Costa Rica: Elections critical for the IMF deal and macroeconomic performance
Costa Rica´s presidential election is around the corner. With a record number of candidates, growing voter dissatisfaction and a large percentage of undecided voters, the winner is still uncertain. Four candidates are struggling to win a spot for the second round in April. Their economic views regarding the IMF agreement vary, and macroeconomic performance during the next few months will be determined by the economic policies of the next president. In 2021, domestic production increased faster than expected. GDP growth reached 10.3% in Q3 2021 y/y, for an accumulated growth of 6% y/y during the first three quarters. The financial deficit totaled 5.2% of GDP, compared to 8% a year ago. Yet the public debt to GDP ratio continues increasing (70.4% of GDP as of December 2021) and the financial deficit is still high for an economy with a potential GDP growth of 3.5%. The IMF agreement continues, but several concerns have emerged in recent weeks. The first disbursement has been suspended, despite good results with quantitative targets. The Board wants to see further advances in structural reform.
Guatemala´s president ended his second year with a mixed record. On one side, the economy grew at a pace not seen in many decades, due to exports and external remittances, and a base effect on GDP. On the other side the country was very slow in vaccinating, and experienced much social unrest, and political tensions with the United States. Since President Alejandro Giammattei took office, he has been struggling to forge closer ties with the Biden administration, but has not been successful. Economic activity moderated its pace during Q3 2021. The Central Bank has forecast annual growth of 7.5% for 2021, something not seen over the past four decades. On the fiscal front, Guatemala improved its balance compared to previous years. During the first 10 months of the year, revenues grew 27.3%, while expenditures grew only 5.7%. The deficit is now forecast to end near 2% of GDP. In 2022 the economy will continue taking advantage of favorable external conditions, especially remittances. We expect economic growth to moderate in the coming months, as the base effect weakens and FDI normalizes
El Salvador closed 2021 with a vigorous economic rebound, supported by the unexpected dynamism of foreign remittances and external trade. The marked rebound boosted fiscal revenues and improved the poor results of our forecasts. Despite that, in our opinion there’s no light at the end of the tunnel in political conditions. Recent criticism about high losses for the government after the price of bitcoin plunged, as well as the supposed targeting of journalists with a spyware intended for criminals, threaten to affect the internal perception about the administration of President Nayib Bukele. On the other hand, the international picture does not look positive, except maybe for bitcoiners. International financial markets evaluate the country quite differently, as reflected by the persistent increase of EMBI. That poses serious doubts about the possibility of getting the required external financing to match obligations in 2022 and 2023.
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