Guatemala: Government announces fiscal bandage to curb Covid-19 fallout
April 21, 2020
Over the course of late March and early April, Congress approved various fiscal aid packages tabled by the government to mitigate the economic fallout from the Covid-19 pandemic. The measures total roughly USD 2.3 billion (3.0% of 2019 GDP) and will be partially financed through loans from the Inter-American Development Bank and the World Bank. In addition, the government will use emergency budgetary reverses and issue treasury bonds. The packages include a host of measures including cash transfers to firms in certain sectors; salary subsidies; special funding for SMEs; income tax and social security contribution deferrals for one quarter; waiving taxes on medical supplies; greater electricity subsidies; and stepping up healthcare spending.
The measures should cushion the economic blow somewhat but will be unable to completely prevent the economy from suffering, given the strict containment measures the government has enacted to reduce the spread of the virus. Meanwhile, the government has some fiscal room to maneuver given the country’s low public debt burden and current account surplus in recent years. However, its ability to act is limited by persistent fiscal shortfalls in recent years and a decline in tax collections.
Author: Jan Lammersen, Economist