Colombia

Shell signs two offshore contracts

Colombia signed two offshore exploration and production contracts with Shell that will require the company to make $100M in initial investments. Shell’s investment could surpass $650M if exploration continues, according to Colombia’s National Hydrocarbons Agency. The government recently modified contractual terms for offshore exploration and launched a new process that allows companies to apply to explore in areas of interest, offering 20 blocks as part of a strategy to boost the oil sector.

Regulator Agencia Nacional de Hidrocarburos (ANH) and Shell signed exploration and production contracts for two blocks , the “COL 3” and “GUA OFF 3” blocks in the Caribbean Sea with an investment commitment of nearly $100 million in the first phase.

ANH President, Luis Miguel Morelli, said that the contracts signify confidence of oil investors in the exploration of offshore resources in the Caribbean.

“Shell assumes investment commitments of more than 100 million dollars for the first phase of exploration in these two blocks. However, if Shell later decides to continue with the exploratory program of the following two phases, the investment in its entirety may exceed 650 million dollars.”

The exploration project, which corresponds to the blocks COL 3 (400,000 hectares) and GUA OFF 3 (480,000 hectares), will be developed in an area that, as a whole, covers 880,000 hectares.

Shell’s commitment for block COL 3 includes reprocessing of 3D seismic over an area close to 1,000 km2 , and the drilling of at least one exploration well in the first phase.

The contract for the block GUA OFF 3 includes a Minimum Exploratory Program (PEM) of three phases that includes the acquisition of 2,461 km2 of 3D seismic, the taking of 43 samples of Piston Core and the reprocessing of 3D seismic over an area close to 2,000 km2, in the first phase.

The agency estimates that if the PEMs are fully developed, the investment commitments could exceed $650 million.

Amerisur Resources reserves update

Amerisur Resources, the oil and gas producer and explorer focused on South America, provided an update on the certified reserves for its production assets .
Following an independent reserves report for the Platanillo and Mecaya fields by Petrotech Engineering, and the CPO-5 block by McDaniel and Associates Consultants as at 31 December 2018, using the standards set by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers, certified 1P (Proven) working interest field reserves were 17.82 million barrels of oil (‘MMBO’) (2017: 13.94 MMBO) and 2P (Proven and Probable) working interest reserves were 25.59 MMBO (2017: 20.70 MMBO). Total production from the Platanillo field during 2018 was 1.61 MMBO and total production from the CPO-5 block, (Mariposa and Indico fields) at 31 December 2018 was 1.15 MMBO.

This represents an increase of 27.83% in 1P and 23.62% in 2P reserves over year end 2017, and is due to the drilling success in the CPO-5 block previously reported.

Reserves

John Wardle, CEO of Amerisur Resources said:

‘The drilling success at Indico-1, together with the strong production behaviour observed at Mariposa-1 through the year have delivered a material increase in the Company’s reserve base. We look forward to further production and reserves increases as our exciting, fully funded drilling programme develops during the year.”

Amerisur Resources, provided an update on operations.

CPO-5 (WI 30%): Exploration Drilling Update

• The Calao-1X exploration well was drilled to a final depth of 11,445 feet, the LS3 reservoir was logged and no hydrocarbon potential was identified.
• The Company analysis indicates that the formation was encountered deeper than prognosis and the well was located in an area without closure.
• The well has the potential to be used as a water disposal well in the future.
• Amerisur and the Operator are currently integrating the results of this well into the general geophysical model while reviewing the model applied for the well Pavo Real-1.
• Meanwhile it is planned to drill a further appraisal well within the Indico structure.

Platanillo (WI 100%): Workover Update

• The Company continues to optimise production at Platanillo with a workover completed on Platanillo-8 to install a selective completion. This allowed an 8 foot interval of the Lower U sand to be perforated and produced with existing production from the T sand. That interval is producing in a stable manner at 820 BOPD with an expected water cut of 17%.
• The workover rig has now been moved to Platanillo-2, where it is planned to install a second selective completion and perforate the T sand, thus allowing both U and T sand to be produced simultaneously. This same operation will then be performed on Platanillo-7.
• Following the Platanillo-7 workover, the Company plans the drilling of a new infill well, Platanillo-26. That well will target an undrained area, identified on seismic, to the south of existing wells on the Pad 3N.
• It is then planned to re-enter Platanillo-22 and 21 to perform sidetracks to increase the productive potential of those wells.

Production:

• Through Q1/19 working interest production is expected to average around 4,600 BOPD.
• This reflects the short term impact of production from Indico-1 being choked back (from around 1,100 BOPD to 330 BOPD net) due to operational requirements during the drilling of Calao-1 from the same drilling pad.
• At Platanillo production averaged 3,000 BOPD with OBA throughput around 2,000 BOPD as the government completed recovery of unclaimed royalty barrels outlined in the Company’s announcement dated 22 January 2019. This process should conclude by month end.

John Wardle, CEO of Amerisur Resources said:

“A disappointing result from Calao, however the information obtained from the well is allowing us to further refine our model in this important area, where we have already established material reserves through the drilling of Mariposa-1 and Indico-1. It is important to ensure that we fully re-evaluate Pavo Real-1X before committing to drill, and Amerisur has recommended to the Operator that drilling focus should return to the Indico structure for the moment, with the drilling of Indico-2, a low risk appraisal well. The Calao result has no impact on the previously disclosed CPO-5 reserves for year-end 2018.

The result of the Platanillo-8 workover was very positive, and we expect further success as our multi-well programme continues in that field. We also believe that the infill well Platanillo-26 is a low risk option to augment production in Platanillo and look forward to updating the market as that programme progresses.”

Amerisur exercises right of first refusal to acquire Put-8 interest

Amerisur Resources has provided an update on corporate activities.

Following notification by Vetra Exploración y Producción Colombia of the proposed sale of its 50% working interest in block Put-8, Amerisur has exercised its right of first refusal to acquire that working interest, as per the terms set forth in the existing Joint Operating Agreement between Amerisur and Vetra.

Following approval by the Colombian National Hydrocarbons Agency (ANH) the Company will hold 100% working interest and operatorship in Put-8.

The consideration for the acquisition is USD $19.1 million which will be met from internal resources.

John Wardle, CEO of Amerisur Resources said:

“Put-8, strategically located between oil fields has been a prime part of our Putumayo portfolio since we acquired a 50% working interest by way of the Platino acquisition. The opportunity to increase our working interest and acquire operatorship was very attractive to us, consolidating even further our position around the OBA pipeline and bringing more operational flexibility. In the interim, while awaiting approval by ANH, preparations for the exciting drilling programme in the block will continue.”

Source: Amerisur Resources

Ecopetrol to spend USD500 million on fracking

SOC Ecopetrol will spend $500 million in exploring unconventional deposits over the next three years, starting with pilot programs in the Magdalena Medio region.

‘We’ve applied for some licenses, we will apply for more… roughly 20 wells that will need to be drilled, fracked, cored, logged, there’s lots of activity, so there’s quite a bit of investment,’… Ecopetrol’s Chief Executive Felipe Bayon.

The proposed $500 million is part of the $12 billion to $15 billion allocated by Ecopetrol to investing between 2019 and 2021, said Bayon, adding that these pilot programs would involve participation of nearby communities as well as regulators, authorities and unions.

Source: Reuters

Colombia

IMF  Staff Concluding Statement of the 2019 Article IV Mission
March 8, 2019

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

A Resilient Recovery with Medium-run Challenges

Colombia’s economy continues to gain momentum despite less favorable global conditions. Led by domestic demand, growth is expected to rise to 3½ percent in 2019—benefitting from policy support, improving credit market conditions, and recovering investment. Mirroring the demand-led recovery, external deficits are widening. Substantial migration flows from Venezuela carry some adjustment costs but should raise potential over time. Rising fiscal challenges should be addressed soon, while structural reforms remain instrumental to boost inclusive growth and external competitiveness.

1. Colombia’s recovery is gaining momentum despite slowing global growth. Led by domestic demand, economic activity is accelerating in 2019. Growth is expected to pick-up to 3½ percent from 2.7 percent in 2018, underpinned by strong private consumption and a long-awaited recovery in business investment as policies have remained supportive. Against weaker-than-expected external demand and volatile oil prices, Colombia’s resilient outlook benefits from continued moderate monetary policy support, a lower tax burden for corporates from the Financing Law, and higher fiscal spending. Substantial migration inflows from Venezuela have added to demand, especially for services. Alongside an expanding economy, credit growth, especially for firms, should also improve. Inflation ended the year close to the Central Bank’s inflation target and price pressures remain contained.

2. With demand-driven growth, external imbalances are widening. The current account deficit was 3.8 percent of GDP in 2018 and external imbalances are likely to remain elevated this year—as recovering domestic demand has spurred imports, including for investment goods, while non-oil exports remain sluggish. Nevertheless, the current account has been comfortably financed, mainly by stable foreign direct investment and robust portfolio inflows from a more diversified foreign investor base. In the absence of additional policy actions or higher oil prices, however, external adjustment to appreciably reduce the trade and current account deficits will be challenging over the medium term.

3. Colombia remains on the front lines responding to the severe humanitarian crisis in Venezuela. Remarkably, more than 1 million migrants from Venezuela currently reside in Colombia and many more have either passed through the country in transit or crossed the border temporarily. Commendably, Colombia has shown an unwavering commitment to provide humanitarian support such as health care, education, as well as granting labor rights to migrants to help integrate them into the economy. The associated fiscal costs are estimated to be around ½ percent of GDP in the near term. Looking beyond short-run adjustment costs, recent migration flows should raise over time Colombia’s growth potential.

