What is the new loan requested by the Ministry of Finance supposed to be used for?

Attention to the population in case of natural emergencies is the destination of a US$400 million loan for which the Monetary Board (JM) issued a favorable opinion this week, at the request of the Ministry of Finance (Minfin).

If approved by Congress, the creditor institution will be the Inter-American Development Bank (IDB), which would grant the funds for a term of 25 years with an interest rate of 1.51%. This is the first request that the MB is aware of in 2022, regarding Public Credit operations.

Sergio Recinos, president of the JM and the Bank of Guatemala (Banguat), informed Prensa Libre that it is a contingent loan, which has a parameterized denomination. In other words, there are parameters to activate disbursements and they are related to disasters such as earthquakes, hurricanes, storms, natural catastrophes and even pandemics.

The official clarified that the opinion of the JM is only limited to the impact on the balance of payments, the circulating medium and inflation and is what is indicated in art. 57 of the Organic Law of the Banguat.

The procedure to follow is that, with the resolution of the JM, the file is directed to the Minfin; then to the General Secretary of the Presidency, who sends it to Congress, so that it may know it and approve it or not.

On May 18, the deputies approved a US$500 million loan with the International Bank for Reconstruction and Development (IBRD).

Debt balance

The Public Credit Operations report that records these transactions, indicates that, as of May 31, Guatemala's debt balance was Q207 thousand 292 million, and the projection for 2022 is that it will be above Q220 thousand million. . This is made up of internal debt (Q123 thousand 204 million) and external debt (Q84 thousand 87 million).

However, the figures show that during the administration of President Alejandro Giammattei, the indicator jumped from Q157 thousand 325 million in December 2019 to Q207 thousand million, which in percentage terms is equivalent to a 31.7% increase (Q49 thousand 967 million) .

The balance of the debt with respect to the gross domestic product (GDP) is located at 29.5% as of May, while in 2019 it was 26.5%, according to the official report.

Economy Measurement

When evaluating the economy during the first semester, the official highlighted that the short-term indicators are showing a positive performance and the expectation is that GDP growth will probably exceed 4%. In other words, a level higher than the pre-pandemic, when the annual average was 3.5%.

He stated that the productive apparatus is quite well at this time, except for the behavior of inflation, which is at 5.82% (as of May) and that, for that reason, the leading interest rate was adjusted to 2%, without affecting the GDP growth.

In other indicators, he highlighted the behavior of exports with an increase of 22%; imports, with 35%; family remittances, with 23%; and bank credit to the private sector, with 14%, indices that show a positive economic configuration, but inflation continues to worry, as a result of the increase in the price of oil and its derivatives.

However, the prospects for the second semester are also positive, although he listed the possible risks of the local and international economy: the price of crude oil, the accelerated growth of interest rates in the US, the international conflict and the effects of the pandemic.

When asked about the winter situation in Guatemala, Recinos indicated that the sinking in Villa Nueva impacts the movement of merchandise to the country's ports, for which alternate routes are being used, which implies an increase in transportation time, which which also implies delays in dispatches and in production centers.