External Debt Threatens Economic Growth

"The tightening of global financing conditions is a concern for Central American countries with large current account deficits or those highly dependent on capital flows."

Wednesday, January 9, 2019

According to the report "World Economic Outlook - January 2019" compiled by the World Bank (WB), countries with a high external debt burden would be at risk if a sudden change in investor confidence in emerging market and developing economies were to occur.

The tightening of global financing conditions is a concern for Central American countries with large current account deficits or those highly dependent on capital flows, explains the WB in its most recent report.

You may be interested in “Central America Towards 2019

Costa Rica is one of the Central American economies at greatest risk of suffering an economic slowdown in the coming years, because of its high fiscal deficit. However, the World Bank forecasts economic growth of 2.7% for 2019 and 2.8% for 2020.

It is important to note that in Costa Rica efforts have been made to reverse the high fiscal deficit, since last December the country's Assembly approved the tax reform project, which aims to strengthen public finances through changes to the tax system.

See “Tax Reform: First Step

For Honduras, another of the countries with a high volume of debt, growth forecasts for 2019 are 3.8%, and for 2020 an identical rise would also be recorded. On the other hand, Nicaragua will register a 0.5% economic contraction in 2019 and in 2020 the economy will increase by 2.6%, according to World Bank forecasts.

Guatemala, El Salvador and Panama, countries in the region that are not ranked with high levels of debt burden in foreign currency, the WB forecasts that during 2019 will grow 2.9%, 2.5% and 6%, respectively.

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More on this topic

Risk Perception and High Financial Cost

January 2019

The governments of Costa Rica and Nicaragua will face greater challenges in obtaining financing in external markets, because of the lowering of their risk ratings by international agencies.

Arguing that Costa Rica reflects consistently large fiscal deficits, short-term financing needs because of a strong repayment schedule and budget financing constraints, Fitch Ratings reported on January 15 that the country's long-term foreign currency issuer default rating was downgraded from BB to B+.

Negative Outlook for Costa Rica's Debt

January 2018

Fitch Ratings has changed the outlook from stable to negative, due to "diminished flexibility to finance its rising budget deficits and public debt burden, as well as persistent institutional gridlock preventing progress on reforms to correct the fiscal imbalance."


Nicaragua Gets B+ Credit Rating

December 2015

The upward trend in economic growth, prudent fiscal policy and debt reduction explain the B + grade with a stable outlook given by Fitch Ratings.

From the press release by Fitch Ratings:

Fitch Ratings-New York-16 December 2015: Fitch Ratings has assigned first-time ratings to Nicaragua as follows:

End of Macroeconomic Stability in Guatemala?

September 2014

Increased borrowing costs, a disincentive to foreign investment and distrust of economic performance, are part of the expected scenario if public debt growth is not controlled.

Prensalibre.com reports that "... The draft budget for 2015 presented by the Ministry of Finance, amounting to $9.250 million (Q71 thousand 840.8 million), contemplates taking on new debt of about $2 billion (Q15 billion), of which $1.6 billion (Q12 thousand 334 million) came from bonds and loans. "

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