4. Heightened external risks may weigh on the recovery. Lower global growth, amid rising protectionism, poses risks to Colombia’s exports. And while market expectations for higher US interest rates have receded, a sudden tightening in global financial conditions remains a risk. On the domestic front, the projected rebound in investment by Colombian businesses may not fully materialize, particularly if infrastructure spending and construction remain sluggish.

Rising Fiscal Challenges on the Horizon

5. Fiscal policy should adopt a broadly neutral stance in 2019. Against a background of robust domestic demand growth and widening external deficits, the central government should reduce the fiscal deficit to 2.4 percent in line with the fiscal rule. If fiscal costs from migration turn out to be larger and more persistent, however, flexibility within the rule through the escape clause can be considered under strict conditions to safeguard the Medium-term Fiscal Framework (MTFF). [1] At the subnational level, higher spending by local governments—which have more fiscal space given past under executions of their budgets—may provide helpful stimulus to the ongoing recovery.

6. Rising fiscal challenges are approaching and will require structural policy efforts. At the heart of Colombia’s strong policy frameworks, the MTFF includes the fiscal rule’s structural deficit goal of one percent of GDP by 2022. Within this tightening budgetary envelope, spending pressures from migration-related fiscal costs may persist for some time. Meanwhile, the Financing Law should boost investment but may lead to revenue shortfalls as lower corporate tax burdens are realized from 2020 onwards. Against this backdrop, Colombia should consider undertaking structural measures, on both revenues and spending, to reinforce its MTFF:

• • Steady efforts to lift tax revenues structurally would build fiscal space . A medium-term objective to gradually raise tax revenues collected by the central government by 2-3 percent of GDP would help protect key spending on public investment and social programs, build fiscal buffers, and reduce public indebtedness over the medium term. Measures includes tax simplification, such as eliminating many preferential regimes for businesses; base broadening for personal income taxes and VAT, with due attention to progressivity and protection for the poor; and enhancing efficiency of tax administration and collection. Here, the mission welcomes the authorities’ efforts to improve DIAN’s IT systems, staffing and training.
  • The authorities’ focus on spending efficiency is welcome and important . Efficiency improvements in line with the recommendations made by the expert commission on spending should be pursued, including improved targeting of energy subsidies and stronger project selection for public investment. The mission welcomes the objective in the national development plan to unify the budgetary process to improve consistency and further integrate it with medium and long-term programs.

Appropriate Monetary Accommodation and Reserve Accumulation

7.Moderately accommodative monetary policy is providing helpful support to demand. Inflation is projected to end 2019 at 3.2 percent—close to the Central Bank’s objective. While supply shocks could lead to temporary price pressures, services inflation should ease further. Given inflation close to target, anchored inflation expectations, and the prevailing negative output gap, monetary policy should remain accommodative. If credit markets and GDP strengthen as expected, monetary policy can shift to a less accommodative stance in the second half of the year.

8. The Central Bank’s reserve accumulation program is a proactive step to build external buffers. Reserves are currently adequate according to the IMF’s standard metrics but will need to rise over time to provide a sufficient buffer given growing external financing needs and risks. The program’s market-based mechanism has allowed the build-up of US$ 1.2 billion in reserves without disrupting a smooth functioning of the foreign exchange market, while permitting the flexible exchange rate to remain the first line of defense against external shocks. Also, in a one-off transaction in February, the Central Bank purchased US$1 billion from the Treasury at the prevailing market rate. The Central Bank continues to sterilize accumulated reserves, as needed, to keep interest rates close to the policy rate and this would be important as the economy strengthens to maintain inflation close to target.

Strengthening Financial Stability and Promoting Growth

9. Colombia’s credit cycle should improve alongside its economic recovery. Credit growth should pick up with the investment recovery and as non-performing loans (NPLs) decline. Despite the credit quality deterioration in the first half of 2018, banks remain well capitalized with stable provisions and show an increased willingness to lend. Given elevated NPLs, the financial supervisor (SFC) needs to remain alert and proactive to ensure that problem assets continue to be sufficiently provisioned for. The SFC is committed to continue closely monitoring the modified loans portfolio to avoid build-up of excess credit risk.

10. The authorities’ continued efforts to strengthen financial stability and further improve the regulatory framework are welcome. The SFC presented a new schedule for implementing the Conglomerates Law and Basel III capital standards. The mission supports the authorities’ timelines and stresses the importance of adhering to them. The plan to gradually introduce additional capital buffers over a four-year period is appropriate and should prevent credit supply bottlenecks while strengthening financial stability. Given that the capital ratio will be redefined in 2020, while additional capital buffers are only introduced gradually, heightened supervisory vigilance would be appropriate during the transitional period.

11. Structural reforms are needed to boost inclusive growth and enhance external competitiveness. Colombia has made impressive progress in reducing poverty and inequality over the past fifteen years. Better targeted subsidies, closing infrastructure gaps, and reducing skills mismatches would help cement social gains. Emphasis on entrepreneurship and improving the business environment take on renewed importance given the need to strengthen external competitiveness. Strengthening the rule of law and reducing corruption is also an important challenge. The national development plan rightly identifies many of these issues, providing a strategic roadmap for reforms—including fighting informality, improving efficiency, and enhancing productivity . In addition, pension reform that improves progressivity and coverage while guaranteeing sustainability of pension benefits remains crucial.

*****

The mission would like to thank the Colombian authorities for their cooperation and open discussions. Also, the mission welcomes the emphasis of the National Development Plan in fighting informality, improving efficiency and enhancing productivity.

In the wake of an exceptional migration shock from Venezuela, the rule’s escape clause can be considered if triggers, deviations, and correction were to be well defined. In that case, the escape clause would be invoked to deal with migration- specific costs, temporary deviations should be commensurate with these costs and complemented by a well-defined plan that specifies fiscal measures needed to return to the rule’s deficit path after a few years.

IMF Communications Department

Guatemala 

IMF Working Paper Western Hemisphere Department

International Monetary Fund WP/19/60

Attaining Selected Sustainable Development Goals in Guatemala: Spending, Provision, and Financing Needs Prepared by Esther Perez Ruiz (WHD) and Mauricio Soto (FAD) Authorized for distribution. March 2019

Abstract

Raising living standards continues to be the main challenge facing Guatemala, as a matter of economic success and social cohesion. This paper discusses the spending, financing, and delivery capacity aspects of a development strategy for Guatemala couched within the United Nations Sustainable Development Goals (SDGs) agenda. Overall, Guatemala faces additional spending of about 8½ percent of GDP in 2030 to attain health, education, and roads, water, and sanitation infrastructure SDGs. While substantial, these cost estimates are commensurate with a financing strategy encompassing continuing tax administration efforts, broad-based tax reform, scaled-up private sector participation, and greater spending efficiency. Improving delivery capacities is also essential to secure access of those public goods to all Guatemalans, irrespective of their place of residence, ethnic group, or ability to pay. JEL

Classification Numbers: Q01, H11, H20, H87, O23, I15, I25, L92, L94, L95, F35. Keywords: Sustainable Devleopment Goals, Development, Fiscal Policy. Author’s E-Mail Address: eperezruiz@imf.org; msoto@imf.org IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Contents Page

I. Introduction ………………………………………………………..4

II. Progress Towards Sustainable Development …………..6

III. Spending Needs of Achieving Key SDGs………………..8

IV. Enhancing Delivery Capacities………………………………13

V. Financing Strategy ………………………………………………..26

VI. Conclusion………………………………………………………….. 29

Appendixes I. Costing Methodology …………………………….31

II. Financing Strategy: Tax Reform Options ………………….32 References………………………………………………………………….33

p4 I. INTRODUCTION1 1. Raising Guatemalans’ living standards is key to capitalizing on the demographic dividend expected to occur over the next two decades. Raising living standards continues to be the main challenge facing Guatemala, as a matter of economic success and social cohesion. Most of the countries with similar income per capita in 1980 currently outperform Guatemala. Over the past decade, income per capita has grown at an average rate of 1.2 percent per year, which remains inadequate to meaningfully reduce Guatemala’s high levels of poverty. Current levels of social spending fall short of the targets that were enshrined in the 1996 Peace Accords that ended the prolonged Civil War,2 impairing the government’s ability to fulfill its basic public functions.

2. Guatemala’s development outcomes lag other countries that are at a similar income level (Figure 1). Poverty and extreme poverty, at 60 and 23 percent of the population respectively, are amongst the highest in the region and have been increasing over the last decade. The prevalence of stunting in children under 5 years old is amongst the highest in the world. Infant and maternal mortality rates are well above Latin American and Caribbean averages and over 40 percent of the population does not have access to safe drinking water. Pre-primary education and secondary school enrollment rates are low in regional comparison. A range of social outcomes are markedly worse in rural areas and for indigenous populations. Overall, Guatemala’s provision levels of public goods are far off what the literature finds as 1 Prepared by Esther Perez and Mauricio Soto.

The authors are thankful for comments from IMF staff participating in the interdepartmental group on SDG costing. The authors are also grateful, for fruitful discussions during the missions held in Guatemala on March 21−23 and June 18−22, valuable insights and comments. Finally, we would like to thank Christian Vera for excellent research support, and Gerardo Peraza and Roany Toc Bac for their first-rate collaboration from the IMF Regional Office in Central America, Panama, and the Dominican Republic..

