Central America: Fiscal Outlook - April 2016

From 2014 to 2015 the size of central governments remained constant at an average 18.5% of gross domestic product (GDP).

Tuesday, April 19, 2016

From the introduction of the report: "Macrofiscal Profiles: 6th Edition" by the Central American Institute for Fiscal Studies (Icefi):

2015 proved to be a period of low tax advance for the Central American region. On average, the size of central governments remained constant compared to 2014, at 18.5% of gross domestic product (GDP). However, not all nations maintained this trend in the same way. While the governments of Nicaragua, Costa Rica and El Salvador, some of the largest fiscally in the region, continued to increase their participation in the economy, reporting increases of 1.5, 0.7 and 0.7% of GDP, respectively, the Government of Guatemala - one of the smallest in the world became even smaller, being reduced by 1.2% of GDP. For its part, the Government of Honduras reported a small decrease of 0.2% of GDP, fully converged with its policy of fiscal austerity, while that of Panama had a transient contraction of 1.4%, reflecting a reorganization established by the new administration and that, according to the plans for 2016, will be reversed in full.

See full report (in spanish).

More on this topic

Costa Rica in 2018: Fiscal Deficit Closed at 6% of GDP

January 2019

The financial deficit of the Central Government at the end of last year was equivalent to 6% of the Gross Domestic Product, 1.2% less than originally expected.

According to the authorities, the fiscal deficit as a proportion of GDP was lower than expected because of the measures taken in terms of collection, expenditure containment and efficiency, and the approval of the Law to Strengthen Public Finances.

Costa Rica as Seen by the OECD

June 2016

The organization says there is an urgent need to raise revenue and reduce expenses, "including the public sector wage bill, which is growing rapidly."

The report "Economic assessment of Costa Rica 2016" by the Organisation for Economic Co-operation and Development (OECD) highlights the fiscal problem as the main challenge for the country on its way towards accession to the bloc. 

Main challenges and key recommendations for 2016-17:

Tax revenues are low and spending is increasing rapidly, pushing public debt to high levels. Public administration is highly fragmented and the Ministry of the Treasury has limited control of the total public expenditure.

Reducing the central government deficit by 2% of GDP during 2016-17 and then an additional 1.5%, approving and implementing the proposed tax reform, combating tax evasion, removing tax exemptions that have no economic or social justification, and containing expenditure growth.
Introducing a medium-term fiscal framework with a clear and verifiable rule for expenses.
Improving efficiency in public spending by strengthening the authority of the Ministry of Finance to control overall public sector spending and introducing a results-based budget.

Read full report "Visión General Costa Rica 2016" and "OECD Economic Surveys: Costa Rica 2016"

Fiscal Outlook in Central America

April 2015

"Fiscal accounts for 2015 anticipate an additional burden of concerns about the sustainability of the public finances of the governments of the region."

From a report entitled "Macrofiscal Profiles: 3rd Edition" by the Central American Institute for Fiscal Studies (Icefi):

Financial Sustainability of the State in Guatemala

October 2014

"Net contributors are providing less and less taxes in relation to the services they receive, while net receivers are demanding more and more benefits compared to what they provide."

Despite the relatively small size of government relative to the economy, a factor which some international analysts point to as a factor which undermines a country's development, "...

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