GUATEMALA

In the 1985 Magna Carta, the Republic of Guatemala is defined as a free, independent and sovereign state, organised to guarantee its inhabitants full enjoyment of their rights and liberties; its system of government corresponds to a republican, democratic and representative model (Art. 140 of the Political Constitution of the Republic of Guatemala, CPRG). The highest office of the nation is headed by the president and vice-president, both elected by the people for a non-extendable term of four years by means of universal suffrage with secret ballot. Legislative power is held by the Congress of the Republic, comprised of representatives elected directly by the population in universal suffrage with secret ballot using a system of electoral districts and a national list. They serve a four-year term with the option of re-election (Art. 157 of the CPRG). The responsibilities of Congress include passing, reforming and repealing laws as well as approving, modifying or rejecting the State’s budget (Art. 171 of the CPRG). Judicial power rests with the judges sitting in the Supreme Court of Justice, who are elected by the Congress of the Republic for a term of five years, comprising 26 candidates proposed by a nominations commission (Art. 215 of the CPRG).

The decentralisation policy is led by the Directorate General of Decentralisation (DGD or Dirección General de Descentralización), part of the Executive Coordination Secretariat of the presidency (SCEP or Secretaría de Coordinación Ejecutiva de la Presidencia) in accordance with the Decentralisation Act, decree 14-2022, and the National Decentralisation Agenda, which applies to all 340 municipalities in the country. The executive body seeks to bring public services to all parts of the country and to ensure that the municipalities know how to put them into operation.

The organisation and coordination of public administration comes under the auspices of the Urban and Rural Development Council (Consejo de Desarrollo Urbano y Rural), which is coordinated by the president of the Republic and constituted in the form prescribed by law. This Council is in charge of formulating policies of urban and rural development as well as land-use planning (Art. 225 of the CPRG). All the articles mentioned are taken from the Political Constitution of the Republic of Guatemala, CPRG of 31 May 1985, amended on 24 November 1993.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2021)
Municipalities (municipalidades)
Average municipal size: 49 583
340			340

OVERALL DESCRIPTION: The territory of the Republic is divided up for administrative purposes into eight regions, 22 departments and 340 municipalities. The municipalities make up the country’s only decentralised level of government. They are autonomous governments that administer their resources in line with national development policies.

STATE TERRITORIAL ADMINISTRATION: The regions are deconcentrated entities. Participation at regional level is coordinated by the Regional Council of Urban and Rural Development. This council is chaired by a representative of the president of the Republic and made up of (i) the governors of the departments that form the region, (ii) a representative of the municipal corporations of each of the departments included in that region and (iii) the representatives of the public and private entities established by law. The presidents of these councils are ex officio members of the National Council of Urban and Rural Development (Consejo Nacional de Desarrollo Urbano y Rural) (Art. 226 of the CPRG).

The departments are also deconcentrated entities whose principal function is to coordinate the governmental institutions at departmental level. They are managed by the departmental governments, which are led by a governor, appointed by the president of the Republic. The role combines the same qualities as a minister of State and enjoys the immunities of the executive presidency, having had to be domiciled during the five years prior to their appointment in the department for which they are appointed (Art. 227 of the CPRG). The governor presides over a council made up of the mayors of all the municipalities in the department and representatives of the organised public and private sector, and which is responsible for promoting the development of the department (Art. 228 of the CPRG). The most populous departments include Guatemala with 20.9% (3.5 million inhabitants), Huehuetenango with 8.1% and Alta Verapaz with 7.9%, while the least populous departments are Baja Verapaz with 2%, Zacapa with 1.6% and El Progreso with 1.1%. Both the regional and departmental councils “must receive the necessary financial support for their functioning from central government” (Art. 229 of the CPRG).

MUNICIPAL LEVEL: The municipalities of the Republic of Guatemala, as a group of socio-political and economic agents and relations within their respective territories, are autonomous institutions (adapted from Art. 253 of the CPRG). In this sense, the municipal government is run by a council made up of the mayor, trustees and councillors, directly elected by secret ballot and universal suffrage for a four-year term, with the option of being re-elected (Art. 254 of the CPRG). 106 municipalities have a population above the average (49 583 inhabitants) while 234 are below the average. The three municipalities with the largest population are: Guatemala City with 7% (1.2 million), Mixco with 2.9% and Villa Nueva with 2.8%, while those with the smallest population are: Santa Catarina Barahona with 0.03%; San Marcos la Laguna with 0.017%, and Santa María Visitación with 0.015%.

