Guatemala Reviews its Public Expenditures

September 25, 2014

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Using BOOST, the data tool developed by the World Bank to help enhance analysis of public expenditure, the report assesses Guatemala’s main development challenges with a review of its public finances, the budget process, public financial management, and public procurement. The review also provides an in-depth analysis of the quality and efficiency of public expenditures in education, health, road transport, and citizen security.

Challenge

Guatemala has made tremendous strides in moving toward democracy and building strong institutions. Important advances in structural reforms include improvements in the investment climate, implementation of the Dominican Republic—Central America Free Trade Agreement (DR-CAFTA), financial sector reforms, and improvements in the legal and regulatory environment. Improvements have also been made with respect to transparency, especially in the area of public expenditure, through the introduction and expansion of the integrated financial management system.

However, despite a marked increase in public expenditures, Guatemala continues to lag behind its peers in terms of poverty incidence, inequality, and human development outcomes, especially in indigenous areas. Citizens and public officials are increasingly expressing concerns over rising crime and violence. A key constraint to public finance management is the very limited tax collections (11% of gross domestic product, GDP, in 2011); combined with a preference for low public debt, this means that the margin for increasing public expenditure is limited.

Solution

In the absence of political consensus on tax reforms to increase revenue collections, the World Bank worked with the Guatemalan Government to implement the Guatemala Public Expenditure Review (PER) to improve expenditure outcomes within a limited expenditure envelope. The PER analyzed options to improve the effectiveness and efficiency of public expenditure, especially in the social sectors. Using BOOST, the Bank team prepared a database of public expenditures (disaggregated at the municipal level) and linked the information to outcome data in the education and health sectors. This made it possible for the Guatemalan Ministry of Finance to analyze the efficiency of spending in these sectors and discern differences across municipalities. In light of the challenges related to citizen security, the team also analyzed in detail the data on security-related expenditures and assessed the related institutional challenges. An in-depth analysis of financial management and public procurement aspects was also conducted, using a detailed dataset of individual procurement transactions.

Results

As the PER was in its final stage of preparation, the Guatemalan Congress approved a historic tax reform, which was expected to increase tax collections by 1.3 percent of GDP. Even with this increase, the need for improvements in expenditure management continued to be very relevant. The dissemination of the report in 2013 showed that there was particularly strong interest in the BOOST database among Government agencies, as well as think tanks, private sector and civil society organizations.

Following the preparation of the PER, Guatemala was the first Latin American country to join the Open Budget Portal, which makes the Government’s entire BOOST database available to the public.

Bank Group Contribution

The Bank financed the entire PER. Total expenses amounted to US$342,323.

Partners

The Bank and the Guatemala Ministry of Finance collaborated in the preparation of the PER.

Moving Forward

Building on the PER, the ongoing Bank-financed development policy loan (DPL) series supports a number of the recommendations presented in the report, including amendments to the Organic Budget Law making the use of the Public Financial Information System mandatory for all public entities and improving the monitoring and evaluation of trust funds. The Government and the Bank are also working on an update of the BOOST database to include the 2012 expenditure data. The Government is also interested in deepening the analysis of technical efficiency and extending it to other sectors, which is made possible by the BOOST database.

Beneficiaries

The main direct beneficiaries are policy makers in the Ministry of Finance, with the aim of improving the efficiency of public expenditures. Other beneficiaries include civil society organizations and researchers that use the BOOST database.