"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.
According to the ratings agency the political polarization that characterizes the Legislature which will take office on May 1 could hamper the implementation of the fiscal reforms that the country needs.
From an article by Fitch Ratings:
El Salvador's New Legislature May Yield Fiscal Restraint
Fitch Ratings-New York-23 March 2015: Gains by opposition parties in El Salvador's legislative assembly could result in a compromise to improve the sustainability of public finances but political polarization is likely to continue weighing on the prospects for growth-enhancing and security reforms, Fitch Ratings says.
As part of a plan to reduce the fiscal deficit, the Finance Ministry is preparing a bill which aims to amend the existing tax exemptions scheme.
This project also seeks to create penalties for 1,259 misuse of tax breaks reported by the Technical Services Department up until 2014. It is anticipated that the initiative will be submitted to the Legislature in no more than two weeks.
From January to November 2013, the fiscal deficit reached $2.270 billion, 4.6% of the national production, 25% more than that accumulated up to November 2012.
Market Pulse Blog Aldesa:
Costa Rica: How much does the government borrow per day?
Every day operations made by the Government, and therefore by all Costa Ricans, add up to an additional ₡1.796 million of new debt.
While up to May Finance revenue grew by 10% interannually, Central Government expenditure increased by 13.1%.
"Finance revenue grew by 10% interannually up to May, driven especially by the collection of income tax, tributes which recorded a growth of 11.7% in May," noted an article in Elfinancierocr.com.
"This increase in revenue pales in comparison to the rise of 13.1% in central government spending."
Just as several European countries have done, Honduras must prepare itself to ask for a bailout.
This was the suggestion made by the Social Forum of Honduran External Debt (Fosdeh) during the spring meetings of the International Monetary Fund (IMF) and World Bank (WB). According to Mauricio Diaz, Fosdeh coordinator, "we are still making recommendations, and we have just done so to the IMF and the WB, the general idea is that we have to prepare a rescue plan."
Honduras's Congress has approved the 60-day suspension of tax exemptions, except for the maquila and renewable energy generation sectors.
The purpose of the measure is not to eliminate the exemptions but to verify proper use of them, calling the sectors involved to appear before a commission created for that purpose, to review all of the existing schemes and customs exemptions in the country.
A bill submitted to the Congress of Honduras has temporarily suspended all exemptions and tax benefits granted by the Ministry of State in the Finance Dispatches.
The deadline set in the decree is for a period of sixty days from the effective date of this decree, but it will be extended to ninety days upon approval by Congress.
During that time a special committee will review and determine which sectors will maintain the tax benefits and exemptions, under a set of parameters that only benefit small and medium enterprises and non-governmental organizations (NGOs) ", noted an article in Latribuna.hn .
In the same report Standard & Poor's has unified the risk ratings for both local and foreign currency, at grade BB, due to adjustments in methodology.
Standard & Poor's has rated Costa Rica’s foreign currency as grades BB / B , based on the economic growth and political stability in the country, despite its high fiscal deficit, rising external debt, and a political stalemate that is preventing legislative approval of the tax reform bill under discussion.
The country's economy, which has not yet recovered from the crisis of 2008, will suffer from a deficit for which the government can not find effective solutions.
The unbridled growth of government spending in recent years, growth which has only just been moderated, has brought the fiscal deficit to 5% of GDP annually. The proposed tax reform that President Chinchilla presented to the Costa Rican Assembly is not only a legal and political quagmire, but if approved, would not solve the problem of the public deficit, because of the cuts made to the original project.
The National Association of Private Enterprises in El Salvador said the government is not “going on a diet”, but instead is still increasing public spending.
ANEP President, Jorge Daboub, is accusing the International Monetary Fund of having changed their policies regarding austerity recommendations, now that the government of El Salvador is aware of the extension on the limits of subsidies, which passed initial targets of 3.3% and 3.2% for 2011 and 2012 respectively, up to 4.5% and 3.9% compared to the same period.
Unions and business associations are insisting that the economy will be damaged if the proposed tax reform is approved by the Executive.
The private sector is objecting to the negative impact that the reform will have on the national productive apparatus and consumers. Unions for their part say the new tax (Value Added Tax, VAT) will affect the finances of Costa Rican families.
In July, the difference between total revenue and expenditure was $87 million. The deficit does not include interest expenses, which amount to $527 million a year, 17.7% more than recorded in July 2010.
A press release by ALDESA reads:
“The July figures for revenues and expenditures by the Central Government are not very encouraging and continue to show the existence of harmful primary deficit.
In the first 23 months in office, nonfinancial public sector debt has increased by $2,074 million.
This large amount of debt would not be a problem if the economy had revived, but "... the current administration has not been able to revive the economy because local and foreign private investment has stagnated, and the public sector has not been acted with the effectiveness required to improve productive activities", says an article in Elsalvador.com
The fiscal deficit increased by 26.5% in the first 4 months of the year and has reached $733.3 million.
The amount is equivalent to 1.8% of Gross Domestic Product (GDP). In the same period in 2010, the amount was $579.8 million.
"We are seeing a larger financial deficit than the previous year in terms of GDP, which is consistent with the current projection that the deficit in 2011 would exceed 5% of GDP, " said the Finance Minister in office, Randall Garcia in an article publishes by ADN.es, "He reiterated the need for the country to adopt a tax reform ..."