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LatinNews Daily - 04 August 2020

In brief: El Salvador’s economy could be the worst-hit in Central America

Ricardo Castaneda, an economist at the Instituto Centroamericano de Estudios Fiscales (Icefi), a Guatemala-based economic think-tank, has said that El Salvador’s GDP could drop by at least 10% in 2020 due to the effects of the coronavirus (Covid-19) pandemic. Castaneda predicts that El Salvador will be the worst-hit economy in Central America, as the country has the highest fiscal deficit, will have the higher fall in the tax take due to the pandemic, and will need to have the biggest increase in public spending to reactivate its economy. Castaneda also notes that El Salvador has high levels of public debt and lacks a cohesive government plan to tackle the economic impact of the pandemic. Castaneda criticised President Nayib Bukele’s recent decision to postpone the second phase of the country’s economic reopening until 20 August for not taking into account that the majority of Salvadoreans work in the informal sector and will not have an income until then. Castaneda advised that the Bukele government should introduce a solidarity tax to raise more government funds, reshape the 2021 budget to avoid spending in non-priority areas, and crack down on tax evasion, noting that the country loses US$500m per year on the evasion of value-added tax (VAT) alone.

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