With the exception of Nicaragua, fiscal deficits are growing in the rest of the isthmus, along with public debt.
Friday, November 15, 2013
From the editorial of Central America's Fiscal Lens No. 6:
Central America faces an economic slowdown during 2013: on the isthmus, all countries project growth rates which are lower than last year. The degree of openness of these small open economies makes them susceptible to changes in the international context. Low growth rates in the United States, the European recession and the slow down of emerging countries continues to affect economic activity in the region through known transmission mechanisms: the volume and prices of exports, the price of oil, remittances, the volume of foreign investment and the availability of loans to the public and private sectors.
All estimates indicate that, overall, the international economy has slowed and economic growth projections for most countries have been to the downside. Central America is likely to grow at an average rate which is greater than that of other Latin American countries, but this average is skewed by one or two countries and there are worrying levels of instability in public finances.
Indeed, most of the Central American countries face enormous challenges in the fiscal area due to falling economic activity and rigidities in expenditure and increases in spending during the political cycle. With the exception of Nicaragua, the rest of the isthmus faces a growth in fiscal deficit and consequently public debt.
Fitch notes that the relatively favorable external environment will not be enough for Central American countries to improve their credit ratings, which could remain stable despite fiscal problems.
From the press release by Fitch Ratings:
Fitch Ratings-New York-22 October 2015: External tailwinds are unlikely to lead to a significant uplift in Central America's creditworthiness, says Fitch Ratings in a new special report.
The Central American Institute for Fiscal Studies has highlighted the unsustainability of the fiscal deficit in Costa Rica, El Salvador, Guatemala and Honduras.
Pensalibre.com reports that "... according to the results of a report by the Central Institute for Fiscal Studies (Icefi) submitted yesterday ...
The Central American Institute for Fiscal Studies has concluded that only the public debts of Panama and Nicaragua, using official data, are sustainable in the medium term.
The main theme of the fifth edition of the 'Lente Fiscal Centroamericano' (Central American Fiscal Lens) is an analysis of debt sustainability in Central America, which depends greatly on interest payments on debt, economic growth, inflation, revaluation and management of the fiscal deficit.
In light of the European crisis and slow growth in the U.S., the best protection for Latin American countries is macroeconomic discipline.
Although it is believed that regional banks are "solid, liquid and stable," the recommendation for Latin America to avoid or at least mitigate the inevitable effects of the economic crisis in Europe and the slow recovery of the U.S., is to keep a lid on fiscal deficit.
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