Bukele’s govt spendinng faster than economy’s growth

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By LatAm Reports Editor

Yesterday, the Legislative Assembly approved the General Budget of the Nation for the last constitutional year of Nayib Bukele (now president on leave) as president of the Republic. However, this instrument has proved to be a mere procedure for submitting each September to the Ministry of Finance.

In practice, the Bukele Executive knows that what he puts on those leaves is not what he will actually use during the year, but he will be able to modify it as he pleases along the way. And it does so, according to economist Luis Membreño, because, at least since May 2021, he has the certainty that he has deputies totally folded to his designs.

It is as if he sent the orders for change of a project under construction, which was immediately approved, the economist says. Thus, every year the budget undergoes numerous changes and, with it, significant increases.

In the first year with an Assembly with a majority of New Ideas, in 2021, 77 modifications were made, which resulted in an increase of more than $1 billion. The following year, in 2022, there were fewer alterations (64), but the funds injected were more, surpassing the addition of $1.7 billion. In other words, by 2022, the government ended up applying 22 per cent more than it had planned, almost a quarter.

For economist Luis Membreño, this level of modification causes the General Budget Law to lose all meaning as an instrument of institutional control and, above all, expenditure planning. 

The previous governments, which did not enjoy such a Legislative Assembly, had a certain balance of powers, with much more questioning congresses, even if this criticism had a political interest at its base. It therefore had to justify its changes to the budget more robustly. What became more rigorous if that change required debt, as the qualified majority was necessary, with 56 votes.

This is proven, for example, by the last full year of Salvador Sánchez Cerén’s administration and the first with Bukele in office. In 2018, the modified budget compared to the vote was $147.40 million more, i.e. the increase was just 3 %. In 2019, more of the same, with an increase of $116.60 million, 2% higher.
Does this government don’t care what it presents, you know it’s unreal. This is a government with a blank check, which has no accountability, says Membreño.

To get an idea of disproportion, you only have to think that the number of modifications in 2021 and 2022 was higher than the year of the Covid-19 pandemic, where all countries in the world had to change their priorities. That year, 2020, there were only 28 changes, with a 27 percent increase in the budget. However, it was a state of emergency, very different from the next two years.

During its five-year term, the Bukele administration has seen an increase in revenue. It has also received funding from different sources, from international agencies to the Pension Fund. With this, says Membreño, what was expected was for him to reduce his indebtedness, not that spending would increase at this level.

disproportionate increase
In addition to systematic changes, alerts can even be noted in the general budgets voted, as they have increased excessively.

The above statement is stated that, if the sum of each administration’s budgets from Alfredo Cristiani is reviewed, it is possible to observe that the increase per five-year period is recorded around $5,000 million (graph look at graph). That trend broke with President Nayib Bukele.

The sum of all Salvador Sánchez Cerén’s budgets was $26,822.3 million, according to official data. The one for Bukele’s period is $39,784.3, $12,962 million more or, the same, a 50 percent increase.

For economist Rafael Lemus, this is a fact that should be of concern to Salvadorans, because the increase in government spending does not coincide with the increase in the Gross Domestic Product (GDP), that is, with that of the economy, because in El Salvador, in five years, it has only grown by 30%.

Let’s take something into account. The government doesn’t generate money. Where do you get it from? Of the taxes he collects. Is an economy that has not grown 50 per cent pay 50 per cent of extra tax? No. It is necessary to fill that gap in debt more and that is what this government has done, without control, says Lemus.

And the data is not very hopeful for the country. That El Salvador’s is the economy that will grow the least in Central America in 2023 says it all over the world. Even the Government, through the Central Reserve Bank (BCR), has maintained that the country will grow by only 2.6 per cent for this year, putting it lagging behind in the region with nations that will exceed 2.9 percentage points in each case.

The one that gives a more positive growth forecast for El Salvador is the World Bank, with an 8.8 %, which even provides a higher number than the BCR itself. The Economic Commission for Latin America and the Caribbean (ECLAC) puts the number at 2.3 per cent. And in its report on World Economic Perspectives (WEO), the International Monetary Fund (IMF) leaves the projection of GDP growth for El Salvador at 2.2%. In 2024, the predicted is worse: ECLAC projects it by 2 %.

For Rafael Lemus, this expansion in spending that far exceeds that of the economy will have, sooner or later, repercussions on the daily life of Salvadorans. However, the first signs of the consequences for the future are already being seen.

That’s why we’re in this problem, where the government has fallen short of liquidity. It owes it to suppliers, it has taken away liquidity from banks, it has undermined international reserves. And this year, even if it doesn’t take that way, it fell into a default with the Pension 

This article has been translated from the original which first appeared in El Salavador