The authorities have embraced the Sustainable Development Goals (SDGs) as part of their national development strategy. Through a process of consultation within the public sector and with civil society, the Secretary of Planning and Programming (SEGEPLAN) has mapped the key elements of the K’atun 2032 National Development Plan into the SDGs and into 10 National Priorities. However, moving from planning to executing policies remains challenging.

Figure 1. Selected Indicators of Development Sources: WHO, UNICEF, World Bank Group, and IMF staff calculations. Note: Good Performing Peers refer to the median of countries with per capita GDP ranging $3,000−$6,000 that rank the highest in each category of development; LAC = Latin America and Caribbean; Central America = Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.

4. This paper aims to bridge a long-term development vision with a more practical spending, provision, and financing strategy. The first stage in designing a development agenda is costing the needs, and then, formulating implementation priorities and identifying the financing—including the decision about the participation of the public versus the private sector. The focus is therefore threefold. First, we cost the additional spending consistent with high performance in 2030. Operationally, this means bringing Guatemala’s spending patterns in line with good performing countries of a similar level of income by 2030.3

Second, we discuss government policies and the institutional capacity aspects that would enable the delivery of the public goods.

Third, we discuss potential sources of financing for 3 In this paper, Guatemala’s peers are taken to be countries with per capita GDP ranging from $3,000 to $6,000 in 2016. 0 10 20 30 40 50 60 70 80 90 100 Poverty Rate Adult literacy rate School Enrollment, Preprimary School Enrollment, Primary School Enrollment, Secondary Life expectancy at birth Maternal Mortality Ratio Prevalence of Stunting Infant Mortality Rate, under-5 % of population using safe drinking water services % of population using at least basic sanitation services Rural Access Index Poverty SDG4 Inclusive & Equitable Quality Education SDG3 Ensure Healthy Lives SDG6 Water & Sanitation Infrastructure Guatemala LAC Central America Good Performing Peers SDG1 SDG9 6 development, encompassing continued tax administration efforts, tax policy changes, private sector participation, and greater spending efficiency.

Attaining the SDGs would require a sizable increase in spending. Overall additional spending needs to achieve health, education, and infrastructure goals amount to about 8½ percent of GDP in 2030. However, efficient provision and positive synergies across SDGs could help lower the cost of enhanced development. 6. Institutional and delivery capacity aspects are also crucial for ensuring that the additional government spending leads to the desired SDG outcomes. Higher spending alone is unlikely to lead to better outcomes given Guatemala’s significant provision challenges.

This, alongside the need to secure political buy-in for greater revenue mobilization, calls for a gradual scaling-up of spending, pari passu with improvements in the provision of public goods.

4 7. The rest of the paper is organized as follows. Section II evaluates Guatemala’s progress towards sustainable development so far.

Section III describes the methodology and costing of spending needs for attaining key SDGs.

Section IV provides context and discusses needed improvements to the provision of education, health, and infrastructure (water, sanitation, and roads).

Section V discusses a possible financing strategy.

Section VI concludes.

II. PROGRESS TOWARDS SUSTAINABLE DEVELOPMENT

8. Guatemala made some progress towards meeting the Millennium Development Goals (MDGs) (Table 1). The MDGs provided an important set of targets for securing progress towards better health and education outcomes. For example, by 2015, the goal year of the MDGs, the prevalence of underweight and mortality in under-five children were more than halved from their 1990 level, the incidence of malaria was reduced to 0.31 (per 1,000), and the literacy rate among youth aged 15−24 increased to 93.3 percent.

However, Guatemala made less headway, or even lost ground, in other development indicators such as absolute and relative poverty, maternal mortality, or 4 The discussion on provision priorities and modalities heavily draws from previous work by the World Bank, UN agencies, and local think tanks. 62% 25% 13% Unmet Met Almost met Progress Towards the MDGs (In percent of overall quantitative targets)

Sources: SEGEPLAN and IMF staff calculations, 2015. 3 School enrollment in primary education, basic sanitation and water 6 Prevalence of underweight in under-5, incidence of malaria, literacy rate 15 Poverty, maternal and under-5 mortality, school enrollment in preprimary and secondary education (…) 7 school enrolment in preprimary and secondary education.

In all, as noted in Guatemala’s own assessment of the MDGs (SEGEPLAN, 2015), about 62 percent of the quantitative SDG indicators were still far from their targets in 2015. Table 1. Guatemala: Progress Towards MDGs

9. The SDGs broaden the notion of development. The 17 SDGs cover a broader set of development outcomes than the MDGs, in line with the view that development needs to be economically, socially, and environmentally sustainable (Figure 2). The revamped SDG agenda reveals that attaining inclusive economic and social progress poses significant challenges for Guatemala in the areas of planning, financing, and institutional redesign to secure universal provision of the public goods.

Sections III−IV below elaborate on these challenges and how to address them. 10. The Guatemalan government is committed to achieving the SDGs. Guatemala is one of the countries that conducts the Voluntary National Reviews, with the latest report published in 2017. The Guatemalan President steers the development agenda as head of the National Council for Urban and Rural Development (CONADUR by its acronym in Spanish). Through a process of consultation within the public sector and with civil society, the SDGs have been mainstreamed into the National Development Plan (K’atun 2032), which includes 5 axes, 36 priorities, and 75 goals. SEGEPLAN has mapped the key elements of the K’atun 2032 into 10 National Priorities including 16 Strategic Goals.

To suit the country’s socio-economic traits, K’atun pays special attention to vulnerable groups such as the poor, rural, and indigenous populations.Halve the proportion of people who suffer from hunger. Reduce by two-thirds the under-five mortality rate.Reduce by three-quarters the maternal mortality ratio. Halt and beginning to reverse spread of HIV/AIDS and other diseases. , United Nations. Global targets are defined as improvements from 1990 to 2015. 2/Average global target is computed as the target for the developing country average. Prevalence of HIV, total (percent of population 15-49)

Halve the proportion of people whose income is below the international poverty line. Achieve full completion of primary schooling by all children. Maternal mortality ratio (per 100,000 live births) Goal 6: Combat HIV/AIDS, malaria, and other diseases Incidence of tuberculosis (per 100,000) Goal 4:

Reduce child mortality Under-five mortality rate (per 1,000) Goal 5: Improve maternal health Prevalence of underweight in children (percent of children under five) Goal 2: Achieve universal primary education Primary completion rate, total (percent of relevant age group) Global Targets Goal 1:

Eradicate extreme poverty and hunger Proportion of population below the international poverty line (%) Guatemala 8 Figure 2.

Sustainable Development Goals Source: United Nations.

III. SPENDING REQUIRED TO ACHIEVE KEY SDGS

11. This section focuses on the additional spending required for a selection of SDGs related to investments in human capital and physical infrastructure. Education, health, and infrastructure, particularly water, sanitation, and road infrastructure, are crucial for delivering sustainable development and growth. Although these areas are only a selection of SDGs, they exhibit synergies with other goals, such as ending poverty and hunger, promoting gender equality, and tackling inequality. These areas are also very important from the point of view of public spending, as they typically represent a large share of the government budget.

12. Costs are estimated using as a benchmark the spending levels in countries that exhibit relatively good performance in these sectors. The exercise developed by Gaspar and others (2018), involves several steps (see Appendix I for further details).5 First, countries that perform well today in the areas of health, education and infrastructure are identified for each income group. For example, countries exceeding an SDG education index level of 80, out of 100, are considered good performers. 6 Second, the median of the main factors driving cost is calculated for these good performing peers.

Third, based on the median values for the good performers, and also taking into account country-specific projections for Guatemala, such as economic growth and demographics, spending needs for 2030 are estimated. The additional spending needs are derived comparing the objective (i.e. estimated needs for 2030 5 The aggregate estimates from Gaspar and others (2019) are broadly in line with estimates from other institutions (UNCTAD 2014, Schmidt-Traub, 2015, and Manuel and others, 2018). 6 A score of 80 means that a country is 80 percent of the way to the best outcome. 9 consistent with achieving good performance) with the baseline (i.e. the current total spending, both public and private).

13. Overall Guatemala faces additional spending of about 8½ percent of GDP in 2030 to attain health, education, and infrastructure SDG goals. The costing exercise suggests that the cost of pursuing better education and roads infrastructure outcomes could be significantly higher at about 3.3 and 3.2 percent of GDP in 2030, respectively. The analysis also suggests that an increase of 1.4 and 0.6 percent of GDP in 2030 in health and water and sanitation infrastructure spending, respectively, would be consistent with good performance in these areas.7 Education

14. Despite past progress, Guatemala still faces significant challenges in improving education outcomes. Education performance is assessed with the SDG4 index constructed using three variables: net primary school enrolment rate, expected years of schooling, and literacy rate for the population aged 15−24. The SDG4 index reaches 64 for Guatemala, well below the median among good performing peers of 87. The benchmarking exercise consists of deriving the median value for cost items for education (e.g. teachers’ salaries, pupils per teacher, and allocation of total expenses between other non-compensation current spending and capital spending) consistent with delivering an SDG4 score of 80 to 100 in countries with GDP per capita within the range $3,000−$6,000. Based on these reference values, we estimate total education expenditure as a percent of GDP in 2030.

