3% 32.4% 28.8% 32.7% Zacapa Urban 44.4% 70.2% 45.2% 50.2% 41.6% 53.5% 38.0% 51.8% 43.1% 48.7% Rural 27.6% 34.4% 26.5% 30.4% 26.7% 31.4% 28.8% 32.2% 29.0% 31.4% Total 31.3% 42.7% 30.3% 34.7% 29.5% 35.6% 30.7% 36.1% 31.8% 35.1% Chiquimula Urban 46.0% 47.8% 46.0% 54.5% 50.9% 52.1% 52.7% 53.7% 55.1% 56.9% Rural 28.0% 30.6% 21.9% 25.1% 23.0% 28.8% 25.6% 29.5% 25.8% 28.0% Total 31.1% 33.8% 26.2% 30.5% 27.6% 32.7% 30.0% 33.8% 30.3% 33.3% Jalapa Urban 38.9% 46.9% 42.4% 45.2% 41.2% 44.9% 44.0% 50.8% 43.5% 56.7% Rural 22.7% 21.0% 23.8% 21.1% 24.7% 22.9% 25.5% 24.0% 24.3% 22.8% Total 26.0% 26.3% 27.5% 26.0% 27.8% 27.3% 29.1% 29.3% 27.9% 28.9% Jutiapa Urban 48.4% 50.3% 48.2% 52.3% 45.3% 49.3% 44.90/o 52.2% 54.7% 53.6% Rural 32.7% 31.90/o 30.7% 30.7% 30.1% 33.2% 31.6% 33.7% 30.1% 32.0% Total 34.9% 34.5% 33.0% 33.4% 32.0% 35.3% 33.2% 36.1% 33.3% 34.9% Country Urban 46.0% 47.5% 46.5% 48.7% 47.2% 49.2% 48.6% 51.7% 49.2% 52.3% Rural 30.4% 27.9% 29.0% 27.3% 30.4% 28.5% 31.6% 30.6% 32.2% 30.8% Total 34.6% 33.6% 33.5% 33.1% 34.7% 34.0% 35.9% 36.1% 36.4% 36.4% Source: Chesterfield and Rubio (1998) Page 2 of 2 Table 44. Guatemala: Percentage of Not Promoted and School Drop Outs in 1996 who Returned to School in 1997, by Gender, Department, Area and Grade Department Area IST 2ND 3RD 4TH 5TH 6TH Boys Girls Boys Girls Boys Girls Boys Girls Boys Girls Boys Girls Metropolitan Area Urban 75.8% 74.1% 73.7% 66.9% 68.7% 63.0% 65.1% 63.6% 48.0% 46.7% 50.4% 46.8% Rural 98.0%/o 166.7% 74.1% 80.0% 76.5% 75.0% 32.0% 15.4% 66.7% 300.0% 100.0% Total 76.3% 75.1% 73.8% 67.1% 68.8% 63.3% 64.3% 62.9% 48.1% 47.4% 50.4% 47.0% Guatemala Urban 76.3% 75.0% 76.9% 70.8% 68.4% 59.9% 56.8% 54.1% 48.8% 43.1% 50.6% 45.3% Rural 70.5% 68.1% 58.5% 49.5% 58.6% 50.5% 50.0% 46.3% 44.6% 37.0% 68.0% 43.2% ________ __ Total 72.2% 70.2% 64.7% 56.4% 62.3% 54.0% 53.1% 50.0% 46.4% 39.8% 57.8% 44.3% El Progreso Urban 83.2% 82.2% 85.7% 97.2% 87.0% 70.1% 66.4% 57.8% 62.8% 39.6% 46.7% 21.4% Rural 64.5% 67.9% 66.3% 57.0% 58.5% 57.2% 49.0% 49.7% 46.6% 37.7% 28.6% 24.1% Total 67.1% 70.2% 70.9% 65.2% 65.5% 60.3% 54.5% 52.6% 50.9% 38.4% 38.5% 22.9% Sacatepequez Urban 71.4% 70.9% 65.3% 58.3% 53.6% 52.8% 55.7% 48.9% 48.7% 57.6% 46.8% 29.2% Rural 82.00/o 72.7% 69.7% 70.0% 82.7% 51.4% 65.3% 36.5% 37.5% 17.4% 133.3% 10.0% Total 75.0% 71.5% 66.8% 63.0% 61.6% 52.4% 57.9% 45.0% 46.8% 51.1% 68.7% 23.5% Chimaltenango Urban 79.4% 80.7% 69.5% 74.0% 63.2% 66.8% 59.7% 42.5% 48.9% 39.6% 37.4% 49.2% Rural 80.1% 76.6% 69.9% 67.2% 61.7% 55.1% 46.90/o 40.6% 29.8% 24.5% 52.2% 