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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More on this topic

The Unstoppable Public Debt

September 2018

"Public debt in terms of simple average for the Central American region will continue growing, reaching 43.1% of GDP in 2018, after having registered 42.5% in 2017."

The Central American Institute of Fiscal Studies (Icefi) estimates that for the current year the size of public expenditure of the Central Government in relation to the respective Gross Domestic Product of each country will be 21.4% in Costa Rica, 20.4% in El Salvador, 20% in Honduras, 18.4% in Nicaragua, 17.6% in Panama and 12.1% in Guatemala.

Pessimism Over El Salvador's Public Debt

September 2013

If the economic imbalance that currently affects Salvadoran finances is maintained, Fitch Ratings will once again lower their risk rating which now stands at "BB-".

Elmundo.com.sv reports: "Not even the positive outlook description outlined by the rating agency Fitch Ratings gives any encouragement over the fate of Salvadoran government debt, which until July, including pensions, reached 53.9% of the gross domestic product (GDP)".

Costa Rica's Fiscal Deficit: Official Projection Falls Short

March 2013

Costa Rica could have a greater fiscal deficit than the 4.8% estimated by the Central Bank for this year, reaching 5.1% of GDP.

According to the Fiscal Studies Program by the School of Economics at the National University of Costa Rica, this projection was based on total tax revenues increasing by 8.7%, taking into account a lower tax income and Customs taxes (due to a fall in imports) and also an increase in total expenditure of 11.5%.

Costa Rica: Household Spending Continues to Grow

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Between January and July the Gross Domestic Product (GDP) grew by 3.8% compared to the same period in 2010.

According to a report by Aldesa :

In terms of components, final household spending remains strong, growing by 4.8% in the indicated period and keeping in line with the expectations of the Central Bank of Costa Rica (BCCR), which estimates that domestic demand this year will be main driver of economic activity.

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