15. Guatemala’s public education spending per student is lower than that of good performing peers. At the median, the good performing peers have 13.3 students per teacher, teacher wages equivalent to 1.7 times GDP per capita, a share of other current and capital cost of 35.7 percent, and yearly spending of $826 per student or 3.2 percent of GDP (Table 2). Low spending per student in Guatemala is mainly driven by higher student-toteacher ratios than what is observed in good performing peers (17.9 versus 13.3 students per teacher respectively). In terms of composition, current spending should strike a better balance between teacher compensation and other current and capital spending.

16. If Guatemala were to gradually align the inputs at the levels observed for good performers, education spending would increase from 3.7 to 7 percent of GDP by 2030. This assumes full enrollment for primary and secondary education, plus two years of preprimary education and two years of post-secondary education; and yearly real GDP and 7 The costing exercise focuses on annual spending flows in 2030. However, spending would have to rise before 2030, so cumulative expenses up to 2030 would be significantly larger. After 2030, education and health spending would recur, whereas infrastructure spending would be expected to decline to cover depreciation of the capital stock built through 2030. 10 population growth of 3½ and 1.8 percent, respectively, over 2023-2030.8 Most of the increase in spending should happen in the public sector. If Guatemala follows the example of good performing peers, the share of private education spending would gradually decline from about 20 percent today to 5 percent of GDP by 2030. Table 2. Benchmarking Education Needs Source: IMF staff calculations using Garcia-Escribano, Prady and Soto (2018), and Gaspar and others (2019). Health

17. Guatemala also has ample room for improvements in health. Health performance as assessed by SDG3 index reaches 70 in Guatemala, against a median among good performing peers of 81. The SDG3 index is constructed using 14 variables, among which maternal, neonatal and under-5 mortality rates, HIV prevalence, and healthy life expectancy at birth. The benchmarking exercise then consists of deriving the median value for cost drivers in healthcare (population density of different types of health personnel, doctors’ and nurses’ remuneration, and shares of current and capital expenditure in total health spending) consistent with delivering an SDG3 score of 80 to 100 in countries with GDP per capita within the range $3,000−$6,000. Based on these reference values, we estimate total health expenditure as a percent of GDP in 2030. The exercise accounts for total health spending (including all levels of care) as well as capital and current expenditure.

18. Guatemala’s total health spending per capita is lower than in good performers. At the median, good performing countries have 1.8 and 6.3 doctors and other medical 8 In Guatemala, education spending in 2030 consistent with good SDG performance is 7 percent of GDP. This is higher than in good performing countries today reflecting a higher projected share of student age population and higher target enrollment rate. Guatemala 11 personnel, respectively, per 1,000 people; doctors’ wages equivalent to 5.4 times GDP per capita; a share of other current and capital cost of 62 percent; and overall spending per capita of $352 or 7.1 percent of GDP (Table 3). The relatively low per-capita spending in Guatemala is driven by too few doctors and other health personnel, and, to a much lesser extent, doctors’ wages. If Guatemala were to gradually align the inputs with the levels observed for good performing countries, health spending would increase from 5.8 to 7.2 percent of GDP by 2030, and the share of private health spending would gradually decline from about 65 percent today to 38 percent of GDP by 2030. The additional spending needs net off cost rationalization in supply chain costs. Table 3. Benchmarking Health Needs Sources: IMF staff calculations using Garcia-Escribano, Prady and Soto (2018), and Gaspar and others (2019). Note: Data on doctors and other medical personnel and their compensation are from the National Health Accounts 2016. These include information for medical personnel in the Ministry of Health, Social Security, and the private sector. Compensation data are available for personnel in the Ministry of Health and Social Security. For private doctors, we impute compensation assuming 85 percent of private health spending corresponds to remuneration. Water and Sanitation Infrastructure

19. Guatemala’s much-needed improvements in water and sanitation infrastructure would entail a modest increase in spending. Water and sanitation performance is assessed by the SDG6 index, which comprises universal safe drinking water and adequate sanitation. As of 2015, over 3 million people (20 percent of the population) do not have access to basic water and sanitation, and nearly 12 million people (75 percent of the population) lack safely managed water and sanitation. According to the World Bank WASH costing model (World Bank, 2015, 2016, and 2017), to achieve the SDG targets of universal safe access to water and sanitation by 2030, total new investment would need to be on average $589 million per year (0.6 percent of 2030 GDP) (Table 4). Benchmarking Water and Sanitation Infrastructure Needs Source: IMF staff calculations using World Bank (2017). Roads Infrastructure

20. With about 16,500 kilometers of roads, Guatemala has relatively low road density. At about 16 kilometers of road per 100 square kilometers of area, road density in Guatemala is about one fourth of that of good performing peers for roughly similar population density. Inspired by SDG9 on the link between infrastructure and economic development, the proposed methodology estimates the costs of closing the existing road infrastructure gap by 2030. The road infrastructure gap is measured as the target road density minus the current road density. The target road density is determined by GDP per capita, population density, and access by those living in remote locations in the sense of the World Bank Rural Access Index (RAI) (share of rural population with access to an all-season road within 2 kilometers). The total cost is obtained by multiplying the road gap by a unit cost per kilometer.

21. Approaching the density observed in good performing countries would imply an increase in expenditure of about 3.2 percent of GDP. This would be enough for Guatemala to build about 35,000 kilometers of additional roads over the next 12 years, assuming a unit (construction and maintenance) cost of $800,000 per kilometer (Table 5). Local estimates of needs are more ambitious, aiming at increasing the road network by over 47,500 additional kilometers to approach the Latin American average in road Kilometer per capita (Grupo IDC, 2018). Table 5. Benchmarking Roads Infrastructure Needs Source: IMF staff calculations using Garcia-Escribano, Prady and Soto (2018), and Gaspar and others (2019). Note: Road density in kilometers of road per 100 square kilometers of area. Sanitation Basic Safely Managed Water Sanitation Hygiene Water 13

IV. ENHANCING DELIVERY CAPACITIES

22. Institutional and delivery capacity aspects are crucial for ensuring that the additional government spending leads to the desired SDG outcomes. Significant challenges remain to overcome existing provision shortfalls and segmentation, in a way to secure an effective delivery of health, education, and infrastructure services to all Guatemalans. This calls for a well-prioritized agenda and for building state capacities that are commensurate with the challenges ahead. Education

23. The education system faces significant challenges in terms of coverage, inclusion, and quality of the services provided (Figures 3, 4, 5). • Coverage. Coverage at the primary level reaches about 80 percent but remains very low otherwise. Only 3 (47) percent of children aged 0−4 (5−6) receive preschool education and just about 48 (24) percent of children receive basic (diversified)9 secondary schooling. Dropout rates at both the primary and secondary levels are mainly owed to financial constraints: while preschool aged 5−6 and primary education is publicly funded, secondary schooling is mostly private. In 2016 the average annual spending per student school amounted to US$562, representing about 68 percent of the investment made in well-performing countries with a similar level of per-capita income.

• Inclusiveness. High repetition rates and poor outcomes from the national tests suggest there is scope to improve the quality of education. In 2014, only half and 30 percent of the students in grade 6 achieved the expected level in mathematics and reading, respectively (General Directorate of Educational Evaluation and Research, DIGEDUCA). Reflecting provision segmentation, education outcomes widely vary across administrative departments, ethnicities, and urban versus rural areas. For example, the illiteracy rate in Quiche (37 percent) is four times that in the department of Guatemalan; and years of schooling for students from rural areas and the poor and roughly half those for students from urban areas and the nonpoor.

• Infrastructure. A deficient school infrastructure (one in five schools lacks piped water, adequate sanitation, electricity or rain shelter; Ortega, 2012) negatively affects teachers’ and students’ motivation (Azurdia, 2011). The lack of an updated infrastructure census and inadequate coordination between the Ministry of Education (MINEDUC, policy making agency) and the Ministry of Communications, 9 Secondary education in Guatemala comprises three years of general education (basic), and two to three years of vocational training (diversified) that prepares students for a career in the technical, agricultural, commercial, industrial, or teaching domains. 14 Infrastructure and Housing (MICIVI, implementation agency) hinders infrastructure planning and maintenance.

• • Open classrooms at the preschool and preparatory level in every municipality
• • Expand coverage at the secondary based on flexible schemes Improved Quality of Education Services
• • Ensure that teachers are better prepared
• • Ensure adequate infrastructure Enhanced Inclusiveness 15 Figure 5. Education Enrollment and Performance. Preprimary Primary Secondary, Basic Secondary,

Diversified Public Private Cooperative Enrollment by Education Level and Provision Type Continued efforts are needed to extend the coverage of preschool and secondary education, make education more inclusive, and improve the quality of teachers (Figure 6). Figure 6. Public Spending in Education Source: Acosta and others, 2016; CIEN and Inter-American Dialogue, 2015; DIGEDUCA, MINEDUC, 2018. 1/ Academic excellence and professional training. 2/ Score in language, maths, and pedagogy tests. 12% 62% 13% 13% Preprimary Primary Secondary Tertiary Public Spending in Education by Level (In Percent of Total Spending) 33% 41% 17% 9% Preprimary Primary Secondary, Basic Secondary, Diversification Official Establishments by Education Level, 2016 (Weights, Total = 100) 20% 20% 20% 25% 15% Years of Service Residence Meritocracy 1/ Unionization Skills 2/ Criteria for Teachers’ Recruitment (Weights, Total = 100) 0 10 20 30 40 50 60 70 80 2007 2013 Preprimary & Primary Secondary Tertiary Teachers’ Wage Bill (In Percent of Total Spending in Education) 17

• Expanded coverage. Preprimary coverage should be increased to about 2 years of schooling (akin to the authorities’ preprimary enrollment target of 60 percent of children age 4−6) and coverage for (basic and diversified) secondary education should continue to be expanded using flexible schemes suitable for those students that cannot attend school daily. During the last decade, the government has invested in various programs meant to promote access to secondary education through approaches that are more suitable for the rural and indigenous populations, such as distance education (telesecundaria) and the so-called Core Family Education groups for Development (Núcleos Familiares Educativos para el Desarrollo). However, these programs have not achieved the expected results. Further efforts are needed to improve the effectiveness of these and consider other flexible modalities to optimize the use of the existing infrastructure.

