Growth outlook mixed, amid fiscal woes
El Salvador’s post-pandemic economic rebound was robust in 2021, but was truncated by adverse international factors, mainly the global economic consequences of the Russia-Ukraine conflict, as well as persisting distortions on global supply chains. Consequently, economic growth this and next year will be returning to figures lower than the 2.5% y/y average of the previous decade. President Nayib Bukele maintains high popularity, according to the polls, as to announce running for reelection, a dubious constitutional option. But after his three years in power, the economy is not better off, affected by political confrontation with the United States and other occidental powers, and discredited in financial markets as well. Financing constraints will force fiscal imbalances to drop during the outlook period. But the 2022 external shock will increase the external imbalance and bring a temporary inflation problem this year and next.
Costa Rica´s fiscal situation is steadily improving. Figures for H1 2022 showed a positive balance for the coming review with the IMF in October. We expect a positive evaluation on fiscal targets, and a second disbursement of $290 million before the end of the year. Despite the good results, some uncertainties have emerged. The current administration presented to Congress a proposal to ease the fiscal rule, and to compensate for this initiative with the sale of public assets. They have not been able to reach an agreement with the legislators for an international bond placement, so the financing strategy has not advanced as planned. Fiscal consolidation will continue in coming months. Deviation from the fiscal adjustment program will not be a scenario in the short term.
Guatemala’s economic activity is slowing down during H2 2022, as we mentioned in our previous report. Lower demand from the United States is one of the main factors affecting key industries. Inflation remains the main problem for the economy. In August the variation in the Consumer Price Index reached 9% y/y, its highest value since December 2008. The exchange rate experienced an upward adjustment in the last days of September. This recent behavior is related to seasonal factors. Guatemala’s budget for 2023 was presented to Congress in September. The budget submitted by Minister of Finance Alvaro Gonzalez increases expenditures to Q112.3 billion -- approximately $14.5 billion -- the biggest budget in Guatemala’s history.
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