El Salvador: Growth and international friendship flag
El Salvador’s robust 2021 post-pandemic economic growth is expected to fade in 2022, returning to a potential growth rate a little lower than before COVID-19. As the optimistic view of the world economy moderates due to new and old negative events, our previous estimates move in the same direction. On the political front, things look problematic. It seems that President Nayib Bukele and his staff have locked horns with both the U.S. government and the international financial system, over several political and economic decisions during the last 12 months. The government seems unconcerned about the unsustainable fiscal conditions, while uncertainty grows over how fiscal financing needs will be met this year and next. The gridlock in negotiations with the IMF continues, and prices of sovereign bonds have plummeted since mid-2021. The economy will return to its pre-pandemic low dynamism, but with a more severe fiscal problem, and fewer options for external financing. Changes of current economic and political stance should occur in coming months to avoid increasing the risk of default, although we do not expect this to happen during the outlook period, since the government still has some room for compliance with external obligations, with the support of its super-majority in Congress.
Costa Rica elected Rodrigo Chaves as president for a May 8th, 2022 – May 8th, 2026 term, during second-round voting on April 3rd. As of this writing, no names had yet been officially announced to lead the Ministries of Finance and Economy, or the Central Bank. Chaves considers the current agreement with the IMF a little ambitious, and intends to renegotiate it to include measures to reduce tax exemptions, and to change the new Public Employment Law. Economic activity is running satisfactorily, although with risks coming from new variants of COVID-19, and consequences of the Russian – Ukraine war. The Central Bank announced that it was working on a downward revision of its real GDP growth forecast for 2022, likely to be disclosed in the first week of May. Fiscal conditions are reversing the advances toward a lower deficit during the first three quarters of 2021, while Finance Minister Elian Villegas announced a draft bill to present to Congress for authorization of a multi-year Eurobond issuance.
Guatemala‘s macroeconomic stability and fiscal discipline are proving to be a strength for the country´s credit rating. On April 19th, S&P Global Ratings maintained Guatemala’s BB- rating, but improved the outlook to positive from stable. This opens a window of opportunity for an upgrade in the next 18 months. Guatemala has opportunities like nearshoring that can help raise FDI values. Nevertheless, the economy also has weaknesses, like elevated levels of informality, poverty and weak public services. Fighting corruption is also a challenge, especially in a context where controversial Attorney General Consuelo Porras is seeking reelection. Several risks for Guatemala persist, but we are optimistic that the economy will be resilient in this volatile global environment.
Now read on...
Register to sample a report