• Improved teachers’ quality. Better prepared teachers can make a difference to education outcomes. Selection criteria for primary school teachers should allocate a greater weight to the knowledge test and classroom probationary period (over, e.g., union membership). The recruitment of secondary-school teachers should be based on objective criteria and competitive exams. Teachers’ remuneration should be linked to performance, specifically: (i) the end-of-year bonus could be contingent on the school’s completing the 180-day calendar or students’ achievement of the expected level for mathematics or reading; (ii) the professional development bonus could be granted to those who have completed a university degree; (iii) well-performing teachers should be provided with incentives to take on assignments in vulnerable schools. There is also a need to strengthen existing on-the-job training for teachers (Academic Program for Teachers’ Professional Development, PADED/D,10 Llegando al Aula, Teacher Premium 100 Points). School Principals should play a greater role in guiding teachers, both academically and pedagogically.

• Enforcement of school calendar. Centers abiding by the school calendar (180 teaching days, five hours a day) should gain explicit recognition and penalties should be considered for noncompliance. Enforcing a 200-day school year as in other Central American countries would be a plus.

• Improved infrastructure. Improved coordination between MICIVI and MINEDUC and greater involvement of municipalities in the maintenance of education facilities, are important to overcome poor quality of infrastructure and bottlenecks, as well as to optimize the territorial distribution for school buildings.

• Enhanced inclusiveness. International evidence highlights the importance of education as a determinant of inclusive growth (Anand and others, 2013) and also suggests that successful education for indigenous students requires the design of strategies specific to 10 Between 2009 and 2015, approximately 20 percent of preprimary and primary school teachers graduated from this program. 18 this population group (Box 1). This includes promoting access to bilingual teachers in rural areas, involving parents in preprimary education, integrating the culture of the community into the educational curriculum, and reinforcing the leadership of the school principal. Box 1. Supporting Success for Indigenous Students Lessons from international evidence (OECD, 2017) on how to successfully support indigenous students include: Engaging families and providing extra support for indigenous students. The experience of Canada is particularly remarkable. An early childhood education in an impoverished and indigenous community in Manitoba follows an abecedarian model for early learning where families are an integral part of the program. In an elementary school in New Brunswick that has eliminated academic gaps between indigenous and nonindigenous students, teachers and parents meet before the start of the school year to manage each child’s transition to school. In a high school in Alberta, a dedicated coaching program supports indigenous students to succeed with their study programs. Monitoring progress. The Starting Block Program in Australia equips teachers with resources to daily record student progress in literacy, attendance, and general conduct. At the end of each term, students’ families and community members attend an award ceremony to recognize their achievements. School leadership and support for teachers.

In schools where indigenous students are achieving good results, there is generally a highly committed principal who has done whatever it takes to ensure school attendance and families’ engagement in learning. Effective principals also require teachers to monitor indigenous students’ progress and to intervene in a timely manner to ensure that expectations are met. Support for teachers. Much that can be done to help teachers feel confident and competent in establishing positive relationships with their indigenous students. A very easy step for schools to take is to provide and use books and other resources developed by indigenous people. For example, the “Show Me Your Math Program” in Nova Scotia supports teachers and students to engage with mathematics in their own cultural practices and has now spread to other provinces as an effective way for both indigenous and non-indigenous students to learn math.

Health 

25. Guatemala faces significant challenges in providing healthcare coverage, both primary and on a life-cycle basis (Figure 7).11 Relatively low levels of overall and, most of all, public health expenditure, a markedly fragmented and unequal healthcare provision, and poor incentives for healthcare workers are important challenges to address. 11 Throughout this section, basic or primary-level healthcare refer to the provision of vaccination, and maternal and child healthcare including basic nutrition. Secondary- and hospital-level healthcare respectively refer to diagnostic services and specialized care, and cure and care rehabilitation, for the entire population. 19 Figure 7. Healthcare Indicators: Expenditure, Financing, and Outcomes • Overall health expenditure and coverage. Guatemala features one of the lowest levels of (PPP-adjusted) per capita health spending amongst Central American countries and the highest coverage gap for basic healthcare (about 50 percent).

Access to hospitals and specialized care is concentrated in the two major cities Guatemala City and Quetzaltenango where employment is predominantly formal, while the poor and rural areas are left with minimal (or no) access to these services. Large regional and ethnic disparities in healthcare provision result in differentiated health outcomes. For example, only 30 percent of indigenous women give birth in healthcare facilities staffed . Primary and Secondary Healthcare Hospital Healthcare 20 by qualified practitioners while maternal mortality for that group reaches 163 per 1,000 births (versus national averages of 50 percent and 113 per 1,000 births, respectively). • Fragmented provision. Healthcare services are provided by the Ministry of Health and Social Services (MSPAS), the Guatemalan Social Security Institute (IGSS), private clinics and hospitals, and non-governmental organizations. These sub-systems operate separately, involving some duplication and outright discrimination among beneficiaries based on ability to pay, job situation, and geographical access. Specifically, the IGSS provides healthcare for 17 percent of the workforce (in formal employment). The remaining 83 percent would de jure be covered by MSPAS or health insurance schemes. In practice, coverage, where it exits, is highly unequal: the annual per capita expenditure of the MSPAS is approximately one-fifth of that for the beneficiaries of the IGSS.

Moreover, many lack of access to the minimal services provided by MSPAS. • Financing. Guatemala’s healthcare system is predominantly privatelyfinanced (63 percent of the total health expenditure, of which 11 percent is channeled through private insurance companies and the remaining 52 percent is out-of-pocket spending). Public financing has remained unchanged over the past decade at around 2.2 percent and represents slightly over one-third of total health expenditure (17.8 percent channeled through the IGSS and 19.2 percent channeled through the MSPAS and the municipalities). The high incidence of out-of-pocket costs amongst the poor and informal workers means that 65 percent of households in the lowest income bracket incur healthcare costs in excess of 40 percent of the household’s capacity to pay, compared to 3 percent for those in the highest income bracket (“catastrophic” healthcare costs, see Bowser and Mahal, 2011). • Inadequate infrastructure. Health posts and health centers, respectively delivering basic and second-level healthcare, covered just about one-fifth and one-fourth of the population of Guatemala in 2013. Providing basic healthcare has remained challenging since the cancellation in 2014 of the Program for Extended Coverage (PEC). 12 In place since 1997, PEC’s coverage for primary healthcare extended to around 4.5 million. PEC’s cancellation led to a decline in vaccination rates and to an outbreak of diseases (e.g. measles and poliomyelitis) that had previously been eradicated. 12

The Transparency Law from 2013 stated that, starting in 2016, NGOs would no longer be able to receive government funds for the delivery of healthcare services, as foreseen by the Program to Expand Coverage in place since 1997. Since then, health policy debates have focused on how to achieve universal coverage. . There is a shortage of health workers across the country, particularly in the rural areas. Guatemala has 12½ health workers per 10,000 inhabitants (including technical and administrative supporting staff)—the lowest ratio in Central America, and half of the WHO standard. The ratio in urban areas is almost ten times higher than in rural areas (25.7 compared to 2.96 for every 10,000 inhabitants), reflecting linguistic and cultural barriers in medical practices. The number of nurses per doctor is low (0.66 nurses per doctor, compared to the WHO standard of 2.8) while the number of medical staff involved in administrative tasks is disproportionately high. Figure 8. Health Workers and Supply Chain Costs Sources: RIMISP based on ENCOVI, 2014, and Ministry of Education of Guatemala 2016; Insituto Nacional de Estadística, INE. • Costs of the supply chain. Over a third of cost of drugs owes to supply costs, which places Guatemala in the upper band of the expected range (USAID, 2014). This reflects high transportation and customs clearance costs, and lack of competition among providers of logistics services (Guasch, 2011).