HORIZONTAL COOPERATION: The representation and empowerment of the municipalities is organised through the associations of municipalities. They can come together to defend their interests and comply with their general objectives and those that are guaranteed by the political Constitution of the Republic and, as a result, enter into agreements and contracts for shared development and institutional strengthening. The associations formed by municipalities have their own legal status separate from each constituent municipality. They are formed to defend their municipal, departmental, regional and national interests and for the formulation, execution and monitoring of plans, programmes, projects, for the planning, execution and evaluation of the execution of works or for the provision of municipal services. The associations of municipalities at departmental, regional or national level are governed by the regulations of the Municipal Code (Código Municipal, or CM) and the statutes that are passed. The constituent municipalities are represented by the mayor or a nominated delegate (Art. 10 of the CM). At national level there are two associations: the National Association of Municipalities (ANAM or Asociación nacional de municipalidades), and the Association of Mayors and Indigenous Authorities (AGAAI or Asociación de Alcaldes y Autoridades indígenas). Article 49 of the CM allows municipalities to form associations between two or more municipalities with their own legal status in order to provide public services under their jurisdiction. There are currently 10 such associations in the country.

According to Art. 68 of the Municipal Code, the own competences of the municipality may be exercised by the municipality, by two or more municipalities under an agreement, or by an association of municipalities. The provision of municipal public services can also be delegated according to Art. 73 of the CM.

The municipality can also exercise delegated competences upon request to central government, such as the construction and maintenance of roads, the application of hygiene standards to food production, the management of primary and pre-primary education, environmental management, the construction and maintenance of school building, and preventative health. The programmes and projects are executed under agreements with central government (Art. 70 of the CM). This delegation must be endowed with the necessary resources so that it can be performed without prejudicing its autonomy.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Municipal level
1. General public services (administration)	Fiscal and administrative management of the municipal entity
2. Public order and safety	Municipal police
3. Economic affairs / transports	Markets, slaughterhouses, cemeteries,road paving, regulation of passenger and cargo transport and their local stations; electricity supply; authorisation of areas for establishments open to the public, construction licences
4. Environment protection	Cleaning, collection, treatment and final disposal of sewerage and solid waste; authorisation of megaphones; forest nurseries; environmental management (shared).
5. Housing and community amenities	Potable water supply, sewerage; public lighting.
6. Health	Management and administration of municipal pharmacies; construction of health centres (shared).
7. Culture & Recreation	Administration of public municipal libraries.
8. Education	School construction (shared)
9. Social Welfare	Pensioners (municipal employees)

Scope of fiscal data: Municipalities

Ministry of Finance

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: The Guatemalan budgetary framework is based on the General Budget of State Income and Expenditure, approved for each fiscal year as stipulated in the Constitution (Art. 237). The budgetary system encompasses the planning, programming, organisation, coordination, execution, control of the acquisition and use of public resources under the principles of legality, economy, efficiency, efficacy, quality, transparency, equity and publicity in the compliance with the plans, programmes and projects as per the established policies (Art. 1 of the Budget Act 101-97, LOP or Ley Orgánica del Presupuesto). In 2020, the income and expenditure of the local government of Guatemala amounted to 2.2% of GDP and represented 13.5% and 11.7% respectively of the income and expenditure of the general government.

The municipalities start their budgetary cycle with the Annual Operational Plan, which must be aligned with the strategic objectives of central government and with the National Development Plan katun 2032, as well as with the sustainable development goals. They draft their preliminary budget of income and expenditure, which must then be presented to the municipal council by the first week of October each year and must be approved or rejected by the municipal council by 15 December of each year. If the new term starts without the budget being accepted, the budget of the previous year remains valid and can be modified by decisions of the municipal council (Art. 131 of the CM).

Subnational government expenditure by economic classification
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure	190	2.2%	11.7%	100.0%
Inc. current expenditure	68	0.8%	5.5%	35.8%
Compensation of employees	40	0.5%	9.9%	21.3%
Intermediate consumption	20	0.2%	12.6%	10.6%
Social expenditure	-	-	-	-
Subsidies and current transfers	2	0.0%	0.5%	1.0%
Financial charges	3	0.0%	1.6%	1.7%
Others	2	0.0%	23.2%	1.2%
Incl. capital expenditure	122	1.4%	31.5%	64.2%
Capital transfers	4	0.1%	2.5%	2.3%
Direct investment (or GFCF)	117	1.3%	56.0%	61.9%

