Saturday 25 March 2023

Costa Rica With The Largest Deficit in Central America

Ten years ago the country boasted off a fiscal surplus.

Paying the bills


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25 March 2023 - At The Banks - BCCR

Paying the bills


This year marks a decade of the last fiscal surplus that Costa Rica had. Ever since there has been a deficit, and it has grown, worsening year by year without there being any solution, neither for increasing income nor for a reduction of expenses.

In 2008, the country had an excess of ¢30 billion colones. By the end of 2018 we will have ¢2 billion (¢ 2,021,101,800,000) deficit. This year the Costa Rican State will cost 21.6% of Gross Domestic Product (GDP), the highest value in the region, according to data from the Central American Institute of Fiscal Studies (Icefi).

The data indicates that Costa Rica is the worst, even though our neighbors not doing so great in that area. Honduras GDP cost is 21.5%, Nicaragua 19% and Panama 18.7%.

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It is essential to bear in mind that these costs are also related to the level of services provided by each State, and the social indicators of the region mark Costa Rica as a leader.

The country’s human development index ranks Costa Rica 66th in the world, behind Panama at 60, while, ahead of El Salvador in 117, Nicaragua is 124, Guatemala at 125 and Honduras at 130.

Despite this, the need to improve the country’s income, whether through tax reform and combating tax evasion, spending cuts or a healthy combination of both, is obvious.

The tax burden in the country is below the average for the region and has remained stagnant for the last three years, at 13.4% of GDP, according to the Icefi report.

The countries with the highest burden in the isthmus are Honduras with 17.8% of GDP, Nicaragua with 16.4% and El Salvador with 16%.

Analyzing all the information in the report, Costa Rica is doing things wrong: It has the most expensive State, an intermediate collection, and, by far, the worst fiscal perspective.

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If Costa Rica intends to improve its situation, it must reach some kind of social-economic pact, in which all the agents are willing to give part to solve the problem. It cannot do everything through an adjustment of the State so that the quality of the services it provides is not endangered, but neither can one expect the private sector to bear the full responsibility, especially taking into account the impact that it will have in production, consumption and employment.

Several of the Central American countries that have improved their situation have done so at the cost of cutting their investment in education and health, as is the case in El Salvador, where the importance of total spending fell by one percentage point of GDP in each.

Guatemala is another of the cases that have opted to moderate their spending to contain the deficit at the expense of not touching taxes, which has impacted on the quality of the services provided to the population.

Source: La Republica

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