Political instability "complicates" the fiscal situation of Central America

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  • Thu, 09/13/2018 - 22:53
  • EFE

The Central American Institute of Fiscal Studies assured today that the political instability and the lack of long-term planning of the States of the region "complicates" the fiscal situation, which has gradually deteriorated.

The regional branch presented its latest macro fiscal profile on Wednesday, which contains an estimate for the end of 2018, and it states that regional public spending will go from 18.1 percent of the GDP in 2017 to 18.3 percent this year.

Specifically, public spending by the Central Government will be in 2018, 21.4% of the GDP in Costa Rica, 20.4% in El Salvador, 20% in Honduras, 18.4% in Nicaragua and 17.6% of the GDP in Panama, highlighting the exception of the case of Guatemala (12.1% of its GDP), which continues with "a chronic policy of austerity that makes it unable to meet the main social needs".

Public operating expenditure for governments remained constant, at around 12.3% of the GDP, while capital expenditures fell from 3.7% to 3.6% of the GDP, the most notable being 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 the public debt, while in Nicaragua the reduction is a product of the political instability that it experiences.

The payment of interest on public debt represents 2.4% of the GDP for the entire region. However, for countries such as Costa Rica, El Salvador and Honduras (3.7%, 3.7% and 2.9% of the GDP, respectively), this payment became a "strong rigidity that hinders the achievement of the objectives of the fiscal policy."

The analysis indicates that, in general, the region "lacks appropriate planning systems", as real mechanisms for determining the impact of public spending on society or benefit / cost evaluations that allow identifying the relevance of public decisions.

"The allocation of expenditure and the results obtained, continues to be the main driver of the opacity and the fall in the tax morale of taxpayers in the region," it concludes.

As for the regional tax burden, this will be reduced in 2018 to 14% of the GDP, after registering 14.1% in 2017 and 14.2% in 2016.

The countries that are estimated to decrease their tax collection are Costa Rica, Nicaragua - due to the crisis -, Guatemala and Panama - due to the loss of capacities in their tax administrations.

"States have lacked effective efforts during 2018 to achieve tax changes that increase revenue, and, on the contrary, they have maintained the policies of tax incentives for investment and trade protection", the document abounds, recalling the need of fiscal reforms for "sufficiency and sustainability".

The political instability existent in most Central American states, continues, it reveals "the weak legitimacy of those who direct the state agencies to be able to promote these changes, endangering democratic progress and diminishing the possibilities for development in Central America."

Source- EFE

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