EXPENDITURE: The economic classification of the expenditure is divided into two categories: the first, comprising the operating costs of the municipalities that represent 35.8% of the total, made up of staff salaries at 21.3% and consumption of materials and equipment at 10.6%; the second, comprising capital expenditures at 64.2% of the total executed in 2020, with direct investment expenditures accounting for almost 62% of total municipalities' expenditures. The total expenditure implemented by the local governments represents 11.7% of general government expenditure, 2.2% of the gross domestic product (GDP) and an expenditure per capita of USD 190 PPP. Capital expenditure has grown constantly since the middle of the decade. In 2017 it represented 62% of the total municipal expenditure, 64% in 2018 and 67% in 2019. The slight drop in 2020 is related to the impact of the COVID-19 pandemic.

DIRECT INVESTMENT: Direct investment forms fixed capital in the municipalities via the programmes, projects and works that are planned and executed in their jurisdictions. It is made up of the construction of buildings and facilities, the acquisition of existing assets, purchase of machinery, equipment and other movable assets, construction of national assets in common use and construction of national assets not in common use plus the land and terrain of municipal heritage sites. On average, the municipalities of the country make a direct investment of USD 117 PPP per capita, which represents 56% of general government investment. In other words, the municipalities invest more than central government. The direct investment of the municipalities represented 1.3% of GDP in 2020.

Subnational government expenditure by functional classification
2020 GG consolidated	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total expenditure by economic function	190	2.2%	-	100%
1. General public services	58	1%	18%	30.5%
2. Defence	0	0.0%	0.2%	0%
3. Security and public order	9	0.1%	5.4%	4.5%
4. Economic affairs/transports	35	0.4%	24%	18.6%
5. Environmental protection	21	0.2%	8.8%	11.2%
6. Housing and community amenities	36	0.4%	23%	19.1%
7. Health	5	0.1%	4.4%	2.6%
8. Recreation, culture and religion	8	0.1%	37.4%	4.1%
9. Education	14	0.2%	4.4%	7.1%
10. Social protection	4	0.1%	3.4%	2.2%

The expenditure of the municipalities by functional classification amounts to 2.2% of GDP. Most of the expenditure of the municipalities goes on general public services, with 1% of GDP and 30.5% of the total expenditure of the local governments. This includes debt transactions. Expenditure on economic affairs represents 0.4% of GDP, the same as the expenditure on housing and community amenities, which also represents 0.4% of GDP. These three areas together make up almost 70% of total local government expenditure.

Education and health are delegated to the municipalities. One of the areas of expenditure that has grown in relevance at municipal level is the protection of the environment, which represents a per capita expenditure of USD 21 PPP and 11.2% of total local government expenditure in 2020. This is due in part to the implementation of a directive on wastewater monitored by the Ministry of the Environment and Natural Resources.

Subnational government revenue by category
2020	Dollars PPP / inhabitant	% GDP	% general government	% subnational government
Total revenue	198	2.2%	13.5%	100.0%
Tax revenue	22	0.3%	2.4%	11.2%
Grants and subsidies	139	1.6%	-	70.4%
Tariffs and fees	37	0.4%	-	18.5%
Income from assets	-	-	-	-
Other revenues	-	-	-	-

OVERALL DESCRIPTION: The total revenue of local government represents 2.2% of GDP and 13.5% of general government revenue. 29.6% of these revenues are own-source revenues and 70.4% are transfers from the central administration. This indicates a limited level of fiscal autonomy and a significant dependence on central government for investment and the operating costs of the administrative apparatus to comply with its functions and competences.

TAX REVENUE: The taxes authorised by the Congress of the Republic, and which are managed, administered and collected by the municipalities, account for fiscal revenues in the budgetary execution of revenue, which represent 11.2% of the total income of the municipalities with a per capita contribution of USD 22 PPP annually and which corresponds to 0.3% of the gross domestic product. In the composition of the tax revenue, the single property tax (IUSI or impuesto único sobre inmuebles) represents 9% of the total revenue, with the remaining 2% corresponding to charges for the maintenance of ornamental public spaces, signage and advertising, cable signals and various charges to establishments open to the public as well as local businesses and industries.

83% of the total revenue of the IUSI is collected in 4 of the country’s 22 departments: 64% in the metropolitan region, 9% in the department of Escuintla, 6% in the department of Sacatepéquez and 5% in the department of Quetzaltenango. The municipal tax systems in Guatemala are still at a very early stage of development. Each municipality has different production capabilities, demographic characteristics and payment capacities and there is no uniform method of evaluation; only a few refer to the Sector Appraisal Manual approved by the Ministry of Public Finance. 70% of the single property tax must go towards investment and 30% on operating costs and be spent on basic public services and infrastructure projects.

