Growing Fiscal Risks in Central America

The countries facing the greatest risk of fiscal unsustainability within three years are El Salvador and Honduras, followed by Costa Rica and with less risk, Nicaragua and Panama.

Wednesday, August 10, 2016

From the  "Economic Outlook" section of the V Report on the State of the Region 2016:

With the data available on the non-financial public sector in Costa Rica, El Salvador, Nicaragua and Panama, and of the Central Government in the cases of Guatemala and Honduras, debt sustainability based on the model developed by Deshon (2013) was analyzed.

With the time horizon of the year 2019, it was determined what conditions the countries will be in if: 

• the baseline scenario of public financing conditions is maintained as well as growth according to the projections for World Economic Outlook given by the IMF (2014, October), 
• there is an increase in the interest rate equivalent to one standard deviation of the average occurring in the 2010-2013 period, 
• tax revenues fall to the minimum level for the period 2010-2013, based on the baseline scenario, and 
• spending increases to the maximum observed between 2010 and 2013.  

Read full chapter "Panorama Económico" from Programa Estado de la Nación, V Informe Estado de la Región 2016. ( in spanish)



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Presenting a fiscal balance as a success while continuing to increase public debt is to disguise the fact that the government is still spending more than it collects.

"Even if a monkey dresses in silk, it is still a monkey"

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The ICEFI points to a "chronic political inability to achieve comprehensive fiscal agreement" which is jeopardizing the sustainability of the state in the medium and long term.

From a statement issued by the Central Institute for Fiscal Studies (Icefi):

A Cry in the Fiscal Night for Costa Rica

October 2014

"The defense and strengthening of the rule of law requires, as a starting point, enabling sound public finances. The rest is verbal pyrotechnics." Otton Solis.

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Costa Rica is subject to a rare political situation, where the founder of the party in power and his first deputy, defends rationality as a tool of governance and for managing public finances, in the face of voluntarism in the matter on the part of the Executive, which adds more risk to the serious threat of the fiscal deficit inherited from previous governments, presenting a budget that increases state expenditures by 14%.

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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