Wednesday, 05 January 2022 02:04

World Bank says that seeing Central American countries as a bloc is key to boosting their growth potential

Written by Evelyn Alas

According to the World Bank (WB), Central America comprises a diverse set of countries, including two upper middle-income countries (Costa Rica and Panama), two of the poorest countries in Latin America and the Caribbean (Honduras and Nicaragua) and two middle-income economies (Guatemala and Panama, El Salvador).

Low productivity and weak institutions are behind the modest economic growth in recent years. Both common characteristics and notable differences among Central American countries provide fertile ground for exploiting complementarities.

Common characteristics include: strong economic ties with the United States; high labor mobility between countries and high levels of informality; the relatively poor quality of infrastructure, including border crossings; a concentration of poverty in rural areas, with low provision of public services, affecting particularly vulnerable groups such as indigenous and Afro-descendant populations; and high exposure to natural disasters and economic and financial volatility. The economies of each of the six countries in the subregion were strongly affected by Coronavirus disease 2019 (COVID-19).

To restore economic activity in the short term and increase potential output in the long term, Central America should launch coordinated policy actions in five areas: global value chain (CGV); trade integration; formalization; volatility management; and remittances (for northern Central American countries). The findings and recommendations emerging from the analyses are presented in the report.