26. The short-term priority for Guatemala is to extend its primary healthcare coverage. The emphasis should be on prevention (vaccinations and immunizations, maternal and child health, and nutrition education) especially in the rural areas affected by the elimination of the PEC. The experiences of other countries in the region, including Brazil, Costa Rica, and Peru, highlight various approaches that countries can use to finance and organize the provision of primary healthcare. The ultimate, medium-term, objective is achieving universal access to quality healthcare services in all the stages of the life through the integration of secondary (curative and rehabilitation services) and tertiary (hospitals) healthcare levels. • Improved healthcare governance. Healthcare policies should be robust to changes in the administration. The National Health Council should be given the authority to effectively coordinate the delivery of health services between the MSPAS and the IGSS, seeking synergies and avoiding duplication (of establishments, personnel, and medical equipment). The financial and operational organization for healthcare should be handled by the Health Regional Directorates to adjust MSPAS provision to regional needs. • Financing strategy. The long-term goal should be to implement a financing scheme with increased crossed subsidies that integrate health risks and the ability to pay on a solidarity basis. This could be achieved by unifying healthcare services provided by IGSS and the MSPAS13 or by creating a new entity in charge of universal provision and financed through a noncontributory scheme. Short-term options to expand primary healthcare typically comprise hybrid programs combining voluntary contributions with subsidies to low-wage earners working in the informal sector. Positive experiences in this area include Peru, which provides subsidized healthcare for those living in poverty and extreme poverty. • Improved incentives for healthcare workers. Although average doctor compensation seems in line with good performing countries, inadequate economic and other incentives for doctors and nurses in the public sector are one reason behind the high dropout rates of students in healthcare streams and the low density of professionals in rural areas (Maeda and others, 2014). There is a need to expedite the Law on Careers in Health Administration to professionalize the medical workforce and establish transparent hiring, compensation, and promotion mechanisms. Gaining familiarity with the language and medical practices used in indigenous communities, further use of community facilitators, and economic incentives would help attract and maintain health professionals in the rural areas. • Reduce supply chain costs (USAID, 2015). Framework contracts for joint purchases by the MSPAS and the IGSS of essential drugs should be standardized to generate savings. Cost savings can also arise from streamlining the logistics process, automating the handling of inventories, and reducing transportation costs by optimizing the distribution routes. Costs from human resources devoted to logistics could be rationalized by outsourcing some of those functions and increasing staff efficiency, which would incidentally free up resources for actual healthcare provision.

Water and Sanitation Infrastructure

27. The supply of water and sanitation (WS) in rural areas remains one of the most important challenges facing Guatemala. Guatemala possesses adequate hydrological resources yet one quarter of Guatemalans lack a water connection in their home. Enormous 13 Such transformation was already envisaged in the Organic Law of the IGSS of 1946. 23 gaps remain between departments: whereas Sololá has near-universal access to sources of improved water, Alta Verapaz, Chiquimula, El Progreso, Petén, and Santa Rosas are still dependent on untreated surface water (Figure 9). Large portions of poor, rural, and indigenous people spend over 30 minutes a day collecting water. Nearly half of all Guatemalans lack access to safely managed sanitation, and such coverage is very poor in the northern and easterly regions where the proportion of population without access to sanitation is well above the national average. Figure 9. Access to Safely Managed Water and Sanitation, 2014 (Population in Percent) Safely Managed Water by Population Group Safely Managed Sanitation by Population Group Safely Managed Water by Department Safely Managed Sanitation by Department Sources: Guatemala’s Water Supply, Sanitation, and Hygiene Poverty Diagnostic; World Bank based on ENCOVI 2014.

28. Inadequate institutional capacity affects WS provision. The two main challenges to overcome are poor coordination amongst the entities involved in the provision of WS and budget under-execution. • Coordination amongst WS entities. SEGEPLAN approves WS projects, the Ministries of Public Health and of Environment and Natural Resources regulate WS services, and the local governments are responsible for the provision of WS (through the Drinking Water Administrative Committees, CAAPs). The responsibility for the construction and supervision of WS systems is shared among all levels of government. Through the Rural Water Supply Program Executing Unit (UNEPAR), the Municipal Development Institute (INFOM) has played an important role in assisting local governments with the development of WS infrastructure. Poor coordination amongst the requirements established by MSPAS, MARN, INFOM, and SEGEPLAN often turns into a burden for the local governments, whose projects are not approved in a timely manner. • Budget under-execution. WS spending stood at a modest 0.34 percent of GDP on average over 2010−14 (of which 0.28 percent from municipal governments) of which about one fourth was under-executed due to bottlenecks in the approval process and low implementation capacity of local governments. Obstacles related to internal procedures, environmental permits, water quality certification, or the procurement law drag out the process to 170 days, (compared with the 71−day wait time set by law), from a project’s initiation to its approval. As a result, UNEPAR is currently completing some 20 water projects per year (versus 2,500 pending applications and over 6,000 projects consistent with the attainment of SDG6).

29. The provision of WS services would benefit from stronger central government leadership. Delivering WS to those areas currently underserved needs the creation a governing body responsible for the formulation, coordination, and implementation of WS policies. Such a governing body would formulate a WS policy considering water endowment by hydrographic basins and demographic trends. There is also room to strengthen UNEPAR regional offices and local governments’ capacities, to integrate CAAPs into the sector’s institutional framework, and to consolidate the Health Management Information and Water Quality Control Systems to assess WS needs. To increase WS execution, requirements for small projects from MSPAS and MARN should be eased and made consistent. Further technical assistance is also needed in the preparation and implementation phases of projects in less-developed areas.

Roads Infrastructure

30. Guatemala’s roads infrastructure needs are large and should be addressed to bolster the domestic market, promote development, and reduce inequality. Poor roads infrastructure acts as a major impediment to growth. Out of 160 countries, Guatemala’s overall World Bank’s Logistics Performance Index worsened from 77 in 2014 to 111 in 2016. The transport of goods and people to ports and other destinations runs at an average speed of 37 km per hour, a long way off the international average speed of 60 km per hour. On average, it takes 1.61 minutes/km and costs US$2.52/km to transport a standardized shipment of goods from a warehouse to the domestic port of export (compared to, e.g., 1.07 minutes/km and US$1.16/km in Mexico). Infrastructure deficiencies also impair import 25 substitution in response to supply-side shocks, resulting e.g. in bouts of food inflation that directly hurt the poor. • Size of the road network. With about 16,500 km, Guatemala’s road network provides about 1 meter of roads per inhabitant and 151 meters per square km (against 3.7 and 413 meters, respectively, in Central America, Panama and Dominican Republic, CAPDR). Since 1985, the network has been growing at about 200 km per year (vs. an objective of over 4,000 km currently needed to achieve the SDG for roads by 2030). Access to the northern part of the country, Puerto Barrios, and the area bordering Mexico from the capital is poor. • Quality of the road network. Approximately 46 percent of the network consists of dirt roads. This, alongside poor maintenance has led to the exponential deterioration of the network in recent years (current maintenance costs largely exceed those of five years ago). • Envisaged challenge. A local consultant envisions a more ambitious expansion of the roads network to about 65,000 km. 14 The road layout would move Guatemala from the current spoke-hub system centered in Guatemala City to a new network linking the country’s 10 largest cities, 22 departmental capitals, and 22,000 population centers. The primary network would connect ports and airports, border crossings, national and intermediate capitals, and tourist destinations. The secondary and tertiary networks would connect public services, such as hospitals and health centers, schools, and public safety locations with departmental capitals, towns, and villages.

31. The institutional framework for public infrastructure should be revamped. A new regulatory framework is needed to consolidate the myriad regulations in the sector, provide legal certainty on right-of-way acquisition, and the legal nature of the contract. Given the large infrastructure challenge as well as the need to reconcile private profitability with social goals for rural roads, both private and public disbursements are likely to be needed. Specific financing vehicles could include (i) conventional Public-Private Partnerships (PPPs) under the umbrella of the 2010 PPP law; and/or (ii) an overarching institutional arrangement tasked to plan, develop, maintain, and finance public roads through strengthened partnerships with the private sector. Any such financing schemes should deliver value-for-money vis-à-vis traditional procurement to minimize the potential fiscal costs and risks arising from these projects. To limit fiscal risks and secure value-for-money, consideration should be given to placing any newly created institutional arrangement inside the central government and assigning a clear mandate (and accountability) to the Minister of Finance in the approval and fiscal risk oversight of infrastructure projects.

V. FINANCING STRATEGY

32. Achieving the SDGs will require a sizable increase in total and public spending from currently low levels. Overall, additional spending needs to achieve health, education, and infrastructure goals amount to about 8½ percent of GDP in 2030. Guatemala can only achieve relevant development goals if the required financing can be identified and mobilized. Public intervention is essential in these sectors.

33. Public expenditure and tax revenue tend to rise with per capita income (Wagner, 1958). Indeed, compared to AEs, LIDCs and EMEs on average spend less on education, health, and 14 The network layout is based on a combination of the Salesman (circuit-type route between various points) and Steiner (minimum-cost route for a set of given points) connectivity methodologies. The network connects villages of 250, 1000, and 5000 inhabitants, configuring three types of national, secondary, and tertiary networks.. Meeting the large spending needs will require efforts on multiple fronts. Potential sources of financing include a tax reform15 , improvements in tax capacity, and spending efficiency gains. Support from the private sector would need to fill the remaining gap, hence the importance of fostering business environments where the private sector can thrive. 16 Needs in each sector may lend themselves to a different financing approach. As a matter of solidarity, it is expected that most of the additional financing for health, education, and water and sanitation services be provided publicly, given currently low provision levels for the poor, rural, and indigenous populations. Private sector participation should help fill a relatively larger part of the roads financing gap.

34. In the near term, Guatemala can use existing fiscal space to accommodate higher spending needs. Guatemala has substantial fiscal space to frontload part of the needed increase in spending on health, education, and public infrastructure through a temporary increase in the deficit without endangering debt sustainability.17 Over the medium term, this higher spending should be funded through higher revenues.

