Washington: The six Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) can increase the productivity of their economies and workforce and recover from the largest economic recession in their history —caused by the pandemic and exacerbated by hurricanes Eta and Iota— and move towards a strong and sustainable economic growth, according to a new World Bank study.
The report “Unleashing Central America's Growth Potential” released today, highlights that these countries can boost their economies through a series of reforms in key areas. These include reducing costs and barriers to trade; boosting investment in human capital, innovation, and physical and digital infrastructure; attracting private investment through improving business environment and the quality of institutions, and a greater inclusion of women and young people in the labor market.
The study reviewed the performance of Central America during the last three decades and found that, although between 1991 and 2017 the region’s economy grew 4.5% per year on average —besting the rest of Latin America and the Caribbean—, this economic growth was achieved with little productivity growth.
Due to rapid growth of the working-age population during that period, the increased number of workers accounted for two-thirds of the economic growth achieved. Given that a steep decline in the growth of the working-age population is expected, a further increase in productivity (defined as a greater ability of firms and the workforce to produce more and better goods and services) will be essential to sustain strong growth going forward.
"Now is the moment to rethink the future of Central America and introduce strategic reforms to benefit current and future generations with more economic opportunities and prosperity," said Michel Kerf, World Bank Director for Central America and the Dominican Republic, in a press release on Monday.
"The pandemic has significantly affected economic growth and reduced fiscal space in the region. However, the resumption of global trade and the recovery of the United States and China create opportunities to attract new domestic and foreign investments and increase the volume and value of Central American exports, which can boost sustainable and inclusive growth, with greater creation of good jobs and poverty reduction," Kerf stated.
The pandemic pushed Central America into its greatest economic contraction. However, global trade of goods has recovered, prices of commodities are stable, remittances are higher than a year ago and the regionalization of global value chains towards North America is accelerating, which bodes well for the Central American economies.
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