25.6% Total 79.9% 77.7% 69.8% 69.2% 62.2% 59.4% 51.9% 41.4% 38.6% 31.9% 43.2% 39.8% Escuintla Urban 86.2% 80.9% 76.3% 72.7% 61.5% 57.8% 52.4% 52.8% 55.4% 41.5% 47.7% 19.4% Rural 75.8% 77.1% 59.0% 58.1% 55.4% 55.4% 48.3% 38.4% 37.7% 29.3% 54.4% 20.2% Total 78.2% 78.1% 64.3% 61.9% 57.4% 56.2% 50.0% 44.4% 45.5% 34.0% 51.1% 19.8% Santa Rosa Urban 88.2% 93.5% 63.3% 59.3% 65.0% 71.9% 55.2% 41.4% 50.9% 34.0% 27.7% 12.5% Rural 71.8% 74.4% 59.5% 58.3% 57.8% 55.4% 50.8% 47.7% 38.1% 35.90/o 32.0% 23.7% Total 73.7% 76.5% 60.1% 58.5% 59.1% 58.3% 51.7% 46.00/a 41.4% 35.3% 30.6% 19.8% Solola Urban 72.2% 69.1% 74.9% 67.7% 65.7% 65.1% 57.6% 60.7% 55.0% 40.2% 25.90/o 40.0% Rural 76.5% 73.1% 75.6% 74.1% 61.2% 61.3% 48.0% 45.1% 30.5% 34.4% 31.90/o 39.0% Total 75.5% 72.2% 75.4% 72.4% 62.9% 62.3% 51.6% 50.0% 39.2% 36.4% 28.6% 39.3% Totonicapan Urban 82.0% 72.0% 54.1% 61.2% 63.2% 85.2% 37.5% 69.4% 54.2% 29.8% 42.1% 31.6% Rural 63.1% 62.9% 60.5% 57.2% 55.4% 49.8% 48.6% 41.4% 51.9% 30.0% 41.0% 14.7% Total 65.6% 64.1% 59.8% 57.6% 56.3% 53.3% 46.9% 46.3% 52.3% 29.9% 41.4% 20.8% Quetzaltenango Urban 72.90/o 71.7% 60.4% 53.6% 55.8% 56.4% 52.1% 46.7% 46.2% 40.0% 56.5% 72.6% Rural 70.5% 65.4% 61.1% 59.9% 59.6% 48.6% 47.1% 42.4% 42.0% 30.1% 35.6% 15.7% Total 71.1% 66.9% 60.9% 58.0% 58.2% 51.3% 49.1% 44.2% 43.8% 34.3% 46.6% 44.8% Suchitepequez Urban 80.7% 73.2% 72.9% 65.0% 54.7% 61.8% 61.9% 49.3% 51.1% 50.3% 34.4% 22.7% Rural 82.1% 77.1% 60.5% 55.6% 50.7% 26.9% 50.5% 31.3% 27.4% 16.5% 28.9% 2.8% Total 81.6% 75.7% 64.7% 58.6% 52.4% 39.5% 56.3% 40.5% 40.8% 39.0% 32.3% 13.8% Retalhuleu Urban 85.1% 73.3% 50.6% 58.90/o 68.8% 61.3% 49.7% 47.6% 51.4% 29.4% 70.3% 17.1% Rural 66.3% 63.0% 57.2% 56.4% 51.5% 39.0% 26.8% 21.0% 34.4% 20.2% 17.5% 42.9% ..________ Total 69.4% 64.9% 55.5% 57.0% 56.1% 44.2% 35.9% 31.7% 41.4% 23.9% 42.9% 26.8% Page I of 2 Table 44. Guatemala: Percentage of Not Promoted and School Drop Outs in 1996 who Returned to School in 1997, by Gender, Department, Area and Grade Department Area IST 2ND 3RD 4TH 5TH 6TH Boys Girls Boys Girls Boys Girls Boys Girls Boys Girls Boys Girls San Marcos Urban 78.1% 75.5% 61.3% 54.9% 83.7% 58.2% 42.0%/o 40.0% 30.3% 33.8% 36.8% 7.4% Rural 63.0% 61.9% 55.7% 49.5% 45.1% 39.5% 36.1% 32.4% 34.3% 21.7% 25.1% 18.9% Total 64.4% 63.1% 56.3% 50.1% 50.7% 42.4% 37.4% 34.1% 33.3% 25.0% 28.0% 15.5% Huchuetenango Urban 73.3% 69.5% 71.1% 62.7% 62.5% 55.0% 56.3% 53.8% 36.3% 28.7% 28.8% 27.9% Rural 71.9% 68.9% 59.9% 55.9% 52.3% 48.7% 37.8% 37.6% 27.3% 24.6% 15.0% 16.5% Total 72.1% 69.0% 61.4% 56.8% 