The excess of public expenses over income tax is bringing fiscal deficits of the Central American countries to conditions that may become unsustainable.
The most worrying situations are faced by El Salvador and Honduras, but Costa Rica and Guatemala are also in danger because of their difficulties in exercising proper tax collection. Nicaragua and Panama are not threaten so far.
In El Salvador the debt reaches 61% of GDP, but the most serious situation is in Belize, whose debts are close to 80% of GDP.
As a result, the growth of public spending and the inability to achieve an equivalent increase in tax revenues, prevented most countries from having the necessary resources to improve human development indicators, according to the Fifth State of the Region Report on Sustainable Human Development.
According to the analysis, the economic performance of the years following the crisis of 2008 and 2009 was not sufficient nor sustainable to ensure substantial improvements in the welfare of the Central American population.
In recent years, with the exception of Panama and Nicaragua, all Central American countries have shown a tendency to increase domestic debt.
The highest increases were in Costa Rica and Honduras: the first went from 23% to 29% of GDP, and the second from 4% to 15%.
Although the region was very active in approving tax reforms, the achieved increased in taxes was lower than the growth of public spending.
Immersed in an international environment of low growth, growth opportunities in Central American countries have been limited in the past decade by the slow progress in the transformation of production and employment structure of the region.
Between 2010 and 2014 the region showed moderate growth of 4% on average, a figure that is lower than the one reported between 2004 and 2008. El Salvador and Honduras recorded the lowest values.
The effects of the evolution of the world economy were transmitted through lower flows of trade in goods and services, remittances and private capital, both from financial and foreign direct investment.
Intraregional trade followed a similar trend, and showed no significant cyclical changes.
The possibilities of converting growth into greater welfare are constrained by the inability of economies to generate quality jobs and sufficient to absorb the increasing flows of population of working age.
In addition, there are low productivity levels, gaps in access to work and production systems that move at low speed towards higher added-value activities.