Friday, February 3

Central America and Panama will not be able to recover the economic losses associated with the COVID-19 pandemic, warns Icefi

The extraordinary economic growth reported in 2021 in several countries, including the 12.4% in Panama, 10.5% in Honduras, 10.3% in El Salvador, 7.5% in Guatemala, among others, they are a simple consequence of the partial recovery of the normal rhythm of the economies, and they obviously come from the comparison of the 2021 figures with respect to those of 2020 seriously depressed.

For this reason, and even though the results of economic growth for 2022 will still show an apparent dynamic, these will already be lower than those reported the previous year and their behavior will continue to decline until reaching the potential level in all the countries of the region as of 2023. -2024, based on the productivity of its factors, the economic structure and effectiveness of its markets, which have not undergone significant changes.

Apart from the above and considering the apparent extraordinary results of 2021 and 2022, no country in the region is able to recover the economic losses associated with the pandemic, although Guatemala is the one that is closest to achieving it in 2022; the rest of the nations will continue their recovery and will do so between 2023 and 2025. However, this recovery will continue to be uneven, favoring certain economic sectors, while others still perceive strong effects of the health crisis, strengthening inequality.

These were the main conclusions of a study on the economic and fiscal performance of Central America and Panama in 2021 and 2022 of the Central American Institute of Fiscal Studies (Icefi), which concludes that the region will fully recover the economic rhythm prior to the coronavirus pandemic (COVID-19).

The technical review and real validation of the figures for economic growth, the behavior of the external sector, inflation and, of course, the fiscal sector, are necessary, above all because they hide the real effects on the social variables that show a worsening of conditions of life of the Central Americans during 2020-2021, which are shown concretely in the increase in the levels of employment, poverty, inequality and social protection.

In terms of employment, unemployment rates increased as indicated by data from Costa Rica which reported a rate of 12.4% of the Economically active population (PEA) in 2019 and 14.4% in 2021, and Panama with 7.1% in 2019 and 11.3% in 2021; the rest of the countries still report data only for 2020, in which they reflect significant growth in unemployment.

Poverty also reported an increase in Costa Rica that went from 21.0% in 2019, to 23.0% of the population in 2021; and Honduras from 45.4% in 2019 to 59.2% in 2021.

In extreme poverty, Honduras reported an increase from 22.9% in 2019 to 32.5% in 2021, while Costa Rica did so from 5.8% in 2019 to 6.3% in 2021.

The rest of the countries still do not report data updates in these areas, however, similar trajectories are intuited.

Regarding the fiscal area, the illusion of good results, for the most part, came from the collection in 2021 of deferred amounts that should have been collected in 2020 and the increase in collection due to the increase in international prices of fuels and other commodities, as well as the global economic reopening and the increase in consumption motivated by the strong influx of international remittances. In terms of spending, there was a contraction in public spending due to the end of partial assistance programs for the population to deal with the health emergency.

These elements, complemented by the increase in Gross domestic product (GDP) of the period, explain to a greater extent the illusion of higher tax burdens, the reduction in the size of the public sector, the fiscal deficit and the public debt, which together allowed public opinion to be made aware of an apparent greater efficiency in public management, which actually played a much smaller role.

According to him Icefi, by 2022, the normalization of the tax trajectory and economic growth will primarily cause the level of the tax burden to tend to be reduced, as reflected in the budgets of Costa Rica, Guatemala, Honduras and Panama, all with lower levels of tax revenue with respect to GDP than those received in 2021.

The only countries that show budgeted values ​​in 2022 above those recorded in 2021 are El Salvador and Panama, those that are theoretically due to efforts to reduce tax noncompliance, however, with the information released by the authorities, said increases do not pass a rigorous technical analysis, hence they can be considered primarily as an overestimation of figures.

In terms of spending, the countries will tend towards the normality prior to the covid-19 pandemic, reflected in the execution of 2019, which implies that the countercyclical efforts to create a fiscal impulse that places the countries on a trajectory above of the potential dynamics, but above all for radically changing the socio-productive conditions of Central Americans, have ended.

Thus, and with regular levels of budget execution, Costa Rica, Guatemala, Honduras and Nicaragua –even with a strong underestimation – they should present levels of public spending at the end of 2022 very similar to those of 2019; On the contrary, El Salvador still reflects higher values ​​of planned expenditure, however, the apparent overestimation of public revenues and the difficulty in obtaining fresh debt resources may limit the execution of what was planned; in Panama, in the primary search to partially execute the programs offered in the Plan of President Laurentino Cortizo, an increase in public spending of around 1.3% of GDP is expected compared to 2019.

Based on the aforementioned expectations, the fiscal deficit levels should tend towards normalization, at values ​​similar to those presented in 2019 in most countries, with the possible exception of Costa Rica that, given the pending effects of the tax reform implemented in 2018-2019, it could be at the levels reported in 2016. Consequently, the balances of public obligations will resume their growing trajectory with moderate speed, with the exception of Panama.

Thus, at the end of 2022, it is estimated that Costa Rica will report debt levels of 72.2% of GDP; El Salvador by 86.8%; Guatemala 31.0%; Honduras 62.9% and Nicaragua 52.5%. In Panama, the rapid growth of the GDP in the last two years will allow the debt to continue to decrease ‒with the warning that collection expectations must be met‒ until reaching 62.4% of the GDP.

For Icefi, the recovery of fiscal normality in the region should not be seen as a point of satisfaction for the rulers of the Central American countries, given that in many of these complex socioeconomic realities are hidden that produce the systematic expulsion of inhabitants. to other regions of the world, in search of better opportunities.

For this reason, they should serve as an incentive to propose fiscal restructuring scenarios, which contemplate, among other aspects, a regional treatment for fiscal problems, the rethinking of the purposes of the States, a review of the tax structure, and concrete and specific plans. to combat tax evasion and avoidance, smuggling and illicit capital flows, establishing a more rigid and effective sanctioning system and a better evaluation of public spending. Also, the improvement in the treatment of informality in the countries of the region, the strengthening of tax administrations and the tax morale of taxpayers should be considered.

On this last point, the Icefi considers that it is urgent to strengthen transparency in public management and accountability, based on the most recent results of the Transparency International’s Corruption Perceptions Index for 2021, showing an improvement in the global ranking of Costa Rica and Panama with 3 and 6 positions respectively compared to 2020, while El Salvador, Guatemala, and Nicaragua they fell 11.1 and 5 positions respectively, while Honduras maintained the same position granted in 2020, so it is intuited that the efforts to create more transparent and accountable public apparatuses have not yielded the expected results or simply do not exist.

Cigarette Hitler
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