54.2% 49.8% 41.8% 413% 30.0% 25.8% 18.8% 20.3% El Quiche Urban 71.9% 71.7% 61.6% 60.0% 64.6% 51.3% 52.7% 60.9% 51.1% 70.0% .41.7% 37.5% Rural 61.2% 58.1% 49.8% 47.1% 41.1% 47.7% 36.3% 33.3% 30.7% 24.0% 24.0% 15.3% Total 62.4% 59.5% 51.4% 48.6% 44.9% 48.3% 39.9% 40.3% 36.6% 40.7% 31.3% 24.2% Baja VerapAz Urban 68.2% 74.8% 63.3% 72.3% 66.4% 48.6% 69.4% 59.7% 43.9% 51.9% 29.2% 11.1% Rural 70.2% 63.2% 61.4% 61.9% 51.7% 45.6% 40.5% 31.5% 38.3% 36.0% 29.4% 8.8% Total 70.0% 64.7% 61.7% 63.5% 55.0% 46.4% 46.3% 40.7% 39.9% 42.5% 29.3% 9.3% AltaVerapiz Urban 73.1% 73.1% 63.1% 67.8% 68.3% 59.8% 44.0% 56.5% 33.9% 46.9% 40.4% 22.2% Rural 57.7% 55.3% 47.0% 44.6% 40.9% 41.8% 31.5% 39.5% 30.1% 38.8% 25.0% 11.4% Total 59.9% 57.8% 50.1% 49.0% 46.8% 47.0% 35.1% 45.3% 32.0% 42.6% 32.1% 15.7% Pctdn Urban 90.9% 92.0% 67.1% 69.0% 67.9% 60.0% 63.3% 60.7% 35.5% 48.4% 16.4% 17.9% Rural 69.6% 68.0% 54.0% 52.1% 58.3% 47.9% 38.5% 36.0% 38.1% 34.2% 27.8% 10.5% Total 71.4% 70.0% 56.0% 54.3% 59.9% 49.7% 44.2% 41.6% 37.3% 38.8% 23.7% 12.8% Izabal Urban 80.4% 87.4% 66.7% 69.7% 58.5% 63.9% 57.2% 51.3% 53.6% 42.1% 27.6% 31.6% Rural 67.9% 64.6% 61.6% 57.9% 61.4% 48.2% 45.8% 46.8% 40.8% 42.4% 17.5% 22.5% Total 69.4% 67.1% 62.5% 59.7% 60.8% 51.1% 48.5% 47.9% 44.5% 42.3% 20.7% 25.2% Zacapa Urban 70.5% 88.4% 69.7% 59.6% 69.9% 61.7% 70.1% 48.5% 42.3% 34.0% 139.1% 138.5% Rural 70.5% 69.9% 62.2% 59.6% 63.5% 54.9% 42.6% 54.1% 45.9% 39.2% 39.0% 29.2% Total 70.5% 72.90/o 63.8% 59.6% 65.1% 56.6% 52.0% 52.3% 44.4% 37.9% 75.0% 67.6% Chiquimnula Urban 84.3% 84.2% 63.7% 58.5% 61.9% 56.8% 51.4% 51.3% 46.2% 49.4% 61.1% 20.8% Rural 64.8% 65.5% 52.4% 53.3% 46.3% 42.5% 41.9% 37.0% 37.1% 54.7% 25.5% 13.8% Total 66.8% 67.8% 54.3% 54.1% 50.3% 46.2% 45.1% 42.0% 41.6% 52.5% 39.6% 15.9% Jalapa Urban 73.1% 74.2% 72.0% 57.6% 57.3% 64.5% 56.9% 63.0% 41.6% 52.1% 18.5% 40.0% Rural 68.7% 64.8% 59.8% 57.3% 57.5% 48.9% 43.2% 31.5% 41.8% 29.3% 25.5% 37.0% Total 69.4% 66.2% 62.2% 57.3% 57.5% 52.8% 47.0% 40.4% 41.7% 40.4% 21.8% 37.5% Jutiapa Urban 94.9% 89.7% 68.9% 68.7% 62.5% 75.0% 55.6% 47.8% 38.2% 82.2% 50.0%h 50.0%b Rural 72.2% 71.2% 60.7% 57.6% 58.9%/o 50.3% 40.4% 35.0% 38.8% 35.6% 42.9% 25.5% Total 74.3% 73.1% 61.7% 59.2% 59.5% 54.8% 43.3% 37.9% 38.6% 47.2% 44.5% 34.0% Country Urban 77.6% 75.9% 68.8% 65.2% 64.8% 60.9% 56.5% 53.6% 46.0% 44.8% 44.3% 39.3% Rural 68.4% 66.4% 58.3% 55.0% 53.7% 48.0% 42.6% 39.1% 37.2% 32.1% 34.7% 22.0% Total 70.3% 68.3% 60.8% 57.3% 56.9% 51.8% 47.6% 44.7% 40.8% 37.7% 39.3% 30.1% Source: Chesterfield and Rubio (1998) Page 2 of 2