COHEP Publishes Regional Competitive Bulletin April 2023

31 March 2022

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PROSPECTS FOR ECONOMIC GROWTH 2023

Economic growth rates could be conditioned, in addition to international variables, by the levels of investment that Central American countries are capable of attracting in the midst of a scenario that pointed to increased financial costs, declining business confidence, and strong regulatory uncertainty. .

The prospects for economic growth in the Central American Isthmus will dim, going from 4.7% in 2022 to 2.9% in 2023 as the economy of the United States of America slows down, export levels decrease, and the hardening of conditions increases. global financial crisis and geopolitical tensions persist. The prospects for economic growth in the Central American Isthmus will dim, going from 4.7% in 2022 to 2.9% in 2023 as the economy of the United States of America slows down, export levels decrease, and the hardening of conditions increases. global financial crisis and geopolitical tensions persist.

RISKS FOR 2023

According to the Center for International Studies (CEIUC), some of the risks that would limit the levels of growth and economic development in the region are:

  • ORGANIZED CRIME:Organized crime grows where the state is relatively weak, institutions
    corrupt, and informal economies with high rates of inequality and poverty predominate.
  • COMPLEX GOVERNANCE: due to the high citizen expectations about the new governments, the political fragmentation, the lack of agreements and the high public indebtedness.
  • NEW OUTBREAKS OF SOCIAL UNREST: caused by the high cost of living, low economic growth, increased unemployment and informality, and less fiscal space.
  • LOSS OF COMPETITIVENESS: due to the low development of natural resources and clean energy, the lack of concrete actions in terms of attracting investment and the lack of legal certainty in countries of the region.

COUNTRY RISK (EMBI)

Maintaining a low country risk is important because it gives more certainty of a country's business climate and makes it easier to attract foreign investment. In turn, maintaining a low country risk demonstrates the state of certainty of a nation in the short and medium term.

The less certainty that the country will honor its obligations, the higher the EMBI of said nation will be, and vice versa.

Countries like Panama, Guatemala maintained an EMBI below 3.00% and Costa Rica shows an average EMBI of 3.27%.

Honduras (5.66%) showed an EMBI higher than the Latin average, while El Salvador continues to denote a high EMBI, being above 15%.

Compared to the averages of March 2022, the risk scores of the countries of the region have been reduced, with the exception of Panama, which went from 2.22 in March 2022 to 2.34 in March 2023.

FOREIGN DIRECT INVESTMENT CONFIDENCE INDEX

The Foreign Direct Investment (FDI) Confidence Index prepared by The Kearney Advisor Network establishes a ranking of economies that are most attractive for FDI at present and in the next three years.

In the ranking of developed economies, the United States, Canada and Japan stand out in the top positions. For the ranking of developing economies, Brazil, Mexico and Argentina are among the top 10 as the most attractive destination for attracting foreign investment.

According to the Index, investors expect an increase in the price of commodities and an increase in geopolitical tensions for the current year. Investors seek to prioritize and move their capital into markets with transparent government regulations, low levels of corruption, and good technological capabilities.

Among the factors that influence investing in developing economies, the good quality of infrastructure, political stability, technological capacity, as well as tax rates stand out.

Countries of the Latin American region evaluated in this Ranking:

PUBLIC DEBT

On average between 2020 and 2021, the public debt of the countries of the region increased by 9%, however Honduras and Nicaragua registered the highest increases, above average, 13% and 12% respectively.

For 2022, this trend was maintained, although with much less force given that the average increase in public debt was 2% at the end of the third quarter, which mainly responds to the need to cover the fiscal deficit, especially in the case Honduras, which planned spending close to 16 billion dollars and increase the deficit to 6.3% of GDP.

By 2023, it is possible that the public debt, on average, in Central America, will be located at 50% of the region's GDP, with Costa Rica and El Salvador being the countries that would be located well above this average, close to 70 % of GDP and Guatemala at the opposite extreme with a Debt/GDP ratio of less than 35%, according to ICEFI.

Source: Prepared by the GPE/COHEP with data from the Secretariat of the Central American Monetary Council (SECMCA), BCH and SEFIN, ICEFI
Note: The data is updated to October 2022, only Honduras shows data to September.

CORRUPTION PERCEPTION INDEX 2021

The Corruption Perception Index is the most widely used corruption ranking in the world and its objective is to classify the perceived levels of corruption in the public sector of each country according to information sources and expert opinions.

The Central American region is located within the 30% of countries with the highest perception of corruption, with the exception of Costa Rica, which has a score of 54/100, placing it within the 20% of countries evaluated by Transparency International.

On the other hand, Nicaragua was the country with the highest perception of corruption in the region with a score of 19, placing it within the 10% of countries with the highest perception of corruption, followed by Honduras with a score of 23, placing it within the 25% of countries with the highest perception of corruption.

Source: Prepared by GPE/COHEP with data from Transparency International
Note: The Ranking evaluates 180 countries and the scores range from 0 to 100, indicating that the closer to 100, the better positioned a country is.








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