35. Over the medium term, an integral fiscal reform is needed to durably address additional spending needs. Guatemala can permanently raise revenues over the next ten years through continued tax administration efforts and a comprehensive tax reform. While development is a costly undertaking, it is expected that the private and social gains from expanded coverage of public goods far outweigh the (short-term) costs from further improvements in revenue mobilization, given extremely low levels of taxation at present (Gaspar and others, 2016; Gunter and others, 2018). 15 To ensure that the largest share of additional revenue from a tax reform goes to social spending, there is a need to tackle revenue earmarking (see paragraph 36). 16 IMF, Country Report No. 18/54, International Monetary Fund, June 2018. 17 IMF, Country Report No. 18/54, International Monetary Fund, June 2018. Spending efficiency gains Private sector participation Tax administration efforts Tax reform Water and Sanitation (0.6%) Health (1.4%) Roads (3.2%) Education (3.3%) 28 • Tax administration. Efforts should focus on reinforcing VAT controls, with an emphasis on risk-based auditing; strengthening the large-taxpayer office management; improving the use of tax information to correct non-compliance; enhancing tax collection enforcement faculties (including through easier implementation of bank secrecy provisions); and implementing a customs post-clearance audit program to deter non-compliance and facilitate trade. • Tax reform. Government tax revenue as a share of GDP is amongst the lowest in the world and far off Guatemala’s revenue mobilizing potential and own aspirational objectives set in the 2000 Fiscal Pact. This suggests considerable room to increase domestic revenue as evidenced by an earlier technical assistance mission on tax reform for Guatemala (Appendix II).

Enhancing Tax Capacity

36. Revenue mobilization should be supplemented with measures to raise spending efficiency and flexibility. Guatemala’s social performance fares well relative to the small investments made in development, still improvements in spending efficiency have a role to play in filling part of the financing gap, both directly and to generate support for a broadbased tax reform. Although Guatemala stands out as one of the countries in the Latin America region where wasted spending is the lowest, inefficiencies remain in the areas of public procurement, the wage bill, and targeted transfers (Izquierdo and others, 2018, Kapsoli and Teodoru, 2017). To make the budget more responsive to spending needs, revenue earmarking and mandatory spending floors should be scaled back and spending objectives should be couched within a medium-term budget framework. 1/Tax effort defined as tax revenueas a share of tax capacity (level of tax revenue consistent with countries’ structural characteristics). . World Distribution of Tax-to-GDP Ratio, 2017 29 such as the Observatory of Social Spending would greatly help to promote results-based budgeting and ex-post evaluation of program performance. Better aligning pay with performance in the provision of public services and reforming current regulations of the Laws on the Civil Service and Salaries in Public Administration will be important milestones. Completing the public-sector personnel census should help make the hiring of public officials more transparent and provide for a better cost-benefit assessment of the current structure of public employment. 18

37. Private sector participation could also help fill the financing gap. Guatemala’s Public-Private Partnership law holds the promise of increasing private sector participation to mobilize additional financing for investment in infrastructure. Guatemala will need to ensure this financing scheme delivers value-for-money vis-à-vis traditional procurement all the while limiting contingent fiscal risks arising from these projects. Spending in crucial areas for growth and development should in turn improve debt sustainability.

38. In parallel, attention should be focused on improving the execution of spending. Reforms of the Procurement Law, adopted over the past two years, have facilitated greater oversight over public spending and contributed to tackling corruption. However, as a sideeffect, these improvements have led to a slower execution of spending. Efforts are underway to expedite those projects carried over from the previous year and to provide greater clarity for how Comptroller auditors will apply administrative versus criminal procedures in procurement. Additional measures could speed up budget execution, without diluting the focus on governance, by (i) shifting the General Comptroller’s activities towards the development of preventive capacities and concurrent auditing; (ii) providing a clear interpretation of the norms applied to procurement and apply unified criteria to protect public employees from arbitrary decisions by auditors; and (iii) adopting a medium-term budget framework that would include a national investment strategy that is embedded within a multi-year investment budget.

VI. CONCLUSION

39. Guatemala made some progress towards meeting the MDGs. The MDGs provided an important set of targets to securing progress towards better health and education outcomes. As a result, by 2015, the goal year of the MDGs, the prevalence of underweight and mortality in under-five children were more than halved from their 1990 level, the incidence of malaria was significantly reduced, and the literacy rate among the youth aged 15−24 increased to over 93 percent. However, Guatemala made less headway, or even lost ground, in other development indicators, such as maternal mortality or school enrollment in preprimary and secondary education. In all, further efforts are needed for Guatemala to 18 Support is being provided by the European Union and the World Bank, with the CICIG as an observer. The census aims, inter alia, to identify and eliminate ghost positions in the public administration. 30 eradicate poverty, a major milestone, and to secure access of healthcare, education, water and sanitation, and road infrastructure services to all Guatemalans.

40. The additional spending consistent with good performance in human and physical capital related SDGs is sizable. Guatemala faces additional spending of about 8½ percent of GDP in 2030 to attain health, education, and roads, water, and sanitation infrastructure SDG goals. The costing exercise suggests that the cost of pursuing better education and roads infrastructure outcomes could be significantly higher at about 3.3 and 3.2 percent of GDP in 2030, respectively. The analysis also suggests that an increase of 1.4 and 0.6 percent of GDP in 2030 in health and water and sanitation infrastructure spending, respectively, would be consistent with good performance in these areas. While substantial, these cost estimates should be commensurate with a financing strategy encompassing continuing tax administration efforts, broad-based tax reform, scaled-up private sector participation, and greater spending efficiency.

41. Ensuring a supportive institutional environment is crucial to attain the desired SDG outcomes. Development challenges for Guatemala go beyond ramping up spending, and further require important institutional changes to enhance delivery capacities to move away from the pervasive segmentation in the provision of public goods and secure their secure access to all Guatemalans. As such, development primarily involves a major societal shift in expectations that underscores the medium-term growth potential and social progress to be unleashed through enhanced solidarity. The seeds for such a change in Guatemala are planted in the Constitution, the 1996 Peace Accords, and the 2000 Fiscal Pact. The K’atun 2032 National Development Plan constitutes a signal of national ownership and commitment to development, but more determined efforts are needed to meaningfully improve Guatemalan’s living standards. 31

APPENDIX I. COSTING METHODOLOGY

The costing exercise focuses on education, health, and selected areas of infrastructure (roads and water and sanitation). The methodology follows Gaspar and others (2019). The estimations consider Guatemala’s projections for economic growth and demographics. The exercise aims to estimate the cost of inputs needed to support good outcomes in these different sectors, independent of the form of financing. Our estimates account for spending efficiency as high-performing countries used as benchmarks spend more efficiently than other countries in the same income group.

Our estimates also account for intersectoral synergies, to the extent that high performers in one sector (such as education) are likely to achieve high outcomes in others (such as health). Education. We estimate the cost of setting key parameters (teacher salaries, pupils per teachers, and share of non-compensation expenses) in 2030 equal to the median values observed today in good performing countries (those that exceed 80 in the SDG education index) with GDP per capita between $3,000 and $6,000 in 2016. Health. We estimate the cost of setting key parameters (medical personnel, doctors and other medical personnel per population, share of non-compensation expenses) in 2030 equal to the median values observed today in good performing countries (those that exceed 70 in the SDG health index) with GDP between $3,000 and $6,000 in 2016.

Roads. Using regression analysis, we estimate the additional kilometers of roads that will be needed to account for: i) projected changes in population and GDP per capita over 2016−2030, and ii) ensuring access for all (proxied by raising the Rural Access Index to 90 percent). The cost of the additional road network is estimated assuming a cost per kilometer of $800,000. To account for depreciation, we add five percent of the total cost of the additional kilometers. Water. We use the World Bank methodology, which estimates population in need of basic and improved access to water and sanitation (Hutton and Varughese, 2016).

Adjustments for Guatemala. We discussed the estimates with country authorities and development partners to validate the methodology. Reflecting these discussions, we adjusted the number of medical professionals to reflect administrative data, and updated the road infrastructure needs (we use the average from the methodology and the local estimates as the baseline) and cost (to $800,000 per kilometerto reflect local estimates). We summarize the results as additional spending in 2030. For education and health care, we report additional spending in percentage points of GDP, corresponding to the difference between the share of GDP in spending consistent with high performance in 2030 and the current level of spending as a share of GDP. For physical capital, additional spending in percentage points of GDP corresponds to the annualized spending required to close infrastructure gaps between 2019 and 2030. 32

APPENDIX II. FINANCING STRATEGY: TAX REFORM OPTIONS

A technical assistance mission on tax reform for Guatemala conducted in 2016 identified significant additional potential revenue from tax policy reform

Haiti

IMF Staff Completes 2019 Article IV Mission to Haiti
March 7, 2019

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

• Social protection at the heart of the program with aid to most vulnerable. Money for measures including school feeding and help for head of households.
• Targets to tackle corruption and support good governance.
• Loans totaling more than US$ 229 million at 0% interest, paid across three years in return for reaching agreed goals.
• Reduction in budget deficit as part of strategy to achieve greater economic stability and sustainable debt.

In response to a request from the Haitian authorities, an International Monetary Fund (IMF) mission led by Mr. Chris Walker visited Port-au-Prince from February 25 to March 8, 2019 to discuss IMF support for measures to ease poverty, encourage good governance, raise growth and stabilize the country’s economic situation. At the end of the visit, Mr. Walker issued the following statement:

“I am pleased to announce that in support of the government and the people of Haiti, we, the IMF, the Haitian government and the Central Bank of Haiti (Banque de la République d’Haiti (BRH)) have reached an IMF staff-level agreement on a concessional 0 percent, three-year loan of US$ 229 million for Haiti. This agreement will have to be approved by the IMF’s Executive Board, which is expected to consider Haiti’s request in the coming weeks.

