El Salvador: Fiscal deficit, Covid-19 and Growth

Abstract

For years in the country the issue of the fiscal deficit has dominated the economic debate in the media. From time to time, other topics such as remittances and pensions are touched upon, but their rating does not compare with that of the fiscal deficit. Threatening reports are frequently mentioned, such as when risk rating agencies warn of an increase in country risk in relation to the interest rates that the Government has to pay for more debt, internal and external, or that "the card has already been struck of the banks ”to buy more LETES. It is possible that in 2021 the fiscal deficit will approach 10% of GDP, and the total debt will approach 100% of GDP; they could even exceed these percentages. These figures are normally considered alarming, especially for a small economy, and the Discussion to mitigate its impacts tends to revolve around actions by which taxes and / or State expenditures are increased or decreased. The expenses associated with the pandemic have intensified references to the dangers and pressures derived from the fiscal deficit and public debt, and have once again become the preferred topic in the country's economic debate. This article points out that, however, this is not El Salvador's most important economic problem, but rather a manifestation only of a more serious problem, the lack of economic growth. For the same reason, it is shown that the solution to the fiscal deficit is first to solve the health problem created by the pandemic, unemployment, migration, and economic recovery; from the achievement of sustainable and inclusive economic growth.