Central America is seeing its debt levels gradually creeping higher and even though it is still poised for another year of positive economic growth, countries in the region need to explore ways to keep it sustainable.
“The region’s economy is expected to rise 4% in 2018, compared to 2% growth in all of Latin America,” Panama Finance Minister Dulcidio De La Guardia said at LatinFinance’s 4th Central America Finance and Investment Forum in Panama City on Thursday.
Central America has enjoyed a stretch of healthy economic growth, even as economies in Latin America have struggled. In 2016, as Latin America grappled with negative growth, Central America saw its economy expand 3.4%, according to the International Monetary Fund (IMF).
“Central America’s financing and debt capacity is close to its limits,” said Gregory Salcedo Llibre, the head of the stock exchange in the Dominican Republic. “Countries in the region should look to implement more private-public partnerships (PPPs) to help promote infrastructure spending.”
Salcedo told LatinFinance that the region “is still in diapers” when it comes to public-private partnerships. “Panama and Dominican Republic lead the region in growth and are looking at legislation to regulate this mechanism,” he said.
Many countries in the region have made a push to increase private investments in the infrastructure sector. Panama has been one of the region’s leaders. El Salvador, Guatemala and Honduras have also implemented PPP projects.
Alejandro Santos, an advisor with the IMF, said some countries should take advantage of the growth period to address fiscal deficits or to lower debt levels.
“There is still time,” he said. “The steps don’t have to be drastic or abrupt, they should be gradual.”
Santos said some countries in Central America were in solid fiscal shape, pointing to Panama and saying the country’s debt and fiscal deficit were at manageable levels.