Annelisse Escobar | St. Edmund Hall | Blavatnik School of Government

In Guatemala, social protection coverage is marred by significant challenges, particularly in the realm of pensions and healthcare. The inequalities within the pension system are glaring, with only a privileged few, consisting of formal workers from the private and public sectors, enjoying its benefits. Guatemala’s social protection system corresponds to a Global South model where poverty is high (54% below the poverty line, according to the WB) and the high informality (71%) causes a weak collection of taxes. The allocation of resources for social protection is influenced more by political considerations than by a fair distribution of resources. This piece aims to shed light on the main challenges faced by Guatemala’s social protection system and explore potential political changes and reforms that could enhance coverage.

The Role of the Social Security Institute (IGGS)

The IGGS is responsible for providing social protection coverage to the formal sector of the population in Guatemala. While the legal framework supporting the IGGS is extensive, inadequate resources and an unnerving disconnection with the executive system have hindered its full potential. Currently, the IGGS only covers formal workers and individuals employed in large companies, offering insurance for maternity, illness, accidents, and pensions. This translates to 17% of the labor force covered by pension scheme as active contributor. However, the necessary coverage needed for these pensions is insufficient due to low wages.

At the national level, studies have shown that health spending is higher in those households that belong to a rural area compared to the urban area. Consequently, health spending with respect to household income is higher in those households where the heads of household are not affiliated with social security. The limited-service network of the Ministry of Health, responsible for “universal coverage” is another important barrier to mention in rural areas, which can make private medical clinics and pharmacies a highly used resource. This causes the rural informal workers to spend out of pocket income for health, a driver for poverty.

Reforms and Political Changes

Guatemala’s social protection system encompasses multiple institutional entities and social programs, but the lack of clear rules and guidelines creates confusion and inefficiency. One crucial aspect is the definition of social protection itself. Before anything else, there is not a general vision of what is to be included in this realm and, consequently, who are the actors responsible. A centralized general social protection system could define responsibilities for the IGGS as well as the central government. Therefore, coordinating efforts between the central government and the IGGS is vital, especially for extending coverage to individuals employed in informal and formal microenterprises. The most recent voluntary contribution scheme has been an advance in this area. Nevertheless, there is still a high-income barrier for the poor informal sector to join the scheme. This is where the central government should come to act. Collaboration rather than duplication is the key to increasing social protection coverage in Guatemala.

Another relevant reform for for coverage expansion involves addressing the ongoing issue of the state’s unpaid quotas to the IGGS. By eliminating this unsustainable debt and ensuring proper financing, the IGGS can strengthen its capabilities and provide better social security benefits. This causes the pension system, as a whole, to be considered a macroeconomic fiscal risk for the State’s public finances.

Guatemala requires a comprehensive social protection policy that covers the excluded and addresses structural barriers. Efforts should be made to target social assistance programs effectively, with clear rules and an institutional framework that transcends government changes. This approach would minimize the creation of new programs with each administration and may ensure continuity in providing coverage to the most vulnerable populations. An example of inefficient institutional practices based on clientelist practices was the cash transfers introduced for the elderly. This social assistance program could be implemented through the IGGS system with more accountability instead of vote trading incentives.

Funding and Institutional Challenges

Guatemala faces political and economic complexities regarding funding for social protection. Currently, according to the International Labor Organization, Guatemala spends less than 5% of its GDP on social protection expenditure and less than 3% on health, resulting in the lowest health coverage of the Latin American region. With such limited resources, allocating them efficiently and effectively is crucial, as seen during the pandemic when the government’s scheme for unemployment insurance strained the state’s budget. This set a precedent of public spending for future emergencies. In 2020, there was a 15% budget expansion for COVID-19 response by the central government that included SME cash transfers and unemployment coverage. This is a percent of financial budget to strengthen the IGGS and include the unemployment insurance, instead of one-time emergency responds from the executive.

Another potential solution to this institutional problem is the use of trust funds, which provide a shortcut to address immediate needs, create projects with specific timelines, and allocate resources effectively. By establishing well-structured trust funds with clear rules and accountability, Guatemala can lay the foundation for long-term institutionalization and improved coverage. This can help ensure a more accountable use of public resources.

Guatemala’s social protection system faces significant challenges, particularly in pensions and healthcare. However, by addressing the inequalities within the pension system, implementing political reforms, coordinating efforts between the central government and the IGGS, and adopting comprehensive policies with clear rules, Guatemala can enhance social protection coverage. The road ahead requires collaboration, adequate funding, and a commitment to institutionalizing effective programs that provide equitable and sustainable social protection to all its citizens.