Economic Growth and Public Expenditure

Guatemala and El Salvador are the Central American economies that have registered the lowest levels of economic growth, when this is associated with the size of their public sector.

Tuesday, April 9, 2019

Panama, Nicaragua, Honduras and Costa Rica are the countries that would be obtaining exceptional results in their economic growth from the average expenditure of the region during 2011 to 2018, which could be associated with the investment made in past periods, informed the Central American Institute of Fiscal Studies (Icefi).

From the ICEFI report:

Regarding these cases, it is clear that both Panama and Nicaragua have made strong investments in physical infrastructure in past periods; it is also evident that in the past Costa Rica has devoted a large part of its resources to social investment, which could be bearing fruit in the present.

In the opposite sense, the graph shows that both Guatemala and El Salvador are obtaining lower levels of growth associated with the size of their public sector, which may be related to a spending structure that in recent times has relegated public investment to promote economic growth.

The case of El Salvador must be carefully analyzed in light of the rigidity introduced by economic dollarization, which gives the country less degrees of freedom, in addition to the fact that the decision to have the Government absorb the attention to the pension system incorporated a higher level of expenditure that makes it very complicated to invest in promoting economic growth and employment.

The case of Guatemala is paradigmatic because its position shows that the levels of expenditure of the country are below those appropriate for the promotion of economic growth, however, despite this, in practice the authorities in recent years, far from increasing the levels of expenditure on public investment to boost economic activity and the consequent generation of employment, have reduced the state apparatus under the illusion that less public expenditure will produce a positive effect on economic activity.

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