The Ministry of Public Finance, through the Directorate of Municipal Financial Administration Assistance, has established a system of monitoring for the municipalities based on standard indicators to assess and monitor the financial progress and budgetary execution of the country’s municipalities.

GRANTS AND SUBSIDIES: The transfers from central government to the municipalities amount to 70.4% of their revenues. The so-called “situado constitutional”, as laid down in the political Constitution of the Republic of Guatemala (Art. 257), stipulates an annual allocation to the municipalities that corresponds to 10% of the national budget. 10% of the funds transferred must go towards operating costs and 90% towards investment, for education, preventative health, infrastructure projects and public services. The distribution of the constitutional allocation is done according to the criteria established in Article 119 of the Municipal Code (CM): size of population of the municipality (30%), own income per capita (25%), number of villages and hamlets (10%) and an allocation in equal parts (35%).

Other revenue that corresponds to the transfers from central government originates in the collection of value added tax (VAT), taxes on land, air and maritime traffic, and a tax on the distribution of crude oil and petroleum-derived fuels. The VAT tax arising from the peace agreements (IVA-PAZ or impuesto al valor agregado para la paz), covered by the VAT Act (decree 57-92, 1992), is a direct allocation to the municipalities. Of this sum, 25% is for operating costs and 75% for investment in sectors such as education, health, infrastructure, potable water, electricity, drainage, waste management and improvements to municipal public services. 2.5% of the tax levied on land, maritime and air traffic (decree 70-4, 1992, Art. 10) goes towards operating costs and 97.5% to investment: maintenance, improvements, construction or expansion of roads, bridges and kerbs in town centres and other settlements of the municipality. This includes the maintenance and acquisition of traffic lights. The law governing the tax on the distribution of crude oil and petroleum-based fuels (decree 38-92, 1992) stipulates that all of it must be spent on investment in transport services, road improvements and the maintenance of urban and rural road networks.

Resources are also transferred to the municipalities through the Departmental Development Councils (CODEDE or Concejos Departamentales de Desarrollo): the Ministry of Public Finance transfers funds destined exclusively to investment to the councils to be distributed in turn to the municipalities for approved projects.

OTHER REVENUE: Fees and tariffs represent 18.5% of the total revenue of local governments. They constitute revenues from the operation of public services such as water supply, public lighting, solid waste collection, fines for non-payment, management and receipt of rents from municipal markets, income from assets, sale of products, tourism centres, healthcare services, transport services, electricity services, construction licences and others.

These fees amount to USD 37 PPP per year per inhabitant and represent 0.4% of GDP. The municipal councils are empowered to set, regulate, operate and maintain the fees for public services and to fix tariffs for operating costs in accordance with Art. 72 of the Municipal Code (CM). They can also define fees for rent, licences and products as well as the administrative services provided for local citizens. In order for these to have legal effect, they have to be planned as part of a fee scheme or in regulations that define the fees for the services and are published in the Official Journal. Resistance to payment is a challenge for the municipalities so few have managed to modify the fees. The public services provided by the municipalities in urban areas continue to be subsidised, which affects their quality, coverage and sustainability. It is political rather than technical considerations that tend to restrict the municipalities in the management of these fees.

Subnational government fiscal rules and debt
2020	Dollars PPP / inh.	% GDP	% general government debt	% SNG debt	% SNG financial debt
Total outstanding debt	16	0.2%	0.6%	100.0%	-
Financial debt	16	0.2%	0.6%	100.0%	100.0%
Currency and deposits	-	-	-	-	-
Bonds / debt securities	-	-	-	-	-
Loans	16	-	-	-	100.0%
Insurance pensions	-	-	-	-	-
Other accounts payable	-	-	-	-	-

FISCAL RULES: In February of each year, the municipal councils have to submit a report on the purpose and execution of the loans to the Municipal Development Council and via mass media to the population (Art. 61 of the LOP). They may not conduct public credit operations to finance running or operating costs. The technical studies of the projects or services to be financed via loans should ensure that they are self-financing: in other words, the fees or tariffs that the users of the public services pay must be sufficient to cover the costs of operating and maintaining the service. It is not permitted to transfer funds from investment programmes to operating programmes or to pay off public debt (Art. 238 of the CPRG). The total amount of the debt is composed of the predicted capital repayment, the interest payments and other costs related to servicing the debt.

