The Unstoppable Public Debt

"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."

Thursday, September 13, 2018

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.

A study by the Icefi shows that, in general, public operating expenditure for Central American governments remained constant at around 12.3% of GDP, while capital expenditures went down from 3.7% to 3.6% of GDP, with this process being most notorious in Costa Rica, Honduras and Nicaragua, the first two countries, as a result of an effort to try to reduce the fiscal deficit and the growth of public debt, while in Nicaragua, the reduction is a result of the political instability occurring there. For its part, interest payments on public debt represents 2.4% of GDP for the entire region. However, for countries such as Costa Rica, El Salvador and Honduras (3.7%, 3.7% and 2.9% of GDP, respectively), this payment has become totally rigid making it difficult to achieve fiscal policy objectives.

In relation to the fiscal deficit, the report explains that GDP in the region will increase in 2018 to 3.1%, after having registered 2.7% in 2017, while the Central Government debt will go from 42.5% to 43.1% in the same period. The fiscal deficit will grow in 2018 in all countries, except Nicaragua, which is currently facing serious problems in public spending execution as a result of the political situation. One worrying case is that of Costa Rica, as it still does not have a consensus for structural fiscal reform. In 2018 it is estimated that the central government of Costa Rica will close with a deficit of 7.0% of GDP, which will cause the balance of public debt to reach close to 53.4% of GDP. 

Guatemala, Nicaragua and Panama are the countries that report satisfactory levels of debt by the standards of international financial organizations. However, in the first two countries rating agencies expressed their reservations and changed their outlooks, from stable to negative, as a result of political instability. Panama continues to have a "low investment level". The governments of Honduras and Nicaragua need to make their fiscal execution more transparent in terms of debt, particularly that derived from trusts and that linked to Venezuela's oil credits so that the company actually knows the amount of its obligations with third parties.

See "Macrofiscal Profiles of Central America number 10". (In Spanish)

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More on this topic

Central America: Fiscal Outlook - April 2017

May 2017

In 2016, the ratio between total expenditure of central governments of the countries of the region and GDP remained almost unchanged from the previous year, going from 18.3% to 18.6%.

From the report "Macroeconomic Profiles: 8th edition", from the Central American Institute of Fiscal Studies (Icefi): 

Central America: Fiscal Outlook for 2017

January 2017

In 2016 the size of the governments in the Central American countries grew very little, the tax burden reached 14.3%, and the average fiscal deficit was about 2.8% of GDP.

From the department of Fiscal Outlook for Central America, from the report "Macrofiscal Profiles: 7th Edition", by the Central American Institute for Fiscal Studies (Icefi):

Costa Rica's Fiscal and Political Sickness

October 2016

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):

Fiscal Accounts in Central America

November 2014

The average tax burden for the region is 13.4% of GDP, while the average public expenditure increased from 18.7% in 2013 to 19.2% at the end of 2014.

From the Introduction of the report Macrofiscal profiles in Central America, from Instituto Centroamericano de Estudios Fiscales (Icefi):

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