“The agreement we have reached is aimed at helping Haiti overcome its current fragile state, and alleviating the hardship of the most vulnerable. We have placed social protection firmly at the center of the accord, and once the agreed measures are successfully implemented, the poorest in Haiti will be among the first to benefit in a tangible way. The program provides money for a variety of social protection measures ranging from school feeding, through targeted cash transfers, to money for social housing.

“Priority has also been given to the fight against corruption and improvements in governance. The IMF backs the government’s aim of state reform. In its agreement, it has drawn up measurable targets to boost this fight with the goal of injecting greater transparency into the management of public finances, tax and revenue administration, as well as expenditure control.

“To enable Haiti to return to macroeconomic stability, the loan to Haiti represents 100 percent of quota, and the money will be disbursed over the three years of the program which is subject to regular Executive Board and staff reviews.

“The loan is offered under the IMF’s Extended Credit Facility (ECF) which allows lending at concessional rates and is aimed at stabilizing Haiti’s economy by putting its budget deficit on a downward trajectory and managing its debt, while protecting the poorest in the country.

“The visit also encompassed the IMF’s Article IV consultation, or its regular check of the health of the country’s economy. Real growth remains near its four-year average of 1.5 percent. The country has been facing severe financing constraints while political turbulence has discouraged private investment and limited action on needed fiscal reform.

“Under the program, we expect that financial constraints will be relaxed, allowing for faster growth.

“We at the IMF are ready to partner with Haiti on its economic revitalization. We will also encourage other multilateral agencies and countries to support the country. We have talked to partner agencies and they are willing to help. It would also be very helpful for Haiti’s bilateral partners to step forward at this critical time.

“The mission would like to thank the authorities and all those with whom they met for their warm welcome and the frank and constructive discussions.”

IMF Communications Department

Jamaica

IMF Stand-by Arrangement
March 8, 2019

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

• The IMF team supports the reduction in the primary surplus target by ½ percent of GDP to 6½ percent to facilitate higher spending in social assistance, citizen security and rural infrastructure in the FY2019/20 Budget.
• The reductions in the highly distortive financial turnover taxes in the FY2019/20 Budget are expected to lower the cost of doing business, reduce informality and increase economic activity.
• Tackling governance issues swiftly and forcefully is necessary to enhance transparency and accountability, bolster trust in public institutions, and protect public funds.

An International Monetary Fund (IMF) staff team led by Ms. Uma Ramakrishnan visited Kingston from February 25–March 8, 2019, to conduct discussions on the fifth review of Jamaica’s financial and economic program supported by the IMF’s precautionary Stand-By Arrangement (SBA).

At the end of the visit, Ms. Ramakrishnan issued the following statement:

“The IMF team reached a preliminary agreement with the Jamaican authorities on a set of policies that aims to complete the fifth review under the SBA. Consideration by the IMF’s Executive Board is tentatively scheduled for April 2019. Upon approval, an additional SDR 160.8 million (about US$224 million) will be made available for Jamaica, bringing the total accessible credit to about US$1.4 billion. The Jamaican authorities continue to view the SBA as precautionary.

“Strong implementation of the reform program continues, with the sustained commitment yielding tangible dividends for the people of Jamaica. Unemployment is near all-time lows, business confidence is high, and the economy is estimated to have expanded by 1.8 percent in 2018, buoyed by mining, construction and agriculture. International reserves are estimated to be comfortable under a more flexible exchange rate. All quantitative performance criteria at end-December 2018 were met, and the structural benchmark to table in Parliament amendments to the Bank of Jamaica (BOJ) Act was completed in October 2018. Inflation, however, was 2.4 percent in December 2018, triggering staff consultation under the Monetary Policy Consultation Clause.

“With improving public debt dynamics, staff supports the reduction in the primary surplus target by ½ percent of GDP to 6½ percent in the budget for FY19/20 to further boost growth and job creation. The additional space accommodates much-needed growth-enhancing and social spending for citizen security, PATH, and rural infrastructure. Staff also welcomes the reductions of the distortionary financial turnover taxes (stamp duty, transfer tax, and minimum business tax, as well as a higher GCT threshold) within the budget envelope. These tax cuts are feasible because of the expanded tax base that has been achieved through commendable efforts in both tax policy and revenue administration. Overall, these budget measures are expected to lower the cost of doing business, reduce informality and increase economic activity.

“Looking ahead, accelerating public sector reforms, including a new compensation framework that rewards performance and the rationalization of the numbers of public bodies by prioritizing government functions, will improve public service delivery. This will further reduce the wage bill and release resources for social and growth-enhancing outlays.

“Swiftly and forcefully addressing the shortcomings in the governance of public bodies—including those identified in the Auditor General’s report on Petrojam—is critical to enhance transparency and accountability, reduce the scope for corruption, bolster trust in public institutions, and protect public funds.

“The team welcomes the government’s proactive steps to strengthen domestic policy institutions in preparation for exit from Fund financial support later this year. The planned fiscal council, policy framework for natural disaster risks financing, macro-fiscal capacity building at the Ministry of Finance and the Public Service, and enshrining central bank operational independence constitute key pillars.

“We also applaud the BOJ’s innovative public engagement on the importance of stable and predictable inflation. Further monetary loosening is warranted to restore inflation to the target range of 4–6 percent, including improving monetary transmission, while monitoring developments in oil prices, global financial conditions, and domestic factors. Maintaining a market-determined exchange rate with BOJ’s FX sales limited to episodes of disorderly market conditions is necessary for the shift to full-fledged inflation targeting.

“Building on the recent FSAP recommendations, the authorities are working towards strengthening the financial sector’s oversight capacity, risk-based and consolidated supervision, implementing measures to further develop the FX and debt markets, and improving access to finance for businesses and households.

“During the visit, the IMF team met with Prime Minister Andrew Holness, Minister of Finance and the Public Service Dr. Nigel Clarke, Minister of Energy, Science and Technology Fayval Williams, Bank of Jamaica Governor Brian Wynter, Financial Secretary Darlene Morrison, Planning Institute Director General Dr. Wayne Henry, senior government officials, as well as members of the private sector, labor unions, and the Opposition.

“We would like to thank the Jamaican authorities for their continued hospitality and candid discussions.”

IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: RANDA ELNAGAR

St. Lucia

Policy Trade-Offs in Building Resilience to Natural Disasters

Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection —insurance and self-insurance— and structural protection —investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia’s economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.

 (Electronic Access:  Working Paper No. 19/54o publications@imf.org)

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Puerto Rico

New York City-based New Fortress Energy said its Puerto Rico unit NFEnergía signed a deal with the Puerto Rico Electric Power Authority (PREPA) for the supply of natural gas and conversion of Units 5 and 6 of the San Juan Combined Cycle power plant.

The initial term of the contract is five years, with options for PREPA to extend for three additional five-year periods.

PREPA estimates that the conversion of these units from diesel to natural gas will generate an estimated $750 million in fuel cost savings over five years for PREPA and significantly reduce emissions.

After multiple conversion attempts over the past ten years, PREPA launched a competitive request for proposal (RFP) bid process in July 2018 for the supply of fuel and the conversion of San Juan power plant’s Units 5 and 6.

NFEnergía will supply natural gas to the power plant from its micro fuel-handling facility in the Port of San Juan, which has been under development for more than a year. The facility is being constructed with multiple truck loading bays to provide liquefied natural gas to on-island industrial customers and microgrids.

The conversion of San Juan Units 5 and 6 and the development of the micro fuel handling facility are anticipated to be complete by mid- 2019.

New Fortress Energy (NFE) held a groundbreaking ceremony for a micro fuel-handling facility in San Juan. The facility, which has been under development for more than a year, will provide natural gas to the San Juan power plant.

The facility will also conduct truck loading operations that will deliver LNG to industrial companies and microgrids.

Cuba- JAW JAW

Prince Charles and the Duchess of Cornwall received red carpet treatment in Communist Cuba at a historic meeting with the President of the socialist state at the Palacio de la Revolución, as Britain seeks alternative trading partners to the EU post Brexit.

Anthony Stokes, Britain’s ambassador to Cuba, justified the trip in the face of criticism: “We and the European Union have a very strong policy of engaging with the Cuban government, and we believe that is the right way – not only to talk about the more difficult issues, but also to identify ways we can work together. It is a very special moment. …There have been important senior-level visits… but a royal visit is something really special.”

Foreign Secretary Jeremy Hunt insisted the trip was a “great example of bold & pragmatic diplomacy”, saying Britain could use the royal visit to “deliver robust messages where we disagree eg on delivering change for the suffering people of #Venezuela.“

Clarence House said the royal visit was to “highlight the growing bilateral relationship with the UK and showcase some of the cultural links between the two countries”. Lord Ahmad, a minister of state in the Foreign Office, was joining the couple to highlight the significance of the visit, expected to provide a step forward for relations between the UK and Cuban governments.

“The tour is enabling conversations to take place that wouldn’t have happened otherwise. This give us the opportunity to develop our relationship with Cuba. It is then up to the British government to connect and do business.”

The Caribbean tour featured trips to Commonwealth realms- Barbados, St Kitts and Nevis, Grenada, St Lucia, St Vincent and the Grenadines- faltering islands in a collapsing CARICOM bureaucracy which should revert to imperial status for survival.