DEBT: According to Article 110 of the Municipal Code, the municipalities may obtain loans that comply with the legal requirements. These must respect their payment capacity and not affect the municipal finances (Art.112 of the CM). There must be security that the debt incurred will not affect national finances either. It is not permitted to contract credit obligations whose repayment term exceeds the period of government of the municipal council. The loans must be used exclusively to finance the planning, programming and execution of municipal public works and services. The debt must be approved by two-thirds of all members of the municipal council. The interest rate of the agreed loans may not be greater than the average interest rate reported by the Bank of Guatemala. Internal loans may be agreed with banks from the national financial system or through the Institute of Municipal Development (INFOM or Instituto de Fomento Municipal), which acts as a financing entity and also as an advisor on the technical and administrative management of the municipalities.

In 2020, the per capita debt of the municipalities amounts to USD 16 PPP. This represents 0.2% of GDP and 0.6% of the total general government debt. A sharp increase of municipal debt was registered in 2020 compared to 2019, in the context of the COVID-19 pandemic.

TERRITORIAL MANAGEMENT OF THE CRISIS: At national level, through the decrees initially issued by central government, the state of public emergency began on 6 March 2020 and continued until 29 September. Programme 94 was created in the national and municipal budget for public disasters and catastrophes with the aim of making it easier to manage the budgetary process to deal with the emergency caused by the COVID-19 health crisis. The president charged the Presidential Commission for the COVID-19 Emergency (Governmental Agreement 65-2020) with leading the prevention plan. Local governments collaborated with the central government in the implementation and execution of the social and economic programmes decreed by the central government to cover the entire country. They helped by carrying out health checks in coordination with the Ministry of Health and identifying beneficiaries of the programmes at local level.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: On average, the 340 municipalities spent 1.7% of the total municipal budget for the 2020 fiscal year on programmes of food aid, purchase of real estate for cemeteries, the dissemination of prevention programmes, support for the control and security of municipal health cordons, food aid for the most vulnerable and the supply of staple grains.

The municipalities also adopted a series of measures related to local financial management during the crisis. These measures included the cancellation or reduction of fines and charges for defaulting on timely payments in terms of taxes, contributions, fees and tariffs for public services so that contributors and users of the municipality were able to make payments without getting into arrears for lack of family income. Likewise, clear rules were established to set payment agreements of 6 to12 months to make late payments possible during the course of the crisis. Payment by debit and credit card was introduced at municipal level with electronic receipts, which made it possible for contributors and users to make their tax payments outside the municipality. Finally, fines for the single property tax (IUSI) were cancelled during the COVID-19 crisis by means of municipal agreements and ordinances.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The municipalities of Guatemala, on average, suffered a reduction of 2.5% in their total revenues in 2020 compared with 2019. The collection of fees and tariffs for the public services provided saw a drop of 35% versus 2019. However, fiscal revenues grew by 2.7%, principally in the collection of the single property tax.

In terms of the revenues transferred, the current transfers corresponding to allowances to cover the operating costs of local governments decreased by 4% and the capital transfers that correspond to the constitutional allocation of VAT funds and other specific revenues decreased by 7%. This meant that the municipalities had to resort to long-term loans to meet existing demands and resulted in an increase in municipal debt of 613% in 2020 versus 2019.

ECONOMIC AND SOCIAL STIMULUS PLANS: The central government implemented social and economic programmes based on the Emergency Law (decree 12-2020 and decree 13-2020) and the Economic Rescue Package, both approved by Congress. Sub-programme 09 of programme 94 was created in the general budget of the nation for a sum of 20 160 million quetzals (USD 5 billion PPP), of which 77.4% was executed in the period from 2020 to 2021. The following programmes were implemented: 1. programme of rural agriculture, 2. fund for micro, small and medium-sized enterprises, 3. fund for capital protection, 4. programme of senior citizens, 5. programme of remodelling and infrastructure of hospitals and healthcare centres, 6. programme of food distribution, 7. family vouchers, 8. fund for employment protection, 9. fund for working capital, 10. subsidy for electricity, 11. health infrastructure, 12. acquisition of ventilators, 13. COVID-19 tests and equipment, 14. personal protective clothing and materials, 15. projects for economic reactivation and 16. single voucher for pensioners and state pensioners. All these programmes were run in coordination with local governments so that they could be implemented in each and every municipality in the country.