Central America's Fiscal Lens No. 6

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.

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